Do trade and other receivables/payables include non-financial accruals and deferrals?

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pub_acco
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Do trade and other receivables/payables include non-financial accruals and deferrals?

Post by pub_acco »

IAS 1 doesn't seem clear enough on the definition of trade and other receivables/payables, and I do see some variances in the presentation of non-financial accruals and deferrals in the real-world annual reports (e.g. some companies include prepayments in trade and other receivables while others do not). I guess that is because some people believe receivables/payables include only financial assets/liabilities in accordance with IAS 32 whereas others seem to present something like working capital under trade and other receivables/payables.

It's tricky. IAS 1 seems to intend to include non-financial items in trade and other receivables/payables. IAS 1.78 shows prepayments as a subcategory of receivables and many of non-financial accruals/deferrals fall under none of line items listed in IAS 1.54 unless they are classified as trade and other receivables/payables. But, still I see a lot of companies that include only financial items in trade and other receivables/payables categories.

Is there any "canonical" guidance on the definition of other receivables/payables? I would like to know common practices of classifying the following common items in the countries long familiar with IFRS to establish a reasonable classification policy in my company:

1. Prepayments for inventories: Trade and other receivables or Inventories?
2. Prepayments for property, plant and equipment: Trade and other receivables or PP&E?
3. Prepayments for lease contracts: Trade and other receivables or Other non-current assets?
4. Prepayments for expenses: Trade and other receivables or Other current assets?
5. Wages and salaries payable: Trade and other payables or Other current liabilities?
6. Accrued paid leaves and Provision for employee bonuses: Trade and other payables, Provisions, or Other current liabilities?
7. Levies and other taxes payable: Trade and other payables or Other current liabilities?
8. Deferred government grant income: Trade and other payables or Other current/non-current liabilities?
9. Interest payable: Trade and other payables or Financial liabilities?

* Interest payable is a financial liabilities but some seem to classify this under Borrowings category, perhaps because this tends to arise from non-operating activities and under the scope of IFRS 9's effective interest rate method.
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nauman
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Re: Do trade and other receivables/payables include non-financial accruals and deferrals?

Post by nauman »

There is no standard guideline as such and depends on the materiality of the amounts in question. However, if you include say non financial liabilities within trade and other payables line item then the nomenclature needs to be revised to trade payables and other liabilities. Again, no strict requirements but just good reporting practices and just somethings that auditors point out.
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Marek Muc
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Re: Do trade and other receivables/payables include non-financial accruals and deferrals?

Post by Marek Muc »

Hi, in practice it's best to keep financial assets in trade receivables category only, e.g. due to disclosures under IFRS 7, where they are mentioned many times, but not defined :roll:

1-4 - Prepayments are not receivables at all, as you don't expect to receive cash or other financial assets (so other assets or simply prepayments if material)
5-6. Separate line: employee benefits under IAS 19
7. Other liabilites (again, it's best to keep financial liabilities only as trade payables)
8. IAS 20 mentiones deferred income, but some don't like this labelling, other liabilities will also be fine
9. A part of amortised cost of a related financial liability and therefore not presented separately ('borrowings', 'loans', 'bonds' are all acceptable labels depending on the specific presentation needs)
pub_acco
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Re: Do trade and other receivables/payables include non-financial accruals and deferrals?

Post by pub_acco »

Thank you guys! Now I can fearlessly stick to financial items.

nauman - "Trade payables and other liabilities" was the very disclosure that drew my attention. This implied the norm to exclude non-financial items from payables/receivables.

Marek - IFRS 7 is an eye-opening point. You're right. IFRS 7 disclosure will become weird if trade and other receivables include non-financial items. A separate line for employee benefits liabilities is another good point that helps me a lot to organize our chart of accounts.
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