International Financial Reporting

Standards (IFRS): An update on

IFRS and SME standards
September 25, 2015

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Agenda

Update on IFRS

New pronouncements effective for periods beginning on

January 1, 2015
New pronouncements effective for periods beginning on or
after January 1, 2016

Update on IFRS for SMEs

Page 2

Overview of new pronouncements

Overview of new pronouncements

Amendments in issue and effective for periods
beginning January 1

2015

International Accounting Standards (IAS) 19, Defined Benefit

Plans: Employee Contributions

Annual Improvements to IFRSs (2010-2012 cycle)

Annual Improvements to IFRSs (2011-2013 cycle)

2016

Annual Improvements to IFRSs (2012-2014 cycle)

IAS 16 and IAS 38, Clarification of Acceptable Methods of

Depreciation and Amortization

IFRS 11, Accounting for Acquisitions of Interests in Joint

Operations

IAS 27, Equity Method in Separate Financial Statements

Page 4

Overview of new pronouncements (cont.)

New standards and amendments in issue and
effective for periods beginning January 1

2016

IFRS 10 and IAS 28, Sale or Contribution Between an

Investor and Its Associate or Joint Venture

IAS 16 and IAS 41, Bearer Plants

IAS 1, Disclosure Initiatives

IFRS 10, IFRS 12, and IAS 28, Investment Entities Applying the Consolidation Exception

2018

IFRS 15, Revenue from Contracts with Customers

IFRS 9, Financial Instruments

Page 5

New pronouncements effective

for periods beginning
January 1, 2015

IAS 19, Defined Benefit Plans: Employee

Contributions
Key Requirements

Adds a practical expedient in considering contributions from

employees or third parties that are linked to service when accounting
for defined benefit plans.

if independent of the number of years of service, entities are permitted to

reduce service cost in the period in which the related service is rendered
If dependent on the number of years of service, entities shall attribute the
contributions to the periods of service

Impact

The practical expedient simplifies the accounting for contributions from

employees or third parties.

Effective

for periods beginning on or after July 1, 2014

Retrospective application
Page 7

Annual Improvements to IFRSs

2010-2012 cycle

IFRS 2, Definition of vesting conditions

Defines performance condition and service condition to clarify various

issues, including the following:

A performance condition must contain a service condition

A performance target may relate to the operations or activities of an entity, or to
those of another entity in the same group

Clarifies that regardless of the reason, a counterpartys failure to meet a

service condition should be treated as a forfeiture

Implications

Effective

A performance target without corresponding service requirement would be

treated as a non-vesting condition
No amount is recognized for the services received and any cumulative expense
is reversed if an employee does not meet a service condition for any reason.

for periods beginning on or after July 1, 2014

Prospective application
Page 8

Annual Improvements to IFRSs

2010-2012 cycle (cont.)

IFRS 3, Contingent consideration

Clarifies that contingent consideration in a business acquisition
that is not classified as equity is subsequently measured at fair
value through profit or loss whether or not it falls within the scope
of IAS 39 or IFRS 9.

Implication: Contingent consideration cannot be measured at fair

value through other comprehensive income or some other
measurement basis. This would create volatility in the financial
statements.

Effective

for periods beginning on or after July 1, 2014

Prospective application
Page 9

Annual Improvements to IFRSs

2010-2012 cycle (cont.)

IAS 24, Key management personnel

Clarifies that a management entity an entity that provides key
management personnel services is a related party subject to the
related party disclosures.
Entities that utilizes a management entity is required to disclose
the expenses incurred for management services.

Implication: Provides relief from disclosing compensation of

individuals assigned by the management entity to render the key
management services

Effective

for periods beginning on or after July 1, 2014

Retrospective application

Page 10

Annual Improvements to IFRSs

2010-2012 cycle (cont.)

IFRS 8, Reconciliation of the total of the reportable segments

assets to the entitys assets

Requires the disclosure of the reconciliation of segment assets to total

assets if such reconciliation is reported to the chief operating decision
maker (similar to the requirement for segment liabilities).
Implication: The level of segment disclosures may decrease.

IFRS 8, Aggregation of operating segments

If operating segments are aggregated based on the criteria set out by the
standard (i.e., they have similar economic characteristics and are similar
in other qualitative respects), entities should disclose:

The description of the aggregated operating segments

Economic indicators used to determine whether the segments are similar

Implication: May result to an increase in the level of segment disclosures

Effective

for periods beginning on or after July 1, 2014

Retrospective application
Page 11

Annual Improvements to IFRSs

2010-2012 cycle (cont.)

IAS 16 and IAS 38: Revaluation method

Clarifies that revaluation can be performed either by:

1. Eliminating accumulated depreciation against the gross carrying
amount of the asset and the net amount is restated to the revalued
amount of the asset; or
2. Adjusting the gross carrying amount in a manner that is consistent with
the revaluation of the carrying amount of the asset. The accumulated
depreciation is then adjusted to equal the difference between the gross
carrying amount and the carrying amount of the asset after taking into
account accumulated impairment losses.

Implication: Amendments provide more details when entities revalue

assets and clarify how an adjustment is recognized.

Effective

for periods beginning on or after July 1, 2014

Retrospective application
Page 12

Annual Improvements to IFRSs

2011-2013 cycle

IAS 40, Interrelationship between IFRS 3 and IAS 40 (ancillary

services)

Clarifies that IFRS 3 is used to determine if an acquisition of an

investment property is a purchase of an asset or a business
combination.

The description of ancillary services in IAS 40 should not be used as basis as

this simply differentiates between investment property and owner-occupied
property (i.e., property, plant and equipment).

Implication:
The amendment does not help to differentiate if an acquisition is a
purchase of a business or purchase of an asset. Judgment is still
needed to make this distinction.

Effective

for periods beginning on or after July 1, 2014

Prospective application

Page 13

Annual Improvements to IFRSs

2011-2013 cycle (cont.)

IFRS 3, Scope exceptions for joint ventures

Clarifies that all types of joint arrangements are outside the scope of
IFRS 3 by replacing joint venture with joint arrangement

This scope exception applies only to the accounting in the financial

statements of the joint arrangement itself.

IFRS 13, Scope of paragraph 52 (portfolio exception)

Clarifies that the portfolio exception (which permits entities to measure

the fair value of a group of financial assets and financial liabilities on
the basis of its net exposure to either market risk or credit risk) can be
applied to other contracts within IAS 39 and IFRS 9, not just to those
contracts that meet the definition of financial assets or financial
liabilities

Effective

for periods beginning on or after July 1, 2014

Prospective application
Page 14

New pronouncements effective

for periods beginning on or after
January 1, 2016

Annual Improvements to IFRSs

2012-2014 cycle

IAS 34, Disclosure of information elsewhere in the interim financial

report

Required interim disclosures must either be in the interim financial

statements or incorporated by cross-reference to information in another
statement included within the interim financial report (e.g., in the
management commentary or risk report).

The other statement within the interim financial report must be

available to users on the same terms as the interim financial
statements and at the same time.

Implication: Users should have access to the referenced material on the

same terms and at the same time, otherwise, the interim financial
statements is considered incomplete.

Effective

for periods beginning on or after January 1, 2016

Retrospective application; early application is permitted
Page 16

Annual Improvements to IFRSs

2012-2014 cycle (cont.)

IFRS 7, Servicing contracts

The amendment clarifies that a servicing contract that includes a fee can constitute
continuing involvement in a financial asset that would require additional disclosures.
An entity must assess the nature of the fee and the arrangement against the
guidance for continuing involvement in order to assess whether the disclosures are
required.

Implication: May result to servicing entities being required to make further

disclosures in the future.

IFRS 7, Applicability of the offsetting disclosures to condensed interim

financial statements

Clarifies that the disclosure requirements on offsetting financial assets and financial
liabilities do not apply to condensed interim financial statements unless their
inclusion would be covered by the general requirements of IAS 34, Interim Financial
Statements

Implication: May reduce the level of interim disclosures.

Effective

for periods beginning on or after January 1, 2016

Retrospective application; early application is permitted
Page 17

Annual Improvements to IFRSs

2012-2014 cycle (cont.)

IFRS 5, Changes in methods of disposal

Clarify the following:

Changing methods of disposal (i.e., either through sale or distribution

to owners) is not considered a new plan of disposal, rather it is a
continuation of the original plan.
Changing methods of disposal does not change the date of
classification.

Implication: A change in the method of disposal will not interrupt

the application of the requirements in IFRS 5.

Effective

for periods beginning on or after January 1, 2016

Prospective application; early application is permitted
Page 18

IAS 16 and IAS 38, Clarification of Acceptable Methods

of Depreciation and Amortization
Key Requirements
Prohibits the use of revenue-based depreciation for property, plant
and equipment.
Strictly limits the use of revenue-based amortization for an intangible
asset when:
The rights embodied in that intangible asset are expressed as a measure of
revenue; or
It can be demonstrated that revenue and the consumption of economic
benefits are highly correlated.

Impact
This amendment could change practice for certain entities.

Effective

for periods beginning on or after January 1, 2016

Prospective application; early application is permitted
Page 19

IFRS 11, Accounting for Acquisitions of Interests in

Joint Operations
Key Requirements
Requires an entity acquiring an interest in a joint operation, in which the
activity of the joint operation constitutes a business, to apply, to the extent of
its share:
All of the principles in IFRS 3; and,

Other IFRSs that do not conflict with the requirements of IFRS 11.

Also requires entities to disclose information related to business

combinations.

Impact
Increase the scope of transactions that would need to be assessed to
determine whether they represent the acquisition of a business or an asset,
which would be highly judgmental.
Effective

for periods beginning on or after January 1, 2016

Prospective application; early application is permitted
Page 20

IFRS 10 and IAS 28, Sale or Contribution of Assets

between an Investor and its Associate or Joint Venture
Key Requirements
Addresses the conflict between IFRS 10 and IAS 28 in dealing with the loss
of control of a subsidiary that is sold or contributed to an associate or a joint
venture
Requires that if the assets sold or contributed constitute a business, the gain
or loss should be recognized in full.
If the assets do not constitute a business, gain or loss should be recognized
only to the extent of the other investors interests.

Impact
Eliminates diversity in practice and gives preparers a consistent set of
principles to apply for such transactions

Effective

for periods beginning on or after January 1, 2016

Prospective application; early application is permitted
Page 21

IAS 16 and IAS 41, Agriculture: Bearer Plants

Key Requirements
Changes the scope of IAS 16 to include biological assets that meet the
definition of bearer plants (e.g., fruit trees)
Bearer plants will be subject to all the recognition and measurement
requirements under IAS 16, including the choice between cost model and
revaluation model for subsequent measurement

Impact
May not entirely eliminate the volatility in profit or loss as produce growing on
bearer plants will still be measured at fair value
May need to determine appropriate methodologies to measure the fair value
of agricultural produce separately from the bearer plants on which they are
growing, which may increase the complexity and subjectivity of the
measurement.
Effective

for periods beginning on or after January 1, 2016

Retrospective application; early application is permitted
Allows use of the fair value as deemed cost at the beginning of the earliest period
presented
Page 22

IAS 1, Disclosure Initiatives

Key Requirements
The amendments clarify:

The materiality requirements in IAS 1

Entities shall not reduce the understandability of their financial statements

by either obscuring material information with immaterial information; or
aggregating material items that have different natures or functions

That specific line items in the statement(s) of profit or loss and OCI and
the statement of financial position may be disaggregated

That entities have flexibility as to the order in which they present the
notes to financial statements

That the share of OCI of associates and joint ventures accounted for
using the equity method must be presented in aggregate as a single line
item, and classified between those items that will or will not be
subsequently reclassified to profit or loss

Page 23

IAS 1, Disclosure Initiatives (cont.)

Impact
The amendments:
Are intended to assist entities in applying judgment when meeting
the presentation and disclosure requirements in IFRS

Do not affect recognition and measurement

May facilitate enhanced disclosure effectiveness

Effective

for periods beginning on or after January 1, 2016

Early application is permitted and entities do not need to disclose that fact as the
amendments do not affect an entitys accounting policies or accounting estimates.
Page 24

IFRS 10, IFRS 12 and IAS 28, Investment Entities: Applying

the Consolidation Exception
Key Requirements
Clarify the following:
That the exemption in IFRS 10 from presenting consolidated
financial statements applies to a parent entity that is a subsidiary
of an investment entity (IE) that measures all of its subsidiaries at
fair value
An investor that applies the equity method is allowed to retain the
fair value measurement applied by the IE associate or joint
venture to the IE associates or joint ventures interests in
subsidiaries.
Only a subsidiary of an IE that is not an IE itself and that provides
support services to the IE is consolidated.
All other subsidiaries are measured at fair value.

Page 25

IFRS 10, IFRS 12 and IAS 28, Investment Entities: Applying

the Consolidation Exception (cont.)
Impact

Provide helpful clarifications that will assist preparers in

applying the standards more consistently.
May still be difficult to identify investment entities in practice
when they are part of a multi-layered group structure.

Effective

for periods beginning on or after January 1, 2016

Retrospective application; early application is permitted

Page 26

IAS 27, Equity method in separate financial statements

Key Requirements:

Allows an entity to use, in the entitys separate financial statements,

the equity method (as described in IAS 28) to account for its
investments in subsidiaries, joint ventures and associates
The entity must apply the same accounting for each category of
investment.

Impact

Eliminates difference in the carrying value of the investment in the

separate financial statements and in the consolidated financial
statements.
Reduces compliance costs without reducing information available to
investors

Effective

for periods beginning on or after January 1, 2016

Retrospective application; early application is permitted
Page 27

IFRS 15, Revenue from Contracts with

Customers

Page 28

Overview of IFRS 15
The new revenue standard

Issued in May 2014 jointly with the Financial Accounting Standards

Board (FASB)
Replaces IAS 11, Construction Contracts, IAS 18, Revenue, and
related interpretations
Applies to all revenue contracts (unless specifically excluded) and
provides a model for the recognition and measurement of gains and
losses on disposal of certain non-financial assets
Virtually, all industries are affected.
Its effect on financial statements, business processes and internal
controls will likely be significant for some entities.
Provides more detailed requirements and application guidance than
the current IFRS

Page 29

Overview of IFRS 15
The new revenue standard

Some key changes

Page 30

Revenue is recognized upon transfer of control over promised

goods or services
Sets out 5 steps to help entities determine when to recognize
revenue and how much revenue to recognize
More explicit requirements for contracts with multiple deliverables
Variable component of transaction price needs to be estimated
Specifies how to account for the incremental costs of obtaining a
contract and the costs directly related to fulfilling a contract
Requires extensive disclosures

Effective date and transition

IFRS 15 effective date:

Annual periods beginning on or after 1 January 2018, with early

adoption permitted

Transition approach:

Full or modified retrospective adoption is required

Effective
2016

2017

Full retrospective application

Page 31

2018
Modified retrospective
application

2019

Impact of the new standard

Not just an accounting change

There will be an impact

on multiple business
functions outside the
finance and accounting
function.
Resources will be
required to implement
across functions.

Control
environment
Training and
communication

Tax
planning

Business
operations

Processes
and systems

Sector
issues

Revenue
recognition
impacts

Management
information

Investor
relations
Employee
benefits

Page 32

Project
management

IFRS 9, Financial Instruments

Page 33

IAS 39 Replacement Project

Over the years, IAS 39 has been criticized by many users of financial
statements as a standard that is complex and often too difficult to
apply.

IFRS 9 Financial Instruments is the International Accounting

Standards Boards (IASB) project to replace IAS 39.

The objective is to simplify and improve the decision-usefulness of

reporting for financial instruments by aligning actual business practice
with accounting.

IFRS 9 is principles-based with less extensive rules and application

guidance than IAS 39.

Page 34

IASB completes IFRS 9

On 24 July 2014, the International Accounting Standards Board

(IASB) issued the final version of IFRS 9, consisting of three phases
of the financial instruments project.
Classification and measurement
Impairment
Hedge accounting

IFRS 9 is effective for annual periods beginning on or after

1 January 2018.

Page 35

Some Key Changes

New model for classifying financial assets

Based on nature of contractual cash flows and the business model

for managing the financial assets
The outcome determines whether the investment is accounted for:

New impairment model

At fair value through profit or loss

At fair value through other comprehensive income (OCI) (with or
without recycling)
At amortized cost

Based on expected losses rather than incurred losses

New hedge accounting model

Page 36

Objective is to more closely align the hedge accounting

requirements with an entitys risk management strategy

Impact

May change the measurement and presentation of the financial

instruments, depending on their contractual cash flows and the
business model under which they are held

Impairment requirements will generally result in earlier

recognition of credit losses

New hedging model may lead to more economic hedging

strategies meeting the requirements for hedge accounting

Page 37

Update on IFRS for SMEs

Background and Effective Date

IASB has completed its comprehensive review of

IFRS for SMEs

The revised IFRS for SMEs was issued in May 2015

Effective on or after January 1, 2017, earlier application

is permitted, and must be applied retrospectively, unless
impracticable

Page 39

Amendments to the IFRS for SMEs

Key Changes
Type

Amendments

Amendments that
introduce accounting
policy options (available
in full IFRS)

Amendments that
change requirements

Page 40

Option to use the revaluation model for property, plant and

equipment
Option to use the equity method for investments in
subsidiaries, associates and jointly controlled entities in
separate financial statements
Requirement that if the useful life of goodwill or another
intangible asset cannot be established reliably,
managements best estimate is used, but must not exceed
10 years. (Previously a default 10-year life was presumed in
such cases.)
Alignment of the scope and the definitions with IFRS 2,
Share-based Payments
Includes within its scope those transactions settled by
another group entity (or shareholder)
Alignment of the main recognition and measurement
principles for income tax with IFRSs
Changes requirement on uncertain tax position

Amendments to the IFRS for SMEs

Key Changes (cont.)
Type

Amendments

Amendments that add

undue cost or effort
exemptions and
requirements

Amendments that
modify
presentation or
disclosure
requirements

Page 41

Measurement of investments in equity instruments at fair

value
Recognizing intangible assets separately in a business
combination
Measuring the liability to pay a non-cash dividend at the fair
value of the assets to be distributed
Offsetting income tax assets and liabilities

Requirement that an entity must disclose its reasoning for

using any undue cost or effort exemption
Requirement that entities group items presented in other
comprehensive income on the basis of whether they are
potentially reclassifiable to profit or loss
Alignment of the definition of a related party with IFRSs

Q&As

Page 42

Thank you!