Download Implementing IFRS 2008 Business Combinations – the revised

Update on IFRS from 2003 to 2008
11 February 2009
Jane Pike
Senior Manager: International Financial Reporting
Grant Thornton International
©2009 Grant Thornton International Ltd. All rights reserved.
1
Agenda
• Update on IFRS from 2003 to 2008
– IFRS context and background
– Summary of recent changes to IFRS
– Current projects and future developments
– Questions
©2009 Grant Thornton International Ltd. All rights reserved.
2
IFRS context and background
©2009 Grant Thornton International Ltd. All rights reserved.
3
IASB Objective
"to develop a single set of high quality,
understandable and enforceable
global accounting standards that require
high quality, transparent and comparable
information in financial statements …."
©2009 Grant Thornton International Ltd. All rights reserved.
4
Background – what is IFRS?
IFRS extant at
1 January 2009
Pronouncements issued by the IASB and the IFRIC and its predecessors
the IASC and SIC, including:
•
Conceptual Framework for the Preparation and Presentation of
Financial Statements
•
29 International Accounting Standards (IAS 1 - 41)
•
8 International Financial Reporting Standards (IFRS 1 - 8)
•
11 Standing Interpretation Committee Interpretations (SIC 7 - 32)
•
16 International Financial Reporting Interpretation Committee
Interpretations (IFRIC 1 - 17)
• around 2,700 pages of material!
©2009 Grant Thornton International Ltd. All rights reserved.
5
IASB progress
1973: IASC formed
1975-2001: IASs 1 - 41 issued
1997-2001: SICs 1 - 33 issued
2001: IASC reformed into IASB; existing IASs and SICs
adopted
2002: European Union enacts IAS Regulation to require all
listed companies to prepare consolidated accounts
using IFRS from 2005;
IASB and US FASB issue Memorandum of
Understanding for convergence of IFRS and US GAAP
©2009 Grant Thornton International Ltd. All rights reserved.
6
IASB progress
Continued
2003-2004: IFRSs 1 – 6 and IFRICs 1 – 5 issued
IASB completes "stable platform" improvements
2005: c7,000 listed companies in 25 EU countries adopt IFRS;
IFRS 7 and amendments to IASs 32 and 39 issued
2007: SEC drops US GAAP reconciliation
2008: first IASB/FASB joint standard (IFRS 3R) issued;
first annual 'Improvements to IFRSs' issued;
IASB responds to 'credit crisis';
SEC proposes "roadmap" for adoption of IFRS
©2009 Grant Thornton International Ltd. All rights reserved.
7
IFRS around the world
©2009 Grant Thornton International Ltd. All rights reserved.
8
IFRS around the world (continued)
• IFRS are now in general use in over 100 jurisdictions,
including:
– European Union
– Australia & New Zealand
– South Africa
– China ('substantially in line with IFRS')
– many other parts of Africa, Asia, Latin America, Middle
East
©2009 Grant Thornton International Ltd. All rights reserved.
9
IFRS around the world (continued)
• Countries committed to adopt or transition to IFRS:
–
–
–
–
–
–
–
–
–
Chile (2009 - 2011)
Brazil (2010)
Canada (2011)
India (2011)
Argentina (2011)
Korea (2011)
Japan (2011)
Malaysia (2012)
Mexico
– USA (2014 ??)
©2009 Grant Thornton International Ltd. All rights reserved.
10
Recent changes to IFRS
What's new
IAS 1 Presentation of Financial Statements
IFRS 3 Business Combinations
IAS 27 Consolidated and Separate Financial Statements
IFRS 8 Operating Segments
IAS 23 Borrowing costs (revised)
IFRIC 12: Service concessions
IFRIC 13: Customer loyalty programmes
IFRIC 15 Agreements for the construction of real estate
IFRIC 17 Distributions of Non-cash Assets to Owners
[Annual] Improvements to IFRSs
©2009 Grant Thornton International Ltd. All rights reserved.
11
What was new for periods beginning in 2008?
Mandatory for periods beginning on or after 1 January
2008 (unless otherwise stated)
• IFRIC 12 Service Concession Arrangements
• IFRIC 13 Customer Loyalty Programmes (1 July 2008)
• IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their Interaction
• IFRIC 16 Hedges of a Net Investment in a Foreign
Operation (1 October 2008)
©2009 Grant Thornton International Ltd. All rights reserved.
12
What will be new for periods beginning in 2009?
Mandatory for periods beginning on or after 1 January
2009 (unless otherwise stated)
• IAS 1 (2007) Presentation of Financial Statements
• IFRS 3 (2008) Business Combinations
• IAS 27 (2008) Consolidated and Separate Financial
Statements
• IFRS 8 Operating Segments
• IAS 23 (2007) Borrowing Costs
1 July
2009
Early adoption permitted.
IFRS 3R and IAS 27R must be adopted together but not available
for periods starting before 30 June 2007
©2009 Grant Thornton International Ltd. All rights reserved.
13
What will be new for periods beginning in 2009?
continued
Mandatory for periods beginning on or after 1 January 2009 (unless
otherwise stated)
• IFRS 1 and IAS 27 Amendments relating to cost of an investment in a
subsidiary, jointly controlled entity or associate
• IFRS 2 Amendment relating to vesting conditions and cancellations
• IAS 32 Amendments relating to puttable instruments and obligations
arising on liquidation
• IAS 39 Amendment for eligible hedged items (1 July 2009)
• IFRS 1 First Time Adoption of International Financial Reporting
Standards (1 July 2009)
• IFRIC 15 Agreements for the Construction of Real Estate
• IFRIC 17 Distributions of Non-cash Assets to Owners (1 July 2009)
• (Annual) Improvements to IFRSs 2008
Early adoption permitted
©2009 Grant Thornton International Ltd. All rights reserved.
14
Disclosure of new Standards and Interpretations
issued but not yet adopted
(IAS 8.30-31)
•
When an entity has not applied a new Standard
or Interpretation that has been issued but is not
yet effective, the entity shall disclose:
a) this fact; and
b) known or reasonably estimable information
relevant to assessing the possible impact that
application of the new Standard or
Interpretation will have on the entity's financial
statements in the period of initial application.
©2009 Grant Thornton International Ltd. All rights reserved.
15
IAS 1
(Revised 2007)
Presentation of Financial Statements
Main changes
Components of financial statements
Statement of Comprehensive Income
Statement of Changes in Equity
Other disclosures
©2009 Grant Thornton International Ltd. All rights reserved.
16
IAS 1 Presentation of Financial Statements
Revised September 2007
Effective for periods beginning on or after 1 January 2009
Main changes:
• terminology changes
• comprehensive income can be shown in a single statement or two
separate statements
• additional disclosure of income tax relating to each component of other
comprehensive income
• additional disclosure of items reclassified to profit or loss from equity
• additional comparatives needed when an entity retrospectively
applies a new accounting policy or reclassifies an item
• presentation of owner changes in equity in a separate statement from
non-owner changes, ie comprehensive income
• disclosure of dividends restricted to statement of owner changes in
equity or in the notes, not in the statement of comprehensive income
©2009 Grant Thornton International Ltd. All rights reserved.
17
Components of Financial Statements (IAS 1.10)
• Statement of Financial Position (IAS 1.54-80)
• Statement of Comprehensive Income
(IAS 1.81-105)
• Statement of Changes in Equity (IAS 1.106-110)
• Statement of Cash Flows (IAS 1.111 and IAS 7)
• Comparative information (IAS 1.38-44)
• Notes (IAS 1.112-138); including
–
–
–
–
Significant accounting polices (IAS 1.117)
Management judgement (IAS 1.122)
Sources of estimation uncertainty (IAS 1.125)
Capital management information (IAS 1.134-136 & IG10)
©2009 Grant Thornton International Ltd. All rights reserved.
18
Statement of comprehensive income –
minimum disclosure
(IAS 1.82-85)
[Income statement]
• Profit or loss
• Each component of other
comprehensive income classified
by nature
• Share of other comprehensive
income of associates and joint
ventures accounted for using the
equity method
• Total comprehensive income
©2009 Grant Thornton International Ltd. All rights reserved.
• Disclose as allocations of
profit or loss for the period
• total profit or loss for
the period
• total comprehensive
income for the period
– attributable to
• owners of the parent
• non-controlling
interest
19
Statement of comprehensive income –
income tax disclosures (IAS 1.90 – 91)
• Disclose income tax relating to each component of
other comprehensive income, either in the
statement or in the notes (IAS 1.90)
– components may be presented in the statement
either net of tax or before tax with a single
amount shown for the aggregate tax (IAS 1.91)
©2009 Grant Thornton International Ltd. All rights reserved.
20
Reclassification adjustments (IAS 1.92-96)
• Definition (IAS 1.7)
– amounts reclassified to profit or loss in the current period that were
recognised in other comprehensive in the current or previous
periods
• Reclassification adjustments arise (IAS 1.95)
– on disposal of a foreign operation (IAS 21.48)
– on de-recognition of available for sale financial assets
(IAS 39.55(b))
– when a hedged forecast transaction affects profit or loss
(IAS 39.100)
• Disclose reclassification adjustments relating to components of other
comprehensive income (IAS 1.92)
– reclassification adjustments may be presented in the statement or in
the notes (IAS 1.94)
©2009 Grant Thornton International Ltd. All rights reserved.
21
Statement of changes in equity (IAS 1.106 – 110)
• Now a primary statement, to be given same prominence as other
statements, not merely a note
Contents:
• total comprehensive income; showing separately amounts attributable
to owners of the parent and to non-controlling (minority) interests
• retrospective adjustments or reclassifications recognised in accordance
with IAS 8 for each equity component (eg class of contributed equity;
accumulated balance of each component of other comprehensive
income; retained earnings)
• transactions with owners in their capacity as owners eg contributions of
capital)
• reconciliation between carrying amounts at beginning and end of each
period for each equity component
• amount of dividends distributed to owners, and related amount per
share (or may be disclosed in a note)
©2009 Grant Thornton International Ltd. All rights reserved.
22
Comparative information (IAS 1.38-44)
• Except when other standards permit or require otherwise,
disclose comparative information for previous period for all
amounts reported
• Provide a third statement of financial position as at the
beginning of the previous period when the entity (IAS 1.39)
– applies an accounting policy retrospectively
– makes a retrospective restatement of items
– reclassifies items
• Provide additional disclosure when reclassify comparative
amounts (IAS 1.41)
©2009 Grant Thornton International Ltd. All rights reserved.
23
IFRS 3 and IAS 27
(Revised January 2008)
Business Combinations and
Consolidated Financial Statements
The changes resulting from the revisions to
IFRS 3 Business Combinations
and
IAS 27 Consolidated and Separate Financial Statements
©2009 Grant Thornton International Ltd. All rights reserved.
24
Major changes introduced by the 2008 revisions (1)
IFRS 3 Scope expanded (IFRS 3.2)
•
All business combinations except:
a) formation of a joint venture
b) acquisition of a group of assets that does not constitute
a business (so just allocate cost to the identifiable
assets and liabilities acquired using relative fair values)
c) combinations between entities under common control
Scope includes combinations effected by contract alone (eg dual
listings) and those between mutual entities (previously excluded
from scope)
©2009 Grant Thornton International Ltd. All rights reserved.
25
Definition of a Business (IFRS 3 Appendix A and
Application Guidance Appendix B.B7-12))
• An integrated set of activities and assets capable
of being conducted and managed for the purpose
of providing a return or lower costs or other
economic benefits directly to investors
• A business generally consists of inputs and
processes applied to those inputs that have the
ability to create outputs
• If goodwill is present in a transferred set of
activities and assets, the transferred set shall be
presumed to be a business
©2009 Grant Thornton International Ltd. All rights reserved.
26
Major changes introduced by the 2008 revisions (2)
IFRS 3 Business Combinations
• Transaction costs expensed immediately (IFRS 3.53)
• Contingent consideration contracts recorded at fair value
(IFRS 3.39-40,58)
– apply IAS 32 to determine whether contract is a liability or equity
– subsequent changes to a contingent consideration liability recorded
in income statement
• Business combination in stages method in old IFRS 3
replaced (IFRS 3.41-42)
– remeasure total previously held investment to fair value
– recognise gain or loss on remeasurement in income statement
©2009 Grant Thornton International Ltd. All rights reserved.
27
Major changes introduced by the 2008 revisions (3)
IFRS 3 Business Combinations
• Detailed asset-specific guidance for determining fair value
of identifiable assets and liabilities acquired replaced
– general principles require assets and liabilities (and
some contingent liabilities) be recognised at fair value
(IFRS 3.10 and 15)
– limited exceptions to general principles eg deferred
tax, employee benefit obligations
• follow specific Standard for these items unless
IFRS 3 contains specific requirements
(IFRS 3.21-31))
©2009 Grant Thornton International Ltd. All rights reserved.
28
Major changes introduced by the 2008 revisions (4)
IFRS 3 Business Combinations
• Specific recognition and/or measurement requirements for:
– contingent liabilities (IFRS 3.22-23, 56)
– non-market rate operating leases (IFRS 3.28-30)
– reacquired rights (IFRS 3.22, 56)
– indemnification assets (IFRS 3.27-28, 57)
• Explicit requirement to analyse whether any part of the
consideration transferred is for something other than the
acquisition (IFRS 3.52, B52-B55) eg
– pre-existing contracts between acquirer and acquiree
– settlement of litigation
– future management compensation
©2009 Grant Thornton International Ltd. All rights reserved.
29
Major changes introduced by the 2008 revisions (5)
IFRS 3 Business Combinations
• Special rules if the new parent replaces the acquiree's
share based payment scheme (IFRS 3.52(b), B56-62)
– allocate replacement award between consideration payable for the
acquiree and post-combination employee services
• Acquiree's assessments and designations of identifiable
assets and liabilities reassessed on acquisition date
(IFRS 3.15-17) eg
• financial instrument classification
• embedded derivatives
• hedging relationships
– except classifications of leases and insurance contracts
are not reassessed
©2009 Grant Thornton International Ltd. All rights reserved.
30
Major changes introduced by the 2008 revisions (6)
IFRS 3 Business Combinations
Goodwill (IFRS 3.32-33)
• Goodwill value determined at acquisition date, not date of
exchange
• Goodwill valued as consideration transferred plus FV of
previously held investment plus amount of non-controlling
interest (NCI) less FV of identifiable assets and liabilities
acquired, measured in accordance with IFRS 3
• 100% of goodwill can be recognised even if there is a noncontrolling interest
– NCI measured at either FV or proportionate interest in
identifiable net assets
©2009 Grant Thornton International Ltd. All rights reserved.
31
Major changes introduced by the 2008 revisions (7)
IFRS 3 Business Combinations
• Changes to the measurement of goodwill subsequent to
initial recognition significantly reduced – consequently more
adjustments made to post-acquisition income for
reassessment of estimates, eg
– contingent consideration (IFRS 3.58)
– contingent liabilities assumed (IFRS 3.56)
– deferred tax assets not recognised at acquisition (IFRS 3.67)
• Changes to provisional amounts may be retrospectively
adjusted through goodwill if identified in the measurement
period, which may be less than 1 year from the acquisition
date (IFRS 3.45-49)
©2009 Grant Thornton International Ltd. All rights reserved.
32
Major changes introduced by the 2008 revisions (8)
IAS 27 Consolidated and Separate Financial
Statements
• Losses attributed to NCI in full, even if results in
deficit balance in statement of financial position
(IAS 27.28)
• Change in controlling interest (ie transactions
involving acquisition or disposal of interests in a
subsidiary in which control is not gained or lost) are
accounted for as equity transactions
(IAS 27.30-31)
– no income statement gain or loss recognised
– no adjustment to goodwill
(reflects view that non-controlling interests are a
component of group equity)
©2009 Grant Thornton International Ltd. All rights reserved.
33
Major changes introduced by the 2008 revisions (8)
IAS 27 Consolidated and Separate Financial
Statements
On loss of control of subsidiary (IAS 27.34-37)
• any retained investment is recognised at fair value at date control is
lost
• this fair value is included in calculation of gain or loss on disposal of
controlling interest
• reclassifies to profit or loss, or transfers directly to retained earnings any
gains or losses previously recognised directly in equity, if required
in accordance with other IFRSs, on same basis as if directly disposed
of the related assets or liabilities
• IAS 27 made consequential amendments to
– IAS 28.18-19A, 35
– IAS 31.45-45B, 46 and
– IAS 21.48A-48D, 49
to provide consistent treatment between loss of control, loss of
significant influence and loss of joint control
©2009 Grant Thornton International Ltd. All rights reserved.
34
Amendment to IFRS 1 and IAS 27 Cost of an investment in
a Subsidiary, Jointly Controlled Entity or Associate
• IAS 27: Deletion of IAS 27's definition of the cost method in
parent's separate financial statements
• Consequent elimination of need to deduct pre-acquisition
dividends from cost (large dividend is an indicator of
impairment)
• IFRS 1: Option to use fair value or previous GAAP carrying
value as deemed cost of investment in a subsidiary in
parent's separate financial statements on transition to
IFRS
• Effective for periods beginning on or after 1 January 2009.
Early adoption is permitted
©2009 Grant Thornton International Ltd. All rights reserved.
35
IFRS 8
Operating Segments
Scope
Main changes from IAS 14
Reportable segments
Disclosures
©2009 Grant Thornton International Ltd. All rights reserved.
36
Operating segments
Main changes from IAS 14 (IFRS 8.IN10-18)
effective for annual periods beginning on/after 1 January 2009
• Replaces IAS 14 Segment Reporting
• Operating segments identified on basis of internal
reports to chief operating decision-maker (CODM)
• Segments include components of the entity that
sell primarily or exclusively to other segments
• Information measured in accordance with policies
used to report to CODM, policies disclosed and
figures reconciled to IFRS accounting policy
measures
• More extensive disclosures required
©2009 Grant Thornton International Ltd. All rights reserved.
37
IFRS 8 Operating Segments
Scope (IFRS 8.2)
Same scope as IAS 14, ie
– separate or individual financial statements of a relevant
entity:
– consolidated financial statements of a group with a
relevant parent:
• A relevant entity or parent is one:
(i) whose debt or equity instruments are traded in a public market, or
(ii) that files, or is in the process of filing, its financial statements with a
regulatory organisation for the purpose of issuing any class of
instruments in a public market
• If separate and consolidated financial statements are
presented together, only consolidated segment information
is needed
©2009 Grant Thornton International Ltd. All rights reserved.
38
Operating segments
Definition (IFRS 8.5)
An operating segment is a component of an entity:
(a) that engages in business activities from which it may earn
revenues and incur expenses (including revenues and expenses
relating to transactions with other components of the same entity),
(b) whose operating results are regularly reviewed by the entity's chief
operating decision maker to make decisions about resources to be
allocated to the segment and assess its performance, and
(c) for which discrete financial information is available.
• An operating segment may engage in business activities for which it
has yet to earn revenues, for example, start-up operations may be
operating segments before earning revenues.
©2009 Grant Thornton International Ltd. All rights reserved.
39
Aggregation of segments (IFRS 8.12)
• Two or more operating segments with similar economic
characteristics may be aggregated into a single operating
segment if the segments are similar in each of the following
respects:
(a) the nature of the products and services;
(b) the nature of the production processes;
(c) the type or class of customer for their products and
services;
(d) the methods used to distribute their products or provide
their services; and
(e) if applicable, the nature of the regulatory environment,
for example, banking, insurance or public utilities.
©2009 Grant Thornton International Ltd. All rights reserved.
40
Reportable segments
Quantitative thresholds (IFRS 8.13)
• segment must be reported separately if:
– revenue > 10% total (internal and external) revenue, or
– assets > 10% total assets, or
– results > 10% of higher of
• total profit from profitable segments
• total loss of loss making segments
• if external revenue of identified reportable segments is
< 75% of total external revenue, must identify additional
segments to reach 75% (IFRS 8.15)
©2009 Grant Thornton International Ltd. All rights reserved.
41
Reportable segments - example
Entity P has
• total revenues, internal and external, of CU500
• total assets of CU400
• total loss for all segments that reported a loss is CU90
• total profit for all segments that reported a profit is CU200.
Segment A has
• total revenues of CU60, of which internal revenues are CU35 and
external revenues are CU25
• assets of CU20
• loss of CU15
Which thresholds, if any, does segment A exceed?
©2009 Grant Thornton International Ltd. All rights reserved.
42
IFRS 8 – Disclosures (IFRS 8.20-24)
• General information
• Quantitative disclosures
– profit/loss
– total assets
– measure of liabilities
– revenue from external
customers/other segments
– interest revenue/expense
– depreciation/amortisation
©2009 Grant Thornton International Ltd. All rights reserved.
– material items of
income/expenditure
– interest in profit or loss
of associates/joint
ventures (equity
method)
– income tax/expense
– material non-cash
items
43
Measurement and reconciliation of quantitative
information (IFRS 8.25-28)
•
Use same measurement basis as used in reports to CODM and
disclose basis of accounting and how it differs from the IFRS policies
used for financial reporting
•
Provide reconciliation between reported segment information and the
reported financial statement figures:
a) the total of the reportable segments' revenues to the entity's
revenue.
b) the total of the reportable segments' measures of profit or loss to
the entity's profit or loss before tax expense (tax income) and
discontinued operations (unless such items are allocated to
reportable segments)
c) the total of the reportable segments' assets to the entity's assets.
d) the total of the reportable segments' liabilities to the entity's
liabilities
e) the totals of the reportable segments' other material items to the
entity's totals
©2009 Grant Thornton International Ltd. All rights reserved.
44
IFRS 8 – Entity-wide disclosures (IFRS 8.31-34)
• The amounts disclosed are based on the financial information used to
prepare the financial statements
• Revenue from external customers for each product and service and
non-current assets (other than financial instruments, deferred tax
assets, post-employment benefit assets and insurance contract rights)
– attributed to or located in the entity's country of domicile
– attributed to or located in all foreign countries in total (with separate
disclosure of amount attributed to an individual foreign country if
material)
• If revenues from a single customer >10% of total external revenues,
this is disclosed along with the total amount of revenues from such
customers and the identity of the segment(s) reporting the revenues.
The identity of the customer does not need to be given.
©2009 Grant Thornton International Ltd. All rights reserved.
45
IAS 23
(Revised 2007)
Borrowing
Costs
Main changes
General requirements
©2009 Grant Thornton International Ltd. All rights reserved.
46
IAS 23 Borrowing Costs
Revised standard issued March 2007
• Main change - must capitalise qualifying borrowing
costs, it is no longer permissible to expense immediately
• general requirement:
– directly attributable borrowing costs relating to a
qualifying asset will need to be included in the cost of
the asset ie capitalised
– other borrowing costs are recognised as an expense in
the period incurred (IAS 23.1 & 8)
• limited scope exceptions eg assets reported at fair value
(IAS 23.4)
• borrowing costs may be asset specific or an allocation of
general borrowing costs
©2009 Grant Thornton International Ltd. All rights reserved.
47
IAS 23 Borrowing Costs
Definitions: qualifying assets and borrowing costs
(IAS 23.5 - 6)
• qualifying assets – those that necessarily take a
substantial period of time to get ready for intended use or
sale (IAS 23.5)
• borrowing costs - interest and other costs an entity incurs
in connection with borrowing of funds – may include:
– interest using IAS 39 effective interest rate method
– finance lease finance charges recognised in accordance
with IAS 17
– exchange differences from foreign currency borrowings
to the extent regarded as adjustment to interest cost
(IAS 23.6)
©2009 Grant Thornton International Ltd. All rights reserved.
48
IAS 23 Borrowing Costs
Capitalisation period (IAS 23.17-23)
• capitalisation is required during development /
construction phases:
– starts when activities necessary to ready asset
for intended use or sale have begun and
expenditure on the asset is incurred and
qualifying borrowing costs have been incurred
(this is the commencement date)
– is suspended during extended period of
inactivity
– stops when activities to ready asset for intended
use or sale are substantially complete
©2009 Grant Thornton International Ltd. All rights reserved.
49
IAS 23 Borrowing Costs
Costs eligible for capitalisation (IAS 23.12-15)
• For funds borrowed specifically, capitalise actual
borrowing costs incurred, less any investment
income on temporary investment of those
borrowings
• For funds borrowed generally,
– apply a capitalisation rate to the expenditures on
the qualifying asset, being the weighted average
cost of general borrowings outstanding during
the period
©2009 Grant Thornton International Ltd. All rights reserved.
50
IAS 23 Borrowing Costs
Transition and effective date (IAS 23.27-28)
• Effective for periods beginning on or after
1 January 2009, but may adopt early by
designating an earlier effective date
• Prospective application – if current policy is
expensing, apply capitalisation policy to assets
where commencement date for capitalisation is
on/after the effective date
©2009 Grant Thornton International Ltd. All rights reserved.
51
New IFRIC Interpretations
IFRIC 12 Service Concession Arrangements
IFRIC 13 Customer Loyalty Programmes
IFRIC 15 Agreements for the Construction of Real Estate
IFRIC 17 Distributions of Non-cash Assets to Owners
©2009 Grant Thornton International Ltd. All rights reserved.
52
IFRIC 12 Service Concessions
•
Effective for periods beginning on or after
1 January 2008
•
Requirements for application of IFRS to service
concessions in which
–
a public sector body (the grantor) engages a private
entity (the operator) to provide services to the public;
and
–
those services involve the use of infrastructure (eg
roads, hospitals, power stations) by the operator
(public to private service concessions)
©2009 Grant Thornton International Ltd. All rights reserved.
53
IFRIC 12 Service Concessions (continued)
Scope (IFRIC 12.4-9)
•
Applies to operator only
•
Applies where:
– grantor regulates services provided, who provided to
and pricing arrangements
– grantor controls infrastructure
– infrastructure was either constructed or acquired by
operator or provided by grantor for the purpose of
the concession
©2009 Grant Thornton International Ltd. All rights reserved.
54
IFRIC 12 Service Concessions (continued)
Issues addressed
•
rights over infrastructure - do not recognise as property,
plant and equipment of the operator (IFRIC 12.11)
•
recognition and measurement of arrangement
consideration – account for revenue and costs in
accordance with IAS 11 and IAS 18 (IFRIC 12.12-14)
•
construction or upgrade services provided – record a
financial asset or an intangible asset depending on the
character of the receivable (IFRIC 12.15-19)
–
–
financial asset if unconditional right to receive cash
intangible asset if receives a right (licence) to charge users
©2009 Grant Thornton International Ltd. All rights reserved.
55
IFRIC 12 Service Concessions (continued)
other issues addressed
•
other services provided during the term of the
arrangement – apply IAS 18 (IFRIC 12.20)
•
borrowing costs incurred in the construction phase –
book as an expense unless there is a contractual right to
receive an intangible asset (IFRIC 12.22)
•
subsequent accounting for the financial or intangible
asset that the arrangement gives rise to –
apply IAS 32/39 & IFRS 7 or IAS 38 as appropriate
(IFRIC 12.23-26)
©2009 Grant Thornton International Ltd. All rights reserved.
56
IFRIC 13 Customer Loyalty Programmes
• Effective for annual periods beginning on or after 1 July
2008
• Scope – loyalty award credits issued as part of a sales
transaction that customers can redeem in future for free or
discounted goods and services
• Apply IAS 18.13 to allocate fair value to award credits as
separate component of revenue (IFRIC 13.5)
• If the unavoidable costs of meeting the obligations to
supply the awards are expected to exceed the
consideration received and receivable for them, recognise a
liability for onerous contracts in accordance with IAS 37
(IFRIC 13.9)
©2009 Grant Thornton International Ltd. All rights reserved.
57
IFRIC 13 Customer Loyalty Programmes
• If the entity supplies the awards itself, recognise
revenue when:
– award credits are redeemed and
– the entity fulfils its obligations to supply awards
(IFRIC 13.7)
• The amount of revenue recognised shall be based
on the number of award credits that have been
redeemed in exchange for awards, relative to the
total number expected to be redeemed
(IFRIC 13.7)
©2009 Grant Thornton International Ltd. All rights reserved.
58
Recognition of revenue when a 3rd Party supplies the
awards (IFRIC 13.8)
•
•
If a third party supplies the awards, assess whether consideration
allocated to the award credits is collected as the principal or as an
agent
a) If collecting the consideration on behalf of the third party:
i. measure revenue as the net amount retained on its own
account; and
ii. recognise this net amount as revenue when the third party
becomes obliged to supply the awards and entitled to receive
consideration for doing so
b) If collecting the consideration on its own account, measure revenue
as the gross consideration allocated to the award credits and
recognise the revenue when obligations in respect of the awards
are fulfilled
If the customer can choose to claim awards from either the entity or a
third party, recognition may occur only when the customer chooses to
claim awards from the third party or when the entity fulfils its obligations
in respect of the awards
©2009 Grant Thornton International Ltd. All rights reserved.
59
IFRIC 15 Agreements for the Construction of
Real Estate (effective for years commencing 1 January 2009)
Should IAS 11 or IAS 18 be applied?
• Provides guidance on deciding whether 'off-plan' sales of real estate
(house, apartments etc) fall within scope of IAS 11 or IAS 18
• IAS 11 should be applied in accounting for construction contracts in
the financial statements of contractors (IFRIC 15.13)
– a construction contract is a contract specifically negotiated for the
construction of an asset or a combination of assets (IFRIC 15.11 and
IAS 11.3)
– such negotiation requires the buyer to be able to specify the major
structural elements of the design of the real estate before construction
begins and/or specify major structural changes once construction is in
progress (whether it exercises that ability or not)
• For agreements for the rendering of services (generally where the
entity is not required to acquire and supply construction materials),
apply IAS 18.20-21, which applies the percentage of completion
method described in IAS 11 (IFRIC 15.15)
©2009 Grant Thornton International Ltd. All rights reserved.
60
IFRIC 15 Agreements for the Construction of
Real Estate
Should IAS 11 or IAS 18 be applied? (continued)
• For agreements for the sale of goods (generally where construction
could take place independently of the agreement; buyers have only
limited ability to influence the design of the real estate; and the entity is
required to supply both services and construction materials
(IFRIC 15.12 and 16))
– apply recognition criteria for sale of goods in IAS 18.14:
• if criteria are met continuously as construction progresses, use
percentage of completion method (IFRIC 15.17) [unlikely to
be frequent – IFRIC 15.BC26]
• if entity transfers control and significant risks/rewards at a single
point in time (eg at completion or on delivery), recognise
revenue when all criteria of IAS 18.14 are met (IFRIC 15.18)
©2009 Grant Thornton International Ltd. All rights reserved.
61
IFRIC 15 Agreements for the Construction of
Real Estate - Example
• Entity D is developing 40 residential units on an owned plot of land
• During construction, D enters into binding sale agreements with buyers
of individual units:
– buyer has right to acquire specified unit when ready for occupation
– buyer pays deposit, refundable only if D fails to deliver the
completed unit - balance of payment due in two further instalments
• one on completion of main structural elements
• the remainder on contractual completion of the unit
– buyers cannot alter the main structural elements of the design but
can select fixtures and fittings design specifications from a range of
offerings
– if buyer fails to make specified payments, entity D retains the right to
complete the unit and find an alternative buyer
©2009 Grant Thornton International Ltd. All rights reserved.
62
IFRIC 15 Agreements for the Construction of
Real Estate - Example solution
• Agreement is not a construction contract
• Agreement is a forward contract that gives the buyer
– an asset in the form of a right to acquire, use and sell the completed
real estate at a later date and
– an obligation to pay the purchase price in accordance with its terms.
• Entity D retains control and the significant risks and rewards of
ownership of the work in progress in its current state until the completed
real estate is transferred
• Therefore, revenue should be recognised only when all the criteria in
IAS 18.14 are met - at contractual completion
©2009 Grant Thornton International Ltd. All rights reserved.
63
IFRIC 17 Distributions of Non-cash Assets to Owners
Scope (IFRIC 17.3 - 8)
• Applies to
– distributions of non-cash assets (NCAs) to owners and
– distributions that give owners a choice of receiving a non-cash asset
or cash alternative
where all owners of the same class are treated equally
• except when
– the NCA is controlled by the same party or parties before and after
the distribution
– the NCA is a part of the distributing entity's ownership interests in a
subsidiary but the entity retains control of the subsidiary (use IAS 27
(2008) to account for the increase in the non-controlling interest)
• Effective for periods beginning on or after 1 July 2009, can adopt early
but only if also early adopt IFRS 3 and IAS 27 (as amended 2008)
©2009 Grant Thornton International Ltd. All rights reserved.
64
IFRIC 17 Distributions of Non-cash Assets to Owners
Accounting treatment (IFRIC 17.10-15)
• Recognise liability when dividend is appropriately authorised and no
longer discretionary (IFRIC 17.10)
• If the asset(s) to be distributed are non-current assets or are a disposal
group as defined in IFRS 5, apply the classification, presentation and
measurement requirements of that Standard (IFRIC 17.Appendix
expands to scope of IFRS 5)
• Measure liability at inception, at each reporting date and on settlement
at fair value
– if owners can choose to receive either a non-cash asset or a cash
alternative, estimate the liability by considering the fair value of each
alternative and the probability of selection (IFRIC 17.11-12)
• On settlement, recognise the difference, if any, between the carrying
value of the asset(s) distributed and the carrying amount of the liability
as a separate item in profit or loss (IFRIC 17.14-15)
©2009 Grant Thornton International Ltd. All rights reserved.
65
Annual Improvements to IFRSs
effective for years commencing 1 January 2009 except as indicated
IFRS affected
Issue addressed
IFRS 5
• Plan to sell controlling interest in a subsidiary
• effective 1 July 2009
IAS 1
• Current/non-current classification of derivatives
IAS 16
• Recoverable amount
• Sale of rental assets
IAS 19
•
•
•
•
Curtailments and negative past service costs
Plan administration costs
Guidance on contingent liabilities
Replacement of term "fall due"
©2009 Grant Thornton International Ltd. All rights reserved.
66
Annual Improvements to IFRSs
continued
IFRS affected
Issue addressed
IAS 20
• Government loans with low interest rate
IAS 23
• Components of borrowing costs
IAS 27
• Measurement of subsidiary held for sale in separate
financial statements when IAS 39 is applied
IAS 28
• Disclosures for investments designated at FVTPL
• Impairments of associates
IAS 29
• Description of measurement basis in financial
statements
IAS 31
• Disclosures for investments designated at FVTPL
IAS 36
• Disclosures of estimates
©2009 Grant Thornton International Ltd. All rights reserved.
67
Annual Improvements to IFRSs
continued
IFRS affected
Issue addressed
IAS 38
• Advertising and promotional activities
• Units of production method of amortisation
IAS 39
• Reclassification of derivatives
• Designation of hedges at segment level
• Applicable effective interest rate on cessation of fair
value hedge accounting
IAS 40
• Investment property under construction
IAS 41
• Discount rate for fair value estimates
• Additional biological transformation
Plus other non-substantive amendments
©2009 Grant Thornton International Ltd. All rights reserved.
68
Current project and future developments
Financial Instruments and the 'credit crisis'
IFRS for Private Entities
Forthcoming changes to IFRS
©2009 Grant Thornton International Ltd. All rights reserved.
69
Financial Instruments and the 'credit crisis'
1990: IAS 30 Disclosures in the Financial Statements of
Banks and Similar Financial Institutions
1995: IAS 32 Financial Instruments: Disclosure and
Presentation
1998: IAS 39 Financial Instruments: Recognition and
Measurement and IAS 32 revised
2002-2005: IAS 32 and IAS 39 revised
IFRS 7 Financial Instruments: Disclosures issued
2008: Financial instruments 'in focus' in credit crisis
IAS 32 and IAS 39 and IFRS 7 revised
©2009 Grant Thornton International Ltd. All rights reserved.
70
Structure of IFRS 7 – general disclosure requirements
General disclosure requirements
Nature and extent of
risks arising from
financial instruments
Other disclosures
Qualitative
disclosures
Fair value for all financial
assets and liabilities, minor
exceptions
Accounting policies
Credit risk
Liquidity risk
Quantitative
disclosures
©2009 Grant Thornton International Ltd. All rights reserved.
Market risk
71
Proposed amendments to
IFRS 7 Financial instruments: Disclosures
Exposure Draft released October 2008:
Proposed changes:
• Liquidity risk – additional maturity disclosures
• Explanation of how fair value is determined (especially those that are
complex)
• Transparency concerning off balance sheet arrangements
• Fair value measurement: the three-level fair value hierarchy (as in
US GAAP)
– Level 1: quoted prices
– Level 2: valuation technique based on observable market inputs,
– Level 3: Valuation technique based on non-observable market
inputs – will require comprehensive additional disclosures reflecting
risk of fair value measurement
©2009 Grant Thornton International Ltd. All rights reserved.
72
Creating a 'level playing field' Reclassification of financial assets – amendment to
IAS 39 and IFRS 7: issued October 2008
• A pragmatic response to certain differences between US
GAAP and IFRS - proceeded directly to issue!
• Reclassification of certain financial assets out of fair value
through profit or loss category and out of the availablefor-sale category in limited circumstances
• Fair value at date of reclassification becomes its new cost
or amortised cost, as applicable.
• Do not reverse gains or losses previously recognised in
profit or loss
• Effective date: partially retrospective from 1 July 2008,
prospective from 1 November 2008
©2009 Grant Thornton International Ltd. All rights reserved.
73
Financial Instruments: further developments
Expert Advisory Panel Educational Guidance
• Valuing financial instruments in inactive markets
– use of transaction prices in 'less active markets'
– forced or distressed sale not indicative of fair value
– enhanced disclosures
• Doesn't change IFRS requirements
Financial Crisis Advisory Group
• A high-level advisory group set up by IASB and FASB to consider
financial reporting issues arising from the global financial crisis
Current projects
• Ongoing projects to reduce complexity in financial instrument reporting
and to clarify debt / equity classification
©2009 Grant Thornton International Ltd. All rights reserved.
74
IFRS for Private Entities
(Previously named IFRS for Small and Medium-sized
Entities (SMEs))
• ED released February 2007, comment period ended November 2007
• Objective: an IFRS expressly designed to meet the financial reporting
needs of entities that (a) do not have public accountability and (b)
publish general purpose financial statements for external users
• The IFRS will:
– be a stand-alone document
– be derived from full IFRSs with appropriate modifications to full
IFRS based on the needs of users and cost-benefit considerations
– include all accounting policy choices in full IFRS
• Board still to consider requests for more simplifications, eg accounting
for defined benefit pension plans, financial instruments, and disclosure
of equity-settled share-based payment schemes
• IFRS expected first half of 2009
©2009 Grant Thornton International Ltd. All rights reserved.
75
Other changes expected during 2008/09
Project
Main changes expected
Joint ventures
Replacement of IAS 31
Elimination of proportionate consolidation
Consolidation
Replacement of IAS 27 and SIC 12
Clarification of control relationships
Related parties Changes to IAS 24 to offer limited relief from disclosure
when related party status is based on state-control
Improvements
to IFRSs
Second year of annual process
ED released in 2008 proposes 12 changes to 8 standards
For more information on IASB projects refer to the IASB website
www.iasb.org
©2009 Grant Thornton International Ltd. All rights reserved.
76
Any questions?
©2009 Grant Thornton International Ltd. All rights reserved.
77
Important information
© 2009 Grant Thornton International Ltd. All rights reserved.
Grant Thornton International and the member firms are not a worldwide
partnership. Services are delivered independently by the member firms. Any and all
references to Grant Thornton International are to Grant Thornton International Ltd.
Important disclaimer:
This presentation has been developed as an information and training resource. It is
intended as a guide only and the application of its contents to specific situations will
depend on the particular circumstances involved. While every care has been taken
in its preparation, personnel who use this material to assist in evaluating
compliance with International Financial Reporting Standards should have sufficient
training and experience to do so. No person should act specifically on the basis of
the material contained herein without considering and taking professional advice.
Neither Grant Thornton International, nor any of its member firms, partners or
employees, accept any responsibility for any errors it might contain, whether
caused by negligence or otherwise, or any loss, howsoever caused, incurred by
any person as a result of utilising or otherwise placing any reliance upon this
document.
©2009 Grant Thornton International Ltd. All rights reserved.
78