profit smoothing, where profits from good years are held back and released in bad years to make the results look consistent year on year
reducing gearing, disguise debt on the statement of financial position
IAS1 requires companies to show economic substance rather than legal form
recognition
five step
identify the contracts with a customer
a contract is an agreement between two or more parties that creates enforceable rights and obligations, and the contract has commercial substance
identify the performance obligations in the contract
a contract includes promises to transfer goods or services to a customer. if those goods or services are distinct, the promises are performance obligations and are accounted for separately
a good or services is distince if either of the following criteria is met
(a) the entity regularly sells the good or service separately
(b) the customer can benefit from the good or service either on its own or together with resources that are readily available to the customer
