IFRS update Israel2013 2014 2015 • IFRS 1 amendment – Government grants • IFRS 7 amendment –...
Transcript of IFRS update Israel2013 2014 2015 • IFRS 1 amendment – Government grants • IFRS 7 amendment –...
IFRS update Israel
December 2013
www.pwc.com
PwC
Agenda
1. What’s new ?
2. Developments at the IASB
- Leases
- Revenue
- Financial instruments
- Conceptual framework
- Rate regulation
3. Future improvements to IFRSs
Slide 2
2013
PwC
1. What’s new?
PwC
Timeline – new standards and amendments
Slide 4
2013 2014 2015
• IFRS 1 amendment – Government grants
• IFRS 7 amendment – Assets and liabilities offsetting
• IFRS 10 – Consolidated financial statements
• IFRS 11 – Joint arrangements
• IFRS 12 – Disclosure of interests in other entities
• IFRS 13 – Fair value measurement
• Amendments to IFRSs 10, 11, and 12 – Transitional guidance
• IAS 1 amendment – Presentation of items of OCI
• IAS 19 amendment – Employee benefits
• IAS 27 (revised 2011) – Separate financial statements
• IAS 28 (revised 2011) – Associates and joint ventures
• IFRIC 20 – Stripping costs
• Annual improvement 2011
• IAS 32 amendment – Assets and liabilities offsetting
• Amendment to IFRS 10, 11 and IAS 27 – Exception from consolidation for investment entities
• IAS 36 amendment – Recoverable amount disclosures for non-financial assets
• IAS 39 amendment –Novation of derivatives and continuation of hedge accounting
• IFRIC 21 – Levies
• IAS 19R amendment – employee contributions
2013
No mandatory date
• IFRS 9 – Financial instruments
PwC
IFRIC 21 - levies
Scope
• Levies in the scope of IAS 37
• Timing and amount to pay is certain
Key provisions
• What is the obligating event that gives rise to a liability?
- Event identified by the legislation triggering obligation to pay
• When is a liability to pay a levy recognised?
- When the obligating event occurs
o At a point of time or over time
o Triggered by reaching minimum threshold
Transition
• Effective 2014
• Retrospectively applied, early adoption permitted
Slide 5 2013
PwC
IFRS 9 – general hedge accounting
Slide 6
2013
• Issued in November 2013
• No mandatory effective date for now. Possible alternatives:
• Keep applying IAS 39 until macro hedging project is completed
• Adopt IFRS 9 hedge accounting chapter immediately
• Retain three types of hedges
• Relax the requirements for hedge effectiveness
• Documentation and designation
• Greater alignment with risk strategy
• Risk components in non-financial items
• Derivatives as hedged items
• Net exposures
• Accounting for time value of options, forwards and currency basis spread
• Removal of effectiveness bright lines
PwC
2. Developments at the IASB
PwC
IASB work plan
Slide 8
2013
Major project Q1 2014 Q2 2014
IFRS 9: impairment IFRS
IFRS 9: classification and measurement IFRS
Macro hedging DP
Insurance contracts Redeliberations
Leases Redeliberations
Revenue IFRS
Conceptual framework Redeliberations
Rate regulation DP
PwC
2.1 Leases
PwC
Lease accounting
Key proposals
• Lessee accounting
- Recognise an asset (right to use the leased item)
- Recognise a liability (obligation to pay rentals)
• Income statement accounting depends on type of lease
- Similar to finance lease if most of the value is consumed
- Otherwise similar to an operating lease
- Rebuttable presumption for property
- What is property?
• Lessor accounting
- Similar to today, based on similar criteria
Slide 10 2013
PwC
Lease accounting
Key proposals
• Lease term
- Include optional extension periods only when there is significant economic incentive to extend
• Contingent rents
- Excluded
• What distinguishes a lease from a service?
Slide 11 2013
PwC
Lease accounting
• Over 600 comment letters (and increasing)
• Varied messages
- Lessee
o Limited support for ‘dual approach’
o Dividing line for lease classification
o Costly and complex
- Lessor – no mandate for change?
• Improvement in accounting?
Slide 12 2013
PwC
2.2 Revenue
PwC
Revenue from contracts with customers
Long standing project expected to finish shortly
• Discussion paper and two exposure drafts
• Consistent model across all geographies, industries and capital markets
• Replace limited existing GAAP
• Re-deliberations continued through October
• Final standard expected first quarter 2014
• Expected to be effective 2017
• Joint implementation group with FASB announced
Slide 14 2013
PwC
Revenue from contracts with customers Recognition
XXX
Slide 15
Step 1: Identify the contract with the customer
Step 2: Identify the separate performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price
Step 5: Recognise revenue when (or as) a performance obligation is satisfied
2013
PwC
Revenue from contracts with customers Final decisions
Collectibility
• ‘Probable’ threshold to determine whether revenue guidance is applied
• ‘Probable’ under both IFRS and US GAAP, so convergence not achieved, but both consistent with existing practice
Variable consideration
• Variable consideration included if it is highly probable that a subsequent change in the estimate would not result in a significant revenue reversal
• Exception for sales based royalties – revenue when uncertainty resolved
Licences
• Two types of licences: (1) Right transferred at point in time (2) Service of providing access over time
• Criteria to distinguish different types
• Identify separate performance obligations first
Slide 16 2013
PwC
2.3 Financial instruments
PwC
Impairment – proposed credit deterioration model
Slide 18
Effective interest on gross carrying amount
Lifetime expected credit losses
12 month expected credit losses
Recognition of expected credit losses
Interest revenue
Change in credit quality since initial recognition
Stage 1 Stage 2 Stage 3
Initial recognition* Assets with significant increase in credit risk
since initial recognition*
Credit impaired assets
*except for purchased or originated credit impaired assets
Lifetime expected credit losses
Effective interest on gross carrying amount
Effective interest on amortised cost carrying
amount (i.e. net of credit allowance)
2013
PwC
Class Upon origination Expected credit loss
Trade receivables without significant financing
• Simplified approach • Measure receivable at
invoice amount
• Lifetime expected credit losses
• Provision matrix can be used
Trade receivables with significant financing
Accounting policy choice: • General model; or • Simplified approach
• Depends on the accounting policy choice decision made.
Lease receivables As trade receivables with significant financing
Slide 19
2013
Impairment – proposed credit deterioration model Simplified approach
PwC
Convergence?
IASB/FASB
• No joint decisions. Convergence seems unlikely
• Responses to IASB suggest support for the credit deterioration model
• IASB tentatively decided:
– Not to provide a definition of default, but to require entities to use the definition used for credit risk management. Rebuttable presumption of default at 90 days past due
– Clarify application of low credit risk exception
– Clarify that the discount rate is effective interest rate (EIR) or an approximation thereof
• Final standard expected in first half of 2014. Expected effective date no earlier than 2017
Slide 20 2013
PwC
IFRS 9 - classification and measurement Limited amendments Original objectives to change IFRS 9
• Address IFRS 9 application issues
• Consider its interaction with the insurance project
• Address differences between IFRS 9 and FASB model
Summary of proposed changes
• Introduction of the fair value – OCI category with recycling for debt instruments
• Clarify “solely payments of principal and interest”
• Revised business model guidance to clarify the scope of the amortised cost category
• Transition guidance requires that all phases of IFRS 9 are adopted together once the final standard is issued
Slide 21
2013
PwC
Convergence? IFRS 9 - Classification & measurement (limited amendments)
• Joint meetings with FASB on-going
• In the November both boards tentatively agreed:
– To retain the fair value categories – FVOCI and FVPL
– Sales should not drive business model in the hold to collect measurement category
• Final standard expected in the first half of 2014
Slide 22 2013
PwC
2.4 Conceptual framework
PwC
Conceptual framework
Slide 24
2013
Disclosure forum (Jan)
Discussion paper (July)
Final publication date
Comment period ends (Jan)
Exposure draft expected
2014
2015?
2013
PwC
Conceptual framework Key questions
Debt/equity
• Strict obligation approach or narrow equity
Conditional liabilities
• Three possible views for conditional and constructive liabilities
Other comprehensive income (OCI)
• A principle?
• Proposed formats: sub-total of profit or loss with bridging/mismatch/recycling items in OCI?
Prudence
• Removed from Framework in 2010 and not considered in the DP
Slide 25 2013
PwC
2.5 Rate regulation
PwC
Rate regulation Discussion paper
Accounting for rate regulation
• Interim standard
• Discussion paper expected early 2014
• Consultative working group formed
• Background research:
- IASB should explore rate regulation based on rights and obligations rather than ‘types’ of regulation
- Consider of interactions with IFRIC 12
- Description of rate regulation in several different territories
Slide 27 2013
PwC
3. Future improvements to IFRSs IASB / IC agenda items
PwC
3. IASB / IC agenda items
Slide 29 2013
IAS 12 • Recognition of deferred tax assets for
unrealized losses
IAS 16/ IAS 38
• Clarification of acceptable methods of depreciation and amortization
IAS 19R
• Employee contributions
• Discount rates
IAS 32
• Puts on non-controlling interests
• Debt/equity
IFRS 2
• Dual pricing
• Measurement of cash settled awards
• Contingent settled features
PwC
IAS 27 / IAS 28 / IFRS 10 / IFRS 11
• Equity method in separate financial statements
• Equity method – share of other net assets changes
• IFRS 11 implementation issues
• IFRs 10 implementation issues
3. IASB / IC agenda items
Slide 30 2013
IFRS 13
• Fair value measurement – unit of account for financial assets that are investments in subsidiaries, JV and associates measured at FV
Exposure draft of IAS 41
• Bearer plants in the scope of IAS 16 instead of IAS 41
PwC
3. IASB / IC agenda items
Slide 31 2013
Disclosure initiative
Short term project
• Disclosure initiative, including
- materiality
- disaggregation
- order of notes
- net-debt reconciliation
• Going concern
• Current and non-current classification of liabilities
Medium term project
• Single standard replacing IAS 1, IAS 7 and IAS 8?
• General review of disclosure in existing standards
Thank you
This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liab ility partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.