General Trias Cavite 6 December 2013 New pronouncements effective reporting periods beginning 1 January 2013
Pronouncements Effective for the annual periods beginning on or after Amendments to PAS 1, Presentation of Items of Other Comprehensive Income 1 July 2012 Amendments to PFRS 1, Government Loans 1 January 2013 Amendments to PFRS 7, Disclosures - Offsetting Financial Assets and Financial Liabilities 1 January 2013 PFRS 10, Consolidated Financial Statements and PAS 27, Separate Financial Statements 1 January 2013 PFRS 11, Joint Arrangements and PAS 28, Investments in Associates and Joint Ventures 1 January 2013 New pronouncements effective reporting periods beginning 1 January 2013
Pronouncements Effective for the annual periods beginning on or after PFRS 12, Disclosure of Interests in Other Entities 1 January 2013 PFRS 13, Fair Value Measurement 1 January 2013 PAS 19, Employee Benefits (Revised) 1 January 2013 Philippine Interpretation IFRIC20, Stripping Costs in the Production Phase of a Surface Mine 1 January 2013 Annual improvements to PFRSs 2009-2011 cycle 1 January 2013 Amendments to PAS 1, Presentation of Items of Other Comprehensive Income Amendments to PAS 1, Presentation of Items of Other Comprehensive Income What has changed? Items in OCI to be grouped into: Items that would be reclassified to profit or loss at a future point in time Items that will never be reclassified What has not changed? Nature of items that can be recognized in OCI Determination as to which items in OCI can be reclassified to profit or loss in future periods Transition Retrospective application with early application permitted Business impact Amendments affect presentation only No significant additional cost expected Amendments to PAS 1, Government Loans Amendments to PFRS 1, Government Loans First-time adopters shall apply the requirements in PFRS 9, Financial Instruments (or PAS 39, as applicable) and PAS 20, Accounting for Government Grants and Disclosure of Government Assistance prospectively to government loans existing at the date of transition to PFRSs. Recognition of corresponding benefit of a government loan at below-market rate of interest as a government grant is not allowed. Entities may choose to apply the requirements of PFRS 9 and PAS 20 to government loans retrospectively if the information needed to do so has been obtained at the time of initially accounting for that loan. These amendments give first-time adopters the same relief as existing preparers of PFRS financial statements and therefore will reduce the cost of transition to PFRSs. Amendments to PFRS 7, Disclosures - Offsetting Financial Assets and Financial Liabilities Amendments to PFRS 7, Disclosures - Offsetting Financial Assets and Financial Liabilities Objective: To enable financial statement users to evaluate the effect or potential effect of netting arrangements on an entitys financial position New disclosure requirements:
Amendments effective for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods Retrospective application
Gross amounts Amounts offset in accordance with PAS 32 Net amounts presented in SFP Other amounts in scope but not offset in SFP Net amounts A B C = A - B D E = C - D PFRS 10, Consolidated Financial Statements and PAS 27, Separate Financial Statements PFRS 10, Consolidated Financial Statements and PAS 27, Separate Financial Statements Overview: Contains a single model for consolidation for all entities Core principle: New definition (PFRS 10): An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Old definition (PAS 27): Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. SIC-12: An extension of PAS 27 that retained the power concept but placed greater emphasis on exposure to risks and rewards. Consolidate all controlled entities No bright lines consider all facts and circumstances Key differences between PFRS 10 and PAS 27/SIC-12 Broader definition of power that applies to all entities Considers relevant activities rather than financial and operating policies Focuses on returns rather than benefits Established a linkage between power and returns Introduces principal or agent considerations Assessing Control I d e n t i f y i n g
r e l e v a n t
a c t i v i t i e s
E v a l u a t i n g
p o w e r
A s s e s s i n g
r e t u r n s
Activities
Activities that significantly affect returns
Examples: Operating and financing policies Capital decisions Appointing and remunerating key management
Power
Current ability to direct those activities
Examples: Voting rights Potential voting rights Right to appoint , re-assign or remove key management Decision making rights Returns
Exposure or rights to variable (positive and/or negative) returns
Examples: Dividends Remuneration Returns that are not available to other interest holders
Understand purpose and design Control Assessment Example Enterprise A and B form a venture, C Ventures The purpose and design of C Ventures is to manufacture, distribute and sell ice cream Each enterprise contributes cash and receives 50% equity interest Enterprise A and B are unrelated How should the enterprises determine which party controls C Ventures? C Ventures Ent. A Ent. B 50% 50% Control Assessment Example 1. Consider the purpose and design and the risks C Ventures was designed to distribute 2. Identify relevant activities 3. Identify party or parties with the current ability to direct the relevant activities 4. Assess whether the investor is exposed to returns Relevant Activity Responsible Party Manufacturing Enterprise A Distributing Enterprise B Selling Enterprise B Transition (June 2012) Effective for annual periods beginning on or after 1 January 2013 Date of initial application the beginning of the annual reporting period in which PFRS 10 is applied for the first time. Retrospective application and transition relief: As if it was always consolidated (since the date of gaining control) If not practicable to apply retrospectively, consolidate as of earliest date when practicable, which may be the current period An investor would not required to apply PFRS 10 to an investee when the previously unconsolidated investee would be consolidate in prior periods as a result of adopting PFRS 10, but the interest is disposed of before the date of initial application of PFRS 10 Transition (2012) Contd Other amendments/clarifications: Difference between previously recognized (IAS 27/SIC-13) amounts and revised amounts recognized on initial application of IFRS 10 must be recorded as adjustment to equity. Presentation of the adjusted comparative information for IFRS 10 (also applies to IFRS 11 and IFRS 12) are required for the preceding year only. However, an entity would not be prohibited from adjusting comparatives for earlier periods Control obtained and changes in NCI before effectivity date of IFRS 3(2008) and IAS 27(2008), respectively: Investee is a business There is flexibility in determining which version of IFRS to use, based on which version of IFRS 3 is suitable for a particular investee. Investee is not a business measure the assets, liabilities and NCI applying acquisition method as described by IFRS 3 (at fair value) Business Impact Gather information Changes to the entities being consolidated Additional procedures required to assess control on a continuous basis Compliance with bank covenants and regulatory requirements Structuring mergers and acquisitions or transactions and arrangements PAS 27, Separate Financial Statements Consolidated financial statements will be covered by PFRS 10. Requirements in PAS 28, Investments in Associates and PAS 31, Interests in Joint Ventures regarding separate financial statements were relocated to PAS 27 (Amended in 2011). PFRS 11, Joint Arrangements and PAS 28, Investments in Associates and Joint Ventures PFRS 11, Joint Arrangements and PAS 28, Investments in Associates and Joint Ventures P A S
Joint ventures The parties with joint control have rights to the net assets of the arrangement.
Joint operations The parties with joint control have rights to the assets and obligations for the liabilities of the arrangement.
Recognize its assets, liabilities, expenses, and its share of income. Recognize its assets, liabilities, revenue, and expenses, and/or its relative shares thereof. Equity method or proportionate consolidation Recognize its assets, liabilities, revenue, and expenses, and/or its relative shares thereof
Equity method J o i n t
a r r a n g e m e n t s
J o i n t
v e n t u r e s
Joint Arrangement Assessment
Joint Arrangement
Does the contractual arrangement give all the parties (or a group of parties) control of the arrangement collectively? Does the decision about the relevant activities require the unanimous consent of all parties that collectively control the arrangement? Yes Yes Outside scope of PFRS 11 (not a joint arrangement)
No No Joint Operation Joint Venture Classifying Joint Arrangement
Joint Venture
Is the arrangement set up as a separate vehicle? Yes No Joint Operation
No Yes Do the contractual terms of the arrangement specify rights to assets and obligations for liabilities? Do other facts and circumstances specify rights to the assets/obligations for the liabilities? No Yes The economic substance of an arrangement overrides the formal structure of the arrangement Transition and Business Impact Transition PFRS 11 must be applied using a modified retrospective approach with earlier application permitted.
Business Impact Gather information Estimates and valuation Impact on key financial metrics Income taxes PFRS 12, Disclosure of Interests in Other Entities PFRS 12, Disclosure of Interests in Other Entities Overview Integrates disclosures for subsidiaries, joint arrangements, associates and unconsolidated structured entities into a single standard Disclosures should enable users to understand: Nature of, and risks associated with, interests in other entities Effects of those interests on financial position, financial performance, and cash flows PFRS 13, Fair Value Measurement PFRS 13, Fair Value Measurement Overview Clarifies definition of fair value Single framework for how to measure fair value Does not change when fair value is used Converges with US GAAP Increases disclosures about fair value measurements Applies to financial and non-financial assets and liabilities Applies to recurring and non-recurring measurements Fair Value Measurement Approach Definition: price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price) Determine: Particular asset or liability that is being measured For a non-financial asset, the valuation premise Principal (or most advantageous) market Appropriate valuation technique(s) Inputs to valuation technique(s) based on market participant assumptions Transition and Business Impact Transition Applied prospectively as of the beginning of the annual period in which PFRS 13 is initially adopted Early application is permitted. Disclosures are not required for comparative periods. Business Impact Consider whether entity has appropriate expertise, processes, and systems Significant increase in required disclosures for non-financial instruments that are measured at fair value (e.g., investment property measured using fair value, some biological assets) If PFRS 13 will change amount recognized, consider: Covenant compliance Remuneration plans Shareholder communications Analyst expectations PAS 19, Retirement Benefits (Revised) PAS 19, Employee Benefits (Revised) Higher balance sheet volatility for those following corridor approach or having unvested past service cost Remeasurements, including actuarial movements, permanently bypass earnings Key requirements Financial statement impact Defined benefit plans Corridor approach removed, requires immediate recognition of changes to plan assets/obligations Concept of expected returns removed, interest must be recognized on net plan obligation/asset Service cost and net interest charged to P&L Remaining changes in plans recognized in OCI Past service cost recognized immediately New disclosures, including sensitivity analyses of defined benefit plans Other changes Short-term vs. long-term employee benefits classification based on expected timing of settlement rather than employee entitlements Timing of recognition of termination benefits Effective for annual periods beginning on or after 1 January 2013 Post-employment benefits: disclosures plan types and risks Plan types and risks (PAS 19.139) An entity shall disclose: a) Information about the characteristics of the defined benefit plan i. The nature of the benefits ii. A description of the regulatory framework iii. A description of any other entitys responsibilities for the governance of the plan More detailed information required PAS19.139 requires disclosure of information about the nature of the plan and the related risks. b) Information about the risks to which the plan exposes the entity, focused on any unusual, entity-specific or plan-specific risk New requirement c) A description of any plan amendments, curtailments and settlements New requirement Financial statements (PAS 19.140144) PAS 19.140144 require more disclosures The entity shall disclose the significant actuarial assumptions used to determine the present value of the defined benefit obligation. More judgement required to identify the key actuarial assumptions The entity shall disclose the fair value of the entitys own transferable financial instruments held as plan assets and the fair value of plan assets that are property occupied by the entity. No change The entity shall disaggregate the fair value of the plan assets into classes that distinguish the nature and risk of those assets, subdividing each class of plan asset into those that have a quoted market price in an active market and those that do not have an active market. New, especially the information about assets with a quoted market price An entity shall provide a reconciliation from the opening balance to the closing balance of the net defined benefit liability (asset) and any reimbursement rights; this reconciliation shall include detailed information on each item. Not explicitly required in the past, but the information could be deducted from all other disclosures Post-employment benefits: disclosures financial impact Post-employment benefits: disclosures cash flow impact Cash flow impact (PAS 19.145147) Sensitivity analysis required for the key assumptions An entity shall disclose: i. A sensitivity analysis for each significant actuarial assumption ii. The methods and assumptions used iii. Changes in the methods and assumptions New, especially the sensitivity analysis of the defined benefit liability
The entity shall disclosure a description of any asset liability matching strategies used by the plan or the equity New requirement An entity shall disclose: i. A description of any funding arrangements and policy that affect future contributions ii. The expected contributions to the plan for the next period New requirement Transition and Business Impact Transition Retrospective application with limited exceptions
Business Impact Entities should consider impact to key performance measures and potentially on debt covenants. Increased disclosures and changes in accounting for defined benefit plans will require early communications with actuaries. Some of the seemingly minor adjustments, such as the changes in definition for short-term employee benefits and changes in recognition for termination benefits may require further analysis of existing arrangements. Philippine Interpretation IFRIC-20, Stripping Costs in the Production Phase of a Surface Mine Scope Applies to waste removal (stripping) costs incurred in production phase of a surface mine (production stripping costs) Does not apply to: Underground mining activities Stripping costs incurred prior to production Recognition Requirements Production of inventory shall be accounted in accordance with PAS 2, Inventory Improved access to ore shall be accounted as non-current asset called stripping activity asset(SAA). Production stripping costs are to be recognized as SAA if, and only if, all of the following are met: a) It is probable that the future economic benefits (improved access to an ore body) associated with the stripping activity will flow to the entity; b) The entity can identify the component of an ore body for which access has been improved; and c) The costs relating to the improved access to that component can be measured reliably. The stripping activity asset shall be accounted for as an addition to, or as an enhancement of, an existing asset. In other words, the stripping activity asset will be accounted for as part of an existing asset. Measurements The SAA: must be carried at cost less depreciation or amortization, and any impairment losses. must be depreciated or amortized on a systematic basis, over the expected useful life of the identified component of an ore body that becomes more accessible as a result of the stripping activities. The units of production method is to be used, unless another method is more appropriate. Where stripping costs cannot be specifically allocated between the inventory produced during the period and the SAA, the Interpretation requires an entity to use an allocation basis that is based on a relevant production measure. Transition An entity shall apply this Interpretation to production stripping costs incurred on or after the beginning of the earliest period presented. For any production phase stripping costs incurred and capitalized up to the start of the earliest period presented, the predecessor stripping asset, an entity is required to reclassify such a balance as part of an existing asset to which the stripping activity related, to the extent there remains an identifiable component of the ore body with which the stripping activity asset can be associated. These balances are to then be depreciated or amortized over the remaining expected useful life of the identified component of the ore body to which each existing asset balance relates. If there is no identifiable component of the ore body to which that predecessor stripping asset relates, it is required to write off this asset via opening retained earnings at the beginning of the earliest period presented. Annual Improvements to PFRSs 2009-2011 cycle PFRS and subject of amendment Change(s) Implication(s) PFRS 1, First-time Adoption of Philippine Financial Reporting Standards
Repeated application of PFRS 1 Clarifies that an entity that has stopped applying PFRSs may choose to either to: Re-apply PFRS 1, even if the entity applied PFRS 1 in a previous reporting period Or Apply PFRSs retrospectively in accordance with PAS 8 (i.e., as if it had never stopped applying PFRSs) in order to resume reporting under PFRSs Prior to this amendment, it was not clear whether an entity was permitted or required to apply PFRS 1 more than once. This amendment clarifies that an entity that stopped applying PFRSs in the past and chooses, or is required, to apply PFRSs again, has the option to re-apply PFRS 1. If PFRS 1 is not re- applied, an entity must retrospectively restate its financial statements as if it had never stopped applying PFRSs. If an entity re-applies PFRS 1 or applies PAS 8, additional disclosures are required. Annual Improvements to PFRSs 2009-2011 cycle PFRS and subject of amendment Change(s) Implication(s) PFRS 1
Borrowing costs First-time adopters may carry forward borrowing costs capitalized in accordance with previous GAAP in the opening statement of financial position at the date of transition to PFRSs. After transition, borrowing costs, including those incurred for assets under construction, are recognized in accordance with PAS 23. PAS 1, Presentation of Financial Statements
Clarification of the requirements for comparative information Voluntary additional comparative information - Present related notes for those additional statements When voluntary comparative information is presented, it does not need to be a complete set of financial statements. The information may consist of one or more statements. Third balance sheet - No need to present the supporting notes related to the third balance sheet This additional balance sheet provides users of the financial statements with a starting point to understand the impact of the change. Annual Improvements to PFRSs 2009-2011 cycle PFRS and subject of amendment Change(s) Implication(s) PAS 16, Property, Plant and Equipment
Classification of servicing equipment
Spare parts, and stand-by equipment and servicing equipment are recognized as PPE when they meet the definition of PPE. This amendment clarifies when certain assets are PPE or inventory. This will help ensure that entities consistently record and present these assets. PAS 32, Financial Instruments: Presentation
Tax effect of distribution to holders of equity instruments Clarifies that income taxes arising from distributions to equity holders and to transaction costs of an equity transaction are accounted for in accordance with PAS 12. This amendment is unlikely to change the current tax treatment of distributions. Annual Improvements to PFRSs 2009-2011 cycle PFRS and subject of amendment Change(s) Implication(s) PAS 34, Interim Financial Reporting
Interim financial reporting and segment information for total assets and liabilities Total assets and liabilities for a particular reportable segment need to be disclosed only when such amounts are regularly provided to the chief operating decision maker and if there has been a material change from the amount disclosed in the last annual financial statements for that reportable segment This amendment aligns the disclosure requirements for total segment assets with total segment liabilities in the interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures. Annual Improvements to PFRSs 2009-2011 cycle Questions???