Second Wave of IFRS

A. F. FERGUSON & CO. Chartered Accountants

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January 2009

Second Wave of IFRS


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Slide 2January 2009


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Revisions/New standards• IAS 1 (revised), Presentation of Financial Statements• IAS 23 (revised), Borrowing Costs• Consolidation − IFRS 3 (revised), IAS 27 (revised) • Segment reporting − IFRS 8• Cost of investment − IAS 27 and IFRS 1 amendment • Financial instruments • Share-based payment − IFRS 2

‘Credit crunch’ Amendment • Reclassification of financial assets -IAS 39 & IFRS 7

IFRIC update• Customer Loyalty Programmes – IFRIC 13• Limit on defined benefit asset – IFRIC 14 • Construction contracts − IFRIC 15 • Hedges of a Net Investment in a Foreign Operation – IFRIC 16• Distributions of non-cash assets to owners – IFRIC 17

2008 Improvements2009 Improvements (EDs) Third wave of IFRS – major ongoing projects

Agenda

Slide 3January 2009


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IAS 1 (revised), Presentation of Financial Statements

Slide 4January 2009


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• Effective for annual periods beginning on or after January 2009

• Consequential amendments to other IASs and IFRSs

• Part of a larger joint project of the IASB and the FASB

• Phase “A” similar to the requirements of FASB Statement 130

- IAS 1 clarifies the presentation of transactions with owners and the performance of the entity.

• Phase “B” discussion paper issued in 4Q 2008

• Under phase “B”, B/S, P/L & CF would be divided into 5 sections i.e Business, Financing, Income taxes, Discontinued operations and Equity. Business would comprise of Operating and investing activities.

• Expected date of issuance of phase B : 2011

General requirementsIAS 1 (revised), Presentation of Financial Statements

Slide 5January 2009


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Balance sheet renamed as the ‘Statement of financial position’

Cash flow statement is renamed as the ‘Statement of cash flows’

P&L is renamed as ‘Statement of Comprehensive Income’ to be

presented in a

1. Single statement (a statement of comprehensive income)

2. Two statements (an income statement & a statement of other comprehensive statement), separately from owner changes in equity

The statement of other comprehensive income under the ‘two-statement’ approach is the same as the ‘statement of recognised income and expense (SORIE)’.


Components of Financial Statements

Slide 6January 2009


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Gain/loss recognised directly in equity (net of tax)

• Gain on revaluation of land and building

• Unrealised gain/loss on AFS financial assets

• Actuarial gain/loss on retirement benefit plans

• Currency translation differences

• Gain/loss on cash flow hedges

Statement of Other Comprehensive Income-What is included?


Slide 7January 2009


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• All changes in equity arising from transactions with owners and

associated tax impact in Statement Of Changes In Equity (SOCIE)

• Components of income and expense and associated tax impact

out of SOCIE

• Dividends per share to be presented in SOCIE or in notes

Reporting owner changes


Slide 8January 2009


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Retrospective application of adjustments (IAS 8)

• Three balance sheets are now required including the beginning of the comparative period

Other

• “Reclassification adjustments”- e.g. recycling AFS reserve at disposal should be disclosed with the related income tax

Other matters


Slide 9January 2009


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Statement of Comprehensive Income

Slide 10January 2009


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Reclassification of items included in Statement of Other Comprehensive Income



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IAS 23 (revised), Borrowing Costs



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• Issued in March 2007

• Part of IASB/FASB short-term convergence project

• Revisions primarily concerned with eliminating the option to expense borrowing costs

• Enhances comparability and overall improvement in financial reporting

• Effective for annual periods beginning on or after January 1, 2009

• Earlier application is permitted

Overview




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Highlights:

• Removal of allowed alternative treatment for immediate recognition of borrowing cost expense relating to qualifying asset.

• Capitalization of Borrowing Cost as a compulsory treatment.

• The cost of an asset will in future include all costs incurred in getting the asset ready for use or sale.




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Capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset

directly attributable- borrowing costs that could have been avoided if expenditures on the

qualifying assets had not been made

- costs of general borrowings used to obtain qualifying assets by applying capitalisation rate to the expenditures on the asset

capitalisation rate- weighted average borrowing costs, other than cost of specific borrowings

qualifying asset- asset that takes substantial* period of time to get ready for intended use

* Not a defined period - use consistently applied management judgment

General requirements




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• Capitalise when… – borrowing costs are being incurred; and

– asset preparations are in progress

• Suspend capitalisation when…– active development interrupted for extended periods

• Cease capitalisation when…– activities to prepare the asset to be used are complete

General requirements, continued




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• Income from temporarily invested proceeds from borrowings

- Required to offset borrowing costs

• Financing of long production period of inventories, e.g. wine

- Management can choose to capitalise borrowing costs

• ‘Notional’ borrowing costs

- Cannot be capitalised; limited to actual borrowing costs incurred

• Operating cash flows sufficient to finance capital expenditures

- General borrowings are assumed to be used first for qualifying assets, therefore borrowing costs should be capitalised

• Finance lease interest cost

- Is an element of borrowing costs to be capitalised

Other application points




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Quick guide to applying IAS 23 revised Handout 1


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Business Combination and Consolidation IFRS 3 & IAS 27


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Convergence of IFRS and US GAAP

IAS 22

IFRS 3

APB 16

FAS 10

IFRS 3RIAS 27R

FAS 141R

FAS 160

FAS 141


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The IFRS journey

IAS 22

Pooling method

MI share of net assets at book value

Goodwill parent share

Earn-out adjusts goodwill

IFRS 3

Purchase method

Net assets at fair value


Earn-out adjusts cost of BC

IFRS 3 (Revised)

Acquisition method

Net assets at fair value

Purchase method

MI share of net assets at fair value

Transaction costs capitalised

Goodwill amortised

Transaction costs capitalised in BC


Goodwill includes NCI share



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Principles – IFRS 3 (Revised)

All combinations apply the acquisition method

Components of a business combination are measured at fair value.

Accounting for only what we have gained control of and what has been transferred for that control.

Amount paid

Previous interestNon-controlling interest

Assets, liabilities, contingent liabilities

Goodwill



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The effect on earnings

Share options given to seller

Earn-out

Indemnity from seller

Transaction costs

Existing interest held

in target

Full goodwill

Pre-existing relationships

Purchase or sale of

minority



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1. Scope and applicability

2. Method of accounting

3. Consideration

4. Goodwill and non-controlling interests (NCI)

5. Asset and liability recognition

6. Other issues

Consolidation – IFRS 3 (revised) and IAS 27 (revised)



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Scope and applicabilityScope

It now includes combinations of mutual entities and combinations without considerations

DefinitionDefinition of a business has been amended slightly. It now states that the elements are ‘capable of being conducted’ rather than ‘are conducted and managed’. Bring more transactions into acquisition accounting.

Common Control TransactionsCommon control transactions (JVs, businesses under common control) remain outside the scope of the new standard.

ApplicabilityStandards applicable from years beginning on or after 1 July 2009

• Early application permitted• Both standards should be applied together• Prospective – previous accounting largely unchanged



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Method of accounting – only acquisition method (formerly purchase method)

Steps in applying the acquisition method are:

1. Identification of the ‘acquirer’- the combining entity that obtains the control of the acquiree

2. Determination of the acquisition date- the date on which the acquirer obtains control

3. Recognition and measurement of the identifiable assets acquired, the liabilities assumed and any non-controlling interest (NCI, formerly MI) in the acquiree

4. Recognition and measurement of goodwill or a gain from the bargain purchase



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Consideration – components

Equity instruments, options, warrants (at fv)

Contingent consideration (at fv)

Cash, other assets, businesses etc (at fv)

Replacement share award (under IFRS 2)



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Consideration – what has been transferred for the business acquired

• Consideration measured at fair value at the date of the combination

• Acquirer’s interest includes previous holdings

• All elements recognised at combination date

• Subsequent changes will affect income

• Excluded items that are not consideration will be charged to P&L eg transaction costs, settlement of pre-existing relationships, remuneration for future employee services, reimbursements for paying the acquirer’s acquisition costs, payment for indemnification assets



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Issue

Acquirer previously held an interest in acquiree

Implication

• Remeasured to fair value

• Gain on remeasurement recognised in earnings at date of acquisition

• Recycle items of other comprehensive income

Issue

Options given to selling shareholders

Implication

• Payments for ownership interest (part of consideration) or for post-combination employment?

• Payments for employment expensed in income statement



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Issue

Earn-outs and contingent consideration

Implication

• Contingent consideration recognised whether probable or not

• Liabilities remeasured through income statement

• Equity not remeasured (see next slide)

Issue

Transaction costs

Implication

• Transaction costs not transferred to seller for the acquired business

• Expense through income statement as incurred



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Earn-out payable in cash: Cash being financial liability hence re-measured at fair value at every balance sheet date

Earn-out payable in ordinary shares: May not require re-measurement through the income statement.

• Where the number of shares varies to give the recipient of the shares a fixed value (would meet the definition of a financial liability). As a result, the liability will need to be fair valued through income.

• Where a fixed number of shares either will or will not be issued depending on performance, regardless of the fair value of those shares, the earn-out meets the definition of equity and so is not re-measured through the income statement.

Consideration …. contd.



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Goodwill

Amount paid

(Consideration)

Previous interestNon-controlling interest

Assets, liabilities, contingent liabilities

Goodwill• Concept-Goodwill amount

frozen on Combination

• Measure NCI at fair value – ‘full goodwill’ including NCI share

• Measure NCI at share of net assets – ‘partial goodwill’ not including NCI share



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Goodwill

Issue

Policy choice – NCI at fair value or share of net assets

Implication

Full goodwill

• Increased net assets/ equity

• Increased future impairment charge

• Less effect on net assets/ equity from future purchase of NCI

Partial goodwill

• Greater effect on net assets/ equity from future purchase of NCI

Frequency of impairment does not change – only amount.



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Impairment of Goodwill testing when fair value (full value) method is chosen

Handout 2



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Impairment of Goodwill testing when proportionate method is chosen

Handout 3



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Assets and liabilities recognised – what has been acquired

• Almost all assets, liabilities, contingent liabilities recognised and

measured at fair value with exceptions for certain items eg

deferred tax and pension liability

• No major changes to current IFRS 3

• More guidance on assessing contracts

• Intangible assets must always be recognised and measured.

There is no ‘reliable measurement’ exception



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Provisional Accounting - maximum period of adjustment

An adjustment period for the finalization of acquisition accounting ends on the earlier of:

• twelve months or

• acquirer has gathered all the necessary information

There is no exemption from the 12-month rule for deferred tax assets or changes in the amount of contingent consideration.

Accounting for indemnity given by the seller

• The indemnity is recognised as an asset of the acquiring business.

• It is measured in the same way as the indemnified liability, and it is limited to the amount of the indemnified liability.

Asset and liability recognition...contd.



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Issue

Indemnities given by seller

Implication

• Indemnified (contingent) liability at fair value

• Indemnification asset recognised on same basis at acquisition date and subsequently

• May reduce income statement volatility

Issue

Assessment of contracts

Implication

• Hedging, embedded derivatives etc should be assessed at acquisition date and re-classified, if required

• Only exceptions are leases and insurance contracts – classify based on conditions when incepted



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Issue

Deferred tax accounting

Implication

•Deferred tax asset may be recognised on Combination if it gives rise to timing differences. The asset would be adjusted against Goodwill.

•Deferred tax liability is prohibited to be recognised against Goodwill. Resultant subsequent impairment shall also not affect deferred tax balances.

• Changes to deferred tax balances after acquisition date affect income or equity as normal under IAS 12



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Changes in ownership interest

• Non-controlling interest (NCI) is equity contributor to entity

• Recognised in equity (no change)

• Purchases from NCI in equity – no goodwill

• Sales to NCI in equity – no gain

• Loss of control is remeasurement event (gain!)



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Changes in ownership interest – No loss of control

Issue

Purchase of or sale to NCI after a business combination

Implication

• Purchase – difference between cash paid and NCI recorded in equity

• Debit greater where partial goodwill recorded

• Sale of shares to NCI – difference between cash received and NCI recorded in equity



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Changes in ownership interest – Loss of control

Issue

Sale of controlling interest in subsidiary. Interest in associate or financial asset retained

Implication

• Retained interest recognised at fair value

• Gain on sale includes gain on remeasuring retained interest



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Other issues

Before the acquisition

• Explaining the acquisition to investors – the financial statements will look different

- Effect on income statement in period of acquisition

- How payment structure will affect income statement subsequently

- How assets and liabilities recognised will affect income statement subsequently

• Valuations expertise



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Other issues

After the acquisition

• Monitoring and measurement

- Contingent consideration

- Finalising fair values

- Indemnified liabilities



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Summary

• First IFRS and US GAAP converged standard

• More fair value measurement

• More income statement volatility

- At date of acquisition

- After an acquisition

• Economic entity model now embedded

• Financial statements will look different – be ready to explain



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Principles of business combinations

A

Handout 4



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A

Principles of business combinations …contd.

Handout 4



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Principles of business combinations …contd.

Handout 4



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Step acquisitions and disposals

B

Handout 5



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B Handout 5


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Moving to IFRS 8



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Agenda

• IFRS 8 basics

• The Road to IFRS 8 – 4 simple steps

- Identification of the CODM

- Identification of operating segments

- Determining the reportable segments

- Disclosures

• Other considerations

• How this will affect companies?

• Summary



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IFRS 8 – Background & problems

• New concept (innovative idea)

• Strong & reliable MIS (A must)

• Varied results (no consistency or comparability)

• Interpretational issues (open to the judgement of management)

• Practical issues in Pakistan context

- How performance is measured – difference in perceptions (cash flows Vs book profits Vs book profits plus other tax free income)

- Lack of reliable MIS

- MIS parameters different



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Moving to IFRS 8

Why is it important today?

What is the key learning point?

54321January

12009

(annual reports beginning on or

after)



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Why IFRS 8 (is this only about convergence with US GAAP?)

More meaningful information for users

Consistency with the management reports

Less time and cost of obtaining the information



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Core principle

IFRS 8

An entity shall disclose information to enable users of its financial statements to evaluate the nature and financial effects of the business activities in which it engages and the economic environments in which it operates



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Core principle – simple English

To : Public company - Reporting entity

From: IASB / IFRS 8 Staff

RE: Useful information to Users

Please provide Mr. John Q Public with useful information that will help him get a grip of what your main activities are, where are they located and how well they do.

Yours sincerely,

PS – this should be very much based on the information used by management to accomplish the same goal.

IFRS 8



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IFRS 8 Key features

IFRS 8

Financial information management uses

Segments through the eyes of management



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The Road to IFRS 8 – 4 simples stages:

Identify the CODM

Identify the operating segments

Present the required information

(and reconcile to primary statements)

Determine the reportable segments

1

3

2

4



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Chief Operating Decision Maker (CODM)

Allocates resources

Assesses performance

Function not a title

1



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Find CODM 1



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Excerpts from recent Committee Meeting minutes:

• HR Committee – Approved compensation terms for Mr A Hussain, newly hired Controller . . . (1 April 2008)

• Investment Committee – . . . recommended additional investment for ongoing research project . . . (12 July 2008)

• Executive Committee – Reviewed five year forecasts for Sri Lanka operations . . . Approved closure of two manufacturing plants in Africa . . . (20 June 2008)

1



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The CODM is -

The Executive Committee

Thanks to Rene Magritte and Picasso for doing these wonderful portraits for us

1



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Identify the CODM





1

3

2

4



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What are the key features of an operating segment?

1. Engages in business activities

2. Operating results are regularly reviewed by CODM to assess performance and make decisions

3. Discrete financial information available

2



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Operating segment :– a component that has all the following features:

Engages in business activities

Start up activities ?

R&D operation ?

Vertically integrated business ?

Functional department?

2



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Use the one which is most consistent with financial statements

Use products & services to identify segment

Its operating results are regularly reviewed by CODM to assess

performance and make decisions

Several sets of financial information (components)?

Matrix operation?

An operating segment would regularly have a

segment manager w

ho is directly accountable to

and maintains regular contact with the CODM

2



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Has discrete financial information available

• Reliable ie verifiable

• Consistent with CODM approach to operate business

• Used by CODM

2



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Identify the CODM





1

3

2

4



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Op

tion

al

Op

tion

al

Determining reportable segments

Identify each operating segment that exceeds 10% threshold

Aggregate any operating segments that meet all

aggregation criteria

For the remaining operating segments below 10% threshold,

aggregate with each other if majority of aggregation criteria met

If reportable segments are less than 75% of revenue

add more reportable segments

3



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Aggregation criteria:

Determining reportable segments

Segments similar on each of five specified criteria***

Segments have similar economic characteristics

Aggregation is consistent with core principle

*** When aggregating two immaterial segments, only a majority of the five specified

criteria need to be met

3



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Determining reportable segments – The five specified criteria

• Nature of products and services

• Nature of production process

• Type or class of customer

• Method of distribution

• Nature of regulatory environment

Maximum limit of reportable segments: 10

3



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Identify the CODM





1

3

2

4



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Disclosure considerations

Disclosure of certain minimal information

**2009 Improvement

Measure of assets **

Measure of profit

Reconciliation of totals to primary financial statements

Segment assets

Segment liabilities

Significant items like depreciation, interest, revenue

Associates and capex

Disclose if provided in some manner to CODMMust disclose

4N

on

-GA

AP

M

easu

res



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Disclosure considerationsDisclosure of certain minimal information - must disclose 4

• General information-factors used to identify segments (which of 5 basis used?)

• Types of products and services of each segment

• Measurement basis for intra-segment transactions (transfer pricing)

• Nature of difference in

• Profit & loss

• Assets

• Liabilities

• Changes in policies from last year

• Nature and effect of any asymmetrical allocations to segments



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Applies to all entities subject to standard (including entities with just one reportable segment)

• Information about products and services

• Geographical areas

- Domicile and foreign revenues

- Domicile and foreign non-current assets

• Major customers

The above is not required if given at segment level.

Disclosure considerationsEntity wide disclosures

4



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Disclosure considerations

• Retrospective application in all the following:

- When adopted

- When segment is initially identified as reportable

- Changes in organization structure

4



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4 simples stages - recap:

Identify the CODM







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IFRS 8 – Other considerations – Issues??

• Verifiability of information (Documentation of analysis and conclusions)

• Consistency of conclusions and information

• Segment reporting used basis inconsistent with IFRS (eg LIFO method used for inventories, employee benefit plan accounting)

• Transfer pricing (market based or not)



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• Consequential amendment to IAS 36

- Reallocation of goodwill to operating segments

- Potential impairment

IFRS 8 – How this will affect companies

Reportable

Segment

Operating

Segment

Operating

Segment

Component ComponentComponent Component

Note - this has wide IFRS implications – not just for companies that are required to apply IFRS 8



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IFRS 8 – How this will affect companies ?

• Management reporting may require substantial improvement

• Documentation of analysis and conclusions required to make information reliable

• Inconsistencies in basis within segments be removed

• Previous segment reporting may no longer be acceptable

• Potentially more segments

• May affect goodwill allocation and impairment

• Regulators expect consistency

• Education of investors may be required

• Can be different from competitors



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Moving to IFRS 8

“Things we see from here are different from things we see from there….”

Anonymous traveler



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Handout 6



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The cost of a subsidiary, jointly controlled entity or associate in a parent’s separate financial statements, on transition to IFRS, is determined under IAS 27 or as a deemed cost. Deemed cost is either fair value or the carrying amount under the previous accounting practice

Dividends from a subsidiary, jointly controlled entity or associate are recognized as income. There is no longer a distinction between pre-acquisition and post-acquisition dividends

The cost of the investment of a new parent in a group (in a reorganization meeting certain criteria) is measured at the carrying amount of its share of equity as shown in the separate financial statements of the previous parent

Effective from periods beginning on or after January 1, 2009

No likely impact in Pakistan environment.

Cost of investment − amendments to IFRS 1 and IAS 27



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The amendment prohibits:

• designating inflation as a hedgeable component of a fixed rate debt

• In a Hedge of one-sided risk with options, it prohibits including time value in the hedged risk

Effective from periods on or after July 1, 2009, should be applied retrospectively


Hedging of portions of financial instruments – IAS 39 amendment



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The amendment applies to certain financial instruments issued by an entity that give the investor the right to get its capital back from the issuing entity for cash or another financial asset:

• at the investor’s option

• automatically on the occurrence of a specified event,

• on liquidation of a limited life entity or when liquidation is at the option of the investor.

Puttable financial instruments and obligations arising on liquidation – amendments to IAS 32 and IAS 1



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The amendment applies to certain financial instruments issued by an entity that give the investor the right to get its capital back from the issuing entity for cash or another financial asset:

• To be classified as equity, such instruments must meet the strict criteria set out in the amendment. For example, one requirement is that the instrument holder is entitled to a pro rata share of net assets on liquidation, which could be indicative of an equity like return.

• A puttable minority interest that is classified as equity in the subsidiary is always treated as a liability.

• Effective from periods on or after January 1, 2009, should be applied retrospectively


Puttable financial instruments and obligations arising on liquidation – amendments to IAS 32 and IAS 1



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The amendment narrows the definition of vesting conditions only to service and performance conditions.

Previous definition implied that other conditions (other than service and performance) could also become vesting conditions.

This might seem to be a very minor amendment, but it can have some significant consequences.

It mainly clarifies the accounting for SAYE (Save as You Earn ) Scheme prevalent in UK.

The requirement to save is not a vesting condition; the failure to save now results in a cancellation and an acceleration of the charge.

Retrospectively effective for periods beginning on or after 1 January 2009

Share-based payment – IFRS 2 (Amendment)vesting conditions & cancellation



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• IASB issued an amendment to IAS 39 on 13 October 2008 (& November 2008)

• Trustees suspended normal due process procedures in issuing amendment

• Amendment allows to transfer assets from held for trading and AFS categories to loans and receivables category that would have met the definition of L&R and the entity has intention and ability to hold that financial asset for the foreseeable future

• Also allows limited flexibility in reclassification of financial assets out of ‘held for trading’ category in ‘rare circumstances’ (for assets other than those which qualify as L&R)

Reclassification of Financial Assets (IAS-39 & IFRS-7)

‘Credit crunch’ amendment



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• Entities continue to be prohibited from reclassifying derivative financial instruments, non-derivative financial liabilities and financial instruments designated on initial recognition as at fair value through profit or loss out of the fair value through profit or loss category. Any reclassification into the fair value through profit or loss category after initial recognition remains prohibited.

• The fair value at the date of reclassification shall become the new cost or amortised cost. Any future increase/decrease in cash receipts shall adjust the effective interest rate

• IFRS 7 also amended to give extensive disclosure for such reclassified assets

• Intends to level the playing field between IFRS and US GAAP filers

• Effective on or after 1 July 2008

Reclassification of Financial Assets (IAS-39 & IFRS-7)

‘Credit crunch’ amendment



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Flowchart –when reclassification is possible Handout 7



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Interpretations (IFRIC) update



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IFRIC 13 – Customer Loyalty Programmes

• Multi-element transaction

• Analysed from the perspective of the customer

• Allocation of consideration issues

- Fair value

- Forfeitures

- Change in estimates

• Variety of programmes

• Variety of awards

Effective for annual periods beginning on or after 1 July 2008

Frequent flyer miles

Miles credit cards

Airline

miles

Hotel points

programmes




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It further clarifies the asset recognition criteria under para 58 of IAS 19

“Present value of economic benefits” may be difficult to estimate. It could either be a:

• refund; or

• reduction in future contributions

A refund would be recognised if:

• the refund is permitted under the terms of the plan

• is realisable during the life of plan or on settlement

• will be recognised net of any associated costs (eg taxes, fee)

• no discounting of refund amount permitted

IFRIC 14 – Limit on Defined Benefit Asset




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A reduction in future contributions would be recognised if:

- there are no minimum funding requirements

- the asset would be restricted to the PV of future service cost

In case of minimum funding requirements in respect of future service cost, the reduction in future contributions would be restricted to the excess of economic benefit amount over the minimum funding requirement

In case of minimum funding requirements in respect of past service cost, the reduction in future contributions would be considered after the amounts have been paid into the fund

Effective for annual periods beginning on or after 1 January 2008

IFRIC 14 – Limit on Defined Benefit Asset




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The interpretation provides guidance on determining whether an agreement is within the scope of IAS 11, ‘Construction contracts’, or is for the sale of goods under IAS 18, ‘Revenue’ (relevant in Pakistan context).

• Determine whether arrangement contains multiple elements

• Allocate fair value to each component

• Determine if IAS 11 or IAS 18 applies to each component

Buyer is able to specify major structural design before construction (IAS 11) Vs buyer’s limited ability to influence the design (IAS 18)

Analyse transfer of risks and rewards

-Rendering of services (% of completion method); or

-Sale of goods (recognise revenue when significant risks and rewards transferred and no continuing managerial involvement + other conditions)

Effective for periods beginning on or after 1 January 2009

IFRIC 15 – Agreements for the Construction of Real EstateInterpretations (IFRIC) update



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Analysis of a single agreement for the construction of real state

Handout 8



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IFRIC 16 applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with IAS 39.

IFRIC 16 provides guidance on:

- The risk being hedged should relate to difference in functional currencies between any parent (including an intermediate parent) and its subsidiary. The hedged risk cannot relate to the group’s presentation currency.

- Hedging instruments may be held anywhere in the group (apart from the subsidiary that itself is being hedged).

Most hedging strategies used in practice will continue to be permitted by the interpretation. Most entities will not, therefore, face any changes from applying it.


Effective for periods beginning on or after 1 October 2008

IFRIC 16 – Hedges of a Net Investment in a Foreign Operation




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IFRIC 17 clarifies that:

• a dividend payable should be recognised when the dividend is appropriately authorised and is no longer at the discretion of the entity

• where an owner has a choice of a dividend of a non-cash asset or cash, the dividend payable is estimated considering both the fair value and probability of the owners selecting each option.

• an entity should measure the dividend payable at the fair value of the net assets to be distributed

• an entity should recognise the difference between the dividend paid and the carrying amount of the net assets distributed in profit or loss.

The Interpretation also requires an entity to provide additional disclosures if the net assets being held for distribution to owners meet the definition of a discontinued operation.

Effective for annual periods beginning on or after 1 July 2009

IFRIC 17 – Distributions of Non-cash Assets to Owners




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Improvements



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Annual Improvement Project 2008

Handout 9



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Annual Improvement Project 2008…contd.

Handout 9



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Handout 9



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Handout 9



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Handout 9



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Handout 9



A member firm of


Handout 9



A member firm of


Handout 9



A member firm of


Handout 9



A member firm of

IAS 39 Financial Instruments: Recognition and Measurement

- Scope exemption for business combination contracts (applies to forward contracts to acquire control-a clarification)

- Application of the fair value option (only for financial instruments covered in IAS 39 and not for non-financial contracts - a clarification)

- Cash flow hedge and reclassification of gains/losses (clarification that the hedging gains/losses would be reclassified when the hedged transaction takes place)

- Bifurcation of an embedded foreign currency derivative not required (a clarification)

IFRS 2 and IFRS 3R

- Confirmation that acquisition of goods under combination of business on formation of JV and common control transactions are not within scope of IFRS 2 even if they do not meet the definition of business combination

IAS 36 and IFRS 8

- Clarification that the largest unit permitted for the impairment testing of goodwill is operating segment before aggregation

2009 Annual improvements – exposure draft



A member firm of

IFRS 8

- Disclosures – only require the asset disclosures if they are provided in the CODM package

IAS 7

- Clarification that expenditure is classified as investing only when it is an asset recognised on the balance sheet – relevant to extractive industries and advertising and promotion as well as R&D activities

IAS 18

- Additional guidance on identification of principal and agent

2009 Annual improvements – exposure draft, continued



A member firm of

Third Wave of IFRS – major ongoing projects

Project Expected time of issuance of IFRS

Consolidation 2009

JVs IAS 31 2009

SME standard 2009

Provisions IAS 37 2009

Fair value measurement (guidance) 2010

Income tax IAS 12 2010

Leases IAS 17 2011

Revenue recognition IAS 18 2011

Retirement benefit plans IAS 19 2011

Insurance contracts IFRS 4 2011

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Second Wave of IFRS

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