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Transcript of IFRS -International financial reporting ... Forum/2554-1/Slide01.pdf · IFRS -International...
IFRS - International financial reporting language for investors
10 January 2011
www.pwc.com/th
Nangnoi Charoenthaveesub
PwC
Agenda
1. IFRS - The global phenomenon
2. Thai Responses to IFRS
3. Potential IFRS impacts
4. Investor relations - Dealing with challenges
2
January 2011IFRS for IR
PwC
IFRS - The global phenomenon
3
PwC
What is IFRS?
IFRS is the name of the international accounting standards set by the
International Accounting Standards Board (IASB) for the purpose of developing a set of accounting standards accepted and complied with on a global basis.
4
January 2011IFRS for IR
PwC
Key features and benefits of IFRS
IFRS for IR
5
January 2011
Key features of IFRS
• Principle - based• Focus on Balance Sheet• Fair Value Accounting
Improved Transparency in the business performance
(accepted by all major markets)
More extensivedisclosures
Improved comparability (peer comparison on a global
basis)
• Comparison of financial performance across boundaries
• More transparency and comparability
• Ability to raise funding at a cheaper cost
• Better information for strategic investment decision making
PwC
IFRS - A global phenomenon
IFRS for IR
6
January 2011
Countries that require, permit or are converging
to IFRS
Source: www.pwc.com Update: January 2010
More than 100 countries require, permit or are converging to IFRS
The World's Top 15 Stock Exchanges by Domestic Market Capitalisation
- September 2010
Stock ExchangeEconomic area IFRS adoption plan
NYSE Euronext (US) Americas 2015 or 2016, subject to decision made in 2011
NASDAQ OMX Americas 2015 or 2016, subject to decision made in 2011
London SE Group EAME 2005
Tokyo SE APAC 2015 or 2016, subject decision made in 2012.
NYSE Euronext (Europe) EAME 2015 or 2016, subject to decision made in 2011
Hong Kong Exchanges APAC 2005
Shanghai SE APAC Substantially converged national standards
TSX Group Americas 2015 or 2016, subject to decision made in 2011
Bombay SE APAC 2011
National Stock Exchange India APAC 2011
BM&FBOVESPA Americas 2015 or 2016, subject to decision made in 2011
Australian SE APAC 2005
Deutsche Börse EAME 2005
BME Spanish Exchanges EAME 2008
SIX Swiss Exchange EAME Not yet announced
Source: World Federation of Exchanges
PwC
Thai Responses to IFRS
7
PwC
IFRS adoption in Thailand
IFRS for IR
8
23 revised & 5 new accounting standards - effective 1 Jan 2011
onwards
4 revised & 4 new accounting standards - effective 1 Jan 2013
onwards
Date of IFRS transition 1 Jan 2010
Comparative figures required for 2011 financial statements
Partial IFRS financial statements starting from Q1’2011 Full IFRS financial
statements starting from Q1’2013
PwC
Thai GAAP moves towards IFRS
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January 2011IFRS for IR
Effective for annual periods beginning on or after 1 January 2011
Accounting Framework
TAS 2: Inventories
TAS 8: Accounting policies, changes in
accounting estimates and errors
TAS 10: Events after the reporting period
TAS 11: Construction contract
TAS 17: Leases
TAS 18: Revenue
TAS 34: Interim financial reporting
TAS 37: Provisions, contingent
liabilities and contingent assets
TAS 1: Presentation of FS
TAS 7: Cash flow statements
TAS 16: Property, plant and equipment
TAS 23: Borrowing costs
TAS 24: Related party disclosures
TAS 27: Consolidated and separate FS
TAS 28: Investment in associates
TAS 31: Interests in joint ventures
TAS 33: Earnings per share
TAS 36: Impairment of assets
TAS 38: Intangible assets
TAS 40: Investment property
TFRS 3: Business combinations
TFRS 5: Non-current assets held for sale
and discontinued operations
TAS 19: Employee benefits
TAS 26: Accounting & reporting by
retirement benefit plans
TAS 29: Financial Reporting in
Hyperinflationary Economies
TFRS 2: Share-based payment
TFRS 6: Exploration for and
evaluation of mineral resources
Revisions with no significant changes Revisions with changes in some principle No existing TASs/TFRSs
PwC
Thai GAAP moves towards IFRS
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January 2011IFRS for IR
Effective for annual periods beginning on or after 1 January 2013
Remark:
* Announced in the Government Gazette
Revision s with changes in some principle No existing TASs/TFRSs
TAS 20: Accounting for government grants &
disclosure of government assistance*
TAS 21: The effects of changes in foreign exchange
rates*
TAS 32: Financial instruments: presentation
TFRS 8: Operating segments
TAS 12: Income taxes*
TAS 39: Financial instruments: recognition &
measurement
TFRS 4: Insurance contracts
TFRS 7: Financial instruments: disclosure
Not yet specify effective date
TFRS 1: First-time adoption of TFRSs
TAS 41: Agriculture
PwC
Thai GAAP moves towards IFRS
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January 2011IFRS for IR
Interpretation with the effective date during 2011 - 2013IFRIC 1: Changes in existing decommissioning, restoration and similar liabilities
IFRIC 2: Members’ shares in cooperative entities and similar
IFRIC 4: Determining whether an arrangement contains a lease
IFRIC 5: Non-current assets held for sale and discontinued operations
IFRIC 8: Scope of IFRS 2 (Share-based payment)
IFRIC 9: Scope of IFRS 2
IFRIC 10: Interim financial reporting and impairment
IFRIC 11: IFRS 2 – Group and treasury share transactions
IFRIC 12: Service concession arrangements
IFRIC 13: Customer loyalty programmes
IFRIC 14: The limit on a defined-benefit asset, minimum funding requirements and their interaction
IFRIC 15: Arrangements for the construction of real estate (effective 1 January 2011)
IFRIC 16: Hedges of a net investment in a foreign operation
IFRIC 17: Distributions of non-cash assets
SIC 10: Government assistance – No specific relation to operating activities
SIC 12: Consolidation – Special-purpose entities
SIC 13: Jointly controlled entities – Non-monetary contributions by venturers
SIC 15: Operating leases – incentives
SIC 21: Income taxes – recovery of revalued Non-depreciable assets
SIC 25: Income taxes – changes in the tax status of an entity or its shareholders
SIC 27: Evaluating the substance of transactions involving the legal form of lease
SIC 29: Service concession agreements: Disclosure
SIC 31: Revenue – Barter transactions involving advertising services
SIC 32:Intangible assets – Web Site Cost
PwC
Potential IFRS impacts and key challenges
12
PwC
IFRS business transformation
IFRS for IR
13
January 2011
Scope & magnitude of change
• Understand full impact on organisation
• Identify required resources
Governance & compliance
• Set up IFRS project governance structure
• Regular update to management
Stakeholder engagement
•Identify impacted stakeholders (internal & external)
• Develop communication plan
• Education programme
Challenges you will face……
Change management
• Understand impact on people, process and IT
• Minimise lost opportunities to embed change
Sustainability
• Take opportunity of IFRS change
into long-term finance & operational effectiveness
PwC
Potential areas of impact by IFRS
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January 2011IFRS for IR
High
HighFinancial impact
Disclosure
Conceptual illustrationConceptual illustration
Financial Statements Impact
Business/Operational Impact
Remark: For information purposes only, this may vary from client to client
Financial
instruments
IAS39 (IFRS9)
Segment
Income
taxes
(IAS12)
Fixed assets and
investment
property (IAS16, 40)
Revenue
recognition
& points
(IAS18)
Business
combination
(IFRS3)
Employee
benefits
(IAS19)
Impairment
of assets
(IAS36)Assets
disposals and
discontinued
operation
(IFRS5)
Leasing
(IAS17)
Investments,
consolidation
(IAS27/28,
SIC12)
Share based
payment
(IFRS 2)
Functional
currency
(IAS21)
Exploration for and Exploration for and Exploration for and Exploration for and evaluation of evaluation of evaluation of evaluation of
mineral resources mineral resources mineral resources mineral resources (IFRS6)(IFRS6)(IFRS6)(IFRS6)
Financial
statement
presentation and disclosure (IAS1)
Financial
instruments (IAS32,IFRS7)
PwC
Profit and loss impact
IFRS for IR
15
January 2011
Consolidated statement of income (I)
Sales 3,982 (A)
Cost of sales (500) (E), (F)
Gross profit 3,482
Selling & adminstrative expenses (1,716)(B),(C),(D),(E),
(F),(G),(H)
Operating income 1,766
Non operating income 46
Non operating expenses (42) (G)
Extraordinary loss 74 Removed
Extraordinary expense (98) Removed
Profit before tax 1,746
Income taxes - deferred (6)
Minority interest (5)
Net income 1,735
(A) Revenue recognition/points:- 1. Gross vs. net 2. Bundle sales arrangement 3. Timing of recognition (shipment→delivery) 4. Calculation of interest income (effective interest method)
(B) Business combination and Intangible assets:- 1. Goodwill valuation and termination of amortisation 2. Timing of adoption
(C) Leases:- 1. Capitalisation of off-balance leases 2. Determination of transactions deemed to be leases 3. Operating leases incentive
(D) Tangible assets:- 1. Component accounting 2. Asset retirement obligations 3. Valuation of investment property 4. Impairment of assets
(E) Provisions: - 1. Liability reserve for insurance companies 2. Adjustment to provision for loss on interest payment 3. Employeebenefit obligation
(F) Stock options:- 1. Application of fair value accounting 2. Treatment of cancelled stock option
(G) Capitalisation of borrowing cost
(H) Financial instruments:- 1. Classification 2. Measurement 3. Hedge accounting 4. Gross/net presentation
(I) Scope of consolidation 1. Consolidation of operating entities 2. Consolidation of SPEs
For illustrative purpose onlyFor illustrative purpose only
PwC
Change in presentation
IFRS for IR
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January 2011
Statement of comprehensive income
Continued operations
Sales
Cost of sales
2,878
599
Gross profit
Selling, general and administrative expenses
Other operating income (expense)
2,279
1,755
(14)
Operating income
Financial income
Financial expense
Equity in earnings of unconsolidated subsidiaries
and affiliates
510
10
35
5
Profit before tax
Income tax expense
Net profit from continued operations
490
(89)
579
Discontinued operations
Loss on discontinued operations ━
Net income
Other comprehensive income
Comprehensive income
579
(1)
578
For illustrative purpose onlyFor illustrative purpose only
Consolidated statement of income
Sales 3,982
Cost of sales (500)
Gross profit 3,482
Selling & adminstrative expenses (1,716)
Operating income 1,766
Non operating income 46
Non operating expenses (42)
Extraordinary loss 74
Extraordinary expense (98)
Profit before tax 1,746
Income taxes - deferred (6)
Minority interest (5)
Net income 1,735
PwC
Balance sheet impact
IFRS for IR
17
January 2011
Consolidated balance sheet (J)
Assets
Current assets 18,141 (A)
Fixed assets 2,239 (B),(C)
Intangible assets 2,212 (D)
Total assets 22,592
Liabilities
Current liabilities 15,670 (E),(F),(G),(H)
Long term liabilities (including reserve required under the special law) 4,736 (E),(F),(G),(H)
Total liabilities 20,406
Shareholders' equity
Paid-in capital 2,076
Capital surplus 159
Retained earning (214)
Valuation and translation adjustments 12
Share subscription rights 6 (I)
Minority interests 147
Total shareholders' equity 2,186
Total liabilities and shareholders' equity 22,592
(A) Financial instruments:- 1. Classification 2. Measurement 3. Hedge accounting 4. Gross/net presentation
(D) Business combination and Intangible assets:- 1. Goodwill valuation and termination of amortisation 2. Timing of adoption
(C) Leases:- 1. Capitalisation of off-balance leases 2. Determination of transactions deemed to be leases
(B) Tangible:- 1. Component accounting 2. Asset retirement obligations 3. Valuation of investment property 4. Impairment of assets
(E) Corporate income taxes:- 1. Collectability of deferred tax assets 2. Tax effect of deferred income on investments
(F) Reserve for service points:-Measured at fair value and deducted from sales
(G) Provisions:- 1. Liability reserve for insurance companies 2. Adjustment to provision for loss on interest repayment 3. Employee benefits obligation 4. Decommissioning provision
(H) Employee benefits:- 1. Recording of vacation accrual 2. Transfer to tax-qualified pension plan 3. Recording of retirement benefit obligation
(I) Stock options:- 1. Application of fair value accounting 2. Treatment of cancelled stock options
(J) Scope of consolidation 1. Consolidation of operating entities 2. Consolidation of SPEs
For illustrative purpose onlyFor illustrative purpose only
PwC
IFRS case study: Volkswagen
IFRS for IR
18
January 2011
Reasons for the change from German Commercial Code to
IFRS in 2001:
• International principles
• Easier to access to international capital markets
• Contribute to IFRS development
• Great international opportunities
Key project components
• Detailed project planning
• Knowledge transfer
• Education and training across the group
• Market communications
Source: PwC IFRS transition
PwC
IFRS case study: Volkswagen
IFRS for IR
19
January 2011
Key results:
• Opening group capital and reserves @ 1 Jan 2000 was
- under IFRS € 20.9bn vs. under German GAAP € 9.8bn
Reconciliation of the capital and reserves to IFRS € Million
Capital and reserves according to the German Commercial Code as at 1 January 2000 9,811
Capitalisation of development costs 3,982
Amended useful lives and depreciation methods in respect of tangible and intangible assets 3,483
Capitalisation of overheads in inventories 653
Differing treatment of leasing contracts as lessor 1,962
Differing valuation of financial instruments 897
Effect of deferred taxes -1,345
Elimination of special items 262
Amended valuation of pension and similar obligations -633
Amended accounting treatment of provisions 2,022
Classification of minority interests not as part of equity -197
Other changes 21
Capital and reserves according to IFRS as at 1 January 2000 20,918
Source: PwC IFRS transition
PwC
Investor relations - Dealing with challenges
20
“One sure sign of good IFRS communication efforts is the lack of
adverse share price reactions when earnings announcements come out”
Peter Elwin, head of accounting and valuation research for London-based Cazenove.
PwC
IFRS for IR
21
January 2011
Investor relations - Dealing with challenges
PwC
Case: Royal Dutch/Shell Group Companies
IFRS for IR
22
January 2011
Reporting under IFRS both quarter and annual result, starting from the 1st quarter of 2005
Presented to analysts regarding
• IFRS conversion plan and progress
• Key changes in accounting policies
• Rational in accounting policies adoption
• Impacts from individual accounting policies
• Reconciliation of opening balance as at 1/1/2004 from existing GAAP to IFRS
November 2004
Source: www.shell.com
PwC
Case: Royal Dutch/Shell Group Companies
IFRS for IR
23
January 2011
Published 2004 results under IFRS (which will be the comparative data presented in its 2005 quarterly and annual report)
• Reconciliation to 2004 financial statements from existing GAAP to IFRS
• Impacts from IFRS arise from first time adoption choices and differences in accounting policies and in presentation format between US GAAP and IFRS.
• Explanation for key changes in financial statements
• Description of key changes to the financial statements under IFRS
• Main reasons for changes in earnings by industry segment under IFRS
April 2005
Source: www.shell.com
PwC
Case: Royal Dutch/Shell Group Companies
IFRS for IR
24
January 2011Source: www.shell.com
PwC
Case: Royal Dutch/Shell Group Companies
IFRS for IR
25
January 2011Source: www.shell.com
PwC
Illustrative for Thai case
26
PwC
1. Overall reporting
IFRS for IR
27
January 2011
• New version of TAS and TFRS implementation as at 1 January 2011and one year comparative figures
• Q1’2011 will be reported under new version of TAS and TFRS
• The 2011 Financial Statements and Annual Report will be under new version of TAS and TFRS consolidated financial statements
For illustrative purpose onlyFor illustrative purpose only
PwC
2. Significant changes
IFRS for IR
28
January 2011
• TAS 1: Presentation of FS
• TAS 16: Property, plant and equipment
• TAS 19: Employee benefits
• TAS 21: The effects of changes in foreign exchange rates
• TAS 23: Borrowing costs
• TAS 36: Impairment of assets
• TAS 40: Investment property
• TFRS 3: Business combination
For illustrative purpose onlyFor illustrative purpose only
PwC
3. Highlights
IFRS for IR
29
January 2011
• Overall impact limited to a few key areas
• No impact on Group cash
• Opening balance sheet as at 1 January 2010
• reduction in net assets of Baht 210 million
• increase in provision for liabilities of Baht 210 million
For illustrative purpose onlyFor illustrative purpose only
PwC
4. Accounting policy choices - IAS 19
IFRS for IR
30
January 2011
Choices Decisions Financial impact
Four options:
1.Retrospective adjustment
2.Adjust to opening retained earnings
3.Recognise as an
expense in the current period
4.Amortise over 5 years
Option 2 chosen
•Adjust to opening retained earning
• Open time reduction in
opening net assets for Baht 210 million
For illustrative purpose onlyFor illustrative purpose only
PwC
5. Key policy implications - IAS 16
IFRS for IR
31
January 2011
Policy Key implication
1. Component accounting • Component approach is already in place
and is reviewed to ensure IFRS
compliance - no expected to result in any significant financial impact
2. Decommissioning • Expected no significant financial impact
3. Etc……..
For illustrative purpose onlyFor illustrative purpose only
PwC
Summary
IFRS for IR
32
January 2011
Develop communication strategy • Think about- When should information be released
- How your stakeholders will respond to your information and competitors
Provide clear, concise communication of the changes at your earliest opportunity
•Minimise individual interpretations and eliminate misunderstanding
Present accurate information • Provide accurate, robust and supportable information• Do sufficient level of due diligence
Demonstrate in depth knowledge of IFRS
• Clearly communicate how and why the adjustments are recorded
• Provide transparency to the decision - making process• Develop and demonstrate deep understanding of IFRS
Explain the impact on KPIs • Discuss impact of IFRS on KPIs
•Reconcile new KPIs to old KPIs to show you are not shifting the goal
From PwC’s experience, we recommend
Thank you
© 2011 PricewaterhouseCoopers ABAS Ltd. All rights reserved. In this
document,"PricewaterhouseCoopers" and/or “PwC” refers to PricewaterhouseCoopers ABAS Ltd.,
which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is
a separate legal entity.