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Commission Regulation (EU) 2023/1803 of 13 August 2023 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council (Text with EEA relevance)

Type Regulation

Publication 2023-09-26

Last updated 2026-03-08

State In force

Department European Commission, FISMA

Source EUR-Lex

articles 5

Reform history JSON API

99 An entity shall classify an asset as current when (see paragraphs B94–B95):

(a) it expects to realise the asset, or intends to sell or consume it, in its normal operating cycle;

(b) it holds the asset primarily for the purpose of trading;

(d) the asset is cash or a cash equivalent (as defined in IAS 7), unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period.

100An entity shall classify all assets other than those specified in paragraph 99 as non-current.

Current liabilities

101 An entity shall classify a liability as current when:

(a) it expects to settle the liability in its normal operating cycle (see paragraphs B96 and B107–B108);

(b) it holds the liability primarily for the purpose of trading (see paragraph B97);

(c) the liability is due to be settled within 12 months after the reporting period (see paragraphs B97–B98 and B107–B108); or

(d) it does not have the right at the end of the reporting period to defer settlement of the liability for at least 12 months after the reporting period (see paragraphs B99–B108).

102An entity shall classify all liabilities other than those specified in paragraph 101 as non-current.

Items to be presented in the statement of financial position or disclosed in the notes

103 An entity shall present in the statement of financial position line items for:

(a) property, plant and equipment;

(b) investment property;

(d) goodwill;

(e) financial assets (excluding amounts shown under (g), (j) and (k));

(f) portfolios of contracts within the scope of IFRS 17 that are assets, disaggregated as required by paragraph 78 of IFRS 17;

(g) investments accounted for using the equity method;

(h) biological assets within the scope of IAS 41 Agriculture;

(i) inventories;

(j) trade and other receivables;

(k) cash and cash equivalents;

(l) the total of assets classified as held for sale and assets included in disposal groups classified as held for sale in accordance with IFRS 5;

(m) trade and other payables;

(n) provisions;

(o) financial liabilities (excluding amounts shown under (m) and (n));

(p) portfolios of contracts within the scope of IFRS 17 that are liabilities, disaggregated as required by paragraph 78 of IFRS 17;

(q) liabilities and assets for current tax, as defined in IAS 12;

(r) deferred tax liabilities and deferred tax assets, as defined in IAS 12; and

(s) liabilities included in disposal groups classified as held for sale in accordance with IFRS 5.

104 An entity shall present in the statement of financial position:

(a) non-controlling interests; and

(b) issued capital and reserves attributable to owners of the parent.

105Paragraphs B109–B111 set out requirements on how an entity uses its judgement to determine whether to present additional line items in the statement of financial position or disclose items in the notes.

106Subject to paragraph 96, this Standard does not prescribe the order or format in which an entity presents items in the statement of financial position. In addition, 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 a useful structured summary of the entity’s assets, liabilities and equity. For example, a financial institution may amend the descriptions in paragraph 103 to provide a useful structured summary of the assets, liabilities and equity of a financial institution.

STATEMENT OF CHANGES IN EQUITY

Information to be presented in the statement of changes in equity

107 An entity shall present a statement of changes in equity as required by paragraph 10. The statement of changes in equity shall include:

(a) total comprehensive income for the reporting period, showing separately the total amounts attributable to owners of the parent and to non-controlling interests;

(b) for each component of equity, the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8; and

(c) for each component of equity, a reconciliation between the carrying amount at the beginning and the end of the period, separately (as a minimum) presenting changes resulting from:
(i) profit or loss;
(ii) other comprehensive income; and
(iii) transactions with owners in their capacity as owners, showing separately contributions by and distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of control.

108IAS 8 requires retrospective adjustments for changes in accounting policies, to the extent practicable, except when the transition requirements in another IFRS Accounting Standard require otherwise. IAS 8 also requires restatements to correct errors to be made retrospectively, to the extent practicable. Retrospective adjustments and retrospective restatements are not changes in equity, but they are adjustments to the opening balance of retained earnings, except when IFRS Accounting Standards require retrospective adjustment of another component of equity. Paragraph 107(b) requires an entity to present in the statement of changes in equity the total adjustment to each component of equity resulting from changes in accounting policies and, separately, from corrections of errors. An entity shall present these adjustments for each prior reporting period and the beginning of the period.

Information to be presented in the statement of changes in equity or disclosed in the notes

109 For each component of equity an entity shall either present in the statement of changes in equity or disclose in the notes an analysis of other comprehensive income by item (see paragraph 107(c)(ii)).

110 An entity shall either present in the statement of changes in equity or disclose in the notes the amount of dividends recognised as distributions to owners during the reporting period, and the related amount of dividends per share.

111In paragraph 107, the components of equity include, for example, each class of contributed equity, the accumulated balance of each class of other comprehensive income and retained earnings.

112Changes in an entity’s equity between the beginning and the end of the reporting period reflect the increase or decrease in its net assets during the period. Except for changes resulting from transactions with owners in their capacity as owners (such as equity contributions, reacquisitions of the entity’s own equity instruments and dividends) and transaction costs directly related to such transactions, the overall change in equity during a period represents the total amount of income and expenses, including gains and losses, generated by the entity’s activities during that period.

NOTES

Structure

113 An entity shall disclose in the notes:

(a) information about the basis of preparation of the financial statements (see paragraphs 6A–6N of IAS 8) and the specific accounting policies used (see paragraphs 27A–27I of IAS 8);

(b) information required by IFRS Accounting Standards that is not presented in the primary financial statements; and

(c) other information that is not presented in the primary financial statements, but is necessary for an understanding of any of them (see paragraph 20).

114 An entity shall, as far as practicable, present notes in a systematic manner (see paragraph B112). In determining a systematic manner, the entity shall consider the effect on the understandability and comparability of its financial statements. An entity shall cross-reference each item in the primary financial statements to any related information in the notes. If amounts disclosed in the notes are included in one or more line items in the primary financial statements, an entity shall disclose in the note the line item(s) in which the amounts are included.

115 An entity may disclose notes providing information about the basis of preparation of the financial statements and specific accounting policies used in a separate section of the financial statements.

116 If not disclosed elsewhere in information published with the financial statements, an entity shall disclose in the notes:

(a) the domicile and legal form of the entity, its country of incorporation and the address of its registered office (or principal place of business, if different from the registered office);

(b) a description of the nature of the entity’s operations and its principal activities;

(d) if it is a limited-life entity, information regarding the length of its life.

Management-defined performance measures

Identification of management-defined performance measures

117 A management-defined performance measure is a subtotal of income and expenses that (see paragraphs B113–B122):

(a) an entity uses in public communications outside financial statements;

(b) an entity uses to communicate to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole; and

(c) is not listed in paragraph 118, or specifically required to be presented or disclosed by IFRS Accounting Standards.

118Subtotals of income and expenses that are not management-defined performance measures are:

(a) gross profit or loss (revenue minus cost of sales) and similar subtotals (see paragraph B123);

(b) operating profit or loss before depreciation, amortisation and impairments within the scope of IAS 36;

(d) for an entity that applies paragraph 73, a subtotal comprising operating profit or loss and all income and expenses classified in the investing category;

(e) profit or loss before income taxes; and

(f) profit or loss from continuing operations.

119 An entity shall presume that a subtotal of income and expenses that it uses in public communications outside its financial statements communicates to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole, unless, applying paragraph 120, the entity rebuts the presumption.

120An entity is permitted to rebut the presumption described in paragraph 119 and assert that a subtotal does not communicate management’s view of an aspect of the financial performance of the entity as a whole, but only if it has reasonable and supportable information available that demonstrates the basis for the assertion (see paragraphs B124–B131).

Disclosure of management-defined performance measures

121 The objective of the disclosures for management-defined performance measures is for an entity to provide information to help a user of financial statements understand:

(a) the aspect of financial performance that, in management’s view, is communicated by a management-defined performance measure; and

(b) how the management-defined performance measure compares with the measures defined by IFRS Accounting Standards.

122 An entity shall disclose information about all measures that meet the definition of management-defined performance measures in paragraph 117 in a single note (see paragraphs B132–B133). This note shall include a statement that the management-defined performance measures provide management’s view of an aspect of the financial performance of the entity as a whole and are not necessarily comparable with measures sharing similar labels or descriptions provided by other entities.

123 An entity shall label and describe each management-defined performance measure in a clear and understandable manner that does not mislead users of financial statements (see paragraphs B134–B135). For each management-defined performance measure, the entity shall disclose:

(a) a description of the aspect of financial performance that, in management’s view, is communicated by the management-defined performance measure. This description shall include explanations of why, in management’s view, the management-defined performance measure provides useful information about the entity’s financial performance.

(b) how the management-defined performance measure is calculated.

(c) a reconciliation between the management-defined performance measure and the most directly comparable subtotal listed in paragraph 118 or total or subtotal specifically required to be presented or disclosed by IFRS Accounting Standards (see paragraphs B136–B140).

(d) the income tax effect (determined by applying paragraph B141) and the effect on non-controlling interests for each item disclosed in the reconciliation required by (c).

(e) a description of how the entity applies paragraph B141 to determine the income tax effect required by (d).

124If an entity changes how it calculates a management-defined performance measure, adds a new management-defined performance measure, ceases using a previously disclosed management-defined performance measure or changes how it determines the income tax effects of the reconciling items required by paragraph 123(d), it shall disclose:

(a) an explanation that enables users of financial statements to understand the change, addition or cessation and its effects.

(b) the reasons for the change, addition or cessation.

(c) restated comparative information to reflect the change, addition or cessation unless it is impracticable to do so. An entity’s selection of a management-defined performance measure is not an accounting policy choice. Nonetheless, in assessing whether restating the comparative information is impracticable, an entity shall apply the requirements in paragraphs 50–53 of IAS 8.

125If an entity does not disclose the restated comparative information required by paragraph 124(c) because it is impracticable to do so, it shall disclose that fact.

Capital

126 An entity shall disclose in the notes information that enables users of financial statements to evaluate the entity’s objectives, policies and processes for managing capital.

127To comply with paragraph 126 an entity shall disclose in the notes:

(a) qualitative information about its objectives, policies and processes for managing capital, including:
(i) a description of what it manages as capital;
(ii) when an entity is subject to externally imposed capital requirements, the nature of those requirements and how those requirements are incorporated into the management of capital; and
(iii) how it is meeting its objectives for managing capital.

(b) summary quantitative data about what it manages as capital. Some entities regard some financial liabilities (for example, some forms of subordinated debt) as part of capital. Other entities regard capital as excluding some components of equity (for example, components arising from cash flow hedges).

(d) whether during the reporting period it complied with any externally imposed capital requirements to which it is subject.

(e) when it has not complied with such externally imposed capital requirements, the consequences of such non-compliance.

128An entity shall base the note disclosures in paragraph 127 on the information provided internally to key management personnel.

129An entity may manage capital in a number of ways and be subject to a number of different capital requirements. For example, a conglomerate may include entities that undertake insurance activities and banking activities and those entities may operate in several jurisdictions. When an aggregate disclosure of capital requirements and how capital is managed would not provide useful information or would distort a financial statement user’s understanding of an entity’s capital resources, the entity shall disclose separate information for each capital requirement to which the entity is subject.

Other disclosures

130 An entity shall either present in the statement of financial position or the statement of changes in equity or disclose in the notes:

(a) for each class of share capital:
(i) the number of shares authorised;
(ii) the number of shares issued and fully paid, and issued but not fully paid;
(iii) par value per share, or a statement that the shares have no par value;
(iv) a reconciliation of the number of shares outstanding at the beginning and at the end of the reporting period;
(v) the rights, preferences and restrictions attaching to that class, including restrictions on the distribution of dividends and the repayment of capital;
(vi) shares in the entity held by the entity or by its subsidiaries or associates; and
(vii) shares reserved for issue under options and contracts for the sale of shares, including terms and amounts; and

(b) a description of the nature and purpose of each reserve within equity.

131 An entity without share capital, such as a partnership or trust, shall disclose information equivalent to that required by paragraph 130(a), showing changes during the reporting period in each category of equity interest, and the rights, preferences and restrictions attaching to each category of equity interest.

132 An entity shall disclose in the notes:

(a) the amount of dividends proposed or declared before the financial statements were authorised for issue but not recognised as a distribution to owners during the reporting period, and the related amount per share; and

(b) the amount of any cumulative preference dividends not recognised.

Appendix A

Defined terms

This appendix is an integral part of the IFRS Accounting Standard.


aggregation	The adding together of assets, liabilities, equity, income, expenses or cash flows that share characteristics and are included in the same classification.
classification	The sorting of assets, liabilities, equity, income, expenses and cash flows based on shared characteristics.
disaggregation	The separation of an item into component parts that have characteristics that are not shared.
general purpose financial reports	Reports that provide financial information about a reporting entity that is useful to primary users in making decisions relating to providing resources to the entity. Those decisions involve decisions about: (a) buying, selling or holding equity and debt instruments; (b) providing or selling loans and other forms of credit; or (c) exercising rights to vote on, or otherwise influence, the entity’s management’s actions that affect the use of the entity’s economic resources. General purpose financial reports include—but are not restricted to—an entity’s general purpose financial statements and sustainability-related financial disclosures.
general purpose financial statements	A particular form of general purpose financial reports that provide information about the reporting entity’s assets, liabilities, equity, income and expenses.
IFRS Accounting Standards	Accounting standards issued by the International Accounting Standards Board. They comprise: (a) International Financial Reporting Standards; (b) International Accounting Standards; (c) IFRIC Interpretations; and (d) SIC Interpretations. IFRS Accounting Standards were previously known as International Financial Reporting Standards, IFRS, IFRSs and IFRS Standards.
management-defined performance measure	A subtotal of income and expenses that: (a) an entity uses in public communications outside financial statements; (b) an entity uses to communicate to users of financial statements management’s view of an aspect of the financial performance of the entity as a whole; and (c) is not listed in paragraph 118 of IFRS 18, or specifically required to be presented or disclosed by IFRS Accounting Standards.
material information	Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.
notes	Information in financial statements provided in addition to that presented in the primary financial statements.
operating profit or loss	The total of all income and expenses classified in the operating category.
other comprehensive income	Items of income and expense (including reclassification adjustments) that are recognised outside profit or loss as required or permitted by other IFRS Accounting Standards.
owners	Holders of claims classified as equity.
primary financial statements	The statement(s) of financial performance, the statement of financial position, the statement of changes in equity and the statement of cash flows.
profit or loss	The total of income less expenses included in the statement of profit or loss.
profit or loss before financing and income taxes	The total of operating profit or loss and all income and expenses classified in the investing category.
reclassification adjustments	Amounts reclassified to profit or loss in the current reporting period that were included in other comprehensive income in the current or prior periods.
total comprehensive income	The change in equity during a reporting period resulting from transactions and other events, other than those changes resulting from transactions with owners in their capacity as owners.
useful structured summary	A structured summary provided in a primary financial statement of a reporting entity’s recognised assets, liabilities, equity, income, expenses and cash flows that is useful for: (a) obtaining an understandable overview of the entity’s recognised assets, liabilities, equity, income, expenses and cash flows; (b) making comparisons between entities, and between reporting periods for the same entity; and (c) identifying items or areas about which users of financial statements may wish to seek additional information in the notes.

Appendix B

Application guidance

This appendix is an integral part of the IFRS Accounting Standard. It describes the application of paragraphs 1–132 and has the same authority as the other parts of the IFRS Accounting Standard.

GENERAL REQUIREMENTS FOR FINANCIAL STATEMENTS

Materiality

B1Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.

B2Materiality depends on the nature or magnitude of information, or both. An entity assesses whether information, either individually or in combination with other information, is material in the context of its financial statements taken as a whole.

B3Information is obscured if it is communicated in a way that would have a similar effect for primary users of financial statements to omitting or misstating that information. The following are examples of circumstances that may result in material information being obscured:

(a) material information about an item, transaction or other event is disclosed in the financial statements but the language used is vague or unclear;

(b) material information about an item, transaction or other event is scattered throughout the financial statements;

(d) similar items, transactions or other events are inappropriately disaggregated; and

(e) the understandability of the financial statements is reduced as a result of material information being hidden by immaterial information to the extent that a primary user is unable to determine what information is material.

B4Assessing whether information could reasonably be expected to influence decisions made by the primary users of a specific reporting entity’s general purpose financial statements requires an entity to consider the characteristics of those users while also considering the entity’s own circumstances.

B5Many existing and potential investors, lenders and other creditors cannot require reporting entities to provide information directly to them and must rely on general purpose financial statements for much of the financial information they need. Consequently, they are the primary users to whom general purpose financial statements are directed. Financial statements are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyse the information diligently. At times, even well-informed and diligent users may need to seek the aid of an adviser to understand information about complex economic phenomena.

The roles of the primary financial statements and the notes

B6Applying paragraph 17(a), an entity provides in the notes information necessary for users of financial statements to understand the line items presented in the primary financial statements. Examples of such information include:

(a) disaggregation of the line items presented in the primary financial statements;

(b) descriptions of the characteristics of the line items presented in the primary financial statements; and

(c) information about the methods, assumptions and judgements used in recognising, measuring and presenting the items included in the primary financial statements.

B7Applying paragraph 17(b), an entity supplements the primary financial statements with additional information necessary to achieve the objective of financial statements—that is:

(a) information specifically required by IFRS Accounting Standards (see paragraph 19)—for example:
(i) information required by IAS 37 Provisions, Contingent Liabilities and Contingent Assets about an entity’s unrecognised contingent assets and contingent liabilities; and
(ii) information required by IFRS 7 Financial Instruments: Disclosures about an entity’s exposure to various types of risks, such as credit risk, liquidity risk and market risk; and

(b) information additional to that specifically required by IFRS Accounting Standards (see paragraph 20).

Information presented in the primary financial statements

B8Paragraph 23 explains that an entity need not present separately a line item in a primary financial statement if doing so is not necessary for the statement to provide a useful structured summary, even if the line item is required by IFRS Accounting Standards. For example, an entity need not present a line item listed in paragraph 75 if doing so is not necessary for the statement of profit or loss to provide a useful structured summary of income and expenses, or a line item listed in paragraph 103 if doing so is not necessary for the statement of financial position to provide a useful structured summary of assets, liabilities and equity. If an entity does not present the line items listed in paragraphs 75 and 103, it shall disclose the items in the notes if the resulting information is material (see paragraph 42).

B9Conversely, applying paragraph 24, an entity shall present additional line items to those listed in paragraphs 75 and 103 if such presentations are necessary for the statement of profit or loss to provide a useful structured summary of income and expenses or for the statement of financial position to provide a useful structured summary of assets, liabilities and equity (see paragraphs B78–B79 and B109–B111).

Identification of the financial statements

B10Paragraph 25 requires an entity to clearly identify the financial statements and distinguish them from other information in the same published document. An entity meets these requirements by providing appropriate headings for pages, statements, notes, columns and the like. Judgement is required in determining the best way of providing such information. For example, if an entity provides the financial statements electronically, an entity considers other ways to meet the requirements—for example, by appropriate digital tagging of information provided in the financial statements.

B11An entity often makes financial statements more understandable by providing information in thousands or millions of units of the presentation currency. This practice is acceptable as long as the entity discloses the level of rounding and does not omit material information.

Consistency of presentation, disclosure and classification

B12Paragraph 30(a) requires an entity to change the presentation, disclosure or classification of items in the financial statements if it is apparent that another presentation, disclosure or classification would be more appropriate. For example, a significant acquisition or disposal, or a review of the financial statements, might suggest that the financial statements need to be changed. An entity is permitted to change the presentation, disclosure or classification of items in its financial statements only if the change provides information that is more useful to users of financial statements and if the entity is likely to continue using the revised presentation, disclosure or classification, so that inter-period comparability is not impaired. When making such changes, an entity reclassifies its comparative information in accordance with paragraphs 33–34.

Comparative information

Required comparative information

B13In some cases, narrative information provided in the financial statements for the preceding reporting period(s) continues to be relevant in the current period. For example, an entity discloses in the current period details of a legal dispute, the outcome of which was uncertain at the end of the preceding period and is yet to be resolved. Users of financial statements might benefit from the disclosure of information that the uncertainty existed at the end of the preceding period and from the disclosure of information about the steps that have been taken during the period to resolve the uncertainty.

Additional comparative information

B14An entity may provide comparative information in addition to the comparative information required by IFRS Accounting Standards, as long as that information is prepared in accordance with IFRS Accounting Standards. This additional comparative information may consist of one or more of the primary financial statements referred to in paragraph 10, but need not comprise a complete set of financial statements. When this is the case, the entity shall disclose in the notes information for those additional primary financial statements.

B15For example, an entity may present a third statement (or statements) of financial performance (thereby presenting the current reporting period, the preceding period and one additional comparative period). However, the entity is not required to present a third statement of financial position, a third statement of cash flows or a third statement of changes in equity (that is, an additional primary financial statement comparative). The entity is required to disclose in the notes the comparative information related to that additional statement(s) of financial performance.

AGGREGATION AND DISAGGREGATION

Principles of aggregation and disaggregation

Process of aggregation and disaggregation

B16Financial statements result from entities processing large numbers of transactions and other events. These transactions and other events give rise to assets, liabilities, equity, income, expenses and cash flows.

B17To apply the requirements in paragraph 41, an entity shall aggregate items based on shared characteristics (that is, aggregate items that have similar characteristics) and disaggregate items based on characteristics that are not shared (that is, disaggregate items that have dissimilar characteristics). In doing so, an entity shall:

(a) identify the assets, liabilities, equity, income, expenses and cash flows that arise from individual transactions or other events;

(b) classify and aggregate assets, liabilities, equity, income, expenses and cash flows into items based on their characteristics (for example, their nature, their function, their measurement basis or another characteristic) so as to result in the presentation in the primary financial statements of line items and disclosure in the notes of items that have at least one similar characteristic; and

(c) disaggregate items based on dissimilar characteristics:
(i) in the primary financial statements, as necessary to provide useful structured summaries (as described in paragraph 16); and
(ii) in the notes, as necessary to provide material information (as described in paragraph 17).

B18An entity may apply the steps in paragraphs B17(a)–B17(c) in varying order to apply the principles of aggregation and disaggregation in paragraph 41.

Basis of aggregation and disaggregation

B19Paragraphs B16–B18 explain that an entity uses its judgement to aggregate and disaggregate assets, liabilities, equity, income, expenses and cash flows from individual transactions and other events based on similar and dissimilar characteristics. Paragraphs B78 and B110 set out examples of characteristics an entity considers in making its judgements.

B20The more similar the characteristics of assets, liabilities, equity, income, expenses and cash flows are, the more likely it is that aggregating them will fulfil the role of the primary financial statements (that is, to provide useful structured summaries as described in paragraph 16) or the notes (that is, to provide material information as described in paragraph 17). The more dissimilar the characteristics of assets, liabilities, equity, income, expenses and cash flows are, the more likely it is that disaggregating the items will fulfil the roles of the primary financial statements or the notes.

B21The items aggregated and presented as line items in the primary financial statements shall have at least one similar characteristic other than meeting the definition of assets, liabilities, equity, income, expenses or cash flows. However, because the role of the primary financial statements is to provide useful structured summaries, the line items in the primary financial statements are also likely to aggregate items that have sufficiently dissimilar characteristics that information about the disaggregated items is material.

B22Applying paragraph 41, an entity shall disaggregate items that have dissimilar characteristics when the resulting information is material. A single dissimilar characteristic could result in information about disaggregated items being material.

B23For example, an entity might present in the statement of financial position financial assets that comprise equity investments and debt investments separately from non-financial assets. The financial assets have dissimilar characteristics because they have different measurement bases—some are measured at fair value through profit or loss and others at amortised cost. The entity might therefore determine that to provide a useful structured summary it is necessary to present line items that disaggregate the financial assets based on those measurement bases. That disaggregation results in a line item comprising equity investments and debt investments measured at fair value through profit or loss and a line item comprising debt investments measured at amortised cost. Because equity investments are dissimilar to debt investments in that each exposes the entity to different risks, the entity would assess whether further disaggregation in the statement of financial position of financial assets measured at fair value through profit or loss into equity investments and debt investments is needed to provide a useful structured summary. If not, and if the resulting information were material, the entity would need to disclose in the notes the equity investments separately from the debt investments. In addition if, for example, the equity investments had other dissimilar characteristics, the entity would be required to disaggregate further those equity investments in the notes if the resulting information were material.

Description of items

B24Paragraph 43 requires an entity to label and describe items presented or disclosed in a way that faithfully represents the characteristics of the item. Such items will often be aggregations of items arising from individual transactions or other events and could vary in whether they are aggregations of items for which information is material and items for which information is immaterial. Specifically, in either the primary financial statements or in the notes:

(a) an item for which information is material could be aggregated with other items for which information is also material—an entity might provide such an aggregation to summarise information but would also be required to disclose information about each item;

(b) an item for which information is material could be aggregated with items for which information is not material—an entity would be required to provide information about disaggregated items only if immaterial information obscured the material information; or

(c) an item for which information is not material could be aggregated with other items for which information is not material—an entity might provide such an aggregation to complete a list of items and would not be required to disclose information about disaggregated items, subject to paragraph B26(b).

B25An entity shall label items presented or disclosed as ‘other’ only if it cannot find a more informative label. Examples of how an entity might find a more informative label are:

(a) if an item for which information is material is aggregated with items for which information is not material, finding a label that describes the item for which information is material; and

(b) if items for which information is not material are aggregated:
(i) aggregating items that share similar characteristics and describing them in a way that faithfully represents the similar characteristics; or
(ii) aggregating items with other items that do not share similar characteristics and describing them in a way that faithfully represents the dissimilar characteristics of the items.

B26If an entity cannot find a more informative label than ‘other’:

(a) for any aggregation—the entity shall use a label that describes the aggregated item as precisely as possible, for example, ‘other operating expenses’ or ‘other finance expenses’.

(b) for an aggregation comprising only items for which information is not material—the entity shall consider whether the aggregated amount is sufficiently large that users of financial statements might reasonably question whether it includes items for which information could be material. If so, information to resolve that question is material information. Accordingly, in such cases, the entity shall disclose further information about the amount—for example:
(i) an explanation that no items for which information would be material are included in the amount; or
(ii) an explanation that the amount comprises several items for which information would not be material, with an indication of the nature and amount of the largest item.

Offsetting

B27Paragraph 44 prohibits an entity from offsetting assets and liabilities or income and expenses unless required or permitted by an IFRS Accounting Standard. For example, IFRS 15 Revenue from Contracts with Customers requires an entity to measure revenue from contracts with customers at the amount of consideration to which the entity expects to be entitled in exchange for transferring promised goods or services. The amount of revenue recognised reflects any trade discounts and volume rebates the entity allows. In contrast, an entity might undertake, in the course of its ordinary activities, other transactions that do not generate revenue but are incidental to the main revenue-generating activities. The entity would present in the primary financial statements or disclose in the notes the results of such transactions, when this presentation or disclosure reflects the substance of the transaction or other event, by netting any income with related expenses arising on the same transaction. For example:

(a) an entity presents in the primary financial statements or discloses in the notes gains and losses on the disposal of non-current assets by deducting from the amount of consideration on disposal the carrying amount of the asset and related selling expenses; and

(b) an entity may net expenditure related to a provision that is recognised in accordance with IAS 37 and reimbursed under a contractual arrangement with a third party (for example, a supplier’s warranty agreement) against the related reimbursement.

B28In addition, an entity presents on a net basis gains and losses arising from a group of similar transactions—for example, foreign exchange gains and losses or gains and losses arising on financial instruments held for trading that are included in the same category of the statement(s) of financial performance applying paragraphs 47–68. However, an entity shall disclose such gains and losses separately in the notes if doing so provides material information.

STATEMENT OF PROFIT OR LOSS

Categories in the statement of profit or loss

B29Paragraph 47 requires an entity to classify income and expenses included in the statement of profit or loss in one of five categories. The operating category comprises all income and expenses included in the statement of profit or loss that are not classified in the other categories (see paragraph 52). Income and expenses classified in the discontinued operations category applying paragraph 68 are not subject to the requirements for classifying items of income and expense in the categories listed in paragraphs 47(a)–(d). Income and expenses classified in the income taxes category applying paragraph 67 are not subject to the requirements for classifying items of income and expense in the categories listed in paragraphs 47(a)–(c).

Assessment of specified main business activities

B30Paragraph 49 requires an entity to assess whether it invests in assets or provides financing to customers as a main business activity. An entity may have more than one main business activity. For example, an entity that manufactures a product and also provides financing to customers may determine that both its manufacturing activity and customer-finance activity are main business activities. To classify income and expenses into the categories of operating, investing and financing as required by this Standard, an entity need only determine whether either of, or both, investing in assets and providing financing to customers are main business activities.

B31Examples of entities that might invest in assets as a main business activity include:

(a) investment entities as defined by IFRS 10 Consolidated Financial Statements;

(b) investment property companies; and

B32Examples of entities that might provide financing to customers as a main business activity include:

(a) banks and other lending institutions;

(b) entities that provide financing to customers to enable those customers to buy the entity’s products; and

B33Whether investing in assets or providing financing to customers is a main business activity of the entity is a matter of fact and not merely an assertion. An entity shall use its judgement to assess whether investing in assets or providing financing to customers is a main business activity and that assessment shall be based on evidence.

B34In general, investing in assets or providing financing to customers is likely to be a main business activity of an entity if the entity uses a particular type of subtotal as an important indicator of operating performance. The particular type of subtotal is a subtotal similar to gross profit (see paragraph B123) that includes income and expenses that would be classified in the investing or financing categories if investing in assets or providing financing to customers were not main business activities.

B35Evidence that subtotals similar to gross profit described in paragraph B123 are important indicators of operating performance includes using such subtotals to:

(a) explain operating performance externally; or

(b) assess or monitor operating performance internally.

B36Information about segments may provide evidence that investing in assets or providing financing to customers is a main business activity if an entity applies IFRS 8 Operating Segments. Specifically:

(a) if a reportable segment comprises a single business activity, this indicates that the performance of the reportable segment is an important indicator of the entity’s operating performance and that the business activity of the reportable segment is a main business activity of the entity; and

(b) if an operating segment comprises a single business activity, this indicates that the business activity might be a main business activity of the entity if the performance of the operating segment is an important indicator of the entity’s operating performance as described in paragraph B34.

B37An entity shall assess whether investing in assets or providing financing to customers is a main business activity for the reporting entity as a whole. Accordingly, the assessment of whether investing in assets or providing financing to customers is a main business activity by a reporting entity that is a consolidated group and a reporting entity that is one of the subsidiaries in the consolidated group could have different outcomes.

B38An entity shall assess whether it invests as a main business activity in associates, joint ventures and unconsolidated subsidiaries not accounted for using the equity method (see paragraphs B43(b)–(c) and B44(b)–(c)) by individual asset or using groups of assets with shared characteristics. If an entity prepares separate financial statements as specified in IAS 27 Separate Financial Statements and performs the assessment for groups of assets, the entity shall use groups of assets that are consistent with the categories used to determine their measurement basis applying paragraph 10 of IAS 27. An entity need not assess whether it invests as a main business activity in associates, joint ventures and non-consolidated subsidiaries accounted for using the equity method (see paragraphs B43(a) and B44(a)) because it is required to classify the income and expenses from those investments in the investing category (see paragraph 55(a)).

B39An entity need not assess whether it invests as a main business activity in cash and cash equivalents (see paragraph 53(b)). An entity is required to classify income and expenses from cash and cash equivalents in the investing category unless paragraphs 56(a) or 56(b) apply.

B40An entity shall assess whether it invests as a main business activity in other assets that generate a return individually and largely independently of the entity’s other resources (see paragraph 53(c)) by assessing an individual asset or groups of assets with shared characteristics. When performing the assessment for groups of financial assets an entity shall use groups of financial assets that are consistent with the classes of financial assets identified by the entity in applying paragraph 6 of IFRS 7.

B41An entity shall assess whether investing in assets or providing financing to customers is a main business activity based on the facts at the time, so a change in the outcome of the assessment does not change the outcome of the previous assessments. Accordingly, an entity classifies and presents income and expenses applying the change in the outcome of the assessment prospectively from the date of the change and does not reclassify amounts presented before the date of the change. Unless it is impracticable to do so, paragraph 51(c)(ii) requires an entity to disclose the amount and classification of items of income and expense before and after the date of the change in the outcome of the assessment in the current period and the amount and classification in the prior period for items for which the classification has changed because of the change in the outcome of the assessment.

Operating

B42The requirements in paragraphs 47–66 result in an entity classifying income and expenses from its main business activities in the operating category of the statement of profit or loss, except for any such income and expenses from investments accounted for using the equity method. Furthermore, the operating category is not limited to income and expenses from an entity’s main business activities. It includes all income and expenses that are not classified by an entity in the other categories applying paragraphs 53–68, including such income or expenses that are volatile or non-recurring.

Investing

Investments in associates, joint ventures and unconsolidated subsidiaries

B43Paragraphs 53 and 55 set out requirements for the classification of income and expenses from investments in associates and joint ventures. These investments comprise:

(a) investments in associates and joint ventures accounted for using the equity method in accordance with paragraph 16 of IAS 28 Investments in Associates and Joint Ventures and paragraph 10(c) of IAS 27;

(b) investments in associates and joint ventures (or a portion thereof) that an entity elects to measure at fair value through profit or loss in accordance with IFRS 9 applying paragraphs 18–19 of IAS 28 and paragraph 11 of IAS 27; and

(c) investments in associates and joint ventures in separate financial statements that are accounted for at cost applying paragraph 10(a) of IAS 27 or in accordance with IFRS 9 applying paragraph 10(b) of IAS 27.

B44Paragraphs 53 and 55 also set out requirements for the classification of income and expenses from unconsolidated subsidiaries. Investments in unconsolidated subsidiaries comprise:

(a) investments in subsidiaries in separate financial statements accounted for using the equity method in accordance with paragraph 10(c) of IAS 27;

(b) investments in subsidiaries held by an investment entity that are measured at fair value through profit or loss in accordance with paragraph 31 of IFRS 10 and paragraph 11A of IAS 27; and

(c) investments in subsidiaries in separate financial statements that are accounted for at cost applying paragraph 10(a) of IAS 27 or in accordance with IFRS 9 applying paragraph 10(b) of IAS 27.

Assets that generate a return individually and largely independently of the entity’s other resources

B45Paragraph 53(c) requires an entity to identify assets that generate a return individually and largely independently of the entity’s other resources. The return could be positive or negative.

B46Assets that generate a return individually and largely independently of the entity’s other resources in paragraph 53(c) typically include:

(a) debt or equity investments; and

(b) investment properties, and receivables for rent generated by those properties.

B47Income and expenses specified in paragraph 54 from such assets typically include:

(a) interest;

(b) dividends;

(d) depreciation;

(e) impairment losses and reversals of impairment losses;

(f) fair value gains and losses; and

(g) income and expenses from the derecognition of the asset, or its classification and remeasurement as held for sale (see paragraphs B60–B64).

Assets that do not generate a return individually and largely independently of the entity’s other resources

B48Assets that an entity uses in combination to produce or supply goods or services do not generate a return individually and largely independently of the entity’s other resources. Such assets typically include:

(a) property, plant and equipment;

(b) assets that arise from the production or supply of goods and services for which the income and expenses are classified in the operating category (for example, receivables for such goods and services); and

B49Income and expenses from the assets described in paragraph B48 are classified in the operating category—for example:

(a) revenue for goods or services produced or supplied by the entity using a combination of assets;

(b) interest income;

(d) impairment losses and reversals of impairment losses;

(e) income and expenses from the derecognition of the asset, or its classification and remeasurement as held for sale (see paragraphs B60–B64); and

(f) income and expenses arising on a business combination that includes assets that will give rise to income and expenses that will be classified in the operating category, such as a gain on a bargain purchase and remeasurements of contingent consideration.

Financing

Liabilities arising from transactions that involve only the raising of finance

B50Paragraph 59(a) requires an entity to identify liabilities that arise from transactions that involve only the raising of finance. In such transactions, an entity:

(a) receives finance in the form of cash, or an extinguishment of a financial liability, or receipt of the entity’s own equity instruments; and

(b) at a later date, will return in exchange cash or its own equity instruments.

B51Liabilities arising from transactions that involve only the raising of finance include:

(a) a debt instrument that will be settled in cash, such as debentures, loans, notes, bonds and mortgages—an entity receives cash and will return cash in exchange;

(b) a liability under a supplier finance arrangement when the payable for goods or services is derecognised—an entity is discharged of the financial liability for the goods or services and will return cash in exchange;

(c) a bond that will be settled through delivery of an entity’s shares—an entity receives cash and will return its own equity instruments in exchange; and

(d) an obligation for an entity to purchase its own equity instruments—an entity receives its own equity instruments and will return cash in exchange.

B52Examples of income and expenses from such liabilities that paragraph 60 requires an entity to classify in the financing category include:

(a) interest expenses (for example, on debt instruments issued);

(b) fair value gains and losses (for example, on a liability designated at fair value through profit or loss);

(d) income and expenses from the derecognition of the liability (see paragraph B61).

Liabilities arising from transactions that do not involve only the raising of finance

B53Paragraph 59(b) requires an entity to identify liabilities that arise from transactions that do not involve only the raising of finance. Such liabilities include:

(a) payables for goods or services that will be settled in cash—an entity receives goods or services, not finance in the form described in paragraph B50(a);

(b) contract liabilities—an entity will return goods and services, not cash or its own equity instruments as described in paragraph B50(b);

(d) defined benefit pension liabilities—an entity receives employee services, not finance in the form described in paragraph B50(a);

(e) decommissioning or asset restoration provisions—an entity receives an asset that is not finance in the form described in paragraph B50(a); and

(f) a litigation provision—an entity does not receive finance as described in paragraph B50(a).

B54Examples of income and expenses from such liabilities that paragraph 61 requires an entity to classify in the financing category include:

(a) interest expenses on payables arising from the purchase of goods or services, applying IFRS 9;

(b) interest expenses on a contract liability with a significant financing component as specified by IFRS 15;

(d) net interest expense (income) on a net defined benefit liability (asset), applying IAS 19; and

(e) the increase in the discounted amount of a provision arising from the passage of time and the effect of any change in the discount rate on provisions, applying IAS 37.

B55Examples of income and expenses that arise from transactions that do not involve only the raising of finance but that are not in the scope of paragraph 61, and accordingly are classified in the operating category, include:

(a) expenses recognised for consumption of the purchased goods or services described in paragraph B54(a);

(b) current and past service cost arising from a defined benefit plan, applying IAS 19; and

(c) remeasurements of the fair value of a liability for contingent consideration in a business combination recognised applying IFRS 3 Business Combinations.

Classification of income and expenses from hybrid contracts containing a host that is a liability

B56How an entity classifies income and expenses from a hybrid contract with a host that is a liability depends on whether the embedded derivative is separated from the host contract. If the embedded derivative:

(a) is separated from the host liability:
(i) for the separated host liability—an entity applies the requirements for income and expenses from liabilities, as specified in paragraphs 52, 59–61, 64(b) and 65–66; and
(ii) for the separated embedded derivative—an entity applies the requirements for income and expenses from derivatives, as specified in paragraphs B70–B76;

(b) is not separated from the host liability and if the hybrid contract arises from a transaction that involves only the raising of finance—an entity applies the requirements for liabilities that arise from such transactions, as specified in paragraphs 52, 60 and 65–66;

(c) is not separated from the host liability and if the hybrid contract does not arise from a transaction that involves only the raising of finance:
(i) if the host liability is a financial liability within the scope of IFRS 9 that is measured at amortised cost—an entity classifies in the financing category income and expenses specified in paragraph 60 from the contract after initial recognition (instead of the income and expenses specified in paragraph 61) (see paragraph B59);
(ii) if the hybrid contract is an insurance contract within the scope of IFRS 17—an entity applies the requirements in paragraphs 52 and 64(b); and
(iii) otherwise—an entity applies the requirements for income and expenses from liabilities that arise from such transactions, as specified in paragraphs 52 and 61.

B57An entity shall apply paragraphs B56(b) and B56(c) to all hybrid contracts containing a host liability for which the embedded derivative is not separated, regardless of whether the embedded derivative is not separated by the entity applying paragraph 4.3.3 of IFRS 9 or applying paragraph 4.3.5 of IFRS 9.

Liabilities arising from issued investment contracts with participation features

B58Paragraph 64(a) sets out requirements for income and expenses from liabilities arising from issued investment contracts with participation features recognised applying IFRS 9. Examples of such investment contracts are:

(a) an investment contract with participation features issued by an insurer that does not meet the definition in IFRS 17 of an investment contract with discretionary participation features; and

(b) an investment contract with participation features issued by an investment entity.

Income and expenses classified in the operating category by an entity that provides financing to customers as a main business activity

B59Paragraph 65 requires an entity that provides financing to customers as a main business activity to classify in the operating category income and expenses from some or all liabilities that arise from transactions that involve only the raising of finance. An entity shall also apply the requirements in that paragraph to income and expenses from a derivative relating to a transaction that involves only the raising of finance specified in paragraph B73(a), but not to the income and expenses from a hybrid contract specified in paragraph B56(c)(i).

Derecognition and changes in classification

Derecognition of an asset or liability, or classification and remeasurement of an asset as held for sale

B60Paragraphs B47(g) and B49(e) refer to income and expenses from the derecognition of an asset, or its classification as held for sale. An entity shall classify income and expenses on the derecognition of an asset, or its classification as held for sale and any subsequent measurement while held for sale, in the same category as it classified the income and expenses from the asset immediately before its derecognition. For example, an entity shall classify gains and losses:

(a) on the disposal of property, plant and equipment—in the operating category;

(b) on the disposal of an investment property that an entity does not invest in as a main business activity—in the investing category; and

(c) from the remeasurement of an investment in an associate previously accounted for using the equity method on the step acquisition of a subsidiary—in the investing category.

B61An entity shall classify income and expenses from the derecognition of a liability by applying the requirements in paragraphs 52 and 59–60. For example, the entity classifies income and expenses from the derecognition of a liability:

(a) in the financing category—if the liability arises from a transaction that involves only the raising of finance by an entity that does not provide financing to customers as a main business activity; and

(b) in the operating category—if as part of a supplier finance arrangement an entity derecognises a payable to a supplier and recognises a liability under that arrangement.

Change in use of an asset

B62A transaction or other event might change the category in the statement of profit or loss in which an entity classifies income and expenses from an asset, without the asset being derecognised. In such cases, an entity shall classify the income and expenses from the transaction or other event in the category in which it classified income and expenses from the asset immediately before the transaction or event. For example, an entity shall classify in the operating category any income or expenses recognised in the statement of profit or loss on the transfer of property from the scope of IAS 16 to investment property in the scope of IAS 40.

Groups of assets and liabilities

B63Paragraphs B60–B62 set out requirements for income and expenses from an asset or liability from its derecognition, classification and subsequent measurement while held for sale, or from its change in use. A transaction or other event might result in these outcomes for a group of assets (or a group of assets and liabilities) that generated income and expenses that an entity classified in different categories immediately before the transaction or other event. An entity shall classify income or expenses from such a transaction or other event:

(a) in the investing category if, other than any income tax assets, all the assets in the group generated income and expenses that the entity classified in the investing category immediately before the transaction or other event; and

(b) in the operating category otherwise.

B64For example, an entity classifies:

(a) in the operating category—gains and losses on the disposal of a consolidated subsidiary, if the subsidiary included assets that generated income and expenses that the entity classified in the operating category immediately before the disposal. The gains and losses include the reclassification from equity to profit or loss of foreign exchange differences required by paragraph 48 of IAS 21.

(b) in the operating category—an impairment loss arising on the classification of a disposal group as held for sale by the entity applying IFRS 5, if the disposal group included assets that generated income and expenses that the entity classified in the operating category immediately before its classification as held for sale.

(c) in the investing category—gains and losses on disposal of a consolidated subsidiary, if the only assets of the subsidiary were investment property that the consolidated reporting entity did not invest in as a main business activity and related income tax assets. The gains and losses include the reclassification from equity to profit or loss of foreign exchange differences required by paragraph 48 of IAS 21.

Classification of foreign exchange differences and the gain or loss on the net monetary position

B65To apply paragraph 47, an entity shall classify foreign exchange differences included in the statement of profit or loss applying IAS 21 in the same category as the income and expenses from the items that gave rise to the foreign exchange differences, unless doing so would involve undue cost or effort (see paragraph B68).

B66For example, an entity classifies foreign exchange differences on:

(a) a receivable described in paragraph B48(b) denominated in a foreign currency, in the same category as the income and expenses from that asset—that is, in the operating category; and

(b) a debt instrument that is a liability described in paragraph B51(a) denominated in a foreign currency, in the same category as the income and expenses on that liability—that is, in the financing category (unless the entity provides financing to customers as a main business activity and classifies the income and expenses from the liability in the operating category applying paragraph 65).

B67An entity might classify in more than one category income and expenses from a transaction that does not involve only the raising of finance. For example, the purchase of services in a transaction denominated in a foreign currency and negotiated on extended credit terms could give rise to an expense for the purchase of the services classified in the operating category (see paragraph B55(a)) and interest expenses classified in the financing category (see paragraph B54(a)). In such cases, subject to paragraph B68, an entity shall use its judgement to determine whether the foreign exchange difference relates to the amount classified in the financing category—and classify it in that category—or whether it relates to the amount classified in another category—and classify it in that category. An entity shall not allocate between categories a foreign exchange difference arising on a liability from a transaction that does not involve only the raising of finance. In making its judgements about how to classify the foreign exchange differences, an entity need not classify in the same category the foreign exchange differences on all such liabilities. However, an entity shall classify in the same category foreign exchange differences on similar liabilities.

B68If applying the requirements in paragraphs B65 and B67 would involve undue cost or effort, an entity shall instead classify the affected foreign exchange differences in the operating category. An entity shall assess whether classifying foreign exchange differences as described in paragraphs B65 and B67 involves undue cost or effort for each item that gives rise to foreign exchange differences. The assessment is specific to the facts and circumstances related to each item. If the same facts and circumstances relate to a number of items, an entity could apply the same assessment to each of the items.

B69Applying paragraph 28 of IAS 29 Financial Reporting in Hyperinflationary Economies, an entity might present the gain or loss on the net monetary position with other income and expense items associated with the net monetary position, such as interest income and expenses and foreign exchange differences. If the entity does not present the gain or loss on the net monetary position with the associated income and expenses, it shall classify the gain or loss in the operating category.

Classification of gains and losses on derivatives and designated hedging instruments

B70Paragraph 47 requires an entity to classify income and expenses in categories in the statement of profit or loss. To apply paragraph 47, an entity shall classify gains and losses included in the statement of profit or loss on a financial instrument designated as a hedging instrument applying IFRS 9 in the same category as the income and expenses affected by the risks the financial instrument is used to manage. However, if doing so would require the grossing up of gains and losses, an entity shall classify all such gains and losses in the operating category (see paragraphs B74–B75).

B71An entity shall classify gains and losses on an undesignated component of a designated hedging instrument in the same category as gains and losses on the designated component. An entity shall classify ineffective portions of a gain or loss in the same category as the effective portions.

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