Stakeholders of both financial institutions and other commercial corporations, need to be informed of the credit risks faced by the reporting entity. They are served well, by recognition and commensurate disclosures, related to the expected losses to be incurred due to credit risks. It is an orchestrated attempt, within the framework of implementing Basel III, and as part of the cooperation between the Basel Committee on Banking Supervision and IASB, to apply a forward looking approach in loss recognition. Due recognition of expected credit losses, will enhance micro and macro prudential measures taken by banking supervisors, to prevent future banking and financial crises from having a similar impact as the one experienced towards the end of the last decade.

Cash flow projections are not identical in all circumstances. When calculating the value in use of an asset or a cash generating unit, applying IAS 36 Impairment of assets this is done from the viewpoint of the entity. It is an entity specific value, based on the most recent budgets approved by management covering a maximum period of five years, unless a longer period is justified. However, the discount factor is market derived, specifically “a rate reflecting current market assumptions of the time value of money and the risks specific to the asset”. This could be the (pre-tax) WACC of a listed entity that has a single asset or portfolio of assets with similar service potential and risks to the asset under review.
When calculating the fair value of an asset or cash-generating unit, applying IFRS 13 Fair value measurement, cash flow projections include only cash flows that market participants would take into account when assessing fair value. The discount factor is the risk free rate, i.e. the rate on risk-free monetary assets that have maturity dates that coincide with the period covered by the cash flows and pose neither uncertainty in timing nor risk of default to the holder.
These are assets whose value will be recovered principally through sale, rather than through their continuing use. In order to be classified as such, the asset must be available for sale immediately, and the sale must be highly probable.
Note that the word principally allows an entity to classify an asset as being held for sale although it is not sold as per the end of a reporting period, as long as it is available for sale immediately. So, assets that could be sold immediately but which the entity wish to hold for a period and then sell, should not be classified as held for sale, as they are not available for sale immediately. The word “principally” is not an excuse for classifying an asset as held for sale today when the intention is to use it, say, for another five months and then sell it. The word “principally” is an indication that non-completion of the sale transaction is incidental to the entity’s intentions.
What are the most common differences between separate and group statement of cash flows?
Some mainstream items that will not appear in a separate cash flow statement, are:
Adjustments for non-cash items as goodwill impairment, share of profit (loss) from associate.
Incorporation in the working capital movements, of working capital items of subsidiaries acquired/disposed of, during the reporting period.
Outflows reflecting dividends paid to non controlling interests

IAS 38 Intangible assets specifically disallows capitalization of advertising, promotional activities, training, and similar expenditure. From an economic point of view, these costs are deemed to be an essential part of “market building”, “profiling”, “know-how”, in order to stay ahead of the game and sustain competitive advantage. For financial reporting purposes though, as future economic benefits are difficult to monetize and the entities are not deemed to control the outcome of these investments, this expenditure is recognized in the statement of profit or loss, in the period in which it is incurred.

Net realizable value (NRV), is the net amount an entity expects to realize from the sale of inventories in the ordinary course of business, it is an entity specific value. Fair value is never entity specific as it incorporates assumptions of the market participants.
NRV may be higher or lower than the fair value, and unlike fair value, it does incorporate all related costs to sell. NRV may be lower than fair value due to entity specific elements as inability to access the principal market, or higher than fair value, when the entity has secured a higher price than the fair value, due to dominance, negotiation power and similar factors.
Note however than inventory that is part of a business combination, will in all likelihood, be measured at fair value.
Owner occupied properties’ revaluation frequency, subject to IAS 16 Property, plant and equipment, depends on the volatility assumed to exist in their fair values. When volatility is material, revaluations are performed annually. Otherwise, the standard allows for less frequent revaluations, say, every three to five years.
Investment properties subject to IAS 40 Investment property, which are measured at fair value, are in principle subject to annual re-measurements, though the standard does not specifically request this.
Neither IAS 16 nor IAS 40 obliges entities to use the services of a qualified surveyor. IAS 40 encourages but does not oblige the use of an independent valuer who holds a recognized and relevant professional qualification and has recent experience in the location and category of the investment property being valued.
IAS 16 makes no such encouragement, but requires a disclosure as to whether an independent valuer was involved.
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