IFRS 17 Insurance Contracts requires the discount rate for insurance liabilities to reflect the characteristics of the insurance liabilities, including their liability characteristics. IFRS Accounting Standards dealing with other types of liability do not typically mention liquidity. This post explains why IFRS 17 addresses this topic. This post covers: This post discusses only the discount… Continue reading Liability discount rates and liquidity
Category: User needs
Can a subsidiary have assets and liabilities?
Consolidated financial statements report the assets and liabilities, income and expenses, and equity of a group as if the group were a single entity. A group is a parent and its subsidiaries (the entities controlled by the parent). Obviously, a parent and its subsidiaries are not a single entity, even though consolidated financial statements report… Continue reading Can a subsidiary have assets and liabilities?
Holding enough capital is short hand for holding enough assets
People often talk about how much capital a company ‘holds’ and about how much capital the company needs to ‘hold’. Talking about a company’s capital can be a convenient shorthand, but runs the risk of confusion. That risk arises because companies hold assets but do not ‘hold’ capital. Also, measures of capital are simplistic and… Continue reading Holding enough capital is short hand for holding enough assets
Recognising revenue from sales-based royalties
One type of transaction within the scope of IFRS 15 Revenue from Contracts with Customers is licensing intellectual property to a customer in return for a royalty based on the licensee’s (future) sales. IFRS 15 sometimes requires the licensor to recognise its royalty as revenue before the licensee recognises its own related revenue. Also, estimating… Continue reading Recognising revenue from sales-based royalties
On current cost for inventory
The IASB revised its Conceptual Framework for Financial Reporting in 2018. While the IASB was developing that revision, a few people suggested that the revised Conceptual Framework should compare historical cost and current cost in more detail. Some of them suggested (around 2013) that: In this post, I look briefly at the second of those… Continue reading On current cost for inventory
FX on eliminated intragroup balances
The IFRS Interpretations Committee issued in September 2025 a Tentative Agenda Decision Classification of a Foreign Exchange Difference from an Intragroup Monetary Liability (or Asset). The Tentative Agenda Decision is open for comment until 25 November 2025. It is available at IFRS – Tentative Agenda Decision and comment letters: Classification of a Foreign Exchange Difference… Continue reading FX on eliminated intragroup balances
Changing accounting policies: when retrospective is not best
Applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, changes in accounting policies are generally applied retrospectively—by restating information for prior years as if the new accounting policy had always been applied. That approach of (full) retrospective application is overridden: IAS 8 makes it look as though full retrospective application is the default… Continue reading Changing accounting policies: when retrospective is not best
Deferred tax on intragroup inventory transfers
One case when IAS 12 Income Taxes requires companies to recognise a deferred tax asset is on unrealised intragroup profits on inventory. This arises when: Recognising this deferred tax asset is uncontroversial if the buying company and selling company are taxed at the same rate, but views are more mixed if rates differ. IAS 12… Continue reading Deferred tax on intragroup inventory transfers
Is there an even better way to write exposure drafts?
The IASB writes good exposure drafts, but I believe it is worth considering a different format, which I discuss below. Getting input from investors The IASB realised several years ago that it cannot expect many users of financial statements (investors) to read an entire exposure draft, understand everything in that ED and then send the… Continue reading Is there an even better way to write exposure drafts?
Cash flow statements for banks, insurers and investment funds
People often argue that banks’ cash flow statements do not provide useful information. In this post, I explore whether a cash flow statement can provide useful information about most banks’ core operations: deposit-taking and lending. I discuss below: Basic example I will start with a simple example, example 1. On 2 January 20X1, bank A:… Continue reading Cash flow statements for banks, insurers and investment funds