1
IFRS Adoption Done! What Accounting Issues Should Oil & Gas Companies Focus on Now?
Mark Walsh FCAPrincipal, AcSB Staff
The views expressed in this presentation are those of the presenter,
not necessarily those of the AcSB.
PASC – March 14, 2012
2
Objectives
• Understand the new standard setting world
• Are we just “takers” of standards or can we have a significant influence
• How to keep up-to-date
• Overview of changes to IFRSs that companies should be planning to adopt in the next few years
3
Some basics about IFRSs in Canada
IFRSs as issued by the IASB
• No modifications or carve-outs
Annual Improvements
• ED issued June 2011, final to be issued Q2, 2012
• ED for next cycle to be issued Q1, 2012
Interpretations – IFRS Interpretations Committee
• No Canadian interpretations
• Don’t forget the NIFRICs
4
Standard-setting Process
• Canadian participation• Trustee, Interpretations Committee, IFRS Advisory
Council, Working Groups on leases and employee benefits
• IASB has open process• Board and Interpretations Committee papers on
website• Board and Interpretations Committee meetings
webcast• Public consultations on process and governance, future
work plan and specific projects
5
AcSB Interface with IASB
• AcSB staff member assigned for each IASB project• Active interface with IASB project manager• Outreach to Canadian stakeholders
• Respond to all documents for comment
• Facilitate input from Canadian constituents to IASB•User Advisory Council•Round tables (with IASB staff present)•Assist industry groups and others in their communications with IASB• National standard setters meetings
6
AcSB Interface with IASB
• Requests for changes made to IASB
• IFRS 1 amendments for oil & gas• Investment companies• Rate regulated entities• IFRIC e.g. deferred stripping, ARO discount rate
7
IFRSs - What’s happening?
• Several IFRSs recently issued with effective dates 2013
• Remaining joint projects with FASB
• Revenue, leases, financial instruments, insurance
• Agenda Consultation
8
New IFRSs Issued in 2011
• Consolidated financial statements • Joint arrangements• Disclosures of interests in other entities
• Fair value measurement• Post-employment benefits• FSP: Other comprehensive income
• IFRIC 20 – Stripping costs
9
Consolidated Financial Statements
Objective: Define a single control model to determine what is consolidated
Control of an entity requires:• Power over the entity• Exposure to variable returns from involvement• Ability to use its power to affect returns
Principles-based:• Numerous factors to consider besides voting rights• Some situations will requires judgment
Effective annual periods beginning on/ after Jan 1 2013
10
Joint Arrangements
Objective: Accounting for arrangements controlled jointly should reflect rights and obligations
Joint operation – joint control of assets & liabilities • Include share of assets & liabilities
Joint venture – joint control of net assets• Most jointly controlled enterprises – but not all! • Use equity method
Think about how you structure a joint arrangement
Effective annual periods beginning on/ after Jan 1 2013
11
Disclosures of Interests in Other Entities
Objective: Provide information for users to evaluate:• Nature and risks of interests in other entities• Effect on financial position, performance, cash flow
Disclosures are extensive e.g.
• Details of subsidiaries, joint arrangements, significantly influenced investees incl. summarized financial information for material entities
• Restrictions on access to cash
Effective annual periods beginning on/ after Jan 1 2013
Adopt when adopt IFRS 10 and IFRS 11
12
Fair Value Measurement
Objective: Guidance on HOW to measure fair value• Does not affect when FV is used• 3 level hierarchy consistent with Section 3862• More extensive guidance• More disclosure
Effective annual periods beginning on/ after Jan 1 2013
Early adopt?
13
Employee Benefits – defined benefit plans
Objective: Get the balance sheet right!• Full obligation on balance sheet• Defer and amortize eliminated• Expense consists of service cost, financing and
remeasurement• Remeasurement in OCI - without recycling• Disclosures
Effective annual periods beginning on/after Jan 1, 2013
14
Stripping Costs: IFRIC20
• Scope is a surface mine•Capitalize stripping costs that benefit future periods as a cost of the portion of the ore that the stripping activity helps access•Stripping costs that benefit current production are an inventory cost• Largely consistent with EIC-160
Effective annual periods beginning on/after Jan 1, 2013
15
Revenue
Exposure Draft • Single approach to be applied across industries• Recognize revenue
• When each performance obligation is satisfied• At amount of consideration received or expected to be
received
Implications• Delay revenue recognition for many arrangements
• Service and construction contracts, multideliverables?• More estimates• Disclosures
16
Revenue
How will this affect you? •Implications for oil & gas companies of new IFRS not expected to be large• Effective date not set – no earlier than Jan 1 2015• Re-exposure draft comment deadline March 13, 2012• Look at it to make sure no surprises!
17
Leases
Exposure Draft • Recognize all assets and liability under lease• Measure at PV of lease payments
Post ED redeliberations• Proposals significantly modified
• Lease period• Contingent rents• Short term leases• Transition
18
Financial Instruments
• IFRS 9 contains recognition and measurement of financial assets and liabilities
• Coming soon – additional sections of IFRS 9 on:• Classification and measurement – ED Q3• Impairment – re-expose Q3• Hedge accounting – review draft Q1• Macro hedging – exposure draft
19
IASB’s Future Agenda
• IASB issued a request for input on post 2011 IASB work plan
• 247 written responses received
• Round tables in Toronto, London and Norwalk in March 2012
• Agenda consultation is input to IASB
• IASB will make final decisions
• Likely not until later this year
20
IASB’s Future Agenda
• What did the IASB hear?
• Finish 4 outstanding projects
• Zero to very few new standards projects in next few years
• Rate regulated?
• Conceptual Framework is high priority
• Focus on maintaining existing standards – interpretations and post-implementation reviews
21
Whither extractive?
• Remains a “hole” in IFRSs- Will this be an issue for US adoption?
• Would an extractive project be joint with FASB?
• Should it be part of an intangible assets project?- DP respondents queried why different to R&D- Would an Intangibles IFRS address extractive issues?- Would an intangibles IFRS require expensing of research costs? Exploration costs?
• Part of post 2011 agenda consultation
22
Oil & Gas Task Force on IFRSs
• Created by CAPP, SEPAC and CICA
• Objective: share views on IFRS issues relevant to junior oil & gas companies• Output is non-authoritative – not authorized by AcSB
• Viewpoints issued on• Significant IFRS Application Issues• Functional Currency• Flow-through Shares• Farm-out Arrangements
• http://www.cica.ca/ifrs/ifrs-transition-resources/item2492.aspx#oil
23
Key Messages
• Adopting IFRSs is not the end of change
• Be aware of implications for your company of new IFRSs
• Importance of understanding the new standard-setting process and participating in it
• AcSB is actively engaged in working with the IASB so that IFRSs meet Canadian financial reporting needs