1. The objective of National Accounting Standard 3, Financial Instruments („NAS 3„ or “the Standard”), issued and approved by the National Accounting Council and promulgated by the Ministry of Finance, as amended, is to provide principles for the recognition, measurement, and subsequent accounting of financial instruments, as well as the disclosures required in financial statements prepared in accordance with the National Accounting Standards. These standards are based on internationally accepted accounting and reporting principles, the general requirements of which are described in Law no. 9228, "On Accounting and Financial Statements," published in April 2004, as amended.
2. SKK 3 is based on the international accounting standard IAS 32, Financial Instruments: Presentation, and IAS 39, Financial Instruments: Recognition and Measurement. SKK 3 has been amended to be comparable with Section 11 Basic Financial Instruments of the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs). A corresponding table of IFRS for SMEs paragraphs is provided in paragraph 45. For matters not directly dealt with by SKK 3 or any other SKK, the management of the reporting entity shall, with the approval of the National Accounting Council, apply such policies as will ensure a true and fair view of the financial position, financial performance, and cash flow changes of the entity, as required by Article 9 of Law no. 9228. “On Accounting and Financial Statements,” issued in April 2004, as amended.
3. Financial statements will be prepared on the basis of materiality. National Accounting Standards will not be
apply to intangible items. The principle of materiality is defined and explained in paragraphs 40 through 90 of IAS 1.
4. Which standard will be applied to the accounting of the following financial instruments:
(a) monetary instruments.
(b) a debt instrument (such as an account, note, or bill of exchange receivable or payable) that meets the conditions in paragraph 7.
(c) a commitment to take out a loan which:
(i) cannot be paid in cash, and
(ii) once the acquisition is realized, it is expected to meet the conditions provided in paragraph 7.
5. Examples of financial instruments that meet the conditions of paragraph 4 above include:
(a) monetary instruments.
(b) demand deposits and fixed-term deposits where the economic unit is the depositor (e.g., bank accounts).
(c) commercial letter and commercial bill.
(d) Accounts, notes, and loans receivable and payable.
(e) debt and similar instruments.
(f) You are liable to repay the loan if the undertaking cannot be paid in monetary means.
6. The Ky Standard will not apply to the following financial instruments:
(a) investments in subsidiaries, associates and joint ventures accounted for in accordance with IAS 28 Accounting for Investments in Associates and Joint Ventures.
(b) financial instruments that meet the own capital criteria of an economic unit.
(c) leases, to which IFRS 16 Leases applies. Nevertheless, the derecognition requirements in paragraphs 33-35 apply to the derecognition of a right-of-use asset recognized by a lessee and a lease liability recognized by a lessee.
(d) employees' rights and obligations under employee benefit plans.
(e) investments in non-convertible and non-marketable preferred shares and non-marketable common shares traded on a stock exchange
7. A debt instrument that meets all the conditions given in (a) through (d) below shall be accounted for in accordance with this
Standard
(a) The holder's benefits are in the form of:
a fixed sum;
a fixed rate of return over the life of the instrument;
(iii) a variable return which, over the life of the instrument, is equal to a single quoted interest rate (such as LIBOR); or
(b) There is no contractual condition that could result in the loss, for the holder, of the principal amount or interest for the current or prior periods. The fact that a debt instrument is subordinated to other debt instruments is not an example of such a contractual condition.
(c) Contractual terms that permit the issuer (debtor) to prepay a debt instrument or that permit the holder (creditor) to sell it back to the issuer before maturity are not contingent on future events.
(d) There are no conditional redemptions or repayment conditions other than the variable rate of return described in (a) and the prepayment conditions described in (c).
8. Examples of financial instruments that normally meet the conditions given in paragraph 7 are:
(a) trade receivables and payables, and loans from banks or third parties.
(b) payable in a foreign currency. However, any change in payable liabilities due to a change in exchange rates is recognized in profit or loss as required by IAS 21 The Effects of Changes in Foreign Exchange Rates.
(c) loans acquired from/for subsidiaries or participations which are repayable on demand.
(d) a debt instrument that becomes immediately payable if the issuer fails to make an interest or principal payment (such a condition does not conflict with paragraph 7)
9. Examples of financial instruments that do not meet the conditions given in paragraph 7, and are therefore outside the scope of
The implementation of this Standard is given below:
an investment in the equity instruments of another entity.
(b) an exchange contract (SWAP) that results in a positive or negative cash flow, or a future commitment to purchase a commodity or a financial instrument that is cash-settled, and that, at the time of settlement, may result in positive or negative cash flows (see paragraph 7(a)).
(c) options and futures contracts, as the gains for the holder are not fixed and thus the condition required in paragraph 7(a) is not met.
(d) investments in convertible debt instruments, as the holder's return can vary more with the issuer's equity price than with market interest rates.
(e) a loan receivable from a third party that gives the third party the right or obligation to prepay if fiscal provisions or accounting requirements change, because such a loan does not meet the condition given in paragraph 7(c).
10. The following definitions are used in this Standard with the meanings specified below:
A financial instrument is any contract that creates a financial asset for one economic entity and a financial liability or equity instrument for another economic entity.
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities (e.g., a share).
A financial asset is any asset that is:
(a) beyond;
(b) a contractual right to receive cash or another financial asset from another economic entity (for example, receivables)
The financial obligation is the contractual obligation:
(a) to give money or another financial asset to another economic entity (for example, a liability to a supplier). The cost is:
(a) the fair value of money or its equivalent paid or the fair value of consideration given to acquire an asset at the time of its acquisition or construction
(b) the sum of money or its equivalents received or the fair value of consideration received for the sale of a receivable at the time of its sale or liquidation.
Amortized cost is the initial cost of a financial asset or liability, which is adjusted, if necessary, by the following amounts:
(a) principal repayments (for example, in the case of a loan taken out or given);
(b) amortization of any difference between the initial amount and the maturity amount (for example, in the case of bonds), using the effective interest method
(c) potential reduction due to impairment or inability to collect (in the case of uncollectible financial assets).
The effective interest method is a method for calculating the amortized cost of a financial asset or liability, using the effective interest rate.
The effective interest rate is the rate at which the estimated future cash flows of a financial asset or financial liability are discounted to the carrying amount of the asset or financial liability. The calculation of the effective interest rate includes all transaction costs, paid or received, related to the financial asset or financial liability, as well as all other premiums and discounts.
Transaction costs are additional costs associated with the purchase, issuance, or liquidation of a financial asset or liability. Additional costs are those costs that would not be incurred if the purchase, issuance, or liquidation were not made.
11 An entity shall recognize a financial asset or a financial liability only when the entity becomes a party to the contractual terms of
instruments.
12 When a financial asset or financial liability is recognized initially, an entity shall measure it at transaction price (by
(including the transaction price) except in cases where the arrangement is, in substance, a financial arrangement. A financial arrangement can occur, for example, when goods or services are sold and payment is deferred beyond normal trade terms or when it is financed at an interest rate that is not a market interest rate. If the arrangement constitutes a financial arrangement, the entity shall measure the financial asset or financial liability at its present value of future payments discounted at the market interest rate for a similar debt instrument.
13. Examples of financial asset measurement are given below:
For a long-term loan granted to another unit, an receivable is recognized at the present value of the monetary amounts receivable (including interest and principal payments) from that unit.
For goods, products, and services sold to a customer on short-term credit, an accounts receivable is recognized with the unamortized value of the monetary funds to be collected from that entity, which is normally the invoice price.
For a product sold to a customer with a two-year interest-free loan, an account receivable is recognized at the current selling price of that product. If the normal selling price is not known, it may be estimated as the present value of the cash receivables, discounted using the prevailing market interest rate for a similar receivable.
For a cash purchase of common stock of another entity, the investment shall be recognized at the amount of the monetary funds paid to acquire the shares.
14 Examples of measurement of financial liabilities are given below:
For a loan taken from a bank, an account payable is recognized initially with the present value of the monetary amounts payable to the bank (e.g., including interest and principal payments).
For goods, products, and services purchased from a supplier on short-term credit, an accounts payable is recognized for the unbilled amount owed to the supplier, which is usually the invoice price.
15. At the end of the reporting period, an entity shall measure financial instruments as follows (net of transaction costs that the entity may incur on sale or disposal):
(a) Debt instruments that meet the conditions in paragraph 4(b) shall be measured at amortised cost using the effective interest method. Paragraphs 16–21 give guidance on determining amortised cost using the effective interest method. Debt instruments that are classified as short-term assets or short-term liabilities shall be measured at the undiscounted amount of the cash or cash equivalents (see paragraphs 22–27) unless the arrangement in effect constitutes a financing transaction (see paragraph 12).If the arrangement constitutes a financing transaction, the entity shall measure the debt instrument at the present value of future payments discounted at a market interest rate for a similar debt instrument.
(b) Assets acquired under a loan that meet the conditions given in paragraph 4(c) shall be measured at cost minus impairment.
Impairment or uncollectibility shall be assessed for financial instruments described in (a) and (b) above. Paragraphs 22-27 provide guidance in relation to this aspect.
16. The amortized cost of a financial asset or financial liability at each reporting date is the sum of the following amounts:
the amount at which a financial asset or financial liability is measured at its initial recognition,
(b) minus any principal payment,
(c) plus interest expense less accumulated amortization, using the effective interest method, of the difference between the carrying amount and the face amount,
(d) minus, in the case of a financial asset, any reduction (directly or through the use of an allowance account) for impairment or uncollectibility.
Financial assets and financial liabilities that do not have a stated interest rate and are classified as assets
short-term liabilities, are initially measured at their amortized cost in accordance with paragraph 15(a). In these cases, sub-paragraph (c) above does not apply.
17. The effective interest method is a method of calculating the amortized cost of a financial asset or a financial liability (or
(a group of financial assets or liabilities) and the allocation of interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts future payments or receipts over the expected life of the financial instrument, or, where appropriate, over a shorter period, to the carrying amount of a financial asset or financial liability. The effective interest rate is determined on the basis of the carrying amount of a financial asset or financial liability at initial recognition.
According to the effective interest method:
(a) The amortized cost of a financial asset (liability) is the present value of future cash receipts (payments) discounted at the effective interest rate, and
(b) interest expense (income) for a period is the carrying amount of a financial liability (asset) at the beginning of the period multiplied by the effective interest rate for the period.
18 When calculating the effective interest rate, an entity must forecast cash flows taking into account all
contractual terms of the financial instrument (e.g., prepayment) and recognized financial losses that have occurred, but it shall not take into account possible future financial losses that have not yet occurred.
19 When calculating the effective interest rate, an entity must amortize any potential fees, paid financial obligations, or
accrued (such as „bonus" points), transaction costs, and other premiums or discounts over the expected life of the instrument, except as follows. The entity shall use a shorter period if that is the period over which the fees, finance charges paid or accrued, transaction costs, premiums, or discounts are recognized. This will be the case when the variable component to which the fees, finance charges paid or accrued, transaction costs, premiums, or discounts relate is repriced to market rates before the expected maturity of the instrument. In such a case, the appropriate amortization period is the period until the next repricing date.
20 For financial assets and financial liabilities with a variable interest rate, periodic revaluation of cash flows in order to
reflect market interest rate changes, the effective interest rate changes. If a financial asset or liability with a variable interest rate is initially recognized at an amount equal to the principal receivable or payable at maturity, the remeasurement of future interest payments has no significant effect on the carrying amount of the asset or liability.
21 If an economic entity revises its estimates of payments or receipts, it shall adjust the carrying amount of a financial asset or financial liability (or a group of financial instruments) to reflect the current and future cash flows.
The entity shall remeasure. The entity shall remeasure the carrying amount by calculating the present value of the revised future cash flows using the original effective interest rate of the financial instrument. The entity shall recognize the effect as income or expense in profit or loss on the date of remeasurement.
At the end of each reporting period, an entity must assess whether there is objective evidence of impairment of any asset.
financial that is measured at cost or amortized cost. If there is objective evidence of impairment, the entity shall immediately recognize an impairment loss in profit or loss.
23 Objective evidence that a financial asset or a group of financial assets is impaired includes the following events, which
Come to the attention of the holder of the activity:
(a) significant financial difficulties of the issuer or obligor.
(b) a breach of contract, such as non-payment or inability to pay interest or principal.
(c) creditors, for economic or legal reasons related to the debtor's financial difficulty, offer the latter concessions that the creditor would not offer under other circumstances.
(d) it has become possible that the debtor will enter bankruptcy or other financial reorganizations.
(e) data indicate that there has been a measurable decrease in the estimated future cash flows of a group of financial assets since their recognition, even though the decrease cannot be attributed to a specific financial asset within the group, such as adverse national or local economic conditions or adverse industry changes.
24 other factors may also be evidence of impairment, including significant changes with an adverse effect that have occurred in the technological, market, economic, or legal environments in which the issuer operates.
25 For the purpose of impairment, an economic unit must individually assess the following financial assets:
(a) all equity instruments invested, irrespective of importance, and
(b) all other financial assets that are individually material.
An economic entity shall assess for impairment of other financial assets either individually or grouped on the basis of similar risk characteristics.
26 An entity shall measure an impairment loss for the following instruments measured at cost or amortised cost as follows:
(a) For an instrument measured at amortized cost in accordance with paragraph 15(a), a loss on impairment is the difference between the carrying amount of an asset and the present value of estimated future cash flows discounted at the original effective interest rate. If such an instrument has a variable interest rate, the discount rate for the measurement of any loss on impairment is the current effective interest rate determined in accordance with the contract.
(b) for an instrument measured at cost less accumulated depreciation in accordance with paragraph 15(b), an impairment loss is the difference between the carrying amount of the asset and the best estimate (which is an approximation) that the entity can obtain for the asset if it were to be sold at the reporting date.
27 If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be objectively related to an
an event subsequent to the recognition of impairment (as an improvement in the debtor's financial position), the economic unit must recover the previously recognized impairment loss either directly or by adjusting an impairment account.
The reversal should not result in an accounting value of the financial asset (net of any impairment allowance) that exceeds the accounting value that would have existed had the impairment loss not been recognized. The entity shall recognize the amount of the reversal immediately in profit or loss.
28 An entity shall derecognize a financial asset only when:
(a) contractual rights to cash flows from a financial asset expire or are settled, or
(b) the unit transfers substantially all the risks and rewards of ownership of the financial asset to another party, or
(c) the unit, despite having retained some significant risks and rewards of ownership, has transferred control of an asset to another party, and that other party has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise this ability unilaterally and without needing to impose additional restrictions on this transfer. In this case, the entity must:
(i) deregister the asset and,
(ii) separately recognize any right held or obligation created by the transfer.
The carrying amount of a transferred asset must be allocated between the rights and obligations retained and those transferred based on their fair values at the date of transfer. New rights and obligations created in the transfer must be measured at their fair value at the date of transfer. Any difference between the consideration received and the amounts recognised and derecognised in accordance with this paragraph must be recognised in profit or loss in the period in which the transfer occurred.
29 If a transfer does not result in derecognition because the entity has retained significant risks and rewards of ownership
the transferred asset, the entity shall continue to recognize the transferred asset in its entirety and shall recognize a financial liability
for the amount acquired. Assets and liabilities shall not be offset. In subsequent periods, the entity shall recognize any income on the transferred asset and any expense incurred on the financial liability.
30 If the transferor provides the transferee with collateral that is not in monetary form (e.g., debt instruments or equity), the accounting for
The collateral from the transferor and the transferee depends on whether the transferee has the right to sell or re-collateralize the collateral and whether the transferor has defaulted on payments.The transferor and the transferee must account for the collateral as follows:
(a) If the transferee has the right under the contract or custom to sell or re-hypothecate the collateral, the transferor shall reclassify that asset on the statement of financial position (e.g. as a loan asset, equity instruments pledged as collateral, or repurchase receivables) separately from other assets.
(b) If the transferee sells the collateral placed with him, he shall recognize the amounts received from the sale, as well as a liability measured at fair value for his obligation to return the collateral.
(c) If the transferor fails to pay according to the terms of the contract and no longer has the right to reclaim the collateral, they must de-recognize the collateral, and the transferee must recognize the collateral as their asset initially measured at fair value, or if they have already sold the collateral, de-recognize their obligation to return the collateral.
(d) Except as required in (c) above, the transferor shall continue to carry the collateral as its asset, and the transferee shall not recognize the collateral as an asset.
31 A factoring agreement is the sale of receivables to be collected, where depending on the type of agreement, the buyer has the right to resell them.
receivable requirements transferred within a certain period (factoring with recourse) or there is no right of resale, and all risks or benefits associated with holding a receivable pass from the seller to the buyer (factoring without recourse).
32 If the “seller” has a repurchase obligation, the transaction will be recognized as a financial transaction (i.e., as a loan, the collateral for which
It is a receivable (and thus not a sale). A receivable is not derecognized as sold as a result of factoring, but remains on the balance sheet until it is collected or the right of recourse expires. If there is no recourse, and control of the receivable and the risks and rewards associated with it have been transferred to the buyer, the transaction will be recognized as a receivable.
33 An entity shall derecognize a financial liability (or a part of a financial liability) only when it is extinguished, i.e. when the liability
specified in the contract is settled, canceled, or expires.
34 If a lender and an existing borrower exchange financial instruments with substantially different terms, the entities shall
account for the transaction as a derecognition of an existing financial liability and the recognition of a new financial liability. Similarly, an entity shall account for a substantial modification of the terms of an existing financial liability or a part of it (whether or not this modification is the result of the debtor's financial difficulties) as a derecognition of the existing financial liability and the recognition of a new financial liability.
35 An entity shall recognize in profit or loss any difference between the carrying amount of the financial liability (or a part of a financial liability
(financial) extinguished or transferred to a third party and the amount paid, including any non-monetary assets transferred or liabilities assumed.
36 Financial assets and liabilities, and the income and expenses related thereto, shall be presented in the statement of financial position.
and in the performance statement, in accordance with the requirements of IFRS 2, Presentation of Financial Statements.
37 An economic entity must provide explanatory information in the summary of the most important accounting policies, the basis (or
(basis) and measurement bases used for financial instruments, as well as other accounting policies used for financial instruments that are significant to the understanding of the financial statements.
38 An economic entity shall provide information on the carrying amount of each of the following categories of assets and liabilities
(total) finance at the reporting date, or in the statement of financial position, or in the explanatory notes:
(a) financial assets that are debt instruments measured at amortized cost (paragraph 15(a)).
(b) financial liabilities measured at amortized cost (paragraph 15(a)).
(f) loans measured at cost less impairment (paragraph 15(b)).
40 If an entity has transferred financial assets to a third party in a transaction that does not qualify for derecognition (see
paragraphs 28-30), the entity shall provide entity-level disclosures for each of the following classes of financial assets:
(a) the nature of the assets.
(b) the nature of the risks and benefits of ownership to which the entity remains exposed. (c) the carrying amounts of the assets and of any related liability that the entity continues to recognise
When a unit has pledged financial assets as collateral for existing or contingent liabilities, it must provide
Explanatory information as follows:
the carrying amount of financial assets pledged as collateral.
(b) collateral terms and conditions.
42 For loans payable recognized at the reporting date for which there have been breaches of deadlines or non-payment of principal, interest,
In case of breaches of settlement terms that are not rectified by the reporting date, an economic entity must provide the following explanatory information:
(a) the details of this breach or non-payment.
(b) the carrying amount of loans payable at the reporting date
(c) if the breach or non-payment has been remedied, or if the terms of the loan payable have been renegotiated, before the financial statements were approved for publication.
43 An entity shall provide explanatory information for the following revenue, expense, profit or loss items:
(a) income, expenses, gains or losses, from:
(i) financial assets measured at amortized cost.
(ii) financial liabilities measured at amortized cost.
(b) total interest income and total interest expense (calculated using the effective interest method)
(c) the amount of any impairment loss for each class of financial assets.
44 Ky Standard will be applied to financial statements covering accounting periods beginning on or after January 1, 2015. This
The standard must be applied prospectively.
45 The table below shows how the paragraphs of this Standard correspond to the SNRF for the respective SMEs. Paragraphs are considered corresponding if they generally address the same issue, regardless of the fact that the descriptions in the referred standards
may have changes.
Paragraphs according to SKK 3 Paragraphs according to SNRF for SMEs published in July 2009
Paragraph 1 Section 11.1
Paragraph 2 None
Paragraph 3 None
Paragraph 4 of Section 11.8
Paragraphs 5 Sec 11.5
Paragraph 6, Section 11.7
Paragraph 7 of Section 11.9
Paragraphs 8 and 11.10
Paragraph 9 Sec 11.11
Paragraph 10 None
Paragraph 11 Sec 11.12
Paragraph 12 Sec 11.13
Paragraph 13 Sec 11.13
Paragraph 14 Sec 11.13
Paragraph 15 Sec 11.14
Paragraph 16 Sec 11.15
Paragraph 17 Sec 11.16
Paragraph 18 Sec 11.17
Paragraph 19 Sec 11.18
Paragraph 20 Sec 11.19
Paragraph 21 Sec 11.20
Paragraph 22 Sec 11.21
Paragraph 23 Sec 11.22
Paragraph 24 Sec 11.23
Paragraph 25 Sec 11.24
Paragraph 26 Sec 11.25
Paragraph 27 Sec 11.26
Paragraph 28 Sec 11.33
Paragraph 29 Sec 11.34
Paragraph 30 Sec 11.35
Paragraph 31 None
Paragraph 32 None
Paragraph 33 Sec 11.36
Paragraph 34 Sec 11.37
Paragraph 35 Sec 11.38
Paragraph 36 None
Paragraph 37 Sec 11.40
Paragraph 38 Sec 11.41
Paragraph 39 Sec 11.42
Paragraph 40 Sec 11.45
Paragraph 41 Sec 11.46
Paragraph 42 Sec 11.47
Paragraph 43 Sec 11.48
Paragraph 44 None
Paragraph 45 NoneDownload
Source: National Accounting Council.