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| Home > Accounting Standards > Interpretations of Financial Reporting Standards 2003 > INT FRS 18 |
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Interpretation of Financial Reporting Standard
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Consistency - Alternative Methods |
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Paragraph 11 of FRS 1, Presentation of Financial Statements, requires that financial statements should not be described as complying with Financial Reporting Standards unless they comply with all the requirements of each applicable Standard and each applicable Interpretation of the Financial Reporting Standard. INT FRSs are not intended to apply to immaterial items. |
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Reference: FRS 1, Presentation of Financial Statements |
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ISSUE |
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- Certain FRSs provide an enterprise with an explicit choice between alternative accounting policies applied in preparing its financial statements. Some Standards which provide explicit choice of an accounting policy indicate the manner in which that choice is to be exercised. For example, FRS 39.104 indicates that an enterprise should choose one of two policies for the recognition of changes in the fair value of available-for-sale financial assets, and should apply the policy selected to all available-for-sale financial assets. Other Standards are silent on the manner of exercising choice.
- The issue is how the choice of accounting policy should be exercised in the context of those FRSs which allow an explicit choice of accounting policy but are silent on the manner of exercising that choice. The fundamental question is whether, once a choice of policy is made, that policy should be followed consistently for all items accounted for under the specific requirements which provide the choice.
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CONSENSUS |
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| 3. |
If more than one accounting policy is available under a FRS or Interpretation, an enterprise should choose and apply consistently one of those policies, unless the Standard or Interpretation specifically requires or permits categorisation of items (transactions, events, balances, amounts, etc.) for which different policies may be appropriate. If a Standard requires or permits categorisation of items, the most appropriate accounting policy should be selected and applied consistently to each category. (Additional guidance is provided in Appendix A and Appendix B to this Interpretation.) |
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| 4. |
Once the appropriate initial policy has been selected under the requirements of paragraph 3, a change in accounting policy should only be made in accordance with FRS 8.36 and applied to all items or categories of items in the manner specified in paragraph 3. |
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BASIS FOR CONCLUSIONS |
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| 5. |
To ensure comparability, paragraph 35 of the FRS Framework explains that the measurement of like transactions and other events must be carried out in a consistent way throughout an enterprise and over time in separate and consolidated financial statements. In the preparation of consolidated financial statements, FRS 27.20 and .21 require the application of uniform accounting policies for like transactions and other events in similar circumstances. |
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| 6. |
Consistency in presentation and classification of items in the financial statements is equally important to producing comparable financial statements. FRS 1.27 requires consistent presentation and classification of items in the financial statements from one period to the next, unless a significant change in the nature of the operations of the enterprise or a review of its financial statement presentation demonstrates that a change will result in a more appropriate presentation. FRS 8 states as its objective the specification of requirements for net profit and loss, fundamental errors and changes in accounting policies "so that all enterprises prepare and present an income statement on a consistent basis". |
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Effective Date: INT FRS 18 comes into effect on 1 February 2003. Changes in accounting policies should be accounted for according to the transitional requirements in FRS 8.40. |
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Appendices to INT FRS 18
Example of Application of INT FRS 18
These appendices are illustrative only and do not form part of the Interpretation. The purpose of the appendices is to illustrate the application of the Interpretation to assist in clarifying its meaning. The description of each option presented in the following tables should be read in connection with the entire text of the respective Standard. |
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| Appendix A: Consistent Application to All Items
Application of INT FRS 18 to each of the following options requires a single accounting policy to be applied to all items accounted for under the referenced FRS paragraph(s). The Standards referred to do not require or permit categorisation of items for which different accounting policies may be appropriate. |
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Reference, Topic
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Description of option
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| FRS 8.28/32, Fundamental Errors |
Description of option
Either:
- the amount of the correction of a fundamental error that relates to prior periods should be reported by adjusting the opening balance of retained earnings.
Comparative information should be restated, unless it is impracticable to do so. (Benchmark); or
- the amount of the correction of a fundamental error should be included in the determination of net profit or loss for the current period. Comparative information should be presented as reported in the financial statements of the prior period. Additional pro forma information should be presented unless it is impracticable to do so. (Allowed Alternative)
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| FRS 8.43/48, Changes in Accounting Policies |
A change in accounting policy should be applied retrospectively unless the amount of any resulting adjustment that relates to prior periods is not reasonably determinable. Any resulting adjustment should be:
- reported as an adjustment to the opening balance of retained earnings. Comparative information should be restated unless it is impracticable to do so. (Benchmark); or
- included in the determination of the net profit or loss for the current period. Comparative information should be presented as reported in the financial statements of the prior period. Additional pro forma comparative information should be presented unless it is impracticable to do so. (Allowed Alternative)
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| FRS 21.32, Goodwill and Fair Value Adjustments on Acquisition of a Foreign Entity |
Any goodwill arising on the acquisition of a foreign entity and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign entity are treated as either:
- assets and liabilities of the foreign entity and translated at the closing rate; or
- assets and liabilities of the reporting entity which either are already expressed in the reporting currency or are non-monetary foreign currency items which are reported using the exchange rate at the date of the transaction.
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| FRS 22.31/33 and FRS 22.32/34, Allocation of the Cost of Acquisition, Minority Interests |
The identifiable assets and liabilities recognised should be measured at:
- the aggregate of the fair value of the identifiable assets and liabilities acquired as at the date of the exchange transaction to the extent of the acquirer's interest obtained in the exchange transaction and the minority's proportion of the pre-acquisition carrying amounts of the identifiable assets and liabilities of the subsidiary (Benchmark); or
- at their fair values as at the date of acquisition. Any minority interest should be stated at the minority's proportion of the fair values of the identifiable assets and liabilities recognised. (Allowed Alternative)
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| FRS 23.6/10, Borrowing Costs |
- Borrowing costs should be recognised as an expense in the period in which they are incurred. (Benchmark); or
- Borrowing costs should be recognised as an expense in the period in which they are incurred, except to the extent that they are capitalised in accordance with the following:
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Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset should be capitalised as part of the cost of that asset. (Allowed Alternative) |
Observation: Consistent with the application of this Interpretation, INT FRS 2, Consistency - Capitalisation of Borrowing Costs, requires that "where an enterprise adopts the Allowed Alternative treatment, that treatment should be applied consistently to all borrowing costs that are directly attributable to the acquisition, construction or production of all qualifying assets of the enterprise". |
FRS 27.28/29, Investments in
Subsidiaries, Parent's Separate Financial
Statements |
Description of option under FRS 27.28:
In a parent's separate financial statements, investments in subsidiaries that are included in the consolidated financial statements should be either:
- accounted for using the equity method as described in FRS 28, Accounting for Investments in Associates; or
- carried at cost or revalued amounts under the parent's accounting policy for long-term investments (see FRS 25, Accounting for Investments).
Description of option under FRS 27.28/29:
In a parent's separate financial statements, investments in subsidiaries (that are included in or excluded from the consolidated financial statements) should be either:
- carried at cost;
- accounted for using the equity method as described in FRS 28, Accounting for Investments in Associates; or
- accounted for as available-for-sale financial assets as described in FRS 39, Financial Instruments: Recognition and Measurement.
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| FRS 28.10/12, Investments in Associates, Separate Financial Statements of the Investor |
Description of option under FRS 28.10/12:
An investment in an associate that is included in the separate financial statements of an investor that issues consolidated financial statements should be either:
- accounted for using the equity method or the cost method whichever is used for the associate in the investor's consolidated financial statements; or
- carried at cost or revalued amounts under the accounting policy for long-term investments (see FRS 25, Accounting for Investments).
An investment in an associate that is included in the financial statements of an investor that does not issue consolidated financial statements should be either:
- accounted for using the equity method or the cost method whichever would be appropriate for the associate if the investor issued consolidated financial statements; or
- carried at cost or revalued amounts under the accounting policy for long-term investments (see FRS 25, Accounting for Investments).
Description of option under FRS 28.10/12:
An investment in an associate that is included in the separate financial statements of an investor that issues consolidated financial statements and that is not held exclusively with a view to its disposal in the near future
should be either:
- carried at cost;
- accounted for using the equity method; or
- accounted for as an available-for-sale financial asset as described in FRS 39, Financial Instruments: Recognition and Measurement.
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FRS 28.10/12, Investments in Associates, Separate Financial Statements of the Investor
(continued) |
An investment in an associate that is included in the financial statements of an investor that does not issue consolidated financial statements should be either:
- carried at cost;
- accounted for using the equity method if the equity method would be appropriate for the associate if the investor issued consolidated financial statements; or
- accounted for under FRS 39, Financial Instruments: Recognition and Measurement, as an available-for sale financial asset or a financial asset held for trading based on the definitions in FRS 39.
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FRS 31.25/32, Consolidated
Financial Statements, Reporting of a
Venturer's Interest in a Jointly Controlled
Entity |
In its consolidated financial statements, a venturer should report its interest in a jointly controlled entity using:
- one of the two reporting formats for proportionate consolidation (Benchmark); or
- the equity method. (Allowed Alternative)
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| Appendix B: Consistent Application to Categories of Items
Application of INT FRS 18 to each of the following options requires a single accounting policy to be applied to each category of items accounted for under the referenced FRS paragraphs. The Standards referred to either require or permit categorisation of items for which different accounting Policies may be appropriate. |
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Reference, Topic
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Description of option
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| FRS 2.20, Cost Formulas for Inventories |
The cost of inventories, other than those that are not ordinarily interchangeable or produced and segregated for specific projects, should be assigned by: using the first-in, first-out (FIFO) or weighted average cost formulas.
Observation: The definition of inventories refers to several types of assets which are considered to be inventories. In addition, FRS 2.31 requires disclosure of the carrying amount of inventories to be made in classifications appropriate to the enterprise. As a result, application of this Interpretation would result in requiring a single accounting policy to be selected and applied to each category inventories. Consistent with the application of this Interpretation, INT FRS 1, Consistency - Different Cost Formulas for Inventories, requires that an enterprise "use the same cost formula for all inventories having similar nature and use to the enterprise".
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| FRS 25.19, Current Investments |
Investments classified as current assets should be carried in the balance sheet at either:
- market value; or
- the lower of cost and market value. If current investments are carried at the lower of cost and market value, the carrying amount should be determined either on an aggregate portfolio basis, in total or by category of investment, or on an individual investment basis.
Observation: FRS 25.36 specifies requirements for measuring assets transferred from long-term to current. The measurement basis of a transferred investment follows the initial accounting policy applied by category under FRS 25.23. As a result, categorisation of long-term investments would also affect the choice of accounting policy under FRS 25.19. Additionally, the carrying amount of current investments carried at the lower of cost and market may be determined by category of investment (or several other ways). If revalued amounts are used, revaluation requirements in FRS 25.23 also refer to "entire categories" being revalued at the same time, rather than "all investments". Application of this Interpretation requires that a single accounting policy is selected and applied to each category of current investments. |
| FRS 25.23, Long-term Investments |
Investments classified as long-term assets should be carried in the balance sheet at either:
- cost;
- revalued amounts; or
- in the case of marketable equity securities, the lower of cost and market value determined on a portfolio basis. If revalued amounts are used, a policy for the frequency of revaluations should be adopted and an entire category of long-term investments should be revalued at the same time.
Observation: Alternative (c) noted above, the lower of cost and market value determined on a portfolio basis, is only available for one category of investments, marketable equity securities. If revalued amounts are used, revaluation requirements in FRS 25.23 refer to entire categories being revalued at the same time. Additionally, FRS 25.50(a) suggests disclosure of an analysis of long-term investments, by category. Application of this Interpretation requires that a single accounting policy is selected and applied to each category of long-term investments. |
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Last reviewed on 11 December 2007
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