IFRS (sessionII-2)

8/7/2019 IFRS (sessionII-2)

1/71

A.F.Ferguson & Co.

A member firm of 1

A.F.Ferguson & Co.

A member firm ofpwc

Improvements Project

Workshop on latest developments in IAS


2/71

A.F.Ferguson & Co.

A member firm ofPwC2

By: Syed Fahim ul Hasan

Partner

A.F. Ferguson & Co., Karachi


3/71

A.F.Ferguson & Co.


Improvement to IAS

Revised standards applicable to financialperiods beginning on or after January 1,

2005 (except for IAS 38 which is applicable for periodsbeginning on or after March 31, 2004)

Earlier application encouraged and the factshould be disclosed

When adopting requirement of a standard,

the entire revised standard must beadopted


4/71

A.F.Ferguson & Co.


IAS 1 Presentation of Financial Statements

True and fair override in very rare circumstances If not prohibited by the relevant regulatory

framework

true and fair presumes compliance with IFRS

Disclose:

Management concludes FS are fairly presented

Identify requirement not applied

Reason why treatment so misleading

For each period presented, the financial impact

of the departure on each item in the FS


5/71

A.F.Ferguson & Co.


IAS 1 contd.

New disclosures

Judgements made in applying accounting

policies

- Most significant effect of measurement of

items

Key assumptions about future and otherestimation uncertainties that risk future materialadjustments

Separate income statement disclosure

-Profit or loss for the period

- Profit or loss attributable to minority interest

- Profit or loss attributable to equity holders ofthe parent


6/71

A.F.Ferguson & Co.


IAS 1 contd.

New disclosurescontd.

Statement of change in equity

- Total income and expenses for the period

attributable to minority interest and equity

holders of the parent


7/71

A.F.Ferguson & Co.


IAS 1 contd.

Other changes

Classified balance sheet presentation

required i.e. current and non-current

- Liquidity basis or mixed basis is used only

when reliable and more relevant.

- Post balance sheet events (refinancing,

correction of defaults) do not affect

classification of debt

Presentation of extraordinary items prohibited


8/71

A.F.Ferguson & Co.


IAS 1 contd.

Other changes

Capital disclosures (effective from January1, 2007)

IAS 1 has introduced requirements for all entitiesto disclose:

- the entity's objectives, policies and processes

for managing capital;- quantitative data about what the entity regards

as capital;

- whether the entity has complied with any

capital requirements; and- if it has not complied, the consequences of

such non-compliance.


9/71

A.F.Ferguson & Co.

A member firm ofPwC 9

IAS 2 Inventories

Scope changes

Clarifies the types of inventories exempted from

measurement (but not disclosures) requirements

- Commodity broker-traders measured at NRV

through profit or loss- Producers of agricultural and forest products,

agricultural produce after harvest and mineral

products measured at fair value less costs to

sell through profit or loss

All inventories covered words held under the

historical cost system removed


10/71

A.F.Ferguson & Co.


IAS 2 contd.

LIFO method not permitted

Finance cost of inventories on deferredsettlement terms

Other changes

Exchange differences as inventory cost nolonger permitted

Consistency same cost formula be used forsimilar inventories

Disclosure Inventories carried at fair vale lesscost to sell

- Difference between purchase price for normal

credit terms and the amount paid is interestexpense over financing period


11/71

A.F.Ferguson & Co.


Main changes

All voluntary changes in accounting policies andcorrections of errors must be made retrospectively

- Allowed alternative method eliminated

- Apply new accounting policy and correction toprior period errors to comparative information for

prior periods as far back as practicable

- If impracticable to determine cumulative effect,apply new accounting policy and correction oferrors prospectively from earliest periodpracticable

Distinction between fundamental errors and othermaterial errors eliminated

Change in accounting estimate and prior period errorsdefined

IAS 8 Accounting Policies, Changes inAccounting Estimates and Errors


12/71

A.F.Ferguson & Co.


ChangeChange inin accountingaccounting estimateestimate isis ananadjustmentadjustment ofof thethe carryingcarrying amountamount ofof anan assetasset ororaa liability,liability, oror thethe amountamount ofof thethe periodicperiodicconsumptionconsumption ofof anan asset,asset, thatthat resultsresults fromfrom thetheassessmentassessment ofof thethe presentpresent statusstatus of,of, andandexpectedexpected futurefuture benefitsbenefits andand obligationsobligationsassociatedassociated with,with, assetsassets andand liabilitiesliabilities.. ChangesChanges ininaccountingaccounting estimatesestimates resultresult fromfrom newnewinformationinformation oror newnew developmentsdevelopments and,and,accordinglyaccordingly areare notnot correctionscorrections ofof errorserrors

IAS 8 contd.


13/71

A.F.Ferguson & Co.


PriorPrior periodperiod errorserrors areare omissionsomissions from,from, andandmisstatementsmisstatements in,in, thethe entitysentitys financialfinancial statementsstatements forfor oneoneoror moremore priorprior periodsperiods arisingarising fromfrom aa failurefailure toto use,use, orormisusemisuse of,of, reliablereliable informationinformation thatthat::

a)a) waswas availableavailable whenwhen financialfinancial statementsstatements forfor thosethoseperiodsperiods werewere authorisedauthorised forfor issueissue;; andand

b)b) CouldCould reasonablyreasonably bebe expectedexpected toto havehave beenbeen obtainedobtainedandand takentaken intointo accountaccount inin thethe preparationpreparation andandpresentationpresentation ofof thosethose financialfinancial statementsstatements

SuchSuch errorserrors includeinclude thethe effectseffects ofof mathematicalmathematical mistakes,mistakes,mistakesmistakes inin applyingapplying accountingaccounting policies,policies, oversightoversight orormisinterpretationmisinterpretation ofof facts,facts, andand fraudfraud

IAS 8 contd.


14/71

A.F.Ferguson & Co.


New disclosures

Changes in accounting policy initial application

or voluntary changes

- Identify change

- Whether change is in accordance with transitional

provisions and description of transitional provision- Reasons why new accounting policy reliable and

more relevant

- Amount of adjustment to each line item

-Amount of adjustment to basic and diluted EPS

- Amount of adjustment to prior periods

- More disclosures required if application isimpracticable

IAS 8 contd.


15/71

A.F.Ferguson & Co.


New disclosures contd.

When new standard or interpretation not appliedbut issued and is not yet effective

- The fact and estimate of impact of applicationnow required (was encouraged before)

- Implication regarding the application of IFRS 1to 7

IAS 8 contd.


16/71

A.F.Ferguson & Co.


New disclosures contd.

Prior period errors

- Nature

- Amount of correction for each line item

- Amount of correction for basic and dilutedEPS

- Amount of correction at the beginning ofearliest period

- If retrospective restatement impracticablemore disclosures are required

IAS 8 contd.


17/71

A.F.Ferguson & Co.


Other changes Materiality

- Concept of materiality defined

- IFRS not to be applied if effect of application

is immaterial

- FS do not comply with IFRS if they contain

material errors

IAS 8 contd.


18/71

A.F.Ferguson & Co.


IAS 10 Events after the Balance Sheet Date

Clarifies

When dividends are declared after the balance

sheet date, do not recognise dividends as

liability Disclosure such dividend in the notes in

accordance with IAS 1


19/71

A.F.Ferguson & Co.


IAS 16 Property, Plant and Equipment

Main change

All exchange of non-monetary assets measured

at fair value whether or not they have similar use

and fair value

- unless the transaction lacks commercial

substance ; or

- fair value of neither the asset received nor

asset given up is reliably measurable

In which case asset will be recorded at cost


20/71

A.F.Ferguson & Co.


IAS 16 Property, Plant and Equipment

Main changecontd.

Definition of residual value changed

- Amount could receive at the balance sheet

date if the asset were in the condition that itwill be at expected disposal date

- Does not include expected future inflation

Residual value, depreciation method and usefullife must be reviewed at least annually


21/71

A.F.Ferguson & Co.


IAS 16 contd.

Clarifies

Depreciation to continue on idle PPE

Requirements of components approach

- An item of PPE often a combination of various

items with separate useful lives- Use separate lives calculate depreciation, test

for derecognition and replacement or renewal

of a component of PPE

Cost of PPE initial estimate of costs ofdismantlement, removal or restoration of PPE

- Costs recognised and measured underIAS 37


22/71


23/71

A.F.Ferguson & Co.


New disclosures

Depreciation

- Whether recognised in the profit or loss or aspart of cost of other assets

-Accumulated depreciation at the end of FY

Change in estimates of

- Residual value

- Costs of dismantling, removing or restoring of

PPE

- Useful lives

- Depreciation methods

IAS 16 contd.


24/71

A.F.Ferguson & Co.


New disclosures Revaluations

- Methods and significant assumptions applied

to estimate fair values

Reconciliation of carrying values at the beginning

and end of the period

IAS 16 contd.


25/71

A.F.Ferguson & Co.


Disclosures encouraged

Carrying amount of temporarily idle property,

plant and equipment

Carrying amount of fully depreciated assets still

in use Carrying amount of assets retired from active use

and not classified as held for sale as per IFRS 5

(IAS-35)

When the cost model is used, the fair value ofassets when it is materially different from the

carrying amount

IAS 16 contd.


26/71


27/71


28/71


29/71

A.F.Ferguson & Co.


IAS 21 The Effects of Changes in Foreign

Exchange Rates

Incorporates SIC-19 and SIC-30

No change in accounting practices for many

entities except

-Additional guidance on determining thefunctional currency

Emphasis on the currency that determines

the pricing of transactions and in which

transactions are denominated

Entities should reassess their functional

currency to be consistent with new

guidance


30/71

A.F.Ferguson & Co.


IAS 21 contd.

Other changes Eliminated distinction between foreign

operations and foreign entities

- But foreign operations and reporting entity

likely to have same functional currency, so noreal change

Goodwill and fair value adjustments to

assets/liabilities arising on the acquisition of

foreign operations shall be treated as the

assets/liabilities of that foreign operations and

be re-translated at each balance sheet date

- Using closing rate


31/71

A.F.Ferguson & Co.


IAS 21 contd.

Other changes

Only prospective application required

Retrospective application encouraged

- Special transition provisions for this change

Eliminated the allowed alternative of capitalisingunexpected severe devaluations

- All other changes resulting from the

application ofIAS 21 be treated underIAS 8


32/71


33/71


34/71

A.F.Ferguson & Co.


3. Foreign currency transactions presented in other

than functional currency

- Assets and liabilities at closing balancesheet rate

- P&L items at the rate of transactiondate

- All exchange differences will go to equity

4. If gain or loss on a non-monetary item isrecognised directly in equity, any exchange

component of that gain or loss shall also be

recognised directly in equity

IAS 21 contd.

Primary Rules


35/71


36/71

A.F.Ferguson & Co.


IAS 24 Related PartyDisclosures

Definition of related party expanded to include- Parties with joint control over the entity

- Joint ventures in which the entity is a venturer

- Post employment benefit plans for the benefit of

employees of an entity or entity or entitys relatedparty

Expanded scope includes close family members of

- Individuals with direct, joint or indirect control or

significant influence- Key management personnel of the entity or its

parent


37/71


38/71

A.F.Ferguson & Co.


IAS 24 contd.

Requires new disclosures including contd.

- The expense recognised during the period inrespect of bad and doubtful debts due from

related parties

- Classification of amounts payable to, and

receivable from, related parties into differentcategories of related parties

- The name of the entitys parent and, if different

the ultimate controlling party. If neither of these

two parties produce financial statementsavailable for public use, the name of the next

most senior parent that does so, is required


39/71

A.F.Ferguson & Co.


Disclosure required separately for each of theDisclosure required separately for each of thefollowing categoriesfollowing categories

The parentThe parent

Entities with joint control or significant influenceEntities with joint control or significant influence SubsidiariesSubsidiaries

AssociatesAssociates

JVsJVs

Key management personnelKey management personnel

Other RPsOther RPs

IAS 24 contd.


40/71

A.F.Ferguson & Co.


IAS 24 contd.

Disclosure not required (Significant Change)

- Pricing of transactions Discussions on the

pricing of transactions and related disclosures

between RP have been removed because the

Standard does not apply to the measurement of

RP transactions. Further, the Standard clarifies

that an entity discloses that the terms of related

party transactions are equivalent to those thatprevail in arms length transactions only if such

terms can be substantiated


41/71

A.F.Ferguson & Co.


IAS 27 Consolidated and Separate Financial

Statements

Conditions changed for exemption not to prepareConsolidated Financial Statements (All to be met)

- The parent is a wholly owned subsidiary, or a partially

owned subsidiary and all owners (including those not

otherwise entitled to vote) do not object

- No debt or equity instruments traded in a public market

- Not in process of filing its FS with a regulatory authority

(eg SECP) to issue any class of instruments to public and

- The ultimate or any intermediate parent of the parentproduces consolidated FS that comply with IFRS and are

available for public use


42/71

A.F.Ferguson & Co.


IAS 27 contd.

Main changes

- Venture capital organisations

- Mutual funds

- Unit trusts and similar entities

Clarifies no exemption from consolidation

- Impracticability exemption removed

Uniform accounting policies to be used in the

group


43/71

A.F.Ferguson & Co.


IAS 27 contd.

Main changes

- Within equity but separately from the parent

shareholders equity

- Separately in income statement

Prohibits equity method of accounting by a

parent in separate Financial Statements

New presentation of minority interests


44/71

A.F.Ferguson & Co.

A member firm ofP

wC 44

Other changescontd.

-

To be disposed of within 12 months fromacquisition

- Management actively seeking a buyer

Limited exemption a newly acquired subsidiary

excluded from consolidation only when

Eliminates explicit exemption for a subsidiary

operating under severe long-term restrictions(control must be lost)

Incorporates SIC-33 potential voting rights

IAS 27 contd.


45/71

A.F.Ferguson & Co.

A member firm ofP

wC 45

Other changes

More disclosures required

- Summarised information of subsidiaries not

consolidated

-Nature of relationship when parent does notown more than half of the voting power

- Reasons why no control when the company

owns more than half (potential) voting power

- Reporting date of the FS of a subsidiary if

different dates from parent

IAS 27 contd.


46/71

A.F.Ferguson & Co.

A member firm ofP

wC 46

IAS 28 Investments in Associates

Main changes

- For some types of investors

Scope exclusion

- Must be held for trading underIAS 39

- Similar exemptions in IAS 31

Venture capital organisations

Mutual funds

Unit trusts and similar entities

Investment limited insurance funds


47/71

A.F.Ferguson & Co.

A member firm ofP

wC 47

IAS 28 Investments in Associates

Main changes

Equity Method for associates with significant

control must be used whether the investor also

has investments in subsidiaries and prepares

Consolidated Financial Statements or not.

However, the investor should not apply Equity

method when preparing separate Financial

Statements underIAS 27

The Standard does not permit not to use Equitymethod when associate with significant

influence operates under severe long-term

restrictions (Significant influence must be lost)


48/71

A.F.Ferguson & Co.

A member firm ofP

wC 48

IAS 28 ...contd.

Conditions changed for exemption for application of

Equity method similar to those provided to parents not

to prepare Consolidated Financial Statements in IAS 27

- The investor is a wholly owned subsidiary, or a partially owned

subsidiary and all owners (including those not otherwise

entitled to vote) do not object to the investor not to applyEquity method


- Not in process of filing its FS with a regulatory authority (eg

SECP) to issue any class of instruments to public and- The ultimate or any intermediate parent of the investor

produces consolidated FS that comply with IFRS and are



49/71

A.F.Ferguson & Co.

A member firm ofP

wC 49

- Investors net investment now includes

other long-term interest except trade

receivables, trade payables or any long-term

receivables with adequate collateral

(secured loans)

Modifies guidance in SIC-20 Equity Accounting

Method Recognition of Losses

IAS 28 contd.


50/71

A.F.Ferguson & Co.

A member firm ofP

wC 50

Other changes

- To be disposed within twelve months from

acquisition- Management is actively seeking a buyer

Similar exemption as in IAS 27 that an

investee treated as financial asset if

Uniform accounting policies to be use

- Impractically exemption eliminated

IAS 28 contd.

Extensive disclosure requirements similar to

IAS 27


51/71

A.F.Ferguson & Co.

A member firm ofP

wC 51

IAS 31Interests in Joint Ventures

Main changes

- For some types of investors

Scope exclusion

- Must be held for trading underIAS 39

- Similar exemptions in IAS 28

Venture capital organisations

Mutual funds

Unit trusts and similar entities

Investment limited insurance funds


52/71

A.F.Ferguson & Co.

A member firm ofP

wC 52

The Standard does not permit not to useProportionate Consolidation or Equity methodwhen the JV with operates under severe long-termrestrictions (Joint control must be lost)

IAS 31contd.


53/71

A.F.Ferguson & Co.

A member firm ofP

wC 53

IAS 31Interests in Joint Ventures Conditions changed for exemption for application of

Proportionate Consolidation or Equity method similar to thoseprovided to parents not to prepare Consolidated Financial

Statements in IAS 27- The venturer is a wholly owned subsidiary, or a partially owned

subsidiary and all owners (including those not otherwise

entitled to vote) do not object to the investor not to apply

Proportionate Consolidation or Equity method


- Not in process of filing its FS with a regulatory authority (eg

SECP) to issue any class of instruments to public and

- The ultimate or any intermediate parent of the venturer

produces consolidated FS that comply with IFRS and are



54/71


55/71

A.F.Ferguson & Co.

A member firm ofP

wC 55

IAS 32 Financial Instruments Disclosure and

Presentation

Covers Classification as debt or equity

Compound financial instruments

Offsetting in the balance sheet

Disclosure

Standard was originally issued 1995

Major changes in Dec 2003:

All disclosures from old IAS 39 moved to IAS 32 Many new disclosures added


56/71

A.F.Ferguson & Co.

A member firm ofP

wC 56

Definition

Expands definition of financial asset andfinancial liability

- Includes some contracts that will or may besettled in the entitys own equity instruments

Derivative

- Provides new guidance on when a derivativecontract on an entitys own equity is a liability

- With settlement option is classified as FA orFL unless all settlement options result in

being an equity instrument

- Past practice or the intended settlementmethod no longer considered

IAS 32contd.


57/71

A.F.Ferguson & Co.


Definition contd.

Financial liability- Holder has a right to put it back to the issuer

for cash or another financial assets

- Even if the amount of cash or other financialasset is determined on the basis of an index

- Includes puttable equity that gives the holderright to a residual interest

Significant impact on open-ended mutual funds,unit trust, partnerships and co-operative entities

IAS 32contd.

- Contingent settlement provisions exist

- Considers all terms and conditions agreedbetween members of the group and theholders of the instrument


58/71


59/71

A.F.Ferguson & Co.

A member firm ofP

wC 59

Equity or liability (non-derivative)

Contractual obligation to deliver cash

or financial asset

Instrument to be settled in the issuersown equity is a non-derivative with a

fixed value obligation to deliver a

variable number of its own shares

Equity

NO

LiabilityYes

Yes

NO

Liability


60/71

A.F.Ferguson & Co.

A member firm ofP

wC 60

Equity or liability (derivative)

Does the issuer potentially have an

obligation to settle gross in cash?

Will settlement be exchange of fixed

number of shares for fixed amount?

Derivative (note that any net cash or netshare settlement feature even at issuers

discretion, will lead to derivative

treatment)

Liability

Equity

Yes

Yes

NO

NO


61/71

A.F.Ferguson & Co.

A member firm ofP

wC 61

New disclosures for fair value estimates

- Method and significant assumptions applied for eachclass of financial asset and liability

- Whether determined in full or in part by reference to

published price quotations in an active market or by

valuation technique

- Whether fair values determined in full or in part using

valuation technique based on assumptions not supported

by observable market prices or rates

- If change in assumptions would change the fair value and

a range of reasonable possible alternative assumptions

- Amount of the change in fair value estimated using a

valuation technique and recognised in P&L

IAS 32contd.


62/71

A.F.Ferguson & Co.


IAS 33 Earnings per Share

Significant redrafting (FAS 128) Additional disclosure requirements

- Separate presentation on the face of incomestatements of basic and diluted EPS from

continuing and discontinuing operations Incorporates SIC-24 Earnings per Share Financial

Instruments and Other Contracts that May be Settledin Shares without changes

Requires adjustment to earnings (numerator) for

redemption of preferred shares

Provides additional guidance and illustrativeexamples


63/71

A.F.Ferguson & Co.


IAS 38 Intangible Assets

Subsequent expenditure

- To capitalise on rare occasions

If residual value > or = carrying amount

- Amortisation ceases

Amortisation resumes when

- Residual value < carrying amount

All exchanges involving non-monetary assets

- At fair value

-unless Transaction lacks commercial substance

Fair value not measurable

Cost and revaluation model (same as IAS 16)


64/71

A.F.Ferguson & Co.


IAS 38 contd.

Useful life - Indefinite / definite life

Disclosure

- Indefinite useful life assets

- Aggregate research and development

expenditure


65/71

A.F.Ferguson & Co.


IAS 39 Financial Instrument Recognition

and Measurement

Scope

- If cannot be settled net and are not measured at fairvalue with changes recognised in P&L

New guidance on calculation of effective interest rates

Loan commitments excluded from IAS 39

- When specified payments to be made to reimburse theholder for a loss it incurs because a specified debtorfails to make payment when due under the original ormodified terms

Financial guarantee contracts excluded

- Provide for payments to be made in response to avariable e.g. changes in specified interest rate,financial instrument price

Financial guarantee contracts are included in IAS 39 if


66/71


67/71

A.F.Ferguson & Co.


IAS 39 contd.

Main change

- Option to classify loans and receivable asavailable for sale (AFS)

- Securities quoted in an active market can be

classified as available for sale, held fortrading or held to maturity

- Option available to designate at inception anyfinancial instrument as measured at fair valuewith changes in P&L

- Loans and receivables category expanded toinclude purchased loans and receivables notquoted in an active market

Classification


68/71

A.F.Ferguson & Co.


IAS 39 contd.

Main change contd.

- Requires the use of estimated cash flows to calculateeffective yield

- Exception in rare cases when reliable estimate of cashflow is not possible, in such cases use contractual

cash flows instead of estimated cash flows

Effective interest rate definition amended

Expands guidance on measurement of fair values

and clarifies fair value measurement hierarchy

Confirms that impairment follow an incurred loss

model rather than an expected loss model

Option removed to show changes in available for

sale through P&L


69/71

A.F.Ferguson & Co.


IAS 39 contd.

Hedge accounting Apply fair value model for hedging firm

commitments

Option to account for firm commitment in a

foreign currency as a cash flow hedge

Option to apply cost basis adjustments for

hedging non financial assets or liabilities

Removal of cost basis adjustment for hedging

financial assets or liabilities


70/71

A.F.Ferguson & Co.


IAS 40 Investment Property

Investment property may include property interest held by a

lessee under an operating lease- If accounted for at Fair Value under IAS 40

- IAS 40 overrides IAS 17 for classification of leaseand the lease be recorded as finance lease

Special transition rules

Disclosures required

- Model used (Cost or Fair Value)

- If Fair Value model is applied state whether, and in whatcircumstances, property interest held under operating leaseis classified and accounted for as investment property

- Reconciliation between the valuation obtained for

investment property and the amounts disclosed in thefinancial statements


71/71

A.F.Ferguson & Co.

A b fi f PwC

Thank youThank you

Documents

IFRS (sessionII-2)