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A.F.Ferguson & Co. A member firm of
A.F.Ferguson & Co. A member firm of pwc
Improvements Project
Workshop on latest developments in IAS
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A.F.Ferguson & Co.
A member firm of PwC
By: Syed Fahim ul Hasan
Partner
A.F. Ferguson & Co., Karachi
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A.F.Ferguson & Co.
A member firm of PwC
Improvement to IAS• Revised standards applicable to financial
periods beginning on or after January 1, 2005 (except for IAS 38 which is applicable for periods beginning on or after March 31, 2004)
• Earlier application encouraged and the fact should be disclosed
• When adopting requirement of a standard, the entire revised standard must be adopted
4
A.F.Ferguson & Co.
A member firm of PwC
IAS 1 Presentation of Financial Statements
True and fair override in very rare circumstances
• If not prohibited by the relevant regulatory framework
• ‘true and fair’ presumes compliance with IFRS Disclose:
• Management concludes FS are fairly presented
• Identify requirement not applied
• Reason why treatment so misleading
• For each period presented, the financial impact of the departure on each item in the FS
5
A.F.Ferguson & Co.
A member firm of PwC
IAS 1 … contd. New disclosures
• Judgements made in applying accounting policies - Most significant effect of measurement of
items • Key assumptions about future and other
estimation uncertainties that risk future material adjustments
• Separate income statement disclosure- Profit or loss for the period- Profit or loss attributable to minority interest- Profit or loss attributable to equity holders of
the parent
6
A.F.Ferguson & Co.
A member firm of PwC
IAS 1 … contd.
New disclosures…contd.
• Statement of change in equity
- Total income and expenses for the period attributable to ‘minority interest’ and ‘equity holders of the parent’
7
A.F.Ferguson & Co.
A member firm of PwC
IAS 1 … contd.
Other changes
• Classified balance sheet presentation required i.e. current and non-current
- Liquidity basis or mixed basis is used only when reliable and more relevant.
- Post balance sheet events (refinancing, correction of defaults) do not affect classification of debt
• Presentation of extraordinary items prohibited
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A.F.Ferguson & Co.
A member firm of PwC
IAS 1 … contd. Other changes
• Capital disclosures (effective from January 1, 2007)
IAS 1 has introduced requirements for all entities to disclose:
- the entity's objectives, policies and processes for managing capital;
- quantitative data about what the entity regards as capital;
- whether the entity has complied with any capital requirements; and
- if it has not complied, the consequences of such non-compliance.
9
A.F.Ferguson & Co.
A member firm of PwC
IAS 2 Inventories
Scope changes
• Clarifies the types of inventories exempted from measurement (but not disclosures) requirements
- Commodity broker-traders measured at NRV through profit or loss
- Producers of agricultural and forest products, agricultural produce after harvest and mineral products measured at fair value less costs to sell through profit or loss
• All inventories covered – words ‘held under the historical cost system’ removed
10
A.F.Ferguson & Co.
A member firm of PwC
IAS 2 …contd.
• LIFO method not permitted
• Finance cost of inventories on deferred settlement terms
Other changes
• Exchange differences as inventory cost no longer permitted
• Consistency – same cost formula be used for similar inventories
• Disclosure – Inventories carried at fair vale less cost to sell
- Difference between purchase price for normal credit terms and the amount paid is interest expense over financing period
11
A.F.Ferguson & Co.
A member firm of PwC
Main changes • All voluntary changes in accounting policies and
corrections of errors must be made retrospectively- Allowed alternative method eliminated
- Apply new accounting policy and correction to prior period errors to comparative information for prior periods as far back as practicable
- If impracticable to determine cumulative effect, apply new accounting policy and correction of errors prospectively from earliest period practicable
• Distinction between fundamental errors and other material errors eliminated
• Change in accounting estimate and prior period errors defined
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
12
A.F.Ferguson & Co.
A member firm of PwC
Change in accounting estimateChange in accounting estimate is an is an adjustment of the carrying amount of an adjustment of the carrying amount of an asset or a liability, or the amount of the asset or a liability, or the amount of the periodic consumption of an asset, that periodic consumption of an asset, that results from the assessment of the present results from the assessment of the present status of, and expected future benefits and status of, and expected future benefits and obligations associated with, assets and obligations associated with, assets and liabilities. Changes in accounting estimates liabilities. Changes in accounting estimates result from new information or new result from new information or new developments and, accordingly are not developments and, accordingly are not corrections of errorscorrections of errors
IAS 8 …contd.
13
A.F.Ferguson & Co.
A member firm of PwC
Prior period errorsPrior period errors are omissions from, and are omissions from, and misstatements in, the entity’s financial statements misstatements in, the entity’s financial statements for one or more prior periods arising from a failure for one or more prior periods arising from a failure to use, or misuse of, reliable information that:to use, or misuse of, reliable information that:a) was available when financial statements for a) was available when financial statements for those periods were authorised for issue; andthose periods were authorised for issue; andb) Could reasonably be expected to have been b) Could reasonably be expected to have been obtained and taken into account in the preparation obtained and taken into account in the preparation and presentation of those financial statements and presentation of those financial statements
Such errors include the effects of mathematical Such errors include the effects of mathematical mistakes, mistakes in applying accounting policies, mistakes, mistakes in applying accounting policies, oversight or misinterpretation of facts, and fraudoversight or misinterpretation of facts, and fraud
IAS 8 …contd.
14
A.F.Ferguson & Co.
A member firm of PwC
New disclosures
• Changes in accounting policy – initial application or voluntary changes
- Identify change
- Whether change is in accordance with transitional provisions and description of transitional provision
- Reasons why new accounting policy reliable and more relevant
- Amount of adjustment to each line item
- Amount of adjustment to basic and diluted EPS
- Amount of adjustment to prior periods
- More disclosures required if application is impracticable
IAS 8 …contd.
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A.F.Ferguson & Co.
A member firm of PwC
New disclosures … contd.
• When new standard or interpretation not applied but issued and is not yet effective
- The fact and estimate of impact of application now required (was encouraged before)
- Implication regarding the application of IFRS 1 to 7
IAS 8 …contd.
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A.F.Ferguson & Co.
A member firm of PwC
New disclosures … contd.
• Prior period errors
- Nature
- Amount of correction for each line item
- Amount of correction for basic and diluted EPS
- Amount of correction at the beginning of earliest period
- If retrospective restatement impracticable more disclosures are required
IAS 8 …contd.
17
A.F.Ferguson & Co.
A member firm of PwC
Other changes
• Materiality
- Concept of materiality defined
- IFRS not to be applied if effect of application is immaterial
- FS do not comply with IFRS if they contain material errors
IAS 8 …contd.
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A.F.Ferguson & Co.
A member firm of PwC
IAS 10 Events after the Balance Sheet Date
Clarifies
• When dividends are declared after the balance sheet date, do not recognise dividends as liability
• Disclosure such dividend in the notes in accordance with IAS 1
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A.F.Ferguson & Co.
A member firm of PwC
IAS 16 Property, Plant and Equipment
Main change
• All exchange of non-monetary assets measured at fair value whether or not they have similar use and fair value
- unless the transaction lacks commercial substance ; or
- fair value of neither the asset received nor asset given up is reliably measurable
In which case asset will be recorded at cost
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A.F.Ferguson & Co.
A member firm of PwC
IAS 16 Property, Plant and Equipment
Main change…contd.
• Definition of ‘residual value’ changed
- Amount could receive at the balance sheet date if the asset were in the condition that it will be at expected disposal date
- Does not include expected future inflation
• Residual value, depreciation method and useful life must be reviewed at least annually
21
A.F.Ferguson & Co.
A member firm of PwC
IAS 16 …contd. Clarifies
• Depreciation to continue on idle PPE
• Requirements of components approach
- An item of PPE often a combination of various items with separate useful lives
- Use separate lives calculate depreciation, test for derecognition and replacement or renewal of a component of PPE
• Cost of PPE – initial estimate of costs of dismantlement, removal or restoration of PPE
- Costs recognised and measured under IAS 37
22
A.F.Ferguson & Co.
A member firm of PwC
Other changes • Capitalising subsequent costs
- Use general recognition principle
• Clarifies and gives examples of items not to be included in acquisition costs - Start up costs - Cost of introducing new product or service - Administrative and general overhead costs
No longer test against ‘originally assessed standard of performance’
- Requires derecognition of parts replaced
• No depreciation charged if the residual value of asset exceeds the carrying value
IAS 16 …contd.
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A.F.Ferguson & Co.
A member firm of PwC
New disclosures
• Depreciation
- Whether recognised in the profit or loss or as part of cost of other assets
- Accumulated depreciation at the end of FY
• Change in estimates of
- Residual value
- Costs of dismantling, removing or restoring of PPE
- Useful lives- Depreciation methods
IAS 16 …contd.
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A.F.Ferguson & Co.
A member firm of PwC
New disclosures
• Revaluations
- Methods and significant assumptions applied to estimate fair values
• Reconciliation of carrying values at the beginning and end of the period
IAS 16 …contd.
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A.F.Ferguson & Co.
A member firm of PwC
• Disclosures encouraged
• Carrying amount of temporarily idle property, plant and equipment
• Carrying amount of fully depreciated assets still in use
• Carrying amount of assets retired from active use and not classified as held for sale as per IFRS 5 (IAS-35)
• When the cost model is used, the fair value of assets when it is materially different from the carrying amount
IAS 16 …contd.
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A.F.Ferguson & Co.
A member firm of PwC
IAS 17 Leases
Main changes
• Lease of land and building to be split into two elements - A lease of land and a lease of building(s)
- Based on the fair value of the components
• A lessee can classify an operating lease as investment property, if it accounts for it as a finance lease
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A.F.Ferguson & Co.
A member firm of PwC
IAS 17 Leases
Main changes
• Eliminates the choice in accounting for initial direct costs (lessors)
- Include in the leased asset and recognise as an expense over the lease term
- Manufacturer or dealer to recognise as expense at the time of recognition of selling profit
• Special transition provisions
• Inception and commencement of lease
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A.F.Ferguson & Co.
A member firm of PwC
IAS 21 The Effects of Changes in Foreign Exchange Rates
Incorporates SIC-19 and SIC-30• Replaces ‘measurement currency’ with ‘functional
currency’ – two have same meaning and the definition of ‘presentation currency’ added
Approach First step: Translate all the branches and subsidiaries
FC balances into functional currency of the group, exchange differences to go to P&L
Second step: Translate financial statements to presentation currency, exchange differences to go to equity
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A.F.Ferguson & Co.
A member firm of PwC
IAS 21 The Effects of Changes in Foreign Exchange Rates
Incorporates SIC-19 and SIC-30
• No change in accounting practices for many entities except
- Additional guidance on determining the functional currency
Emphasis on the currency that determines the pricing of transactions and in which transactions are denominated
Entities should reassess their functional currency to be consistent with new guidance
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A.F.Ferguson & Co.
A member firm of PwC
IAS 21 …contd.
Other changes
• Eliminated distinction between foreign operations and foreign entities
- But foreign operations and reporting entity likely to have same functional currency, so no real change
• Goodwill and fair value adjustments to assets/liabilities arising on the acquisition of foreign operations shall be treated as the assets/liabilities of that foreign operations and be re-translated at each balance sheet date - Using closing rate
31
A.F.Ferguson & Co.
A member firm of PwC
IAS 21 …contd.
Other changes
Only prospective application required
Retrospective application encouraged
- Special transition provisions for this change
• Eliminated the allowed alternative of capitalising unexpected severe devaluations
- All other changes resulting from the application of IAS 21 be treated under IAS 8
32
A.F.Ferguson & Co.
A member firm of PwC
Primary Rules
1. All exchange differences to go to P&L with exception:
- When functional currency is different and translation into presentation currency is done, the exchange differences will go to equity
- In case of monetary items forming part of net investment in a foreign operation presented in the consolidated financial statements of reporting entity, the exchange differences will go to equity
IAS 21 …contd.
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A.F.Ferguson & Co.
A member firm of PwC
2. Foreign currency transactions presented in functional currency
- All FC monetary items at closing balance sheet rate
- FC Non-monetary items measured in terms of historical cost at the rate of transaction date
- FC Non-monetary items measured in terms of fair value at the rate when the fair value was measured
- All exchange differences will go to P&L
IAS 21 …contd. Primary Rules
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A.F.Ferguson & Co.
A member firm of PwC
3. Foreign currency transactions presented in other than functional currency - Assets and liabilities at closing balance
sheet rate
- P&L items at the rate of transaction date
- All exchange differences will go to equity
4. If gain or loss on a non-monetary item is recognised directly in equity, any exchange component of that gain or loss shall also be recognised directly in equity
IAS 21 …contd. Primary Rules
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A.F.Ferguson & Co.
A member firm of PwC
New disclosures
• When presentation currency is different from functional currency
- Disclose the fact, functional currency and reason for different presentation currency
- Reason for change of functional currency, if applicable
• Convenience translation also allowed- only can be shown as supplementary
information
- disclose functional currency and the method of translation
IAS 21 …contd.
36
A.F.Ferguson & Co.
A member firm of PwC
IAS 24 Related Party Disclosures
Definition of related party expanded to include - Parties with joint control over the entity
- Joint ventures in which the entity is a venturer
- Post employment benefit plans for the benefit of employees of an entity or entity or entity’s related party
• Expanded scope includes close family members of - Individuals with direct, joint or indirect control or
significant influence
- Key management personnel of the entity or its parent
37
A.F.Ferguson & Co.
A member firm of PwC
- Parent companies, investors or ventures in separate financial statements
- Profit oriented state-controlled enterprises
Requires new disclosures including
No exemption
- Terms and conditions of related party balances
- Whether outstanding balances are secured
- The nature of the consideration to be provided in settlement
- Details of guarantees given or received
IAS 24 … contd.
38
A.F.Ferguson & Co.
A member firm of PwC
IAS 24 … contd. Requires new disclosures including …contd.
- The expense recognised during the period in respect of bad and doubtful debts due from related parties
- Classification of amounts payable to, and receivable from, related parties into different categories of related parties
- The name of the entity’s parent and, if different the ultimate controlling party. If neither of these two parties produce financial statements available for public use, the name of the next most senior parent that does so, is required
39
A.F.Ferguson & Co.
A member firm of PwC
Disclosure required separately for each of Disclosure required separately for each of the following categoriesthe following categories The parentThe parent Entities with joint control or significant Entities with joint control or significant
influenceinfluence SubsidiariesSubsidiaries AssociatesAssociates JVsJVs Key management personnelKey management personnel Other RPsOther RPs
IAS 24 … contd.
40
A.F.Ferguson & Co.
A member firm of PwC
IAS 24 … contd.
Disclosure not required (Significant Change)
- Pricing of transactions – Discussions on the
pricing of transactions and related disclosures
between RP have been removed because the
Standard does not apply to the measurement of
RP transactions. Further, the Standard clarifies
that an entity discloses that the terms of related
party transactions are equivalent to those that
prevail in arm’s length transactions only if such
terms can be substantiated
41
A.F.Ferguson & Co.
A member firm of PwC
IAS 27 Consolidated and Separate Financial Statements
Conditions changed for exemption not to prepare Consolidated Financial Statements (All to be met)
- The parent is a wholly owned subsidiary, or a partially owned subsidiary and all owners (including those not otherwise entitled to vote) do not object
- No debt or equity instruments traded in a public market
- Not in process of filing its FS with a regulatory authority (eg SECP) to issue any class of instruments to public and
- The ultimate or any intermediate parent of the parent produces consolidated FS that comply with IFRS and are available for public use
42
A.F.Ferguson & Co.
A member firm of PwC
IAS 27 … contd.
Main changes
- Venture capital organisations
- Mutual funds
- Unit trusts and similar entities
• Clarifies – no exemption from consolidation
- Impracticability exemption removed
• Uniform accounting policies to be used in the group
43
A.F.Ferguson & Co.
A member firm of PwC
IAS 27 … contd.
Main changes
- Within equity but separately from the parent shareholders’ equity
- Separately in income statement
• Prohibits equity method of accounting by a parent in separate Financial Statements
• New presentation of minority interests
44
A.F.Ferguson & Co.
A member firm of PwC
Other changes…contd.
- To be disposed of within 12 months from acquisition
- Management actively seeking a buyer
• Limited exemption – a newly acquired subsidiary excluded from consolidation only when
• Eliminates explicit exemption for a subsidiary operating under severe long-term restrictions (control must be lost)
• Incorporates SIC-33 – potential voting rights
IAS 27 … contd.
45
A.F.Ferguson & Co.
A member firm of PwC
Other changes
• More disclosures required - Summarised information of subsidiaries not
consolidated
- Nature of relationship when parent does not own more than half of the voting power
- Reasons why no control when the company owns more than half (potential) voting power
- Reporting date of the FS of a subsidiary if different dates from parent
IAS 27 … contd.
46
A.F.Ferguson & Co.
A member firm of PwC
IAS 28 Investments in Associates
Main changes
- For some types of investors
• Scope exclusion
- Must be held for trading under IAS 39
- Similar exemptions in IAS 31
Venture capital organisations
Mutual funds
Unit trusts and similar entities
Investment limited insurance funds
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A.F.Ferguson & Co.
A member firm of PwC
IAS 28 Investments in Associates
Main changes
Equity Method for associates with significant control must be used whether the investor also has investments in subsidiaries and prepares Consolidated Financial Statements or not. However, the investor should not apply Equity method when preparing separate Financial Statements under IAS 27
The Standard does not permit not to use Equity method when associate with significant influence operates under severe long-term restrictions (Significant influence must be lost)
48
A.F.Ferguson & Co.
A member firm of PwC
IAS 28 ...contd.
Conditions changed for exemption for application of Equity method similar to those provided to parents not to prepare Consolidated Financial Statements in IAS 27- The investor is a wholly owned subsidiary, or a partially owned
subsidiary and all owners (including those not otherwise entitled to vote) do not object to the investor not to apply Equity method
- No debt or equity instruments traded in a public market
- Not in process of filing its FS with a regulatory authority (eg SECP) to issue any class of instruments to public and
- The ultimate or any intermediate parent of the investor produces consolidated FS that comply with IFRS and are available for public use
49
A.F.Ferguson & Co.
A member firm of PwC
- Investor’s net investment now includes other long-term interest except trade receivables, trade payables or any long-term receivables with adequate collateral (secured loans)
• Modifies guidance in SIC-20 Equity Accounting Method – Recognition of Losses
IAS 28 … contd.
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A.F.Ferguson & Co.
A member firm of PwC
Other changes
- To be disposed within twelve months from acquisition
- Management is actively seeking a buyer
• Similar exemption as in IAS 27 that an investee treated as financial asset if
• Uniform accounting policies to be use
- Impractically exemption eliminated
IAS 28 … contd.
Extensive disclosure requirements similar to IAS 27
51
A.F.Ferguson & Co.
A member firm of PwC
IAS 31 Interests in Joint Ventures
Main changes
- For some types of investors
• Scope exclusion
- Must be held for trading under IAS 39
- Similar exemptions in IAS 28
Venture capital organisations
Mutual funds
Unit trusts and similar entities
Investment limited insurance funds
52
A.F.Ferguson & Co.
A member firm of PwC
The Standard does not permit not to use Proportionate Consolidation or Equity method when the JV with operates under severe long-term restrictions (Joint control must be lost)
IAS 31…contd.
53
A.F.Ferguson & Co.
A member firm of PwC
IAS 31 Interests in Joint Ventures Conditions changed for exemption for application of
Proportionate Consolidation or Equity method similar to those provided to parents not to prepare Consolidated Financial Statements in IAS 27- The venturer is a wholly owned subsidiary, or a partially owned
subsidiary and all owners (including those not otherwise entitled to vote) do not object to the investor not to apply Proportionate Consolidation or Equity method
- No debt or equity instruments traded in a public market
- Not in process of filing its FS with a regulatory authority (eg SECP) to issue any class of instruments to public and
- The ultimate or any intermediate parent of the venturer produces consolidated FS that comply with IFRS and are available for public use
54
A.F.Ferguson & Co.
A member firm of PwC
- To be disposed off within 12 months of acquisition
- Management is actively seeking a buyer
• Joint venture treated as a financial asset if
• Prohibits Proportionate Consolidation or Equity methods in separate financial statements of a venture
Disclosure
• Method used to recognised interest in Joint Venture that is proportion consolidation or equity
IAS 31…contd.
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A.F.Ferguson & Co.
A member firm of PwC
IAS 32 Financial Instruments Disclosure and Presentation
Covers • Classification as debt or equity
• Compound financial instruments
• Offsetting in the balance sheet
• Disclosure
Standard was originally issued 1995
Major changes in Dec 2003:
• All disclosures from old IAS 39 moved to IAS 32
• Many new disclosures added
56
A.F.Ferguson & Co.
A member firm of PwC
Definition • Expands definition of financial asset and
financial liability- Includes some contracts that will or may be
settled in the entity’s own equity instruments • Derivative
- Provides new guidance on when a derivative contract on an entity’s own equity is a liability
- With settlement option is classified as FA or FL unless all settlement options result in being an equity instrument
- Past practice or the intended settlement method no longer considered
IAS 32…contd.
57
A.F.Ferguson & Co.
A member firm of PwC
Definition … contd.
• Financial liability - Holder has a right to put it back to the issuer
for cash or another financial assets- Even if the amount of cash or other financial
asset is determined on the basis of an index- Includes puttable equity that gives the holder
right to a residual interest Significant impact on open-ended mutual funds,
unit trust, partnerships and co-operative entities
IAS 32…contd.
- Contingent settlement provisions exist
- Considers all terms and conditions agreed between members of the group and the holders of the instrument
58
A.F.Ferguson & Co.
A member firm of PwC
• The Standard provides guidance on
measurement of the components of
compound financial instruments
• Incorporates SIC-16 Share Capital –
Reacquired Own Equity Instruments
(Treasury Shares)
IAS 32…contd.
59
A.F.Ferguson & Co.
A member firm of PwC
Equity or liability (non-derivative)
Contractual obligation to deliver cash or financial asset
Instrument to be settled in the issuer’s own equity is a non-derivative with a
fixed value obligation to deliver a variable number of its own shares
Equity
NO
Liability Yes
Yes
NO
Liability
60
A.F.Ferguson & Co.
A member firm of PwC
Equity or liability (derivative) Does the issuer potentially have an obligation to settle gross in cash?
Will settlement be exchange of fixed number of shares for fixed amount?
Derivative (note that any net cash or net share settlement feature even at issuer’s
discretion, will lead to derivative treatment)
Liability
Equity
Yes
Yes
NO
NO
61
A.F.Ferguson & Co.
A member firm of PwC
New disclosures for fair value estimates - Method and significant assumptions applied for each
class of financial asset and liability
- Whether determined in full or in part by reference to published price quotations in an active market or by valuation technique
- Whether fair values determined in full or in part using valuation technique based on assumptions not supported by observable market prices or rates
- If change in assumptions would change the fair value and a range of reasonable possible alternative assumptions
- Amount of the change in fair value estimated using a valuation technique and recognised in P&L
IAS 32…contd.
62
A.F.Ferguson & Co.
A member firm of PwC
IAS 33 Earnings per Share
Significant redrafting (FAS 128)
Additional disclosure requirements
- Separate presentation on the face of income statements of basic and diluted EPS from continuing and discontinuing operations
Incorporates SIC-24 Earnings per Share – Financial Instruments and Other Contracts that May be Settled in Shares without changes
Requires adjustment to earnings (numerator) for redemption of preferred shares
Provides additional guidance and illustrative examples
63
A.F.Ferguson & Co.
A member firm of PwC
IAS 38 Intangible Assets
Subsequent expenditure
- To capitalise on rare occasions
If residual value > or = carrying amount
- Amortisation ceases Amortisation resumes when
- Residual value < carrying amount
All exchanges involving non-monetary assets- At fair value - unless
Transaction lacks commercial substance
Fair value not measurable
Cost and revaluation model (same as IAS 16)
64
A.F.Ferguson & Co.
A member firm of PwC
IAS 38 …contd.
Useful life - Indefinite / definite life
Disclosure
- Indefinite useful life assets
- Aggregate research and development expenditure
65
A.F.Ferguson & Co.
A member firm of PwC
IAS 39 Financial Instrument Recognition and Measurement
Scope
- If cannot be settled net and are not measured at fair value with changes recognised in P&L
• New guidance on calculation of effective interest rates
• Loan commitments excluded from IAS 39
- When specified payments to be made to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due under the original or modified terms
• Financial guarantee contracts excluded
- Provide for payments to be made in response to a variable e.g. changes in specified interest rate, financial instrument price
• Financial guarantee contracts are included in IAS 39 if
66
A.F.Ferguson & Co.
A member firm of PwC
IAS 39 …contd. Main change
- Derecognition rules rewritten to clarify their application
- Concepts of control and risks and rewards of ownership determine derecognition of a financial asset
- Abandoned ED proposal to use solely continuing involvement, however, continuing involvement considered if not substantially all the risks transferred
- Provides guidance when a part of financial asset should be derecognised
• Derecognition
67
A.F.Ferguson & Co.
A member firm of PwC
IAS 39 …contd. Main change
- Option to classify loans and receivable as available for sale (AFS)
- Securities quoted in an active market can be classified as available for sale, held for trading or held to maturity
- Option available to designate at inception any financial instrument as measured at fair value with changes in P&L
- Loans and receivables category expanded to include purchased loans and receivables not quoted in an active market
• Classification
68
A.F.Ferguson & Co.
A member firm of PwC
IAS 39 …contd. Main change …contd.
- Requires the use of estimated cash flows to calculate effective yield
- Exception in rare cases when reliable estimate of cash flow is not possible, in such cases use contractual cash flows instead of estimated cash flows
• Effective interest rate definition amended
• Expands guidance on measurement of fair values and clarifies fair value measurement hierarchy
• Confirms that impairment follow an ‘incurred loss’ model rather than an ‘expected loss’ model
• Option removed to show changes in available for sale through P&L
69
A.F.Ferguson & Co.
A member firm of PwC
IAS 39 …contd.
Hedge accounting • Apply fair value model for hedging firm
commitments
• Option to account for firm commitment in a
foreign currency as a cash flow hedge
• Option to apply cost basis adjustments for
hedging non financial assets or liabilities
• Removal of cost basis adjustment for hedging
financial assets or liabilities
70
A.F.Ferguson & Co.
A member firm of PwC
IAS 40 Investment Property
Investment property may include property interest held by a lessee under an operating lease - If accounted for at Fair Value under IAS 40
- IAS 40 overrides IAS 17 for classification of lease and the lease be recorded as finance lease
Special transition rules
Disclosures required - Model used (Cost or Fair Value)
- If Fair Value model is applied state whether, and in what circumstances, property interest held under operating lease is classified and accounted for as investment property
- Reconciliation between the valuation obtained for investment property and the amounts disclosed in the financial statements
71
A.F.Ferguson & Co.
A member firm of PwC
Thank youThank you
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