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IFRS 9 Redeliberations
Impairment Classification & measurement
The IASB continued deliberations with a The IASB discussed clarifications and
focus on disclosures. Highlights of the improvements on the classification and
tentative decisions are to: measurement ED. The Board made
retain the requirements for a full tentatively decided to:
reconciliation of the loss allowance and clarify that the disclosure requirements
the gross carrying amount of financial in IFRS 7 and IAS 1 are applicable for
assets (focusing on the key drivers for reclassifications in and out the FVOCI
changes in the loss allowance); category;
require disclosure of the extent to clarify certain relief for first time
which collateral affects the expected adopters, including relief from
credit loss allowance and in some cases presenting comparative information in
disclose more on the calculations; and certain circumstances; and
require disclosure of the deterioration clarify transition requirements.
rate for modified financial assets for
which credit risk has subsequently The Board will discuss the effective date of
increased significantly. the completed version of IFRS 9 in
February.
Leasing Redeliberations
The IASB and the FASB (‘the boards’) held Lessee accounting
a joint meeting in January to discuss the
The boards discussed the following three
next steps for the Leasing project. They
approaches:
were not asked to make decisions. The next
step will be a decision making meeting in Approach 1: single approach - a lessee
March 2014. would account for all leases as the
purchase of a ROU asset on a financed
Lessor accounting basis;
The staff proposed the following three Approach 2: dual approach - lease
approaches for classifying leases as either
classification similar to the 2013 ED
Type A or Type B:
with targeted simplifications;
Approach 1: existing U.S. GAAP and Approach 3: dual approach - lease
IFRS lessor accounting; classification principle consistent with
Approach 2: if the lease gives rise to existing U.S. GAAP and IFRS;
selling profit (or loss), the lease would A majority expressed interest in Approach 1
be classified as a Type A lease only if it but no decisions were made.
transfers control of the underlying asset
(that is, meets the requirements for a Small ticket leases
sale in the forthcoming revenue
The staff proposed several alternatives to
recognition standard). Other leases
would be classified in the same manner provide relief in applying the leases
as Approach 1; guidance to small-ticket leases held by a
lessee including:
Approach 3: based on lessor’s business
model. providing explicit materiality
requirements;
The boards did not express support for
Approach 3 because determining the expanding the definition of short-term
business model would be complex and leases;
requires significant judgment. Approaches applying the leases guidance at a
1 and 2 will be explored further. portfolio level; or
The staff also proposed the following two providing explicit scope exclusion for
approaches for accounting for Type A leases of noncore assets.
leases by lessors: retain the receivable and
The boards will further explore all options
residual approach proposed in the 2013 ED
with the exception of the exclusion of
or apply existing IFRS finance lease
leases of noncore assets, because of the
accounting.
complexity involved in defining ‘noncore’.
incremental return over short-term interest Strict fund management policies exist
rates or a benchmark rate. such that the shares themselves qualify
as a cash equivalent.
Historically, most MMFs managed to hold a
These policies and limits are set out to
very stable asset value but during the recent
fulfil the criteria set in IAS 7. Examples
financial crisis, an increasing number of
of such policies and limits could include
MMFs “broke the buck”, that is, experienced
a combination of:
a net asset loss. This is just one reason of why
- controls ensuring constant net asset
MMFs need to be carefully assessed in the
value or linear performance to limit
current economic climate.
volatility supported by actual
So how do we assess MMFs? performance;
Assess whether substantially all of the As the standard only provides guidance on
MMF’s investments qualify how an entity might define cash
individually as cash and cash equivalents, it is crucial to disclose the
equivalents. policy adopted in determining the
This specifically includes the maturity composition of cash equivalents including
of the investments which individually any significant policy judgments.
should not exceed three months. This A tricky question…
analysis should not only cover the
assets held at the date of the evaluation, Identifying cash equivalents is not always
but all potential investments allowed by as easy as it seems. Management should
the investment rules set for the fund. carefully assess each of its investments
considering the definition included in IAS 7
as well as the purpose of holding the
investments.
Business combinations and adoption of IFRS Liabilities, revenue recognition and other areas
mary.dolson@uk.pwc.com: Tel: + 44 (0) 207 804 2930 tony.m.debell@uk.pwc.com: Tel: +44 (0) 207 213 5336
caroline.woodward@uk.pwc.com: Tel: +44 (0) 207 804 7392 richard.davis@uk.pwc.com: Tel: +44 (0) 207 212 3238
a.allocco@uk.pwc.com: Tel: +44 (0) 207 212 3722
Financial instruments and financial services
gail.l.tucker@uk.pwc.com: Tel: + 44 (0) 117 923 4230 IFRS news editor
jessica.taurae@uk.pwc.com: Tel: + 44 (0) 207 212 5700 Andrea Allocco
tina.farington@uk.pwc.com: Tel: + 44 (0) 207 212 2826 a.allocco@uk.pwc.com: Tel: +44 (0) 207 212 3722
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