Section 8 Notes to the Financial Statement The IFRS for SMEs Section 8 Notes to the Financial Statement By: Olonje 11/21/2018

Section 8- Scope Notes provide additional information― narrative descriptions or disaggregation's of items presented in statements and information about items that do not qualify for recognition. Section 8 sets out the principles for presenting note disclosures Other sections require note disclosures By: Olonje 11/21/2018

Section 8- overview of notes Notes are presented systematically and cross- reference to FS Notes present information about; basis of presentation specific accounting policies used information about judgements and key sources of estimation uncertainty Notes disclose; the information required by the IFRS for SMEs that is not presented elsewhere other information that is relevant to an understanding of the FS By: Olonje 11/21/2018

Section 7 – order of presentation 1st: statement of compliance (IFRS for SMEs) 2nd: summary of significant accounting policies applied 3rd: supporting information for items presented in FS, follow sequence in FS 4th: other disclosures By: Olonje 11/21/2018

Section 8- Accounting policies Disclose: measurement bases used other relevant accounting policies used information about judgements made in applying accounting policies that have the most significant effect on the FS information about key sources of estimation uncertainty that have a significant risk of causing a material adjustment within 1 year (including their nature and carrying amount) By: Olonje 11/21/2018

Section 8 – examples of judgements in applying accounting policies Whether outflow is more likely than not re a present obligation = recognise a liability? Whether a lease transfers substantially all risks and rewards of ownership = finance or operating lease? When risks and rewards transfer for goods sold = when to recognise revenue? Whether arrangement = sales of goods or financing? Whether controls exists = whether to consolidate? By: Olonje 11/21/2018

Section 8- judgement in applying AP Example: 1 Lease classification In 20X3 A entered into an agreement (as lessee) for the use of an executive jet. It is not clear whether the lease transfers substantially all the risks and rewards incidental to ownership. However, management judge the lease to be an operating lease and therefore the lease is accounted for as an executory contract. Had the lease been judged to be a finance lease, the entity would have recognised the leased asset and a corresponding lease liability and it would have apportioned lease payments between finance costs and the repayment of the liability. It would also have depreciated the leased asset over its useful life. The entity’s commitment to make future non‑cancellable lease payments for the use of the jet is set out in note 40. By: Olonje 11/21/2018

Section 8- key measurement assumptions Example 2 Fair value of financial instruments Financial assets and financial liabilities that are not basic financial instruments (see note 12) are carried at their fair value, with changes in fair value recorded in profit or loss. When no active market exists, or when quoted prices are not otherwise available, judgement is required in determining fair value. In these circumstances, fair value is determined using a variety of valuation techniques including present value methods, models based on observable input parameters, and models where some of the input parameters are unobservable. By: Olonje 11/21/2018

Section 8- key measurement assumptions Example 2 continued: Valuation models are used primarily to value derivatives transacted in the over‑the‑counter market, including credit derivatives and unlisted securities with embedded derivatives. All valuation models are validated before they are used, and periodically reviewed thereafter, by independent qualified financial instrument valuation experts. Wherever possible, valuations derived from models are compared with quoted prices of similar financial instruments, and with actual values when realised, in order to further validate and calibrate our models. By: Olonje 11/21/2018

Section 8- key measurement assumption Example2 continued: Our models incorporate information about the actual or estimated market prices and rates, time value, volatility, market depth and liquidity among others. When available, we use market observable prices and rates derived from market verifiable data. When such factors are not market observable, changes in assumptions could affect the reported fair value of financial instruments. The models are applied from one period to the next. However, estimating fair value inherently involves a significant degree of judgement. Management therefore establishes valuation adjustments to cover the risks associated with the estimation of unobservable input parameters and the assumptions within the models themselves. By: Olonje 11/21/2018

Section 8- key measurement assumptions Example 2 continued: Valuation adjustments are also made to reflect such elements as aged positions, deteriorating creditworthiness (including country-specific risks), concentrations in specific types of instruments and market risk factors (interest rates, currencies etc), and market depth and liquidity. Although a significant degree of judgement is, in some cases, required in establishing fair values, management believes the fair values recorded in the statement of financial position and the changes in fair values recorded in the statement of comprehensive income are reflective of the underlying economics, based on the controls and procedural safeguards employed. By: Olonje 11/21/2018

Section 8- key measurement assumptions Example 2 continued: Nevertheless, management have estimated the effect that a change in assumptions to reasonably possible alternatives could have on fair values where model inputs are not market observable. For all financial instruments carried at fair value which rely on assumptions for their valuation, we estimate that fair value could lie in a range from Kshs.500,000 lower to Kshs.500,000 higher than the fair values of Kshs.2,000,000 (see note 12) recognised in the financial statements. By: Olonje 11/21/2018