The Financial Reporting Workshop Kisumu November 20, 2014

1. The Financial Reporting Workshop Kisumu November 20, 2014 The application of IFRS: IFRS basic principles ICPAK

2. The application of IFRS: IFRS basic principles Content: The framework; ICPAK

3. Framework sets out agreed concepts that underlie IFRS financial reporting the objective of general purpose financial reporting qualitative characteristics elements of financial statements recognition measurement presentation and disclosure Other concepts all flow from the objective The IASB’s Conceptual Framework 3 3 3 ICPAK

4. Framework-based understanding 4 • Relates IFRS requirements to the concepts in the Conceptual Framework • Reasons why some IFRS requirements do not maximize those concepts (e.g. application of the cost constraint or inherited requirements) Principles Rules Concepts ICPAK

5. a cohesive understanding of IFRSs Framework facilitates consistent and logical formulationof IFRSs a basis forjudgementin applying IFRSs Framework established the concepts that underlie the estimates, judgements and models on which IFRS financial statements are based a basis for continuously updating IFRS knowledge and IFRS competencies Framework-based understanding provides… 5 ICPAK

6. Does the Framework help me apply IFRSs? Yes, Framework is in IAS 8 hierarchy Preparers use the Framework to make the judgements that are necessary to apply IFRSs Auditors and regulators assess those judgements Investors, lenders and others consider those judgements when using IFRS financial information to inform their decisions Framework’s role in applying IFRSs 6 6 ICPAK

7. Use judgement to develop a policy that results in relevant information that faithfully represents (ie complete, neutral and error free) Hierarchy: 1st IFRS dealing with similar and related issue 2nd Framework definitions, recognition crit. Etc. Can also in parallel refer to GAAPs with similar Framework If no specific IFRS requirement 7 7 ICPAK

8. Framework-based approach would ask: What is the economics of the phenomenon (e.g. transaction or event)? What relevant information using the accrual basis of accounting faithfully present that economic phenomenon to inform decisions of investors and lenders (potential and existing)? Is there anything in IFRSs that prevents me from providing that information? In other words, if no IFRS requirement… 8 8 ICPAK

9. The application of IFRS: IFRS basic principles Content: The framework; ICPAK

10. Objective and Scope Objective To prescribe the basis for presentation of general purpose financial statements to ensure comparability both with the entity's financial statements of previous periods and with the financial statements of other entities. Scope Applies to all general purpose financial statements prepared and presented in accordance with IFRS. However, the scope of the standard Excludes the presentation of ‘interim financial statements’ which is Covered by IAS 34 – Interim Financial Reporting ICPAK

11. Purpose of Financial Statements • To provide information about: • Financial position • Financial performance • Cash flows • Management’s stewardship of resources entrusted to them • To meet these objectives financial statements provide • information about an entity's assets, liabilities, equity, • income & expenses, including gains & losses, other changes • in equity & cash flows. • The above assists users in predicting the entity's future • cash flows (timing & certainty). ICPAK

12. Components of financial statements • A complete set of financial statements comprises: • a statement of financial position as at the end of the financial year i.e. a balance sheet • a statement of comprehensive income for the period i.e. an income statement • a statement of changes in equity showing either • all changes in equity or • changes in equity other than those arising from with equity • holders acting in their capacity as equity holders; • a cash flow statement; and • notes, comprising a summary of significant accounting policies and other explanatory notes. • Note: Reports and statements presented outside FS are outside the scope of IFRSs eg financial review by management, environmental reports. ICPAK

13. Overall Considerations • The overall considerations of IAS 1 can be categorized into: • Fair presentation and compliance with IFRSs • Going Concern • Accrual basis of accounting • Materiality and aggregation • Offsetting • Frequency of reporting • Comparative information • Consistency of presentation ICPAK

14. Structure and Content The following are covered under the structure and content of financial statements: Identification Statement of financial position (balance sheet) Statement of comprehensive income (income statement) Statement of changes in equity Statement of cash flows Notes ICPAK

15. Structure and Content • Identification • The financial statements need to be clearly identified and • distinguished from other information in the same document. • Name of the reporting entity • Whether the financial statements are of an individual entity or group • Period covered by the financial statements • Date at the end of the reporting period • Presentation currency • Level of rounding used ICPAK

16. Structure and Content • 2. Statement of financial position – balance sheet • As a minimum, the following must be disclosed: • Property, plant and equipment • Investment property • Intangible assets • Financial assets • Investments accounted for using the equity method of accounting • Biological assets • Inventories • Trade and other receivables • Cash and cash equivalents • Total assets held for sale • Trade and other payables • Provisions • Financial liabilities • Current tax • Deferred tax • Non-controlling interests, presented within equity • Issued capital and reserves attributable to owners of the parent ICPAK

17. Structure and Content • 2. Statement of financial position – balance sheet (continued) • Additional line items and headings can be presented. • The balance sheet can be presented in two formats: • current/non-current • assets/liabilities • The assets/liabilities format can only be used if this format provides information that is reliable and more relevant. However, all assets and liabilities must be presented in order of liquidity. ICPAK

18. Structure and Content • 2. Statement of financial position – balance sheet (continued) • Current liabilities: An entity shall classify a liability as current when: • It expects to settle the liability in its normal operating cycle • It holds the liability primarily for the purpose of trading • The liability is due to be settled within 12 months after the reporting date • The entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period • All other liabilities are classified as non-current. ICPAK

19. Structure and Content • 2. Statement of financial position – balance sheet cont.. • Information that can be presented either on the balance sheet or in the notes: • Property, plant and equipment disaggregated into classes in accordance with IAS 16 • Receivables disaggregated into amounts receivable from trade customers, related parties, prepayments and other amounts • Inventories are disaggregated into classes in accordance with IAS 2 • Provisions disaggregated into provisions for employee benefits and other items • Equity capital and reserves disaggregated into various classes, such as paid-up capital, share premium and reserves ICPAK

20. Structure and Content • 2. Statement of financial position – balance sheet cont… • Information that can be presented either on the balance sheet, statement of changes in equity or in the notes: • For each class of share capital • Number of shares authorised • Number of shares issued and fully paid, and issued but not fully paid • Par value of shares, or that the shares have no par value • A reconciliation of the number of shares outstanding at the beginning and end of the period • Rights, restrictions and preferences attaching to each class • Shares in the entity held by the entity, by its subsidiaries and associates • Shares reserved for issue under options and contracts • Nature and purpose of each reserve within equity ICPAK

21. Structure and Content • 3. Statement of comprehensive income – income statement • As a minimum, the following must be disclosed: • Revenue • Finance costs • Share of profit/loss of associates and joint ventures accounted for using the equity method • Tax expense • A single amount comprising: • The post tax profit/loss of discontinued operations • The post tax gain/loss on the measurement to fair value less costs to sell or on the disposal of assets consisting of discontinued operations • Profit or loss ICPAK

22. Structure and Content • 3. Statement of comprehensive income – income statement • Information to be presented in the income statement or notes: • Material items need to be disclosed separately • Impairment provisions • Restructuring costs • Disposals of property, plant and equipment • Disposals of investments • Discontinued operations • Litigation settlements • Reversals of provisions • Expenses need to be presented using either of the following classifications: • By nature i.e purchases, depreciation, employment costs • By function i.e distribution costs, cost of sales, administrative costs ICPAK

23. Structure and Content • 4. Statement of changes in equity • As a minimum, the following must be disclosed: • Total comprehensive income showing separately amounts attributable to the owners and to non-controlling interests (minority) • For each component of equity, the effects of retrospective adjustments • For each component of equity, a reconciliation between the carrying amount at the beginning and end of the period, separately disclosing changes from: • Profit or loss • Each item of comprehensive income • Transactions with owners in their capacity as owners • Dividends recognised as distributions to owners 5. Statement of cash flows Dealt with by IAS 7 on Cash Flow Statements. ICPAK

24. Structure and Content • 6. Notes • The notes have to: • Present information about the basis of preparation and specific accounting policies • Disclose the information required by IFRSs that is not presented elsewhere in the financial statements • Provide information that is not presented elsewhere in the financial statements, but is relevant to understanding them. • IAS 1 requires the notes to be presented in a systematical manner with cross references to the income statement, balance sheet, statement of changes in equity and cash flow statement. ICPAK

25. Structure and Content 6. Notes Disclosure of accounting policies: Significant accounting estimates, assumptions and judgements have to be disclosed. Estimates and assumptions: Biological assets: In arriving at the fair valuation of biological assets, the management estimate the success rate of planting at 78%. Based on the managements past experience the success rate should not fall below 75%. Should the success rate fall by 5% from the estimate assumed by the management, the fair valuation of biological assets would decrease by Shs. XX. Judgements: Revenue recognition: The company enters into contracts for most of its sales made. As stipulated in the contracts, the buyer has the right to return the goods, within 100 days from the date of delivery, in the event of dissatisfaction with regards to the quality, provided that such a complaint is justified. In such an event, the company shall replace the spoilt plants to the ratio of one to one (1:1). Based on the company management's past experience when undertaking similar contracts, the dissatisfaction rate cannot be established due to factors beyond their control. Accordingly, the revenue on the said transactions has been recognised. ICPAK

26. Capital Disclosures • For financial periods beginning on or after 1 January 2007, entities need to disclose information to enable users to evaluate the entity’s objectives, policies and processes for managing capital. • Qualitative information about its objectives, policies and processes for managing capital, including: • A description of what it manages as capital • Externally imposed capital requirements: nature of these requirements and how these are incorporated into the management of capital • How the entity is meeting its objectives for managing capital • Summary quantitative data about what it manages as capital e.g. ratio’s • Any changes in the above from the previous period • Whether the entity complied with the externally imposed capital requirements and the consequences of non-compliance, if any ICPAK

27. Other Disclosures • Notes: • amounts of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution and the related amount per share • any amounts of cumulative preference dividends not recognised • Anywhere: • Domicile and legal form • Country of incorporation • Address of its registered office • Address of its principal place of business (if different from above) • Description of the nature of the entity’s operations and its principal activities • The name of the parent and ultimate parent of the group. ICPAK

28. The application of IFRS: IFRS basic principles Content: The framework; ICPAK

29. Objective and scope of IAS 8 • Selecting and applying accounting policies • Accounting for changes in: • Accounting policies • Accounting estimates • Corrections of prior period errors ICPAK

30. Accounting policies • Accounting policies • Specific principles, bases, conventions, rules and practices applied by an entity in preparing and presenting financial statements ICPAK

31. Selection and application of accounting policies • Accounting policy determined by • Applying a specific IFRS • Considering any relevant implementation guidance • In absence of a specific IFRS • Use judgement to develop an accounting policy that results in relevant and reliable information • First, refer to IFRSs dealing with similar and related issues and second, to framework • Consider pronouncement of other setters or industry practices if consistent with above ICPAK

32. Consistency of accounting policies • Select and apply accounting policy consistently for similar transactions, other events and conditions • Example: equity method for all jointly controlled entities • May adopt different policies • When an IFRS requires or permits categorisation of items for which different policies may be appropriate • But accounting policy selected and applied should be consistent to each category ICPAK

33. Disclosure – Judgment and estimation • Disclose the judgements made by management • that have the most significant effect • Disclose information about key assumptions • concerning the future, and other key sources of estimation uncertainty • disclose for those assets and liabilities • their nature; and • their carrying amount at the end of the reporting period ICPAK

34. Changes in accounting policies • Consistency is important • Change an accounting policy only if the change: • is required by an IFRS; or • results in the financial statements providing reliable and more relevant information ICPAK

35. Applying changes in accounting policies Changes in accounting policies Application of a standard or interpretation Voluntary change in accounting policy No Apply change retrospectively Specific transitional provisions Yes Apply specific transitional provisions ICPAK

36. Applying changes in accounting policies (continued) Retrospective application is impracticable Period-specific effects Cumulative effect at the beginning of the current period Financial statements are adjusted as at the beginning of the earliest period from which retrospective adjustment is practicable Apply new accounting policy as at the beginning of the earliest period for which retrospective application is practicable ICPAK

37. Retrospective application - Impracticability • Use only information that • Provides evidence of circumstances at the time; and • Would have been available when the financial statements of that period were authorised for issue • If a significant estimate requires the use of information that does not meet these criteria then • Retrospective application is impracticable ICPAK

38. Changes in accounting policies –Disclosure • When an entity restates, IAS 1 requires an entity to prepare an additional statement of financial position as at the beginning of the comparative period • When initial application of a standard or an interpretation has an effect, disclose • Change in accordance with transitional provisions • For current period and each prior period presented the amount of the adjustment for each financial line item affected and for basic and diluted earnings per share, if IAS 33 applies • The amount of the adjustment relating to periods before those presented, to the extent practicable • If retrospective application is required but impracticable, the circumstances and a description • Need not repeat these disclosures in subsequent periods ICPAK

39. Changes in accounting policies –Disclosure (continued) • When a voluntary change: • Has an effect on the current period or any prior period • Would have such an effect except that it is impracticable to determine the amount of the adjustment; or • Might have an effect on future periods • Then we are required to disclose: • Why the change provides reliable and more relevant information • For current period and each prior period presented the amount of the adjustment for each line item affected • The amount of the adjustment relating to periods before those presented • If retrospective application is impracticable, the circumstances and a description • Need not repeat these disclosures in subsequent periods ICPAK

40. Changes in accounting policies -Disclosure (continued) • When not applying a new IFRS that has been issued but is not yet effective, disclose • This fact • Known or reasonably estimable information relevant to assessing the possible impact that application of the new IFRS will have on the financial statements in the period of initial application ICPAK

41. Changes in accounting estimates • Include the effect of a change in an accounting estimate in net profit or loss in • The period of the change, if the change affects the period only, or • The period of the change and future periods, if the change affects both • If difficult to distinguish between change in accounting estimate and in accounting policy • Treat the change as a change in accounting estimate ICPAK

42. Changes in accounting estimates (continued) • Disclose the nature and amount of a change in an estimate: • That has an effect in the current period, or • Is expected to have an effect in the future periods • If impracticable to quantify the amount, disclose that fact ICPAK

43. Prior period errors • Errors in respect of recognition, measurement, presentation or disclosure • Prior period errors • Omission and misstatements for one or more prior periods arising from a failure to use, or misuse of, reliable information • Such errors include • The effects of mathematical mistakes in applying accounting policies • Oversights or misinterpretations of facts • Fraud ICPAK

44. Correction of material prior period errors • Correct material prior period errors retrospectively in the first set of financial statements authorised for issue after discovery by: • Restating the comparative amounts for the prior period presented in which the error occurred; or • If the error occurred before the earliest prior period presented, restating the opening balances for the earliest prior period presented ICPAK

45. Correction of material prior period errors (continued) Retrospective application is impracticable Period-specific effects Cumulative effect at the beginning of the current period Restate the opening balances of assets and liabilities and equity for the earliest period for which retrospective restatement is practicable Restate comparative information to correct the error prospectively from the earliest date practicable Revised IAS 1 requirements ICPAK

46. Disclosure of prior period errors correction • When an entity restates, IAS 1 requires an entity to prepare an additional statement of financial position as at the beginning of the comparative period • Extensive disclose requirements • Disclose the nature of the prior period error • For each prior period presented the amount of the correction • The amount of the correction at the beginning of the earliest prior period presented • If retrospective restatement is impracticable, the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected • Need not repeat these disclosures in subsequent periods ICPAK

47. The application of IFRS: IFRS basic principles Content: The framework; ICPAK

48. Objective and scope • The objective of the Standard is to prescribe: • When an entity should adjusts its financial statements for events after the balance sheet date. • The disclosures that an entity should give about the date when the financial statements were authorizedfor issue and about events after the balance sheet date. • Scope • This standard shall be applied in the accounting for, and disclosure of, events after the balance sheet date. ICPAK

49. Definitions • Events after the balance sheet date are those events, favorable and unfavorable, that occur between the balance sheet date and the date when the financial statements are authorized for issue. Two types of events can be identified: • Those that provide evidence of conditions that existed at the balance sheet date (adjusting events after the balance sheet date); and • Those that are indicative of conditions that arose after the balance sheet date (non-adjusting events after the balance sheet date). ICPAK

50. Start of the reporting period Events after the balance sheet date Financial statements authorised Balance sheet date Information made public Shareholder meeting Events covered by the financial statements Events after the balance sheet date covered by IAS 10 Events after the balance sheet date not covered by IAS 10 ICPAK