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Accounting Terms and Definitions by IFRS and IAS : [F to I]



financial guarantee contract – A contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. [IAS 39.9, IFRS 4.A]

financial instrument – 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]


financial liability – Any liability that is:
(a) a contractual obligation: (i) to deliver cash or another financial asset to another entity; or (ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or
(b) a contract that will or may be settled in the entity’s own equity instruments and is: (i) a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments; or (ii) a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. For this purpose the entity’s own equity instruments do not include instruments that are themselves contracts for the future receipt or delivery of the entity’s own equity instruments.
[IAS 32.11]

financial position – The relationship of the assets, liabilities and equity of an entity, as reported in the balance sheet [statement of financial position]. [F.47, IAS 1.54]

financial risk – The risk of a possible future change in one or more of 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, provided in the case of a non-financial variable that the variable is not specific to a party to the contract. [IFRS 4.A]

financial statements – A complete set of financial statements comprises:
(a) a statement of financial position as at the end of the period;
(b) a statement of comprehensive income for the period;
(c) a statement of changes in equity for the period;
(d) a statement of cash flows for the period;
(e) notes, comprising a summary of significant accounting policies and other explanatory
information; and
(f) a statement of financial position as at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements, or when it reclassifies items in its financial statements.
[IAS 1.10, (F.7)]

financing activities – Activities that result in changes in the size and composition of the contributed equity and borrowings of the entity. [IAS 7.6]

firm commitment – A binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates. [IAS 39.9]

firm purchase commitment – An agreement with an unrelated party, binding on both parties and usually legally enforceable, that (a) specifies all significant terms, including the price and timing of the transactions, and (b) includes a disincentive for non-performance that is sufficiently large to make performance highly probable. [IFRS 5.A]

first IFRS financial statements – The first annual financial statements in which an entity adopts International Financial Reporting Standards (IFRSs), by an explicit and unreserved statement of compliance with IFRSs. [IFRS 1.A]

first IFRS reporting period – The latest reporting period covered by an entity’s first IFRS financial statements. [IFRS 1.A]

first-time adopter – An entity that presents its first IFRS financial statements. [IFRS 1.A]

fixed price contract – A construction contract in which the contractor agrees to a fixed contract price, or a fixed rate per unit of output, which in some cases is subject to cost escalation clauses. [IAS 11.3]

fixed production overheads – Those indirect costs of production that remain relatively constant regardless of the volume of production, such as depreciation and maintenance of factory buildings and equipment, and the cost of factory management and administration. [IAS 2.12].

forecast transaction – An uncommitted but anticipated future transaction. [IAS 39.9]

foreign currency – A currency other than the functional currency of the entity. [IAS 21.8]

foreign currency transaction – A transaction that is denominated in or requires settlement in a foreign currency. [IAS 21.20]

foreign operation – An entity that is a subsidiary, associate, joint venture or branch of the reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity. [IAS 21.8]

forgivable loans – Loans which the lender undertakes to waive repayment of under certain prescribed conditions. [IAS 20.3]

functional currency – The currency of the primary economic environment in which the entity operates. [IAS 21.8]

funding (of post-employment benefits) – Contributions by an entity, and sometimes its employees, into an entity, or fund, that is legally separate from the reporting entity and from which the employee benefits are paid. [IAS 19.49]

funding (of retirement benefits) – The transfer of assets to an entity (the fund) separate from the employer’s entity to meet future obligations for the payment of retirement benefits. [IAS 26.8]

future economic benefit – The potential to contribute, directly or indirectly, to the flow of cash and cash equivalents to the entity. The potential may be a productive one that is part of the operating activities of the entity. It may also take the form of convertibility into cash or cash equivalents or a capability to reduce cash outflows, such as when an alternative manufacturing process lowers the costs of production. [F.53]

gains – Increases in economic benefits and as such no different in nature from revenue.

general purpose financial statements – Financial statements that are intended to meet the needs of users who are not in a position to require an entity to prepare reports tailored to their particular information needs. [IAS 1.7, F.6]

going concern – The financial statements are prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. [IAS 1.25, (F.23)]

goodwill – An asset representing the future economic benefits arising from other assets acquired in a business combination that are not individually identified and separately recognized. [IFRS 3.A]

government – Government, government agencies and similar bodies whether local, national or international. [IAS 20.3]

government assistance – Action by government designed to provide an economic benefit specific to an entity or range of entities qualifying under certain criteria. [IAS 20.3]

government grants – Assistance by government in the form of transfers of resources to an entity in return for past or future compliance with certain conditions relating to the operating activities of the entity. They exclude those forms of government assistance which cannot reasonably have a value placed upon them and transactions with government which cannot be distinguished from the normal trading transactions of the entity. [IAS 20.3]

grant date – The date at which the entity and another party (including an employee) agree to a share-based payment arrangement, being when the entity and the counterparty have a shared understanding of the terms and conditions of the arrangement. At grant date the entity confers on the counterparty the right to cash, other assets, or equity instruments of the entity, provided the specified vesting conditions, if any, are met. If that agreement is subject to an approval process (for example, by shareholders), grant date is the date when that approval is obtained. [IFRS 2.A]

grants related to assets – Government grants whose primary condition is that an entity qualifying for them should purchase, construct or otherwise acquire long-term assets. Subsidiary conditions may also be attached restricting the type or location of the assets or the periods during which they are to be acquired or held. [IAS 20.3]

grants related to income – Government grants other than those related to assets. [IAS 20.3]

gross investment in the lease – The aggregate of:
(a) the minimum lease payments receivable by the lessor under a finance lease, and
(b) any unguaranteed residual value accruing to the lessor.
[IAS 17.4]

group – A parent and all its subsidiaries. [IAS 21.8, IAS 27.4]

group administration (employee benefit) plans – An aggregation of single employer plans combined to allow participating employers to pool their assets for investment purposes and reduce investment management and administration costs, but the claims of different employers are segregated for the sole benefit of their own employees. [IAS 19.33]

group of biological assets – An aggregation of similar living animals or plants. [IAS 41.5]

guaranteed benefits – Payments or other benefits to which a particular policyholder or investor has an unconditional right that is not subject to the contractual discretion of the issuer. [IFRS 4.A].

guaranteed element – An obligation to pay guaranteed benefits, included in a contract that contains a discretionary participation feature. [IFRS 4.A]

guaranteed residual value – (a) For a lessee, that part of the residual value that is guaranteed by the lessee or by a party related to the lessee (the amount of the guarantee being the maximum amount that could, in any event, become payable); and (b) for a lessor, that part of the residual value that is guaranteed by the lessee or by a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee. [IAS 17.4]

harvest – The detachment of produce from a biological asset or the cessation of a biological asset’s life processes. [IAS 41.5]

hedge effectiveness – The degree to which changes in the fair value or cash flows of the hedged item that are attributable to a hedged risk are offset by changes in the fair value or cash flows of the hedging instrument (see IAS 39 paragraphs AG105–AG113). [IAS 39.9]

hedged item – An asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that (a) exposes the entity to risk of changes in fair value or future cash flows and (b) is designated as being hedged (IAS 39 paragraphs 78–84 and AG98–AG101 elaborate on the definition of hedged items). [IAS 39.9]

hedging instrument – A designated derivative or (for a hedge of the risk of changes in foreign currency exchange rates only) a designated non-derivative financial asset or non-derivative financial liability whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item (IAS 39 paragraphs 72–77 and AG94–AG97 elaborate on the definition of a hedging instrument). [IAS 39.9]

held for trading – See ‘financial asset or financial liability at fair value through profit or loss’. [IAS 39.9]

held-to-maturity investments – Non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity (see IAS 39 paragraphs AG16–AG25) other than:
(a) those that the entity upon initial recognition designates as at fair value through profit or loss;
(b) those that the entity designates as available for sale; and
(c) those that meet the definition of loans and receivables.

An entity shall not classify any financial assets as held to maturity if the entity has, during the current financial year or during the two preceding financial years, sold or reclassified more than an insignificant amount of held-to-maturity investments before maturity (more than insignificant in relation to the total amount of held-to-maturity investments) other than sales or reclassifications that:
(i) are so close to maturity or the financial asset’s call date (for example, less than three months before maturity) that changes in the market rate of interest would not have a significant effect on the financial asset’s fair value;
(ii) occur after the entity has collected substantially all of the financial asset’s original principal through scheduled payments or prepayments; or
(iii) are attributable to an isolated event that is beyond the entity’s control, is non-recurring and could not have been reasonably anticipated by the entity.
[IAS 39.9]

highly probable – Significantly more likely than probable. IFRS 5.A

hire purchase contract – The definition of a lease includes contracts for the hire of an asset that contain a provision giving the hirer an option to acquire title to the asset upon the fulfilment of agreed conditions. These contracts are sometimes known as hire purchase contracts. [IAS 17.6]

historical cost – A measurement basis according to which assets are recorded at the amount of cash or cash equivalents paid or the fair value of the consideration given to acquire them at the time of their acquisition. Liabilities are recorded at the amount of proceeds received in exchange for the obligation, or in some circumstances (for example, income taxes), at the amounts of cash or cash equivalents expected to be paid to satisfy the liability in the normal course of business. [F.100(a)]

hyperinflation – Loss of purchasing power of money at such a rate that comparison of amounts from transactions and other events that have occurred at different times, even within the same accounting period, is misleading. Hyperinflation is indicated by characteristics of the economic environment of a country which include, but are not limited to, the following:
(a) the general population prefers to keep its wealth in non-monetary assets or in a relatively stable foreign currency. Amounts of local currency held are immediately invested to maintain purchasing power.
(b) the general population regards monetary amounts not in terms of the local currency but in terms of a relatively stable foreign currency. Prices may be quoted in that currency.
(c) sales and purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even if the period is short.
(d) interest rates, wages and prices are linked to a price index.
(e) the cumulative inflation rate over three years is approaching, or exceeds, 100%.
[IAS 29.2–3]

identifiable – An asset is identifiable if it either:
(a) is separable, ie capable of being separated or divided from the entity and sold, transferred, licensed, rented or exchanged, either individually or together with a related contract, identifiable asset or liability, regardless of whether the entity intends to do so; or (a) arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and obligations. [IFRS 3.A]

impairment loss – The amount by which the carrying amount of an asset exceeds its recoverable amount. [IAS 16.6, (IAS 36.6), IAS 38.8]

impracticable – Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. [IAS 1.7, (IAS 8.5)

imputed rate of interest –  The more clearly determinable of either:
(a) the prevailing rate for a similar instrument of an issuer with a similar credit rating; or
(b) a rate of interest that discounts the nominal amount of the instrument to the current cash sales price of the goods or services.
[IAS 18.11]

inception of a lease – The earlier of the date of the lease agreement and the date of commitment by the parties to the principal provisions of the lease. [IAS 17.4]

income – Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants. [F.70(a)]

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