Mutual recognition means that national financial statements are accepted abroad, although they

are not prepared in accordance with accounting principles of the foreign country. The possibility
of mutual recognition exists already in some countries Tor example, between the United States
and Canada. That is for American companies, their financial statements based on US-Generally
Accepted Accounting Principles will be accepted in the Canadian stock exchange regulators.
Furthermore, mutual recognition is possible between European countries. The limitation of
mutual recognition is that the user of financial statements has to be familiar with two different
sets of standards otherwise it will pose a problem
ii) Reconciliation:
Reconciliation allows foreign companies to prepare financial statements based on Accounting
Standards of their home country. However, additionally they “must provide reconciliation
between critical Accounting measures (such as net income and shareholders' equity) of the one
country and the country where the financial statements are being filed. The objective of
reconciliation is to show major divergences between the Accounting Practices. Reconciliation
makes the comparison for investors easier. Another advantage of reconciliation is that it is less
expensive, than preparing a full set of financial statements in accordance with foreign principles
of Accounting. However, reconciliation is only a summary and cannot provide a full picture of
the company. Another disadvantage of this approach is that it involves costs, which would not
exist, if there would be one set of international accepted Accounting Standards
iii) Standardization
It describes "a process by which all participants agree to follow the same or similar Accounting
Practices The end result is a state of uniformity". This state of uniformity is a condition which
everything is regular, homogenous or at least unvarying. Harmonization is a process starting
from diversity. So also standardization thus sometimes the terms, harmonization and
standardization, are often used in the same meaning. However, Choi et al. points out that there is
a difference between these two terms. Standardization is a process in which all countries should
adopt the method of one country. In contrary, harmonization is understood as a reconciliation of
different points of view.

Q4. Write down the argument for and against of accounting harmonization. 
Accounting Harmonization is advantageous and also has some limitations in the practices. Let's
see in the followings: 
Arguments for Harmonization:
 Internally multinational companies would make savings if all their subsidiaries could use
the same Accounting System
 A similar internal reporting system gives the chance of better comparisons, less
confusion and mistakes between the parts of the company > With one set of Accounting
Standards the credibility of the externally reporting could be raised.
 Financial statement based on harmonized principles/ practices would make it possible
for users of financial statements to make useful comparisons between countries and
companies.
 Harmonization will make it more likely that users will interpret the information
correctly, and thus make better decisions based on that information. 
Arguments against Harmonization:
 Lack of flexibility in many countries' cultural or political factors. 
  It has been feared that adoption of international standards may create “ standards
overload" Corporations must respond to an ever-growing array of national, social,
political, and economic pressures to comply with costly reporting systems. 
 International standards are not sufficiently detailed for better understandings which
remain unclear and vague for use. 
Q5. What do understand by "De jure" and "De Facto" of Harmonization?

 It has been referred de jure harmonization as formal harmonization and De facto harmonization
as material harmonization

Chapter 10 -Selected IFRS 

IFRS-8 

Q1. When a segment is considered reportable under IFRS-8? 

Reportable Segment
The entity is required to disclose information separately as required by this standard in respect of
the operating segment which satisfies the following: 
1) It should be an operating segment i.e. the business functional unit of the same entity and
2) It should satisfy at least one of the following quantitative thresh hold: 
(a) Its reported revenue from all the internal and external sources is 10 percent or more than the
total internal and external revenue of all operating segments of the entity.
(b) Its reported profit or loss is 10 per cent or more than the higher of: 
i. The total reported profit of all the profitable operating segments 
ii. The total reported loss of all loss making operating segments
(c) Its assets are 10 per cent or more than the total assets of all operating segments of the entity. 

•The operating segment which will satisfy the above mentioned criteria will be classified as
reportable segment, and entity is required to disclose information separately as per the
requirements of this standard 

•At least 75 per cent of the total external revenue of the entity must be reflected by the identified
reportable segment, if this is not the case the entity will be required to identify additional
reportable segments until at least 75 per cent of the total external revenue of the entity is
reflected by reportable segments.

• An entity may combine financial results of two or more operating segments that are below the
quantitative threshold to generate a single reportable segment, if such operating segments have
similar attributes in majority of the following aggregation criteria: 
a) The nature and specification of the products and services of the operating segments
b) The production processes of the operating segments 
c) The distribution regions or markets of the operating segments
d) The category or class of customer of the operating segments;
e) The nature of the distribution channels used by the operating segments for their goods or
services 
 f) The nature of the regulatory environment and requirements such as banking, insurance or
public usage 

•If the management identifies that an operating segment which was classified as a reportable
segment in the immediately previous reporting period contains material information for the users
of financial statements, the entity will continue to classify such operating segment as reportable
segment in the current reporting period even though it is below than the quantitative thresholds,
and will disclose its information separately as per the requirements of this standard.

• If the management identifies that an operating segments that is below than all of the
quantitative thresholds, contains useful information for the users of financial statements, then
such operating segment can be classified as reportable segment and disclosed separately as per
the requirements of this standard.

• The operating segments that are not classified as reportable segments will be disclosed
aggregately in a separate category titled as "all other segments”

Q2. What are the disclosure requirements as per IFRS-8

Disclosures require for Reportable Segments 

The entity will disclose the following in respect of the reportable segment to enable users of
financial statements to analyze the nature and financial effects of its business activities:

 • The description of the products and services from which each reportable segment generate its
incomes The basis used by the entity for the determination of the operating segments such as
product, services or geographical region basis or combination of such factors

 • The entity is required to disclose also the following factors in respect of reportable segments:

a) Segment's revenues from the external sources. 

b) Segment’s revenues from the other internal segments of the same entity
c) The depreciation or amortization charge related to assets of the segment 
d) Any finance cost related to the reportable segment
e) Any finance income related to the reportable segment
f) Any share in the profit or loss of associate or joint venture held by the segment
g) Segment's tax charge or any tax refundable
h) Any other significant item which in non-cash
i) Total assets held by the segment and any addition to the segment assets
j) Total liabilities related to the segment
• If the interest income is a primary source of income for the reportable segment, then the entity
should report interest income separately from the interest expense otherwise these components
may be netted of.

•The measurement method used to determine the profit or loss of the reportable segment Such as
accounting policies. 
•The basis for the allocation of common expenses to the operating segments 

•The accounting polices used to determine the amounts of the segment assets and any difference
in accounting policies from those of the other assets of the entity 

•Any change in accounting policy in the current reporting period from that of the previous
period. IFRS-2 

Q1.What are the three specifications types of transaction covered by IFRS share based
payment. 

IFRS 2 applies to all share-based payment transactions, which are defined as follows: 
 Equity-settled, in which the entity receives goods or services as consideration for equity
instruments of the entity (including shares or share ontions). The transaction may be with
employees or non-employees and treatment will be thereby. 
 Cash-settled, in which the entity receives goods or services by incurring a liability to the
supplier that based on the price (or value) of the entity's shares or other equity
instruments of **
 measures the liability at the fair value at grant date 
 Re-measures the fair value of the liability at each reporting date and at the date of
settlement, with any changes in fair value recognized in profit or loss for the
period
 Transactions in which the entity receives goods òr services and either the entity or the
supplier of those goods or services have a choice of settling the transaction in cash (or
other assets) or equity instruments. 
 If the counterparty has the right to choose whether a share-based payment
transaction is settled in cash or by issuing equity instruments, the entity has
granted a compound instrument (a cash-settled component and an equity-settled
component) 
 If the entity has the choice of whether to settle in cash or by issuing equity
instruments, the entity shall determine whether it has a present obligation to settle
in cash and account for the transaction as cash-settled or if no such obligation
exists, account for the transaction as equity-settled.

 IAS-32, IAS-39, IFRS-7 

Q1.What are the three specific characteristics of derivative as per IAS-32.

 A derivative is a type of financial instrument that has specific characteristics: [IAS 39.9]

 "Its value changes in response to the change in a specified interest rate, financial
instrument price, commodity price, foreign exchange rate, index of prices or rates, credit
rating or credit index, or other variable; 
 It requires no initial net investament or an initial net investiment that is smaller than
would be required for other types of contracts that would be expecied to have a similar
response to changes in market factors; and 
 It is settled at a future date".
 Examples of derivatives are financial options, forward contracts and interest rate swaps.
Q2.Define financial instruments as per IAS-32 

A financial instrument is "any contract that gives rise to a financial asset of one entity and a
financial liability or equity instrument of another entity". [IAS 32.11] 
A financial asset is cash, a contractual right to receive cash or another financial asset, a
contractual right to exchange financial assets or liabilities with another entity on potentially
favorable terms, or an equity instrument, for example shares, of another entity, Examples of
Financial assets are cash, trade receivables and equity investments. [1AS 32.11] 
Assets that have physical substance such as property and machinery, are not financial assets and
neither are intangible assets, such as *** these assets generate future economic benefits for an
entity although there is no contractual right to receive cash or another financial asset. A financial
liability is either a contractual obligation to deliver cash or another financial asset, or a
contractual obligation to exchange financial assets or liabilities with another entity on potentially
unfavorable terms. Examples of financial liabilities are trade payables and loans.
Q3.What are the objectives of IAS-39? What are the categories of financial asset defined as
per IAS-39? 
The objective of IAS 39 is to establish principles for recognizing and measuring financial assets
and financial liabilities and contracts to buy or sell non-financial items. The other objectives of
IAS-39 are as follows:- 
 Help to understand the financial assets and liabilities. 
 Measure their values for trading. 
 To identify the loss or profit if any during the buying or sale.
 IAS 39 defines four categories of financial instrument: 
 A financial asset (or liability) at fair value through profit and loss; 
This measurement basis results in the financial asset or liability being re-measured at fair value
at the end of each reporting period, with changes in fair value being recognized as part of the
profit or loss for the period. This treatment is required for financial assets classified as held for
trading. To be classified as held for trading the financial asset should have been acquired for the
purpose of selling or repurchasing it in the short-term. A derivative is generally classified as a
financial instrument held for trading.
 Held-to-maturity investments; 
A financial asset (one that is not a derivative) that has fixed, or determinable payments and a
fixed maturity date is classified as a held-to-maturity investment, provided the entity intends to
hold it until its maturity and has the ability to do so. 
Financial assets that meet the definition of a held-to-maturity investment may alo classified as
held at fair value, as discussed above or as an Available-for-sale financial asset. A financial asset
will not meet the definition of a held-to-maturity, investment where it meets the definition of a
loan or receivable.
 Loans and receivables; and 
A non-derivative financial asset that has Fixed or determinable, payments (but no fixed maturity
date) and is not quoted in an active market, is classified as a loan or receivable. Exceptions to
this general classification are where it is classified as held for trading because the entity intends
to sell it in the short-term, or where the entity may not substantially recover the initial
investment 
 Available-for-sale financial assets. 
An available-for-sale financial asset is one that has been designated as such or has not been
classified under the above three categories. Available-for-sale financial assets should be
measured at their fair value at the end of each reporting period. The gain or loss arising from fair
valuing the financial asset at the end of each reporting period should be, recognized in other
comprehensive income. On disposal, the cumulațive gains and losses recognized in other
comprehensive income will be reclassified from equity to profit or loss as a reclassified **

Q4.Describe financial instruments recognition and measurements as per IAS-39? 

A financial asset or financial liability should be recognized when an entity enters into the
contractual provisions of the financial instrument. The value at which a financial asset or
financial liability should originally be measured is its fair value plus, in certain circumstances,
any directly attributable transaction costs, such as fees and commissions paid to brokers and
advisors [IAS 39.43] 
For subsequent measurement of financial assets, the treatment depends on the categorization of
the financial asset, as explained below. 
 Where an entity holds investments in equity instruments that do not have a quoted price
in an Active market and it is not possible to calculate their fair values reliably, they
should be measured at cost. Derivatives that are linked to such investments, or require
the delivery of such an investment, should also be measured at cost. [IAS 39.46] 
 An entity is required to consider whether financial assets are impaired (carried at more
than their recoverable amount) at the end of each reporting period. Impairment is where
an event has occurred after the initial recognition of a financial asset and that event
results in a detrimental effect on the cash flows expected in relation to the item. No
account is taken of losses that are expected to arise as a result of future events.

Q5. Mention the specific quantitative disclosure required by IFRS-7 

Quantitative disclosures are included to ensure that users understand the potential impact that
risks from financial instruments may have on an entity’s financial position and performance in a
period. IFRS 7 specifically states that such quantitative information should be consistent with
internal management information. The quantitative information should be split between the
different risks, generally being credit risk, liquidity risk and market risk: 
 Credit risk is the risk that an entity has in relation to the non-recoverability of financial
assets recognized in the statement of financial position, Information on credit risk w
typically include a description of any collateral held as security by an entity, details about
any financial assets that have become impaired, a description of the credit quality of
financial assets held as well as information on financial assets that should have been paid
by the third-party by the end of the reporting period but have been renegotiated. 
 Liquidity risk is the risk that an entity will not have sufficient funds available to meet its
obligations as they fall due. It is usually explained by providing information on the
maturity of an entity's financial liabilities. This usually includes information about the
remaining contractual term on such instruments along with details about how an entity
manages such 
 A sensitivity analysis, along with an explanation of how such an *** was determined and
whether it is consistent with the method used the previous period should be provided to
 help explain the existence of market risk. Market risk *** considering how much
currency and interest rates may fluctuations in a period. 
IAS-38 
Q1. What is goodwill as per IAS-38?

 Intangible assets are assets identifiable, non-monetary assets, without having any physical
substance.
Assets - resources, controlled from past events and with future economic benefits expected.
The Intangible Assets are Identifiable if either: 
 Capable of being separated and sold, licensed, rented, transferred, exchanged or rented
separately 
 Arise from contractual or other legal rights.
Q2.Explain the Research Development Phase as per IAS-38 
Research phase - All expenditure identified as arising during the research phase should be
recognized as an expense as it is incurred. An intangible asset should not be recognized during
the research phase. [IAS 38.54]