Microsoft Dynamics AX 2012 R3 Support For IFRS

Microsoft Dynamics AX 2012 R3
Support for IFRS

Publish date: May 2014
http://www.microsoft.com/dynamics/ax
Table of Contents
Executive Summary ..................................................................................................................................................................................................... 4
IFRS Overview ................................................................................................................................................................................................................. 5
IFRS requirements applicable to Microsoft Dynamics AX .......................................................................................................... 6
Financial reporting ...................................................................................................................................................................................................... 6
IAS 1, Presentation of Financial Statements .................................................................................................................................. 6
IAS 7, Statement of Cash Flows ............................................................................................................................................................ 9
IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors .................................................................... 10
IAS 10, Events After the Reporting Period .................................................................................................................................... 12
IAS 34, Interim Financial Reporting .................................................................................................................................................. 12
IFRS 1, First time Adoption of International Financial Standards ...................................................................................... 13
IFRS 8, Operating Segments ................................................................................................................................................................ 15
IFRS 10, Consolidated Financial Statements ................................................................................................................................ 17
IFRS 3, Business Combinations ........................................................................................................................................................... 18
IFRS 11, Joint Arrangements ................................................................................................................................................................... 18
Assets and inventory ............................................................................................................................................................................................... 19
IAS 2, Inventories ....................................................................................................................................................................................... 19
IAS 16, Property, Plant and Equipment .............................................................................................................................................. 20
IAS 17, Leases .............................................................................................................................................................................................. 21
IAS 36, Impairment of Assets .............................................................................................................................................................. 22
IAS 37, Provisions, Contingent Liabilities and Contingent Assets ........................................................................................... 23
IAS 38, Intangible Assets ....................................................................................................................................................................... 24
IAS 40, Investment Property ................................................................................................................................................................ 26
IFRS 5, Non-current Assets Held for Sale and Discontinued Operations ...................................................................... 27
Foreign currency ........................................................................................................................................................................................................ 28
IAS 21, The Effects of Changes in Foreign Exchange Rates.................................................................................................. 28
Revenue recognition ................................................................................................................................................................................................ 29
IAS 11, Construction Contracts .......................................................................................................................................................... 29
IAS 18, Revenue ......................................................................................................................................................................................... 30
IAS 20, Accounting for Government Grants and Disclosure of Government Assistance ....................................... 31
IAS 23, Borrowing Costs ........................................................................................................................................................................ 32
General ledger concepts in Microsoft Dynamics AX ................................................................................................................................ 32

U.S. GAAP........................................................................................................................................................................................................................ 33
Overview of U.S. GAAP, and identification of ERP differences between U.S. GAAP and IFRS ......................................... 33
How Microsoft Dynamics AX supports the compliance initiative .................................................................................................... 34
Overview of Sarbanes-Oxley ...................................................................................................................................................................... 34
General overview of Microsoft Dynamics AX and the compliance initiative .......................................................................... 34
Compliance with corporate policies and procedures ...................................................................................................................... 34
Contacts page ............................................................................................................................................................................................................... 37
Appendix ......................................................................................................................................................................................................................... 38
Disclaimer ....................................................................................................................................................................................................................... 39
Executive Summary
The globalization of business and finance has led to the mass adoption of International Financial Reporting
Standards (IFRS) by over 12,000 companies. IFRS have been designed and implemented across the world as
a standard format for companies to report their financial results in an easily understandable and comparable
nature. Similarly in the United States, Sarbanes-Oxley is designed to restore/enhance public confidence in
the financial reporting and disclosure process and improve executive responsibility and accountability.
Companies continue to find themselves in an environment of economic uncertainty and under pressure to
become more efficient while reacting to a volume of complex regulatory requirements. Performance
expectations, increasing stakeholder demands, and changing market conditions are forcing business leaders
to search for cost-effective ways to enforce compliance adoption without jeopardizing organizational agility
and business growth.
Technology is a key enabler to address the change and complexity in an organizations compliance
environment. It is crucial to understand how your underlying technology environment can support your
business process, compliance, and regulatory requirements such as IFRS and Sarbanes-Oxley.
Microsoft Dynamics AX is an enterprise resource planning (ERP) solution for midsize and large organizations
that empowers people to work effectively, manage change, and compete globally. It makes it easy to
operate across locations and countries/regions by standardizing processes, providing visibility across your
organization, and helping simplify compliance.
While the dimensions of IFRS and Sarbanes-Oxley are far reaching and can be complicated, Microsoft
Dynamics AX has been designed with the capabilities to help organizations meet their compliance
obligations in a flexible, adaptable, and scalable fashion.
This whitepaper discusses IFRS standards and the relevant Microsoft Dynamics AX capabilities to address
IFRS compliance. By deploying Microsoft Dynamics AX, you can be confident that your business
management solution is and will remain relevant to the needs of your people, the needs of regulation and
compliance, and to the demands of your industry and business. This document was prepared by
PricewaterhouseCoopers LLP (PwC) and Microsoft. It provides information for current and prospective
customers to evaluate the reporting and compliance capabilities of Microsoft Dynamics AX.
Microsoft Dynamics AX 2012 R3 was used as the basis for evaluating how the software supports IFRS
requirements out-of-the-box. The statements made in this document are generally applicable to other
versions of Microsoft Dynamics AX 2012. Each implementation of Microsoft Dynamics AX is unique, and the
way that the software is deployed might affect an organizations ability to meet its IFRS, U.S. generally
accepted accounting practices (GAAP), or Sarbanes-Oxley (SOX) compliance requirements. Customers
should evaluate these implications and consult a professional advisor based on their business processes and
needs.
IFRS Overview
International Financial Reporting Standards (IFRS) have been designed and implemented across the world as
a standard format for companies to report their financial results in an easily understandable and comparable
nature. IFRS and accounting determinations are slowly replacing many different national accounting
standards to maintain consistency and comparability for global investors.
In fact, more than 100 countries require, permit, or are converging or converting to IFRS for public company
reporting. Companies are and will be affected by IFRS at varying times and to varying degrees of magnitude,
driven by factors such as size, industry, geography, merger and acquisition activity, and global expansion.
Although IFRS remain relevant to many U.S. businesses, as of the publication date of this white paper, there
was no defined adoption timeline by the Securities Exchange Commission (SEC). The potential impact of
accounting changes resulting from the joint efforts of the Financial Accounting Standards Board (FASB) and
International Accounting Standards Board (IASB) might be significant and have broad-based implications.
IFRS are in use in most capital markets around the world and have already significantly affected U.S.
companies, because it:
Influences the direction of convergence.
Is used by foreign subsidiaries of U.S. companies.
Stimulates questions from investors who compare U.S. companies to foreign competitors.
Influences the transaction structuring by foreign counterparties (customers, vendors, and capital
providers) who report under IFRS.
Technology is a key enabler to address IFRS compliance. Microsoft Dynamics AX is an enterprise resource
planning (ERP) solution for midsize and large organizations that empowers people to work effectively,
manage change, and compete globally. Microsoft Dynamics AX makes it easy to operate across locations
and countries/regions by standardizing processes, providing visibility across your organization, and helping
simplify compliance.
The compliance and internal controls capabilities in Microsoft Dynamics AX provide a means for companies
to enforce compliance in a consistent, cost-effective way, while streamlining business processes and
improving efficiency across the organization.
IFRS requirements applicable to Microsoft Dynamics AX

This section discusses IFRS requirements that are applicable to software systems, such as Microsoft Dynamics AX,
for the management of enterprise financial resources. For each standard, the section provides an overview of the
requirement followed by information about how Microsoft Dynamics AX can support the standard.
Financial reporting
IAS 1, Presentation of Financial Statements
Overview:
The objective of financial statements is to provide information that is useful in making economic decisions.
IAS 1s objective is to provide comparability of presentation of that information with the entitys financial
statements of previous periods and with the financial statements of other entities.
Financial statements are prepared on a going concern basis unless management intends either to liquidate
the entity or to cease trading, or has no realistic alternative but to do so. Management prepares its financial
statements, except for cash flow information, under the accrual basis of accounting.
There is no prescribed format for the financial statements. However, there are minimum disclosures to be
made in the primary statements and the notes. The implementation guidance to IAS 1 contains illustrative
examples of acceptable formats.
Financial statements disclose corresponding information for the preceding period (comparatives) unless a
standard or interpretation permits or requires otherwise.
Statement of financial position (balance sheet):
The statement of financial position presents an entitys financial position at a specific point in time. Subject to
meeting certain minimum presentation and disclosure requirements, management may use its judgment
regarding the form of presentation, such as whether to use a vertical or a horizontal format, which subclassifications to present and which information to disclose in the primary statement or in the notes.
The following items, as a minimum, are presented on the balance sheet:
Assets property, plant and equipment; investment property; intangible assets; financial assets;
investments accounted for using the equity method; biological assets; deferred tax assets; current tax
assets; inventories; trade and other receivables; and cash and cash equivalents
Equity issued capital and reserves attributable to the parents owners; and non-controlling interest
Liabilities deferred tax liabilities; current tax liabilities; financial liabilities; provisions; and trade and other
payables
Assets and liabilities held for sale the total of assets classified as held for sale and assets included in
disposal groups classified as held for sale; and liabilities included in disposal groups classified as held for
sale in accordance with IFRS 5, Non-current assets held for sale and discontinued operations
Current and non-current assets and current and non-current liabilities are presented as separate classifications in
the statement unless presentation based on liquidity provides information that is reliable and more relevant.
Statement of comprehensive income
The statement of comprehensive income presents an entitys performance over a specific period. Entities have a
choice of presenting this in a single statement or as two statements. The statement of comprehensive income
under the single-statement approach includes all items of income and expense, and also includes each
component of other comprehensive income. Under the two- statement approach, all components of profit or loss
are presented in an income statement, followed immediately by a statement of comprehensive income. This
begins with the total profit or loss for the period, displays all components of other comprehensive income, and
ends with total comprehensive income for the period.
Items to present in a statement of comprehensive income
The following items, as a minimum, are presented in the statement of comprehensive income:
Revenue
Finance costs
Share of the profit or loss of associates and joint ventures
Tax expense
Post-tax profit or loss of discontinued operations
Profit or loss for the period
Each component of other comprehensive income classified by nature
Share of the other comprehensive income of associates and joint ventures
Total comprehensive income
Profit or loss for the period and total comprehensive income are allocated in the statement of comprehensive
income to the amounts attributable to non- controlling interest and to the parents owners.
Additional line items and sub-headings are presented in this statement when such presentation is relevant to an
understanding of the entitys financial performance.
Material items
The nature and amount of items of income and expense are disclosed separately, where they are material.
Disclosure may be in the statement or in the notes. Such income/expenses might include restructuring costs;
write-downs of inventories or property, plant and equipment; litigation settlements; and gains or losses on
disposals of non-current assets.
Other comprehensive income

An entity presents each component of other comprehensive income in the statement either (a) net of its related
tax effects, or (b) before its related tax effects, with the aggregate tax effect of these components shown
separately.
Effective for annual periods beginning on or after July 1, 2012, items of other comprehensive income are grouped
into those that will be reclassified subsequently to profit or loss and those that will not be reclassified.
Statement of changes in equity
The following items are presented in the statement of changes in equity:
Total comprehensive income for the period, showing separately the total amounts attributable to the
parents owners and to non- controlling interest
For each component of equity, the effects of retrospective application or retrospective restatement
recognized in accordance with IAS 8, Accounting policies, changes in accounting estimates, and errors
For each component of equity, a reconciliation between the carrying amount at the beginning and the
end of the period, separately disclosing changes resulting from:
Profit or loss
Other comprehensive income
Transactions with owners in their capacity as owners, showing separately contributions by and
distributions to owners and changes in ownership interests in subsidiaries that do not result in a loss of
control.
Statement of cash flows

Cash flow statements are addressed in Section 30 dealing with the requirements of IAS 7.
Notes to the financial statements
The notes are an integral part of the financial statements. Notes provide information additional to the amounts
disclosed in the primary statements. They include accounting policies and critical accounting estimates and
judgments.
Support for IAS 1 in Microsoft Dynamics AX

Management Reporter, included with Microsoft Dynamics AX, provides predefined Balance sheet, Income
statement, and Cash flow report templates based on main account category. The statement of owners equity is
not predefined but can be created in Management Reporter. The predefined financial statements can be modified
to meet additional formatting requirements described in IAS 1.
In Microsoft Dynamics AX, the fiscal calendar supports any definition of the periods. When financial statements
are generated in Management Reporter, the definitions of fiscal periods and years from the fiscal calendar are
used.
The year-end closing transactions must be generated, and then the period can be closed for all modules.
Microsoft Dynamics AX provides the capability to control whether the period is in Open, On-hold, or Closed state.
A period in the On-hold state can be reopened. Microsoft Dynamics AX enables transactions to be recorded in
any period in the Open state.
Microsoft Dynamics AX also provides the capability to restrict posting for a period to a specific user or group of
users. These parameters can be used to control adjusting entries posted to the general ledger.
Microsoft Dynamics AX enables dimensions to be used to cross over all general ledger accounts. Therefore,
aggregation or disaggregation can be used to separate or detail out required data for nature or function, as
needed.
Management Reporter can filter on any combination of dimensions at the row, column, and tree level, and also its
support of total accounts.
IAS 7, Statement of Cash Flows

Overview
The cash flow statement is one of the primary statements in financial reporting. It presents the generation and
use of cash and cash equivalents by category (operating, investing and finance) over a specific period of time. It
provides users with a basis to assess the entitys ability to generate and utilize its cash.
Operating activities are the entitys revenue-producing activities. Investing activities are the acquisition and
disposal of long-term assets (including business combinations) and investments that are not cash equivalents.
Financing activities are changes in equity and borrowings.
Management may present operating cash flows by using either the direct method (gross cash receipts/payments)
or the indirect method (adjusting net profit or loss for non-operating and non-cash transactions, and for changes
in working capital).
Cash flows from investing and financing activities are reported separately gross (that is, gross cash receipts and
gross cash payments) unless they meet certain specified criteria.
The cash flows arising from dividends and interest receipts and payments are classified on a consistent basis and
are separately disclosed under the activity appropriate to their nature. Cash flows relating to taxation on income
are classified and separately disclosed under operating activities unless they can be specifically attributed to
investing or financing activities.
The total that summarizes the effect of the operating, investing and financing cash flows is the movement in the
balance of cash and cash equivalents for the period.
Separate disclosure is made of significant non-cash transactions, for example, the issue of equity for the
acquisition of a subsidiary or the acquisition of an asset through a finance lease. Non-cash transactions include
impairment losses/ reversals, depreciation, amortization, fair value gains/losses, and income statement charges
for provisions.
Support for IAS 7 in AX 2012 R3

In Microsoft Dynamics AX, Management Reporter provides predefined Cash flow report templates based on main
account category. The predefined cash flow statement contains each of the sections described for IAS 7. If
necessary, the predefined cash flow statement can be updated. The cash flows of a foreign subsidiary can be
translated by using exchange rates and can be viewed in any of the currencies based on the rates defined for the
cash flow accounts in Microsoft Dynamics AX.
IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors

Overview
An entity follows the accounting policies required by IFRS that are relevant to the particular circumstances of the
entity. However, for some situations, standards offer a choice; there are other situations where no guidance is
given by IFRSs. In these situations, management should select appropriate accounting policies.
Management uses its judgment in developing and applying an accounting policy that results in information that
is relevant and reliable. Reliable information demonstrates the following qualities: faithful representation,
substance over form, neutrality, prudence and completeness. If there is no IFRS standard or interpretation that is
specifically applicable, management should consider the applicability of the requirements in IFRS on similar and
related issues, and then the definitions, recognition criteria and measurement concepts for assets, liabilities,
income and expenses in the Framework.
Management may also consider the most recent pronouncements of other standard-setting bodies, other
accounting literature and accepted industry practices, where these do not conflict with IFRS.
Accounting policies should be applied consistently to similar transactions and events.
Changes in accounting policies
Changes in accounting policies made on adoption of a new standard are accounted for in accordance with the
transition provisions (if any) within that standard. If specific transition provisions do not exist, a change in policy
(whether required or voluntary) is accounted for retrospectively (that is, by restating all comparative figures
presented) unless this is impracticable.
Issue of new/revised standards not yet effective
Standards are normally published in advance of the required implementation date. In the intervening period,
where a new/revised standard that is relevant to an entity has been issued but is not yet effective, management
discloses this fact. It also provides the known or reasonably estimable information relevant to assessing the
impact that the application of the standard might have on the entitys financial statements in the period of initial
recognition.
10
Changes in accounting estimates

An entity recognizes prospectively changes in accounting estimates by including the effects in profit or loss in the
period that is affected (the period of the change and future periods), except if the change in estimate gives rise to
changes in assets, liabilities or equity. In this case, it is recognized by adjusting the carrying amount of the related
asset, liability or equity in the period of the change.
Errors
Errors may arise from mistakes and oversights or misinterpretation of information. Errors that are discovered in a
subsequent period are prior-period errors. Material prior-period errors are adjusted retrospectively (that is, by
restating comparative figures) unless this is impracticable.

Consistency of accounting policies
Microsoft Dynamics AX uses accounting rules and application setup that together make up the accounting policy
for a legal entity. The accounting rules are applied consistently for similar events, transactions, and conditions.
Most accounting rules and setup can be applied consistently per user-defined categories when required, or when
permitted by a standard or interpretation.
Item groups and item model groups are two examples where accounting rules can be applied consistently per
category. Categories of items with similar characteristics are assigned to user-defined item groups that, for
example, are used to control main account determination for purchase accrual and inventory at receipt for a
group of items. Items are also assigned to user-defined item model groups that, for example, are used to control
whether purchase accrual should be recognized in the general ledger and what cost formula should be applied.
Proper consideration should be taken when defining categories to validate that the applied accounting rules
provide compliant financial reporting.
Retrospective application of changes in accounting policies or errors
The following capabilities are applicable when it is deemed practical to determine the period-specific effects or
the cumulative effect of the change for one or more prior periods that are presented. This is a management
decision and is performed outside Microsoft Dynamics AX.
Before the final year-end close process in Microsoft Dynamics AX is performed and while the accounting periods
are still on hold, it is possible to reopen the periods and create adjusting entries in the general ledger. These
adjustments are included based on the report date when financial statements are generated in Management
Reporter. After the final year-end close is performed, a user can define a specific legal entity to use for
adjustments. Management Reporter can then be used to consolidate the entries from the legal entities.
Changes in accounting estimates
Current period adjustments or, if applicable, re-execution of automated adjustments for carrying amounts are
supported by Microsoft Dynamics AX.
11
IAS 10, Events after the Reporting Period

Overview
It is not generally practicable for preparers to finalize financial statements without a period of time elapsing
between the balance sheet date and the date on which the financial statements are authorized for issue. The
question therefore arises as to the extent to which events occurring between the balance sheet date and the date
of approval, that is, events after the reporting period, should be reflected in the financial statements.
Events after the reporting period are either adjusting events or non-adjusting events. Adjusting events provide
further evidence of conditions that existed at the balance sheet date, for example, determining after the year end
the consideration for assets sold before the year end. Non-adjusting events relate to conditions that arose after
the balance sheet date, for example, announcing a plan to discontinue an operation after the year end.
The carrying amounts of assets and liabilities at the balance sheet date are adjusted only for adjusting events or
events that indicate that the going- concern assumption in relation to the whole entity is not appropriate.
Significant non-adjusting post-balance-sheet events, such as the issue of shares or major business combinations,
are disclosed.
An entity discloses the date on which the financial statements are authorized for issue and the persons
authorizing the issue and, where necessary, the fact that the owners or other persons have the ability to amend
the financial statements after issue.

Before the final year-end close process in Microsoft Dynamics AX is performed and while the accounting periods
are still on hold, it is possible to reopen the periods and create adjusting entries in the general ledger. This allows
for adjustment based on the adjusting events up to the point where financial statements are authorized for issue,
at which time the reporting period is closed.
IAS 34, Interim Financial Reporting

Overview
At a minimum, current period and comparative figures, condensed or complete, are disclosed as follows:
Balance sheet as of the current interim period end with comparatives for the immediately preceding
year end
Statement of comprehensive income (and, if presented separately, income statement) current interim
period, financial year to date and comparatives for the same preceding periods (interim and year to date)
Statement of changes in equity and statement of cash flow financial year to date with comparatives for
the same year to date period of the preceding year
12
Explanatory notes
An entity generally uses the same accounting policies for recognizing and measuring assets, liabilities, revenues,
expenses, and gains and losses at interim dates as those to be used in the current-year annual financial
statements.
There are special measurement requirements for certain costs that can only be determined on an annual basis, for
example, items such as tax that is calculated based on an estimated full-year effective rate, and the use of
estimates in the interim financial statements. An impairment loss recognized in a previous interim period in
respect of goodwill, or an investment in either an equity instrument or a financial asset carried at cost, is not
reversed.
IAS 34 sets out some criteria to determine what information should be disclosed in the interim financial
statements. These include:
Materiality to the overall interim financial statements
Unusual or irregular items
Changes since previous reporting periods that have a significant effect on the interim financial statements
of the current or previous reporting financial year
Relevance to the understanding of estimates used in the interim financial statements
The overriding objective is to validate that an interim financial report includes all information that is relevant to
understanding an entitys financial position and performance during the interim period.

See IAS 1 for more information.
IFRS 1, First time Adoption of International Financial Standards

Overview
An entity moving from national GAAP to IFRS should apply the requirements of IFRS 1. It applies to an entitys
first IFRS financial statements and the interim reports presented under IAS 34, Interim financial reporting, that
are part of that period. It also applies to entities under repeated first-time application. The basic requirement is
for full retrospective application of all IFRSs effective at the reporting date. However, there are a number of
optional exemptions and mandatory exceptions to the requirement for retrospective application.
The exemptions cover standards for which the IASB considers that retrospective application could prove too
difficult or could result in a cost likely to exceed any benefits to users. Any, all or none of the exemptions may be
applied. The optional exemptions relate to:
13
Business combinations
Deemed cost
Employee benefits
Cumulative translation differences
Compound financial instruments
Assets and liabilities of subsidiaries, associates and joint ventures
Designation of previously recognized financial instruments
Share-based payment transactions
Fair value measurement of financial assets or financial liabilities at initial recognition
Insurance contracts
Decommissioning liabilities included in the cost of property, plant and equipment
Leases
Service concession arrangements
Borrowing costs
Investments in subsidiaries, jointly controlled entities and associates
Transfers of assets from customer
Extinguishing financial liabilities with equity instruments
Severe hyperinflation
Joint arrangements
Stripping costs
The exceptions cover areas in which retrospective application of the IFRS requirements is considered
inappropriate. The following exceptions are mandatory, not optional:
Hedge accounting
Derecognition of financial assets and liabilities
Estimates
Non-controlling interests
Classification and measurement of financial assets
Embedded derivatives
Government loans
Comparative information is prepared and presented on the basis of IFRS. Almost all adjustments arising from the
first-time application of IFRS are against opening retained earnings of the first period that is presented on an IFRS
basis.
Certain reconciliations from previous GAAP to IFRS are also required.
14
Support for IFRS 1 in Microsoft Dynamics AX

When IFRS is adopted for the first time, the following areas typically require careful consideration:
PPE
Asset impairments
Inventories
Revenue recognition
Business combination
To recognize all assets and liabilities whose recognition is required by IFRS, Microsoft Dynamics AX supports the
capability to create new fixed assets resulting from the adoption of IFRS.
To derecognize items as assets or liabilities if IFRS do not permit recognition, Microsoft Dynamics AX supports the
capability to dispose of or scrap existing fixed assets resulting from the adoption of IFRS.
To reclassify items that are recognized in accordance with previous GAAP as a different type of asset, liability, or
component of equity, Microsoft Dynamics AX enables reclassification and transfer into new assets.
To apply IFRS in the measurement of all recognized assets and liabilities, Microsoft Dynamics AX supports the
standard cost accounting method conversion through an automated process. For any other accounting method
conversion, tailored procedures that restate inventory can be applied.
If there is a requirement for parallel reporting, Microsoft Dynamics AX provides the capability to utilize posting
layers to reflect changes between IFRS and GAAP. Microsoft Dynamics AX fixed asset accounting supports an
automated process for posting to IFRS and GAAP layers. All other automated transactions will be posted into a
single layer, whereas the differences between one GAAP and IFRS can be posted to another posting layer by
using a manual journal, resulting in a delta approach.
An additional alternative to consider when parallel reporting is required is to calculate and post IFRS adjustments
into a specific legal entity, and use Management Reporter for reporting with or without adjustments.
Microsoft Dynamics AX also supports parallel general ledger accounts for local and IFRS purposes. In this
approach, different accounts will be used instead of different posting layers.
With respect to retrospective application, see IAS 8. If the first-time adoption is known when the year end is
completed for the reporting period prior to the adoption, it is possible to use a posting layer for IFRS adjustments
of that period as part of the year-end process.
IFRS 8, Operating Segments

Overview
Only certain entities are required to disclose segment information. These are entities with listed or quoted equity
or debt instruments or entities that are in the process of obtaining a listing or quotation of debt or equity
instruments in a public market.
15
Operating segments are components of an entity, identified based on internal reports on each segment that are
regularly used by the entitys chief operating decision-maker (CODM) to allocate resources to the segment and to
assess its performance.
Operating segments are separately reported if they meet the definition of a reportable segment. A reportable
segment is an operating segment or group of operating segments that exceed the quantitative thresholds set out
in the standard. However, an entity may disclose any additional operating segment if it chooses to do so.
For all reportable segments, the entity is required to provide a measure of profit or loss in the format viewed by
the CODM, as well as disclosure of a measure of assets and liabilities if such amounts are regularly provided to
the CODM. Other segment disclosures include the revenue from customers for each group of similar products
and services, revenue by geography and dependence on major customers. Other detailed disclosures of
performance and resources are required if the CODM reviews these amounts. A reconciliation of the totals of
revenue, profit and loss, assets and liabilities and other material items reviewed by the CODM to the primary
financial statements is required.

Measurements and operating segments
Microsoft Dynamics AX supports IFRS 8 by providing the capability to define an unlimited number of segments,
called financial dimensions, which can be used for reporting purposes for all general ledger accounting entries.
Account structures can be used to ensure that a value is always provided for the segments used for operating
segments. The allowed values for these segments can be constrained based on values for other segments,
including main accounts.
The segments defined for operation segment reporting is leveraged in the consolidated reporting provided by
Microsoft Dynamics AX. This will ensure that consolidated financial statements properly reflect the operating
segments.
Microsoft Dynamics AX also provides the option to select one segment used for segmented reporting as a
balancing segment. This will reduce the need for manual adjustments to validate that assets and, if applicable,
liabilities properly reflect the operating segments structure.
Management Reporter can be leveraged when measurements and operating segments are identified. The actual
determination of measurements and operating segments is a management decision and is performed outside
Microsoft Dynamics AX.
Reconciliation
Microsoft Dynamics AX provides audit trail functionality that can be used when the segment amounts are based
on the entitys IFRS accounting policy. Reconciliation of consolidated statements can be performed by using
Management Reporters built-in drill-down capabilities.
16
IFRS 10, Consolidated Financial Statements

Overview
New principles concerning consolidated financial statements are set out in IFRS 10, which was issued by the IASB
in May 2011.
IFRS 10s objective is to establish principles for presenting and preparing consolidated financial statements when
an entity controls one or more entities. IFRS 10 sets out the requirements for when an entity should prepare
consolidated financial statements, defines the principles of control, explains how to apply the principles of control
and explains the accounting requirements for preparing consolidated financial statements.
The key principle in the new standard is that control exists, and consolidation is required only if the investor
possesses power over the investee, has exposure to variable returns from its involvement with the investee and
has the ability to use its power over the investee to affect its returns.
The new standard will affect some entities more than others. The consolidation conclusion is not expected to
change for most straightforward entities. However, changes can result where there are complex group structures
or where structured entities are involved in a transaction. Entities that are most likely to be affected potentially
include investors in the following entities:
Entities with a dominant investor that does not possess a majority voting interest, where the remaining
votes are held by widely-dispersed shareholders (de facto control)
Structured entities, also known as special purpose entities
Entities that issue or hold significant potential voting rights
Asset management entities
In difficult situations, the precise facts and circumstances will affect the analysis under IFRS 10. IFRS 10 does not
provide bright lines and requires consideration of many factors, such as the existence of contractual
arrangements and rights held by other parties, in order to assess control.

In Management Reporter, consolidated reports are created by using reporting trees that roll up subsidiaries into
the parent. These reporting trees can be used on any of the financial statements.
Intragroup balances and transactions can be eliminated by specifying the elimination accounts and subtracting
them from the consolidated amounts. Calculations can also be created to report non-controlling interests in
subsidiaries separately from the parents equity. It is also possible to use a separate legal entity for adjustment
and elimination purposes.
Management Reporter provides financial reporting support for IFRS 10 through the capability to report on the
recognized value of acquired identifiable assets and liabilities assumed. It supports the capability to measure any
non-controlling interest in an acquisition at fair value or as the non-controlling interests proportionate share, by
entering a percentage of the acquirees net identifiable assets.
17
For top-side adjustments, changes might be appropriate at the transaction level in Microsoft Dynamics AX,
because Management Reporter adjustments at the consolidation level might not be sufficient.
IFRS 3, Business Combinations

Overview
A business combination is a transaction or event in which an acquirer obtains control of one or more businesses
(acquiree(s)).
Business combinations occur in a variety of structures. IFRS 3 focuses on the substance of the transaction, rather
than the legal form. The overall result of a series of transactions is considered if there are a number of
transactions among the parties involved. For example, any transaction contingent on the completion of another
transaction may be considered linked.
All business combinations, excluding those involving businesses under common control, are accounted for using
the acquisition method. The acquisition method can be summarized in the following steps:
Identify the acquirer
Determine the acquisition date
Recognizes and measure the identifiable assets acquired, liabilities assumed and any non-controlling
interest in the acquiree
Recognize and measure the consideration transferred for the acquire
Recognize and measure goodwill or a gain from a bargain purchase

See IFRS 10 for more details.
IFRS 11, Joint Arrangements

Overview
A joint arrangement is a contractual arrangement in which at least two parties agree to share control over the
activities of the arrangement.
Unanimous consent over decisions about relevant activities is required in order to meet the definition of joint
control.
Joint arrangements can be joint operations or joint ventures. The classification is principle-based and depends on
the parties exposure to the arrangement. When the parties exposure to the arrangement only extends to net
assets of the arrangement, the arrangement is a joint venture.
Joint operations are often not structured through separate vehicles. Each operator has rights to assets and
obligations to liabilities, which is not limited to their capital contribution.
18
When a joint arrangement is disconnected from the parties and included in a separate entity, it can be either a
joint operation or a joint venture. In such cases, further analysis is required of the legal form of the separate
entity, the terms and conditions included in the contractual agreement and, sometimes, other facts and
circumstances.
Joint operators account for their rights to assets and obligations for liabilities. Joint venturers account for their
interest by using the equity method of accounting.

See IFRS 10 for more details.
Assets and inventory

IAS 2, Inventories
Overview
Inventories are initially recognized at cost. Inventory costs include import duties, non-refundable taxes, transport
and handling costs, and any other directly attributable costs less trade discounts, rebates and similar items.
Inventories are valued at the lower of cost and net realizable value (NRV). NRV is the estimated selling price in the
ordinary course of business, less the estimated costs of completion and estimated selling expenses.
IAS 2, Inventories, requires the cost of items that are not interchangeable or that have been segregated for
specific contracts to be determined on an individual-item basis. The cost of other items of inventory used is
assigned by using either the first-in, first-out (FIFO) or weighted average cost formula. Last-in, first-out (LIFO) is
not permitted. An entity uses the same cost formula for all inventories that have a similar nature and use to the
entity. A different cost formula may be justified where inventories have a different nature or use. The cost formula
used is applied on a consistent basis from period to period.

Inventory cost Measurement of inventories
Microsoft Dynamics AX supports accumulating costs, such as costs of purchase, costs of conversion, or costs
incurred when inventories are brought to their present location. These costs are included in inventory valuation.
Proper configuration of Microsoft Dynamics AX will validate that only applicable costs are accumulated and
recognized as inventory costs. Direct and indirect costs can be recognized during the procurement process and
accumulated during the conversion process. Indirect cost, including overhead, is absorbed based on rate or
surcharge.
Microsoft Dynamics AX supports the use of the following cost formulas: standard cost; weighted average, both
perpetual and periodic; FIFO perpetual and retrospective; and specific identification costing based on batch or
serial number. Inventory items can be correctly classified as, for example, finished goods, work in process (WIP),
and raw material. Cost can be maintained per site within a legal entity.
19
Expense recognition
Microsoft Dynamics AX supports perpetual recognition of cost of goods sold (COGS) when inventory is sold.
Net realizable value
Microsoft Dynamics AX supports write-down of individual inventory items or groups of inventory items.
Comparing and identifying net realizable value is a management decision, and is performed outside Microsoft
Dynamics AX.
IAS 16, Property, Plant and Equipment

Overview: Property, plant and equipment (PPE) is recognized when the cost of an asset can be reliably measured
and it is probable that the entity will obtain future economic benefits from the asset.
PPE is measured initially at cost. Cost includes the fair value of the consideration given to acquire the asset (net of
discounts and rebates) and any directly attributable cost of bringing the asset to working condition for its
intended use (inclusive of import duties and non-refundable purchase taxes).
Directly attributable costs include the cost of site preparation, delivery, installation costs, relevant professional
fees and the estimated cost of dismantling and removing the asset and restoring the site (to the extent that such
a cost is recognized as a provision). Classes of PPE are carried at historical cost less accumulated depreciation and
any accumulated impairment losses (the cost model), or at a revalued amount less any accumulated depreciation
and subsequent accumulated impairment losses (the revaluation model). The depreciable amount of PPE (being
the gross carrying value less the estimated residual value) is depreciated on a systematic basis over its useful life.
Subsequent expenditure relating to an item of PPE is capitalized if it meets the recognition criteria.
PPE may comprise parts with different useful lives. Depreciation is calculated based on each individual parts life.
In case of replacement of one part, the new part is capitalized to the extent that it meets the recognition criteria
of an asset, and the carrying amount of the parts replaced is derecognized.

Microsoft Dynamics AX provides the capability to create and maintain fixed asset records. Costs associated with
the acquisition of assets can be recorded in a project, in a vendor invoice, in inventory, or directly in fixed assets.
Acquisition adjustments can be made to record additional costs that are incurred to make the fixed asset ready
for service.
Depreciation entries can be automatically generated based on user-defined depreciation profiles that control the
systematic allocation of the depreciable amount of an asset over its useful life. Posting policies for each asset are
used to determine the correct accounts for financial reporting.
For cost-based accounting, Microsoft Dynamics AX supports carrying the asset at cost less any accumulated
depreciation and impairment losses.
20
For fair value accounting, Microsoft Dynamics AX supports carrying the asset at fair value and the capability to
record revaluation. Determining fair value is a management decision and is performed outside Microsoft
Dynamics AX.
Fixed assets can be disposed of when the asset is sold or scrapped, or when it no longer provides future
economic benefits. The carrying amount of the fixed asset is removed, and any gain or loss is recognized.
IAS 17, Leases

Overview
A lease gives one party (the lessee) the right to use an asset over an agreed period of time in return for payment
to the lessor. Leasing is an important source of medium and long-term financing; accounting for leases can have
a significant impact on lessees and lessors financial statements.
Leases are classified as finance or operating leases at inception, depending on whether substantially all the risks
and rewards of ownership transfer to the lessee. Under a finance lease, the lessee has substantially all of the risks
and reward of ownership. All other leases are operating leases. Leases of land and buildings are considered
separately under IFRS.
Under a finance lease, the lessee recognizes an asset held under a finance lease and a corresponding obligation
to pay rentals. The lessee depreciates the asset.
The lessor recognizes the leased asset as a receivable. The receivable is measured at the net investment in the
lease the minimum lease payments receivable, discounted at the internal rate of return of the lease, plus the
unguaranteed residual which accrues to the lessor.
Under an operating lease, the lessee does not recognize an asset and lease obligation. The lessor continues to
recognize the leased asset and depreciates it. The rentals paid are normally charged to the income statement of
the lessee and credited to that of the lessor on a straight-line basis.
Linked transactions with the legal form of a lease are accounted for on the basis of their substance, for example, a
sale and leaseback where the seller is committed to repurchase the asset may not be a lease in substance if the
seller retains the risks and rewards of ownership and substantially the same rights of use as before the
transaction.
Equally, some transactions that do not have the legal form of a lease are in substance leases if they are
dependent on a particular asset that the purchaser can control physically or economically.

The lessee can use acquisition journals to capitalize finance leases. Classifying leases as financial or operating,
determining the correct value, and lowering the fair value and/or lease payments are management decisions, and
are performed outside Microsoft Dynamics AX. Application of payments can be split into reduction of liability and
finance charges. Configurable depreciation profiles are used to calculate depreciations. Determining the correct
depreciation period is a management decision and is performed outside Microsoft Dynamics AX.
Standard vendor invoice processing can be used to expense operating lease payments.
21
Standard customer invoice processing can be used to record receivables for the lessor. After it is determined,
lease income, finance income, or accrual can be recognized for the invoice or through journal entry adjustments.
IAS 36, Impairment of Assets

Overview
Nearly all assets, current and non-current, are subject to an impairment test to confirm that they are not
overstated on balance sheets.
The basic principle of impairment is that an asset may not be carried on the balance sheet at above its
recoverable amount. Recoverable amount is defined as the higher of the assets fair value less costs to sell and its
value in use. Fair value less costs to sell is the amount obtainable from a sale of an asset in an arms length
transaction between knowledgeable, willing parties, less costs of disposal. Value in use requires management to
estimate the future cash flows to be derived from the asset and discount them using a pre-tax market rate that
reflects current assessments of the time value of money and the risks specific to the asset.
All assets subject to the impairment guidance are tested for impairment where there is an indication that the
asset may be impaired. Certain assets such as goodwill, indefinite lived intangible assets and intangible assets that
are not yet available for use, are also tested for impairment annually even if there is no impairment indicator.
When considering whether an asset is impaired, both external indicators, for example, significant adverse changes
in the technological, market, economic or legal environment or increases in market interest rates, and internal
indicators, for example, evidence of obsolescence or physical damage of an asset or evidence from internal
reporting that the economic performance of an asset is, or will be, worse than expected, are considered.
Recoverable amount is calculated at the individual asset level. However, an asset seldom generates cash flows
independently of other assets, and most assets are tested for impairment in groups of assets described as cashgenerating units (CGUs). A CGU is the smallest identifiable group of assets that generates inflows that are largely
independent from the cash flows from other CGUs.
The carrying value of an asset is compared to the recoverable amount, which is the higher of value in use or fair
value less costs to sell. An asset or CGU is impaired when its carrying amount exceeds its recoverable amount.
Any impairment is allocated to the asset or assets of the CGU, with the impairment loss recognized in profit or
loss.
Goodwill acquired in a business combination is allocated to the acquirers CGUs or groups of CGUs that are
expected to benefit from the synergies of the business combination. However, the largest group of CGUs
permitted for goodwill impairment testing is the lowest level of operating segment before aggregation.
22

Impairment can be recognized in the general ledger as an expense, and Microsoft Dynamics AX supports
subsequent revaluations through the Fixed assets module. Reversal of an impairment loss can be recognized as
income or revaluation increase as adjustments through fixed asset processing. Identifying the impairment and fair
value of an asset, whether for an external or internal source, is a management decision and is performed outside
Microsoft Dynamics AX.
IAS 37, Provisions, Contingent Liabilities and Contingent Assets

Overview
A liability is a present obligation of the entity arising from past events, the settlement of which is expected to
result in an outflow from the entity of resources embodying economic benefits. A provision falls within the
category of liabilities and is defined as a liability of uncertain timing or amount.
Recognition and initial measurement
A provision is recognized when: the entity has a present obligation to transfer economic benefits as a result of
past events; it is probable (more likely than not), that such a transfer will be required to settle the obligation; and
a reliable estimate of the amount of the obligation can be made.
The amount recognized as a provision is the best estimate of the expenditure required to settle the obligation at
the balance sheet date, measured at the expected cash flows discounted for the time value of money. Provisions
are not recognized for future operating losses.
A present obligation arises from an obligating event and may take the form of either a legal obligation or a
constructive obligation. An obligating event leaves the entity no realistic alternative to settling the obligation. If
the entity can avoid the future expenditure by its future actions, it has no present obligation, and no provision is
required. For example, an entity cannot recognize a provision based solely on the intent to incur expenditure at
some future date or the expectation of future operating losses, unless these losses relate to an onerous contract.
Restructuring provisions
There are specific requirements for restructuring provisions. A provision is recognized when there is: (a) a detailed
formal plan identifying the main features of the restructuring, and (b) a valid expectation in those affected that
the entity will carry out the restructuring by starting to implement the plan or by announcing its main features to
those affected.
A restructuring plan does not create a present obligation at the balance sheet date if it is announced after that
date, even if it is announced before the financial statements are approved. No obligation arises for the sale of an
operation until the entity is committed to the sale (that is, there is a binding sale agreement).
The provision includes only incremental costs resulting from the restructuring and not those associated with the
entitys ongoing activities. Any expected gains on the sale of assets are not considered in measuring a
restructuring provision.
23
Reimbursements
An obligation and any anticipated recovery are presented separately as a liability and an asset respectively.
However, an asset can only be recognized if it is virtually certain that settlement of the obligation will result in a
reimbursement, and the amount recognized for the reimbursement should not exceed the amount of the
provision. The amount of any expected reimbursement is disclosed. Net presentation is permitted only in the
income statement.
Subsequent measurement
Management performs an exercise at each balance sheet date to identify the best estimate of the discounted
expenditure required to settle the present obligation at the balance sheet date. The increase in provision due to
the passage of time, that is, as a consequence of the discount rate, is recognized as interest expense.
Contingent liabilities
Contingent liabilities are possible obligations whose existence will be confirmed only on the occurrence or nonoccurrence of uncertain future events outside the entitys control, or present obligations that are not recognized
because: (a) it is not probable that an outflow of economic benefits will be required to settle the obligation, or (b)
the amount cannot be measured reliably.
Contingent liabilities are not recognized but are disclosed and described in the notes to the financial statements,
including an estimate of their potential financial effect and uncertainties relating to the amount or timing of any
outflow, unless the possibility of settlement is remote.
Contingent assets
Contingent assets are possible assets whose existence will be confirmed only on the occurrence or nonoccurrence of uncertain future events outside the entitys control. Contingent assets are not recognized. When
the realization of income is virtually certain, the related asset is not a contingent asset, it is recognized as an asset.
Contingent assets are disclosed and described in the notes to the financial statements, including an estimate of
their potential financial effect if the inflow of economic benefits is probable.

The determination of a contingent asset, a liability, or a provision is performed outside Microsoft Dynamics AX.
Microsoft Dynamics AX provides indirect support for IAS 37 by providing the capability to record journal entries
for any provision that must be recognized, or to classify a contingent liability or asset and revaluate it at fair value.
IAS 38, Intangible Assets

Overview
An intangible asset is an identifiable non-monetary asset without physical substance. The identifiable criterion is
met when the intangible asset is separable, that is, when it can be sold, transferred or licensed, or where it arises
from contractual or other legal rights.
24
Separately acquired intangible assets

Separately acquired intangible assets are recognized initially at cost. Cost comprises the purchase price, including
import duties and non-refundable purchase taxes, and any directly attributable costs of preparing the asset for its
intended use. The purchase price of a separately acquired intangible asset incorporates assumptions about the
probable economic future benefits that may be generated by the asset.
Internally generated intangible assets
The process of generating an intangible asset is divided into a research phase and a development phase. No
intangible assets arising from the research phase may be recognized. Intangible assets arising from the
development phase are recognized when the entity can demonstrate:
Its technical feasibility
Its intention to complete the developments
Its ability to use or sell the intangible asset
How the intangible asset will generate probable future economic benefits (for example, the existence of a
market for the output of the intangible asset or for the intangible asset itself)
The availability of resources to complete the development
Its ability to measure the attributable expenditure reliably
Any expenditure written off during the research or development phase cannot be capitalized if the project meets
the criteria for recognition at a later date. The costs relating to many internally generated intangible items cannot
be capitalized and are expensed as incurred. This includes research, start-up and advertising costs. Expenditure on
internally generated brands, mastheads, customer lists, publishing titles and goodwill are not recognized as
intangible assets.
Intangible assets acquired in a business combination
If an intangible asset is acquired in a business combination, both the probability and measurement criterion are
always considered to be met. An intangible asset will therefore always be recognized, regardless of whether it has
been previously recognized in the acquirees financial statements.
Subsequent measurement
Intangible assets are amortized unless they have an indefinite useful life. Amortization is carried out on a
systematic basis over the useful life of the intangible asset. An intangible asset has an indefinite useful life when,
based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is
expected to generate net cash inflows for the entity.

The Fixed assets module supports recognition of intangible assets at cost in the financial statements. The
identification of an intangible asset is a management decision and is performed outside Microsoft Dynamics AX.
25
Project accounting can be used to recognize internally generated intangible assets. The amortization of assets can
be performed by using the depreciation routines.
IAS 40, Investment Property

Overview
Certain properties are classified as investment properties for financial reporting purposes in accordance with IAS
40 as the characteristics of these properties differ significantly from owner-occupied properties. It is the current
value of such properties and changes to those values that are relevant to users of financial statements.
Investment property is property, for example, land or a building, or part of a building or both, held by an entity to
earn rentals and/or for capital appreciation. This category includes such property in the course of construction or
development.
Any other properties are accounted for as property, plant and equipment (PPE) in accordance with:
IAS 16 if they are held for use in the production or supply of goods or services
IAS 2 as inventory, if they are held for sale in the ordinary course of business. Owner-occupied property
does not meet the definition of investment property
Initial measurement of an investment property is the fair value of its purchase consideration plus any directly
attributable costs. Subsequent to initial measurement, management may choose as its accounting policy either to
carry investment properties at fair value or at cost. The policy chosen is applied consistently to all the investment
properties that the entity owns. If the fair value option is chosen, investment properties in the course of
construction or development are measured at fair value if this can be reliably measured; otherwise, they are
measured at cost.
Under IAS 40, fair value is the price at which the property could be exchanged between knowledgeable, willing
parties in an arms length transaction. Under IFRS 13, fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Changes in fair value are recognized in profit or loss in the period in which they arise.
The cost model requires investment properties to be carried at cost less accumulated depreciation and any
accumulated impairment losses consistent with the treatment of PPE; the fair values of these properties is
disclosed in the notes.

An investment property can be recorded in Microsoft Dynamics AX as a fixed asset. The determination of a fixed
asset by using the fair value or cost model is a management decision and is performed outside Microsoft
Dynamics AX. The fixed asset journals can be used to adjust acquisition value based on changes in fair value, and
also to recognize the change in the income statement.
Investment properties can be classified by using specific asset groups and specific posting rules to ease disclosure
of required information.
26
IFRS 5, Non-current Assets Held for Sale and Discontinued Operations

Overview
IFRS 5 is relevant when any disposal occurs or is planned. The held-for-sale criteria in IFRS 5 apply to non-current
assets (or disposal groups) whose value will be recovered principally through sale rather than through continuing
use. The criteria do not apply to assets that are being scrapped, wound down or abandoned.
IFRS 5 defines a disposal group as a group of assets to be disposed of, by sale or otherwise, together as a group
in a single transaction, and liabilities directly associated with those assets that will be transferred in the
transaction.
The non-current asset (or disposal group) is classified as held for sale if it is available for its immediate sale in its
present condition and its sale is highly probable. A sale is highly probable where: there is evidence of
management commitment; there is an active program to locate a buyer and complete the plan; the asset is
actively marketed for sale at a reasonable price compared to its fair value; the sale is expected to be completed
within 12 months of the date of classification; and actions required to complete the plan indicate that it is unlikely
that there will be significant changes to the plan or that it will be withdrawn.
Non-current assets (or disposal groups) classified as held for sale are:
Carried at the lower of the carrying amount and fair value less costs to sell
Not depreciated or amortized
Presented separately in the balance sheet (assets and liabilities should not be offset)
A discontinued operation is a component of an entity that can be distinguished operationally and financially for
financial reporting purposes from the rest of the entity and:
Represents a separate major line of business or major geographical area of operation
Is part of a single coordinated plan to dispose of a separate major line of business or geographical area
of operation
Is a subsidiary acquired exclusively with a view for resale
An operation is classified as discontinued only at the date on which the operation meets the criteria to be
classified as held for sale or when the entity has disposed of the operation. Although balance sheet information is
neither restated nor re-measured for discontinued operations, the statement of comprehensive income
information does have to be restated for the comparative period.
Discontinued operations are presented separately in the income statement and the cash flow statement. There
are additional disclosure requirements in relation to discontinued operations.
The date of disposal of a subsidiary or disposal group is the date on which control passes. The consolidated
income statement includes the results of a subsidiary or disposal group up to the date of disposal; the gain or
loss on disposal is the difference between (a) the carrying amount of the net assets plus any attributable goodwill
and amounts accumulated in other comprehensive income (for example, foreign translation adjustments and
available-for-sale reserves); and (b) the proceeds of sale.
27

In Microsoft Dynamics AX, fixed assets that are classified as held for sale can be measured at the lower of the
carrying amount and the fair value less costs to sale. For any assets that are held for sale, Microsoft Dynamics AX
enables reclassification and transfer into new assets.
Asset disposal groups can be managed by transferring multiple assets into a single asset. Assets can be set to not
depreciate. General ledger accounts can be defined for the assets that are held for sale to provide for the correct
presentation in the financial statements.
Foreign currency
IAS 21, The Effects of Changes in Foreign Exchange Rates
Overview
Many entities do business with overseas suppliers or customers, or have overseas operations. This gives rise to
two main accounting issues:
Some transactions, for example, those with overseas suppliers or customers, may be denominated in foreign
currencies. These transactions are expressed in the entitys own currency (functional currency) for financial
reporting purposes.
An entity may have foreign operations, for example, overseas subsidiaries, branches or associates that maintain
their accounting records in their local currency. Because it is not possible to combine transactions measured in
different currencies, the foreign operations results and financial position are translated into a single currency,
namely that in which the groups consolidated financial statements are reported (presentation currency).
The methods required for each of the above circumstances are summarized below.
Expressing foreign currency transactions in the entitys functional currency
A foreign currency transaction is expressed in the functional currency using the exchange rate at the transaction
date. Foreign currency balances representing cash or amounts to be received or paid in cash (monetary items) are
reported at the end of the reporting period using the exchange rate on that date. Exchange differences on such
monetary items are recognized as income or expense for the period.
Non-monetary balances that are not re-measured at fair value and are denominated in a foreign currency are
expressed in the functional currency using the exchange rate at the transaction date. Where a non-monetary item
is re-measured at fair value in the financial statements, the exchange rate at the date when fair value was
determined is used.
28
Translating functional currency financial statements into a presentation currency

Assets and liabilities are translated from the functional currency to the presentation currency at the closing rate at
the end of the reporting period. The income statement is translated at exchange rates at the dates of the
transactions or at the average rate if that approximates the actual rates. All resulting exchange differences are
recognized in other comprehensive income.
The financial statements of a foreign operation that has the currency of a hyperinflationary economy as its
functional currency are first restated in accordance with IAS 29. All components are then translated to the
presentation currency at the closing rate at the end of the reporting period.

Microsoft Dynamics AX provides the capability to define a functional currency as the accounting currency for a
ledger. The initial recognition of foreign currency transaction amounts are translated to the accounting currency
by using the exchange rate at the transaction date.
For foreign currency monetary items, a periodic currency revaluation process can be run in accounts receivable,
accounts payable, and the general ledger for accounts that are set up for currency revaluation.
Non-monetary items that are measured in terms of historical cost in a foreign currency can be excluded from
currency revaluation and can be carried at the exchange rate at the date of the transaction.
Non-monetary items that are measured at fair value in a foreign currency can be translated by using the
exchange rate at the date of the transaction.
Microsoft Dynamics AX automatically recognizes realized profit and loss postings related to the settlement of
monetary items at rates that differ from the previous closing rate.
Investments in foreign operations can be recognized in Microsoft Dynamics AX as separate financial statements
of the reporting entity and also the individual financial statements of the foreign operation.
Reporting currency translation is supported by the use of either a consolidation company or Management
Reporter. For consolidation companies, the transaction rate, average exchange rate, or closing rate can be applied
to accounts. The difference calculated to balance when you translate to the reporting currency will be identified
as the currency translation adjustment amount and will be presented appropriately in the financial statements.
Reports in Management Reporter can be viewed in any of the currencies with the appropriate rate applied.
Reports can also be created to view balances in specific currencies side by side.
Revenue recognition
IAS 11, Construction Contracts
Overview
A construction contract is a contract specifically negotiated for the construction of an asset or combination of
assets, including contracts for the rendering of services directly related to the construction of the asset (such as
29
project management and architectural design services). Such contracts are typically structured with the buyer as a
fixed-price or cost-plus contract.
Revenue and expenses on construction contracts are recognized using the percentage-of-completion method.
This means that revenue, expenses and therefore profit are recognized gradually as contract activity occurs.
When the outcome of the contract cannot be estimated reliably, revenue is recognized only to the extent of costs
incurred that it is probable will be recovered; contract costs are recognized as an expense as incurred. When it is
probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an
expense immediately.
IFRIC 15, Agreements for construction of real estate, clarifies which standard (IAS 18, Revenue, or IAS 11,
Construction contracts) should be applied to particular transactions.

Microsoft Dynamics AX supports the percentage-of-completion method of accounting as a basis for recognizing
revenue and cost for fixed-price projects. Determining whether the contract can be estimated reliably is a
management decision and is performed outside Microsoft Dynamics AX.
The stage of completion of a contract can be determined based on the contract cost incurred to date versus
estimated total contract cost and completion of contract milestones.
In some scenarios, the outcome cannot be estimated reliably, contract costs need to be expensed as they occur,
and no profit can be recognized. In these cases, recognized revenue can be manually adjusted.
The entire expected losses for construction contracts can be recognized as adjusted revenue as part of
percentage-of-completion recognition.
IAS 18, Revenue

Overview
Revenue arising from the sale of goods is recognized when an entity transfers the significant risks and rewards of
ownership and gives up managerial involvement usually associated with ownership or control, if it is probable
that economic benefits will flow to the entity and the amount of revenue and costs can be measured reliably.
Revenue from the rendering of services is recognized when the outcome of the transaction can be estimated
reliably. This is done by reference to the stage of completion of the transaction at the balance sheet date, using
requirements similar to those for construction contracts. The outcome of a transaction can be estimated reliably
when: the amount of revenue can be measured reliably; it is probable that economic benefits will flow to the
entity; the stage of completion can be measured reliably; and the costs incurred and costs to complete can be
reliably measured.
Examples of transactions where the entity retains significant risks and rewards of ownership and revenue is not
recognized are when:
30
The entity retains an obligation for unsatisfactory performance not covered by normal warranty
provisions
The buyer has the power to rescind the purchase for a reason specified in the sales contract and the
entity is uncertain about the probability of return
Then the goods are shipped subject to installation and that installation is a significant part of the contract
Interest income is recognized using the effective interest rate method. Royalties are recognized on an accruals
basis in accordance with the substance of the relevant agreement. Dividends are recognized when the
shareholders right to receive payment is established.
IFRIC 13, Customer loyalty programs, clarifies the accounting for award credits granted to customers when they
purchase goods or services, for example, under frequent-flyer or supermarket loyalty schemes. The fair value of
the consideration received or receivable in respect of the initial sale is allocated between the award credits and
the other components of the sale.

Measurement of revenue
Microsoft Dynamics AX provides the capability to record the fair value of consideration that is received or is
receivable. The determination of fair value and discounted revenue is a management decision and is performed
outside Microsoft Dynamics AX.
Recognition of revenue
Microsoft Dynamics AX supports configuration to recognize revenue for order-based sales either at the point of
delivery or at the point of invoicing. Configuration is user-defined to provide that the appropriate recognition
policy can be applied to each good, service, and so on. Similar to construction contracts in IAS 11, services
delivered over a period of time can use Microsoft Dynamics AX Project management and accounting to specify
the appropriate revenue recognition policy.
Revenue accounts are defaulted based on accounting rules, but they can be modified for each transaction.
Revenue adjustments, including recognition for multiple elements and rights of return, are primarily made
through accounting journals.
Uncollected amounts or amounts for which recovery has ceased to be probable are expensed as part of the
receivable collection process in Microsoft Dynamics AX.
IAS 20, Accounting for Government Grants and Disclosure of Government Assistance
Overview
Government grants are recognized when there is reasonable assurance that the entity will comply with the
conditions related to them and that the grants will be received.
31
Grants related to income are recognized in profit or loss over the periods necessary to match them with the
related costs that they are intended to compensate. They are either offset against the related expense or
presented as separate income. The timing of such recognition in profit or loss will depend on the fulfillment of
any conditions or obligations attaching to the grant.
Grants related to assets are either offset against the carrying amount of the relevant asset or presented as
deferred income in the balance sheet. Profit or loss will be affected either by a reduced depreciation charge or by
deferred income being recognized as income systematically over the useful life of the related asset.

Microsoft Dynamics AX supports the registration of grants and grants amounts. Grants can be classified as
deferred credit. The Project management and accounting module can be used to recognize conditional grants as
income and match them with the related costs that they are intended to compensate. Alternatively, the
recognition and matching can be made by using journal entries. If a grant becomes repayable, it can be applied
against unamortized deferred credit, and any excess can be recognized as expense.
Grants related to assets can be registered as carrying amount adjustments in the Microsoft Dynamics AX Fixed
assets module. Adjustments are tracked separately and can be reversed in the event of repayment. Adjustments
to cumulative depreciation as a result of a repayment can be charged as an expense.
IAS 23, Borrowing Costs

Overview
Under IAS 23, costs are directly attributable to the acquisition, construction or production of a qualifying asset to
be capitalized.

See IAS 11 and IAS 16 for more details.
General ledger concepts in Microsoft Dynamics AX

Microsoft Dynamics AX provides the capability to define and share any number of charts of accounts, fiscal
calendars, and currencies. The general ledger for a company or legal entity defines a combination of a specific
chart of accounts, a fiscal calendar, and the functional and reporting currency. Furthermore, attributes for main
accounts, fiscal calendar, and currencies can be defined per legal entity.
Microsoft Dynamics AX provides comprehensive support for global businesses and intracompany and
intercompany transactions.
Microsoft Dynamics AX supports an unlimited number of financial dimensions. Accounting rules are defined,
based on the chart of accounts and the organizational hierarchies, to provide that the appropriate dimensions
and dimension values are captured for each accounting entry. These rules should be used to confirm that correct
information is available for financial and management reporting.
32
Management Reporter for Microsoft Dynamics ERP supports the creation of statutory and operational reports
based on general ledger data. Management Reporter is used for the creation, distribution, and analysis of
financial statements and other financial reports, and is included in Microsoft Dynamics AX. Management Reporter
provides out-of-box report templates that can be used to report on Microsoft Dynamics AX general ledger data.
These templates can be modified to meet specific business needs.
U.S. GAAP
Overview of U.S. GAAP, and identification of ERP differences between U.S. GAAP and IFRS
U.S. companies became increasingly aware of IFRS over the past decade, as the FASB and the IASB (collectively,
the Boards) worked jointly and focused their agendas on the convergence of U.S. GAAP and IFRS. But that era will
soon be coming to a close, as the formal bilateral relationship between the Boards ends, and their joint priority
projects on revenue recognition, leasing, financial instruments, and insurance are finalized. Although the Boards
work both improved financial reporting and brought the accounting frameworks closer together, the future of
further convergence remains uncertain as the Boards shift attention to their own independent agendas. IFRS is
increasingly relevant to many U.S. companies, large and small, public and non-public. PwC has created a
document titled IFRS and US GAAP: similarities and differences that can help the reader understand the
implications and variations between U.S. GAAP and IFRS reporting requirements.
33
How Microsoft Dynamics AX supports the compliance initiative

Overview of Sarbanes-Oxley
The Sarbanes-Oxley (SOX) Act was signed into law on July 30, 2002. This act was designed to restore/enhance
public confidence in the financial reporting and disclosure process and the accounting profession. In addition, it
was designed to strengthen enforcement of federal securities laws, and improve executive responsibility and
accountability.
The Sarbanes-Oxley Act requires:
Public companies to have an effective framework for internal controls and extensive documentation of
controls.
Quarterly certification by management of the nature and effectiveness of internal controls, and the
quality of information contained.
An annual report by management about internal controls and procedures for financial reporting, and, in
certain instances, an attestation by the companys external auditor as to the companys internal controls
over financial reporting.
General overview of Microsoft Dynamics AX and the compliance initiative

Companies continue to find themselves in an environment of economic uncertainty and under pressure to
become more efficient. At the same time, the number and complexity of regulatory requirements continues to
increase. Performance expectations, increasing stakeholder demands, and changing market conditions are forcing
business leaders to search for cost-effective ways to enforce compliance adoption without jeopardizing
organizational agility and business growth.
The compliance and audit features in Microsoft Dynamics AX let companies enforce compliance in a consistent,
cost-effective way, while streamlining business processes and improving efficiency across the organization.
Compliance with corporate policies and procedures

Microsoft Dynamics AX policies and workflows let you define business rules and automate processes, ensuring
that users are following a specified set of processes that give companies greater and stronger internal automated
controls.
One example of enabling policy is the deployment of workflow. Workflow in Microsoft Dynamics AX enables the
setup of an approval process for selected source documents, for example accounting journals. The approval
process allows a user to define the conditions under which approvals are required and link this to the
organizational hierarchy to provide appropriate levels of review and approval. The posting of the transaction is
therefore placed in a pending status until the appropriate approvals are received providing internal control over
workflow-enabled processes. Lastly in addition to capturing levels of approach, workflow capabilities in Microsoft
Dynamics AX provide a mechanism to track the status of a document workflow (e.g., from initiation, pending
34
approval, approved, rejected) to provide a timely completion of open item.

Other module specific policies can also be configured to secure an appropriate level of internal control for a
specific business process. For example within account payables, configuration can be applied at an enterprisewide, vendor or product level to enable automated control areas such as a three-way or two-way match.
Capabilities exist in configuration to define the matching policy for any level based on invoice totals and
tolerances to provide control, yet flexibility per your organizations requirements. If a matching discrepancy
exceeds the tolerance it will require to be resolved or accepted should the differences based on approval by an
authorized user.
Furthermore data integrity can be maintained in your environment through the successful deployment of
automated controls to enable your data governance strategy. Internal controls relevant to mandatory data fields
and validation of data input (e.g., within your customer or vendor master records) can lead to greater reliability of
your core master data, and provide greater confidence and integrity of downstream business transactions.
Automating auditing with audit rules, policies, and cases
Internal controls relying on heavy manual control activities (e.g., reconciliations, reviews) can be time-consuming
and expensive. Leading practice suggest companies leverage automation where possible to unlock the ROI and
value with an ERP implementation. By enabling audit rules, and policies available in Microsoft Dynamics AX, the
internal control framework can shift its mix of controls to greater automation driving to benefits in strong
preventative internal controls and a potential reduction in the cost of compliance. Further, audits leveraging
automation can bring about a standard, global control environment that is flexible and scalable to adapt to your
organizations growth. For example, by configuring automated bank reconciliation functionality within the
system, there is greater reliability in the matching and processing of bank transactions.
It is possible to define common audit rules based on specific keywords and associate audit policies with these
rules to evaluate for example expense reports, vendor invoices, and purchase orders for compliance with your
companys policies. Audit rules can be applied to one or multiple legal entities in your organization. Each audit
policy can be scheduled to run automatically and on recurring bases. Upon completion, audit policy violations are
grouped into audit cases, allowing auditors to research and record all findings regarding non-compliant issues.
Tracking and tracing changes
Many compliance requirements focus on recording exactly what was done, when, and by whom. Microsoft
Dynamics AX supports complete and robust audit trails to identify the origin of an entry, the user who created it,
and the date and time when it was created. Database logging in Microsoft Dynamics AX makes it possible to
track, trace and report changes to data fields and tables that are relevant to your compliance strategy. Alert rules
can also easily be configured to deliver automatic notification about sensitive data.
Access control and segregation of duties
A key component of compliance is securing who has access to various features and data in the system. Setting up
and managing security can be time-consuming; setting up permissions correctly can require multiple iterations. In
addition, to enforce strong controls, companies need to create appropriate checks and balances, ensuring that
35
their systems are not only secured but are also maintain strong segregation of duties between conflicting
functions in the organization that could lead to potential risk of unintended, malicious or fraudulent activity.
Microsoft Dynamics AX supports role-based security, which helps manage growing complexities in organizations
security by utilizing reusable permissions, default and sample security definitions. In a role-based security
environment, users are assigned to roles based on their responsibilities in the organization and their participation
in business processes. Microsoft Dynamics AX supports segregation of duties giving the ability to setup rules
indicating when two duties must be performed by separate roles for better security or better compliance with
policies and regulations. Microsoft Dynamics AX supports access to only authorized users through single sign-on
capabilities.
In Microsoft Dynamics AX, the extensible data security framework can be used to help secure the data. By using
this framework, you can create data security policies that, for example, grant View access to one subset of sales
orders and Edit access to another subset of sales orders. Microsoft Dynamics AX supports electronic signatures to
help enable compliance and accountability as required by regulations, law or company policy for critical business
processes.
Documenting processes and controls
Another key component in any compliance program is documenting business processes and controls, and also
testing the validity and effectiveness of those controls. Microsoft Dynamics AX helps organizations enforce
standard operating procedures by automating the process of creating and sharing business process
documentation and standard operating procedures to its stakeholders in a shared collaborative workspace.
Microsoft Dynamics AX provides a central location for users to view, manage, and control the internal controls,
business process content, and reporting for the organization's compliance program. The Compliance site provides
easy and convenient access to required documentation, internal controls and status tracking. From the
Compliance site, users can view graphs representing the efficiency and effectiveness of the internal controls,
examine key performance indicators, manage action items from alerts or workflow, and add links to important
external compliance sites.
The Business process modeler in Microsoft Dynamics Lifecycle Services is pre-populated with a standard process
map based on the APQCs (American Productivity & Quality Centers http://www.apqc.org/) cross industry
framework. Task Recorder in Microsoft Dynamics AX delivers capabilities to automatically document business
process, by recording tasks performed in Microsoft Dynamics AX as video recordings, process flow diagrams and
step by step documentation.
36
Contacts page
PricewaterhouseCoopers LLP (PwC) and Microsoft Corporation have formed a strategic alliance to help companies
engaged in enterprise transformation projects that use Microsoft Business Solutions technology. With this
alliance, PwC is the first major service partner recognized by Microsoft 's Dynamics Group as a Global Business
Transformation Partner, which allows it to build business transformation services around the Microsoft Dynamics
suite of applications.
Under the agreement, PwC consultants will provide advice and implementation assistance to clients who select
Microsoft Dynamics together with other Microsoft technologies, including Microsoft Dynamics AX enterprise
resource planning (ERP), customer relationship management (CRM), and business intelligence (BI) solutions, as
part of a business transformation project.
PwC contacts
Jamie
Draper
(415) 806-0576
james.draper@us.pwc.com
Rajesh
Balaraman
(312) 298-6885
rajesh.balaraman@us.pwc.com
Matthew
Korros
(206) 398-3324
matthew.d.korros@us.pwc.com
Microsoft contacts
Microsoft
Dynamics
AX IFRS
Discussion
37
daxifrs@microsoft.com
Appendix
IFRS external to Microsoft Dynamics AX ERP

IAS 12, Income Taxes
IAS 19, Employee Benefits
IAS 24, Related Party Disclosures
IAS 26, Accounting and Reporting by Retirement Benefit Plans
IAS 28, Investments in Associates and Joint Ventures
IAS 29, Financial Reporting in Hyperinflationary Economies
IAS 39, Financial Instruments: Recognition and Measurement
IAS 41, Agriculture
IFRS 4, Insurance Contracts
IFRS 6, Exploration for and Evaluation of Mineral Assets
IFRS 7, Financial Instruments: Disclosures
IFRS 9, Financial Instruments
IFRS 12, Disclosure of Interests in Other Entities
IFRS 13, Fair Value Measurement
38
Disclaimer
2014 PricewaterhouseCoopers, LLP and 2014 Microsoft Corporation. All rights reserved.
This document is provided as is without any express or implied warranties, including, but not limited to,
warranties or merchantability or fitness for a particular purpose or use. Although PwC and Microsoft exercised
reasonable professional care and diligence in the collection, processing, and reporting of this information, neither
PwC nor Microsoft warrants or assumes any legal liability or responsibility for the accuracy, adequacy,
completeness, availability and/or usefulness of any data, information or process disclosed in this document and
are not responsible for any errors or omissions or for the results obtained from the use of such information. In no
event shall PwC or Microsoft be liable for any indirect, special, or consequential damages in connection with use
of this document or its content.
Complying with all applicable copyright laws is the responsibility of the user. Without limiting the rights under
copyright, users may reproduce, record, store in, or introduce into a retrieval system, or transmit in any form or by
any means (electronic, mechanical, photocopying, recording, or otherwise), a limited number of copies of this
entire document, use this entire document for internal, reference purposes and distribute complete copies of this
document to existing or prospective customers. Users have no right to modify, translate or adapt this document
or distribute portions or partial copies of this document.
39

Microsoft Dynamics AX 2012 R3 Support For IFRS

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Microsoft Dynamics AX 2012 R3 Support For IFRS

Uploaded by

Copyright:

Available Formats

Microsoft Dynamics AX 2012 R3

Support for IFRS

General ledger concepts in Microsoft Dynamics AX ................................................................................................................................ 32

Influences the direction of convergence.

Is used by foreign subsidiaries of U.S. companies.

IFRS requirements applicable to Microsoft Dynamics AX

Share of the profit or loss of associates and joint ventures

Post-tax profit or loss of discontinued operations

Profit or loss for the period

Each component of other comprehensive income classified by nature

Share of the other comprehensive income of associates and joint ventures

Total comprehensive income

Other comprehensive income

Other comprehensive income

Statement of cash flows

Support for IAS 1 in Microsoft Dynamics AX

IAS 7, Statement of Cash Flows

Support for IAS 7 in AX 2012 R3

IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors

Changes in accounting estimates

Support for IAS 8 in Microsoft Dynamics AX

IAS 10, Events after the Reporting Period

Support for IAS 10 in Microsoft Dynamics AX

IAS 34, Interim Financial Reporting

Materiality to the overall interim financial statements

Unusual or irregular items

Relevance to the understanding of estimates used in the interim financial statements

Support for IAS 34 in Microsoft Dynamics AX

IFRS 1, First time Adoption of International Financial Standards

Cumulative translation differences

Compound financial instruments

Assets and liabilities of subsidiaries, associates and joint ventures

Designation of previously recognized financial instruments

Share-based payment transactions

Fair value measurement of financial assets or financial liabilities at initial recognition

Decommissioning liabilities included in the cost of property, plant and equipment

Service concession arrangements

Investments in subsidiaries, jointly controlled entities and associates

Transfers of assets from customer

Extinguishing financial liabilities with equity instruments

Derecognition of financial assets and liabilities

Classification and measurement of financial assets

Support for IFRS 1 in Microsoft Dynamics AX

IFRS 8, Operating Segments

Support for IFRS 8 in Microsoft Dynamics AX

IFRS 10, Consolidated Financial Statements

Structured entities, also known as special purpose entities

Entities that issue or hold significant potential voting rights

Asset management entities

Support for IFRS 10 in Microsoft Dynamics AX

IFRS 3, Business Combinations

Identify the acquirer

Determine the acquisition date

Recognize and measure the consideration transferred for the acquire

Recognize and measure goodwill or a gain from a bargain purchase

Support for IFRS 3 in Microsoft Dynamics AX

IFRS 11, Joint Arrangements

Support for IFRS 11 in Microsoft Dynamics AX

Assets and inventory

Support for IAS 2 in Microsoft Dynamics AX

IAS 16, Property, Plant and Equipment

Support for IAS 16 in Microsoft Dynamics AX

IAS 17, Leases