Ifrs recent developments_(budapeset_jan_08_-_david_chopping)
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Transcript of Ifrs recent developments_(budapeset_jan_08_-_david_chopping)
Moore Stephens Europe Limited
January 2008
David Chopping
Agenda
• IAS 23 – Borrowing Costs
• IAS 1 – Presentation of Financial Statements
• IFRS 3 – Business Combinations
• IFRICS
• Proposals
• IFRS 7
IAS 23 - Borrowing Costs
• IAS 23 revised– Mandatory capitalisation of borrowing costs, unless:
• Assets measured at fair value; or
• Inventories for mass production
– Effective 1 January 2009
– Transitional provisions
– Early adoption allowed
IAS 1
• Revised rules effective 1 January 2009
• Transactions– Statement of changes in equity shows only transactions with
owners in that capacity
– Other changes in equity in:• Income statement and statement of comprehensive income; or
• Combined statement of comprehensive income.
– Tax to be shown separately on all items in statement of comprehensive income
– Reclassification adjustments (ie recycling) to be shown
IAS 1
• Balance sheet → Statement of financial position
• Two balance sheets usually required, but three if:– Accounting policy changed retrospectively
– Retrospective restatement
– Reclassification of item in the financial statements
• Cash flow statement → Statement of cash flows
• Dividends prohibited from being in statement of comprehensive income
IFRS 3 – Business Combinations
• Published 10 January 2008
• Effective date – 1 July 2009
IFRIC 13
• Customer Loyalty Programmes
• Question: Whether, in respect of a sale covered by such a programme, providers should:– accrue for the expected costs; or
– defer part of the consideration received; or
– do either, depending on the nature of the scheme
• Option two
• Effective 1 July 2008
IFRIC 14
• Defined Benefit Assets and MFRs
• Three issues– When refunds or reductions in future contributions are
available;
– How an MFR might affect this;
– When an MFR creates a liability
• Effective 1 January 2008
IFRIC 14
• Refunds available if has an unconditional right, even if arises only in the future
• Limited if dependent on uncertain events outside entity’s control (and actuarial assumptions)
• Reductions available are the lower of:– Surplus in plan; and
– Present value of the future service cost over the shorter of the life of the plan and the life of the entity
• Can combine both
IFRIC 14
• MFR to be split between– Existing shortfall (usually ignored); and
– Future accrual of benefits
• Where there is an MFR, reductions available are the present value of:– The estimated future service cost (as previously); less
– Estimated MFR contribution required in respect of accrual of benefits for each year
IFRIC 14
• An obligation to make contributions to cover an existing shortfall creates a liability if the amounts are not available through reduced contributions or refund
IFRS 1 & IAS 27 – Transition & Cost
• Proposal– Allow deemed cost for subsidiaries
• Fair value; or
• Previous GAAP value
– Allow deemed cost for associates and joint ventures
– Require dividends from subsidiaries, associates and joint ventures to be treated as income, with a required impairment test
– Prospective application
IAS 24 – Related Parties
• Proposals– Reduce disclosure for transactions between state-controlled or
influenced entities
IAS 39 – Hedge Accounting
• Proposed clarification
• Designation of financial items as hedged items– All risks
– Interest rate risk
– Foreign currency risk
– Credit risk
– Prepayment risk
– Contractually specified cash flow (eg inflation index payments)
IAS 39 - Hedge Accounting
• Hedge of part of cash flows– Part of time period
– Percentage of total cash flows
– Cash flows connected with a one-sided risk (eg foreign exchange above/below specified rate)
– Specific contractually specified cash flows
– Risk free element of cash flows
– Portion tied to a fixed inter-bank rate
IFRS Improvements
• Annual project
• Results from complaints about technical correction process
• Short consultation period
• 2007 version proposes changes to 25 standards
• Coming into force 1 January 2009
• Not all proposals (or even standards) covered in slides
IFRS Improvements
• IFRS 1 – Restructuring of guidance, but no substantive changes
• IFRS 5 – Clarification on subsidiaries which are covered by a plan of sale, even if the company proposes to maintain a non-controlling interest
• IAS 1– Where an entity makes reference to, but does not full comply
with, IFRS then require a description of how IFRS compliance would have differed had it complied with IFRS
– Long-term liability if can defer cash or transfer of assets for twelve months, even if may have to convert into equity
IFRS Improvements
• IAS 8 – Clarify the distinction between application guidance and implementation guidance
• IAS 16 – Clarify that assets used for rental, but routinely sold at a later stage, are reclassified as inventory prior to sale
• IAS 17 – Require contingent rent to be treated as incurred
– Make classification of land and buildings consistent with all other lease classifications
IFRS Improvements
• IAS 19– Treat curtailment of extant benefits as negative past service
cost
– Replace references to amounts falling due with references to employees becoming entitled for determining current and non-current amounts
– Remove requirement to recognise contingent liabilities, as inconsistent with IAS 37
• IAS 20 – Clarify that government loans with below market interest rates are governed by IAS 39
IFRS Improvements
• IAS 28 – Clarifying that reversal of impairment is allowed even where amounts are (notionally) attributable to goodwill
• IAS 36 – Make the disclosures consistent between the valuation approaches (VIU and FV) if similar methodologies applied
• IAS 38– Clarify that expenditure on items that will not give rise to
assets can still be assets if service not yet received
– Clarify that unit of production amortisation can be used even if less prudent than straight line
IFRS Improvements
• IAS 39– Include as derivatives contracts related to non-financial
variables specific to a party to the contract
– Clarify held for trading, so that if part of a portfolio then depends on status at initial recognition
– Clarify that becoming or ceasing to be a hedging instrument is not a reclassification
– Prepayment options which compensate for lost interest are deemed to be closely related to the host contract
IFRS Improvements
• IAS 40 - Property acquired for the purposes of development as an investment property is to be within the scope of IAS 40
• IAS 41 – Allow a pre and post tax discount rate (currently pre tax only)
– Allow account to be taken of additional biological transformation to be included in cash flows
IAS 31 - Joint Arrangements
• IASB proposals– Require accounting under contractual rights
– Abolish proportionate consolidation
– Require equity accounting
– Extend disclosures, and align with associates
IFRS 2 - Groups
• Clarification of IFRS 2
• Extends scope to cover arrangements where:– suppliers receive cash payments linked to the price of the equity
instruments of the entity; or
– suppliers receive cash payments linked to the price of the equity instruments of the parent of the entity
• Under either arrangement, the parent of the entity has an obligation to make the required cash payments to the suppliers of the entity
• The entity itself does not have any obligation to make such payments to its suppliers or provide them with equity instruments
Other Issues
• Fair value proposals (D)
• Framework (D)
• Real estate sales (DI)
• Hedges of a net investment (DI)
Insurance Contracts
• Exit value approach proposed
• Exposure draft 2008
• Standard 2010
IFRS 7
• Classification
• Divide between– Assets at fair value through profit or loss
– Held to maturity
– Loans and receivables
– Available for sale
– Liabilities at fair value through profit or loss
– Liabilities at amortised cost
• Give details of reclassifications
IFRS 7
• If there are liabilities at fair value, then:– Changes in value not due to movements in interest rates
– Difference between carrying amount and contractual amount at maturity
IFRS 7
• Details of allowance accounts for credit losses
• Details of defaults and breaches in the year, unless remedied by the balance sheet date
IFRS 7
• Details of net gains or losses on:– Items at fair value through profit or loss
– Available for sale assets
– Held to maturity investments
– Loans and receivables
– Financial liabilities at amortised cost
• Details of fee income and expense on financial assets and liabilities, if not included in determining the effective interest rate
• Details of interest income on impaired assets
IFRS 7
• Impairment– Details of impairment losses by class of asset
IFRS 7
• Accounting policies– Criteria for at fair value through profit or loss
– Criteria for available for sale
– Criteria for allowance accounts and write offs
– Criteria for impairment
IFRS 7
• Qualitative risk disclosures– Details of exposures and how arose
– Objectives, policies and procedures for managing risk
– Methods used to measure risk
– Changes in any of these from the previous period
• Details of concentrations of risk
IFRS 7
• Credit risk– Maximum exposure, ignoring collateral
– Description of collateral, with fair values if practicable
– Information on credit quality of financial assets with credit risks that are neither impaired nor past due
– Details of items that are impaired or past due
– Details of collateral acquired during the period
• Liquidity risk– Maturity analysis of liabilities
– Description of how liquidity risk is managed
IFRS 7
• Market risk– Sensitivity analysis, showing the effect of changes in the
relevant variable
– Methods and assumptions used in preparing the sensitivity analysis
– Changes in the methods and assumptions since the previous periods
IAS 1 - Capital
• Capital– Qualitative information about objectives, policies and
processes for managing capital
– Summary quantitative data about capital
– Changes from the previous period
– Whether the company complied with external requirements
– Details of implications of any non-compliance with external requirements
Moore Stephens Europe Limited
January 2008
David Chopping