International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 845
Cash
of recognized
presented on
netting
collateral
financial assets
Amounts
the balance
arrange-
(received)
Net
At 31 December 2014
(liabilities)
set off
sheet
ments
pledged
amount
Derivative assets
11,515 (2,383) 9,132
(1,164) (458)
7,510
Derivative liabilities
(8,971) 2,383 (6,588)
1,164
–
(5,424)
Trade receivables
10,502 (6,080) 4,422 (485) (145)
3,792
Trade payables
(9,062) 6,080 (2,982) 485
–
(2,497)
BP applied IAS 39 in these financial statements but the disclosure requirements in
respect of offsetting are unchanged under IFRS 9.
7.4.3
Assets and liabilities
IAS 1 does not prescribe the order or format in which items are to be presented on the
face of the statement of financial position, but states that the following items relating to
financial instruments, are sufficiently different in nature or function to warrant separate
presentation: [IAS 1.54, 57]
• trade and other receivables;
• cash and cash equivalents;
• other financial assets;
• trade and other payables;
• provisions; and
• other financial liabilities.
IAS 1 does not list the loss allowance in respect of financial assets measured at amortised
cost as an amount to be separately presented on the face of the statement.24 Rather, it is
an integral part of the amortised cost measurement. [IAS 1.33]. However, additional line
items, headings and subtotals should be presented on the face of the statement of
financial position when the size, nature or function of an item or aggregation of similar
Financial
instruments:
Presentation and disclosure 4265
items is such that separate presentation is relevant to an understanding of the entity’s
financial position. Additional line items may also be presented by disaggregating the line
items noted above. [IAS 1.55, 57(a)].
Any additional subtotals presented should: [IAS 1.55A]
• comprise line items made up of amounts recognised and measured in accordance
with IFRS;
• be presented and labelled in a manner that makes the line items that constitute the
subtotal clear and understandable;
• be consistent from period to period, as required by IAS 1 (see Chapter 3 at 4.1.4);
and
• not be displayed with more prominence than the subtotals and totals required in
IFRS for the statement of financial position.
The judgement on whether additional items are presented separately should be based
on an assessment of: [IAS 1.58]
• the nature and liquidity of assets;
• the function of assets within the entity; and
• the amounts, nature and timing of liabilities.
The descriptions used and the ordering of items or aggregation of similar items may be
amended according to the nature of the entity and its transactions, to provide
information that is relevant to an understanding of the entity’s financial position. For
example, a financial institution may amend the descriptions to provide information that
is relevant to the operations of a financial institution. [IAS 1.57(b)]. Consequently entities
need not necessarily use categorisations that are the same as the measurement
categories in IFRS 9, something that was stated explicitly in IAS 39.25
However, the use of different measurement bases for different classes of assets suggests
that their nature or function differs and, therefore, that they should be presented as
separate line items. [IAS 1.59]. For example, financial assets measured at amortised cost
would normally be presented separately from debt instruments measured at fair value
through other comprehensive income, particularly by a financial institution.
As noted at 7.1.4 above, IFRS 9 explicitly states that it does not address whether
embedded derivatives should be presented separately in the statement of financial
position. [IFRS 9.4.3.4]. Although the guidance in the previous paragraph suggests that
embedded derivatives will often be presented separately on the face of the statement
of financial position, this will not always be the case, e.g. for the ‘puttable instruments’
shown in Example 50.17 at 7.4.6 below, which is based on IAS 32.
Further sub-classifications of the line items presented should be disclosed, either on the
face of the statement of financial position or in the notes, classified in a manner
appropriate to the entity’s operations. [IAS 1.77]. The detail provided in sub-
classifications will depend on the size, nature and function of the amounts involved and
will vary for each item. For example, receivables should be disaggregated into amounts
receivable from trade customers, receivables from related parties and other amounts.
Assets included within receivables that are not financial instruments, such as many
prepayments, should also be shown separately. [IAS 1.78(b)].
4266 Chapter 50
The presentation in the statement of financial position of liabilities arising from supply-
chain financing arrangements is an area where particular judgement is necessary. This
issue is discussed in more detail in Chapter 48 at 6.5.
7.4.4
The distinction between current and non-current assets and liabilities
For entities presenting a statement of financial position that distinguishes between
current and non-current assets and liabilities, the requirements of IAS 1 for determining
whether items are classified as current or non-current are dealt with in Chapter 3 at 3.1.1
to 3.1.4. This section deals with five interpretive issues that have arisen in applying those
requirements to financial instruments.
7.4.4.A Derivatives
IAS 1 requires assets and liabilities held ‘primarily for the purpose of trading’ to be
classified as current. [IAS 1.66, 69]. Where a derivative is not designated as a hedging
instrument in an effective hedge, it is classified by IFRS 9 as held for trading irrespective
of the purpose for which it is held (see Chapter 44 at 4). [IFRS 9 Appendix A]. This does not
mean that any derivative not designated as a hedging instrument in an effective hedge
must always be classified as current because the IFRS 9 classification is for measurement
purposes only. Whilst a derivative held primarily for trading purposes should be presented
as current regardless of its maturity date, other derivatives should be classified as current
or non-current on the basis of their settlement date. Accordingly, derivatives that have
maturities of less than 12 months from the end of the reporting period, or derivatives that
have maturities of more than 12 months from the end of the reporting period but are
expected to be settled within 12 months should be presented as a current asset or liability.
Conversely, derivatives that have a maturity of more than twelve months and are
expected to be held for more t
han twelve months after the reporting period should be
presented as non-current assets or liabilities. [IAS 1.BC38I, BC38J].
Although the Interpretations Committee and the IASB have considered how to split into
current and non-current components the carrying amount of derivatives with staggered
payment dates, both have decided not to address this issue. Consequently, entities will
need to apply judgement in determining an appropriate split. For example, the current
component of a five-year interest rate swap with interest payments exchanged quarterly
could be determined as the present value of the net interest cash flows of the swap for
the forthcoming twelve months after the reporting date.26
7.4.4.B Convertible
loans
Where an entity issues convertible bonds that are accounted for as an equity component
(i.e. the holders’ rights to convert the bonds into a fixed number of the issuer’s equity
instruments) and a liability component (i.e. the entity’s obligation to deliver cash to
holders at the maturity date), the issue arises whether the liability component should be
classified as current or non-current if the conversion option may be exercised at any
time before maturity. IAS 1 now explains that any terms of a liability which could, at the
option of the counterparty, result in its settlement by the issue of equity instruments do
not affect its classification. [IAS 1.69(d)]. In other words, provided the entity could not be
required to settle the liability component in cash within one year, it would be classified
Financial
instruments:
Presentation and disclosure 4267
as non-current even if the holder could exercise the conversion option (thereby
requiring the liability component to be derecognised) within one year.
7.4.4.C
Long-term loans with repayment on demand terms
IAS 1 requires liabilities for which the entity does not have an unconditional right to
defer settlement for at least twelve months after the reporting date to be classified as
current. [IAS 1.69(d)]. Some long-term loan agreements, particularly in Hong Kong,
contain clauses allowing the lender an absolute right to demand repayment at any
time before maturity. Historically, borrowers often approached these clauses in the
same way as more conventional covenants because the risk of exercise was
considered very low (except in situations that might adversely affect the borrower’s
ability to repay). Consequently, the clause would result in classification of a loan as
current only if such adverse matters relating to the borrower existed at the end of the
reporting period.27
However, in 2010, the Interpretations Committee addressed this situation, noting that
the requirements of IAS 1 are clear, i.e. such terms should always result in the loan being
classified as current.28
7.4.4.D
Debt with refinancing or roll over agreements
IAS 1 states that if an entity expects, and has the discretion, to refinance or roll over an
obligation for at least twelve months after the reporting period under an existing loan
facility, the obligation should be classified as non-current even if it would otherwise be
due within a shorter period. [IAS 1.73]. The Interpretations Committee and IASB have
been considering the circumstances in which this guidance should apply for some time.
One particular area of concern has been the classification of liabilities arising from a
short-term commercial paper programme that is backed by a long-term loan facility. In
these arrangements the commercial paper is typically issued for a term of 90 or
180 days; the issuer will normally attempt to issue new instruments to replace those
maturing; and a bank (often the sponsor or manager of the scheme) will have provided
the entity with a longer-term loan facility that may be drawn down if any issue of
commercial paper is under-subscribed. In this situation, prima facie the entity has in
place an agreement (the loan facility) that can be used to refinance the short-term
liability (from the commercial paper) on a long-term basis and might consider classifying
the liability arising from commercial paper as non-current.
However, in January 2011 after analysing outreach requests, the Interpretations
Committee noted that there is no charted diversity in practice where an agreement is
reached to refinance an existing borrowing with a different lender – here paragraph 73
is not considered applicable, whatever the terms of the new facility, and the existing
borrowing would be classified as current. Therefore the commercial paper liabilities
should be classified as current.29 In February 2015 the IASB proposed an amendment to
IAS 1 that would remove the reference in paragraph 73 to ‘refinance’ and bring the
wording of the standard into line with the committee’s view on how it should be (and is
being) applied. At the time of writing, the IASB was expecting to determine the direction
of this project in the second half of 2018.
4268 Chapter 50
7.4.4.E Loan
covenants
If an entity does not have an unconditional right to defer settlement of the liability for at
least twelve months after the reporting period the liability should be reported as current.
[IAS 1.69(d)]. Further, when an entity breaches a provision of a long-term loan arrangement
(commonly called a covenant) on or before the end of the reporting period with the effect
that the liability becomes payable on demand, the liability should be classified as current
because, at the end of the reporting period, it does not have an unconditional right to defer
settlement for at least twelve months after that date. [IAS 1.73]. The application of these
requirements, including in some commonly occurring situations, and proposals issued by
the IASB in February 2015 to clarify these requirements are discussed in more detail in
Chapter 3 at 3.1.4 and 6.2.3 respectively. At the time of writing, the IASB was expecting to
determine the direction of this project during the second half of 2018.
7.4.5 Equity
IAS 1 explains that the face of the statement of financial position should include line
items that present the following amounts within equity: [IAS 1.54(q), (r)]
• non-controlling interests, presented within equity; and
• issued capital and reserves attributable to owners of the parent.
As for assets and liabilities, additional line items, headings and subtotals should be
presented on the face of the statement of financial position when such presentation is
relevant to an understanding of the entity’s financial position and additional line items
may also be presented by disaggregating the line items noted above. [IAS 1.55]. Further sub-
classifications of the line items presented should be disclosed, either on the face of the
statement of financial position or in the notes, classified in a manner appropriate to the
entity’s operations. [IAS 1.77]. The detail provided in the sub-classifications will depend on
the size, nature and function of the amounts involved and will vary for each item. For
example, equity capital and reserves should be disaggregated into various classes, such as
paid-in capital, share premium and reserves. [IAS 1.78(e)]. A description of the nature and
; purpose of each reserve within equity should also be provided. [IAS 1.79(b)].
For each class of share capital, the following information should be disclosed, either on
the face of the statement of financial position or in the notes: [IAS 1.79(a)]
• the number of shares authorised;
• the number of shares issued and fully paid, and issued but not fully paid;
• par value per share, or that the shares have no par value;
• a reconciliation of the number of shares outstanding at the beginning and at the
end of the period;
• the rights, preferences and restrictions attaching to that class including restrictions
on the distribution of dividends and the repayment of capital;
• shares in the entity held by the entity or by its subsidiaries (treasury shares
[IAS 32.34]) or associates; and
• shares reserved for issue under options and contracts for the sale of shares,
including the terms and amounts.
Financial
instruments:
Presentation and disclosure 4269
An entity without share capital, such as a partnership or trust, should disclose
equivalent information, showing changes during the period in each category of equity
interest, and the rights, preferences and restrictions attaching to each category of
equity interest, [IAS 1.80], (assuming of course it has actually issued instruments that
meet the definition of equity).
Where puttable financial instruments and obligations arising on liquidation (see
Chapter 43 at 4.6) are reclassified between financial liabilities and equity, entities are
required to disclose the amount reclassified into and out of each category and the timing
and reason for that reclassification. [IAS 1.80A]. This requirement was introduced by the
amendments to IAS 32 and IAS 1 dealing with the classification of puttable financial
instruments and obligations arising on liquidation.
7.4.6
Entities whose share capital is not equity
Continuing Examples 50.14 and 50.15 at 7.1.5 above, the following examples illustrate
corresponding statement of financial position formats that may be used by entities such
as mutual funds that do not have equity as defined in IAS 32, or entities such as co-
operatives whose share capital is not equity as defined in IAS 32 because the entity has
an obligation to repay the share capital on demand.