©2009 grant thornton international ltd. all rights reserved. 1 update on ifrs from 2003 to 2008 11...

©2009 Grant Thornton International Ltd. All rights reserved.1

Update on IFRS from 2003 to 2008

11 February 2009

Jane PikeSenior Manager: International Financial Reporting

Grant Thornton International


Agenda

• Update on IFRS from 2003 to 2008

– IFRS context and background– Summary of recent changes to IFRS– Current projects and future developments– Questions


IFRS context and background


IASB Objective

"to develop a single set of high quality, understandable and enforceable

global accounting standards that require high quality, transparent and comparable

information in financial statements …."


Background – what is IFRS?

Pronouncements issued by the IASB and the IFRIC and its predecessors the IASC and SIC, including:

• Conceptual Framework for the Preparation and Presentation of Financial Statements

• 29 International Accounting Standards (IAS 1 - 41)

• 8 International Financial Reporting Standards (IFRS 1 - 8)

• 11 Standing Interpretation Committee Interpretations (SIC 7 - 32)

• 16 International Financial Reporting Interpretation Committee Interpretations (IFRIC 1 - 17)

• around 2,700 pages of material!

IFRS extant at 1 January 2009


IASB progress

1973: IASC formed

1975-2001: IASs 1 - 41 issued

1997-2001: SICs 1 - 33 issued

2001: IASC reformed into IASB; existing IASs and SICs adopted

2002: European Union enacts IAS Regulation to require all listed companies to prepare consolidated accounts using IFRS from 2005;

IASB and US FASB issue Memorandum of Understanding for convergence of IFRS and US GAAP


IASB progressContinued

2003-2004: IFRSs 1 – 6 and IFRICs 1 – 5 issued

IASB completes "stable platform" improvements

2005: c7,000 listed companies in 25 EU countries adopt IFRS;

IFRS 7 and amendments to IASs 32 and 39 issued

2007: SEC drops US GAAP reconciliation

2008: first IASB/FASB joint standard (IFRS 3R) issued;

first annual 'Improvements to IFRSs' issued;

IASB responds to 'credit crisis';

SEC proposes "roadmap" for adoption of IFRS


IFRS around the world


IFRS around the world (continued)

• IFRS are now in general use in over 100 jurisdictions, including:– European Union– Australia & New Zealand– South Africa– China ('substantially in line with IFRS')– many other parts of Africa, Asia, Latin America, Middle

East


IFRS around the world (continued)

• Countries committed to adopt or transition to IFRS:

– Chile (2009 - 2011)– Brazil (2010)– Canada (2011)– India (2011)– Argentina (2011)– Korea (2011)– Japan (2011)– Malaysia (2012)– Mexico

– USA (2014 ??)


Recent changes to IFRS

What's newIAS 1 Presentation of Financial Statements

IFRS 3 Business CombinationsIAS 27 Consolidated and Separate Financial Statements

IFRS 8 Operating Segments IAS 23 Borrowing costs (revised) IFRIC 12: Service concessions

IFRIC 13: Customer loyalty programmesIFRIC 15 Agreements for the construction of real estateIFRIC 17 Distributions of Non-cash Assets to Owners

[Annual] Improvements to IFRSs


What was new for periods beginning in 2008?

Mandatory for periods beginning on or after 1 January 2008 (unless otherwise stated)

• IFRIC 12 Service Concession Arrangements• IFRIC 13 Customer Loyalty Programmes (1 July 2008)• IFRIC 14 IAS 19 - The Limit on a Defined Benefit Asset,

Minimum Funding Requirements and their Interaction• IFRIC 16 Hedges of a Net Investment in a Foreign

Operation (1 October 2008)


What will be new for periods beginning in 2009?


• IAS 1 (2007) Presentation of Financial Statements• IFRS 3 (2008) Business Combinations• IAS 27 (2008) Consolidated and Separate Financial

Statements• IFRS 8 Operating Segments • IAS 23 (2007) Borrowing Costs

1 July 2009

Early adoption permitted.

IFRS 3R and IAS 27R must be adopted together but not available for periods starting before 30 June 2007


What will be new for periods beginning in 2009? continued


• IFRS 1 and IAS 27 Amendments relating to cost of an investment in a subsidiary, jointly controlled entity or associate

• IFRS 2 Amendment relating to vesting conditions and cancellations • IAS 32 Amendments relating to puttable instruments and obligations

arising on liquidation• IAS 39 Amendment for eligible hedged items (1 July 2009)• IFRS 1 First Time Adoption of International Financial Reporting

Standards (1 July 2009)• IFRIC 15 Agreements for the Construction of Real Estate• IFRIC 17 Distributions of Non-cash Assets to Owners (1 July 2009)

• (Annual) Improvements to IFRSs 2008

Early adoption permitted


Disclosure of new Standards and Interpretations issued but not yet adopted(IAS 8.30-31)

• When an entity has not applied a new Standard or Interpretation that has been issued but is not yet effective, the entity shall disclose:

a) this fact; and

b) known or reasonably estimable information relevant to assessing the possible impact that application of the new Standard or Interpretation will have on the entity's financial statements in the period of initial application.


IAS 1 (Revised 2007)

Presentation of Financial Statements

Main changesComponents of financial statements

Statement of Comprehensive IncomeStatement of Changes in Equity

Other disclosures


IAS 1 Presentation of Financial StatementsRevised September 2007Effective for periods beginning on or after 1 January 2009

Main changes:• terminology changes• comprehensive income can be shown in a single statement or two

separate statements• additional disclosure of income tax relating to each component of other

comprehensive income• additional disclosure of items reclassified to profit or loss from equity • additional comparatives needed when an entity retrospectively

applies a new accounting policy or reclassifies an item• presentation of owner changes in equity in a separate statement from

non-owner changes, ie comprehensive income• disclosure of dividends restricted to statement of owner changes in

equity or in the notes, not in the statement of comprehensive income


Components of Financial Statements (IAS 1.10)

• Statement of Financial Position (IAS 1.54-80)• Statement of Comprehensive Income

(IAS 1.81-105)• Statement of Changes in Equity (IAS 1.106-110)• Statement of Cash Flows (IAS 1.111 and IAS 7)• Comparative information (IAS 1.38-44) • Notes (IAS 1.112-138); including

– Significant accounting polices (IAS 1.117)– Management judgement (IAS 1.122)– Sources of estimation uncertainty (IAS 1.125)– Capital management information (IAS 1.134-136 & IG10)


Statement of comprehensive income – minimum disclosure(IAS 1.82-85)

• Disclose as allocations of profit or loss for the period

• total profit or loss for the period

• total comprehensive income for the period

– attributable to • owners of the parent• non-controlling

interest

[Income statement]

• Profit or loss• Each component of other

comprehensive income classified by nature

• Share of other comprehensive income of associates and joint ventures accounted for using the equity method

• Total comprehensive income


Statement of comprehensive income –

income tax disclosures (IAS 1.90 – 91)

• Disclose income tax relating to each component of other comprehensive income, either in the statement or in the notes (IAS 1.90)– components may be presented in the statement

either net of tax or before tax with a single amount shown for the aggregate tax (IAS 1.91)


Reclassification adjustments (IAS 1.92-96)

• Definition (IAS 1.7)– amounts reclassified to profit or loss in the current period that were

recognised in other comprehensive in the current or previous periods

• Reclassification adjustments arise (IAS 1.95)– on disposal of a foreign operation (IAS 21.48)– on de-recognition of available for sale financial assets

(IAS 39.55(b))– when a hedged forecast transaction affects profit or loss

(IAS 39.100)• Disclose reclassification adjustments relating to components of other

comprehensive income (IAS 1.92)– reclassification adjustments may be presented in the statement or

in the notes (IAS 1.94)


Statement of changes in equity (IAS 1.106 – 110)

• Now a primary statement, to be given same prominence as other statements, not merely a note

Contents:• total comprehensive income; showing separately amounts attributable

to owners of the parent and to non-controlling (minority) interests• retrospective adjustments or reclassifications recognised in accordance

with IAS 8 for each equity component (eg class of contributed equity; accumulated balance of each component of other comprehensive income; retained earnings)

• transactions with owners in their capacity as owners eg contributions of capital)

• reconciliation between carrying amounts at beginning and end of each period for each equity component

• amount of dividends distributed to owners, and related amount per share (or may be disclosed in a note)


Comparative information (IAS 1.38-44)

• Except when other standards permit or require otherwise, disclose comparative information for previous period for all amounts reported

• Provide a third statement of financial position as at the beginning of the previous period when the entity (IAS 1.39)– applies an accounting policy retrospectively – makes a retrospective restatement of items– reclassifies items

• Provide additional disclosure when reclassify comparative amounts (IAS 1.41)


IFRS 3 and IAS 27(Revised January 2008)

Business Combinations and Consolidated Financial Statements

The changes resulting from the revisions to IFRS 3 Business Combinations

and IAS 27 Consolidated and Separate Financial Statements


Major changes introduced by the 2008 revisions (1)IFRS 3 Scope expanded (IFRS 3.2)

• All business combinations except:

a) formation of a joint venture

b) acquisition of a group of assets that does not constitute a business (so just allocate cost to the identifiable assets and liabilities acquired using relative fair values)

c) combinations between entities under common control

Scope includes combinations effected by contract alone (eg dual listings) and those between mutual entities (previously excluded from scope)


Definition of a Business (IFRS 3 Appendix A and Application Guidance Appendix B.B7-12))

• An integrated set of activities and assets capable of being conducted and managed for the purpose of providing a return or lower costs or other economic benefits directly to investors

• A business generally consists of inputs and processes applied to those inputs that have the ability to create outputs

• If goodwill is present in a transferred set of activities and assets, the transferred set shall be presumed to be a business


Major changes introduced by the 2008 revisions (2)IFRS 3 Business Combinations

• Transaction costs expensed immediately (IFRS 3.53)

• Contingent consideration contracts recorded at fair value (IFRS 3.39-40,58)– apply IAS 32 to determine whether contract is a liability or equity – subsequent changes to a contingent consideration liability recorded

in income statement

• Business combination in stages method in old IFRS 3 replaced (IFRS 3.41-42)– remeasure total previously held investment to fair value

– recognise gain or loss on remeasurement in income statement



• Detailed asset-specific guidance for determining fair value of identifiable assets and liabilities acquired replaced– general principles require assets and liabilities (and

some contingent liabilities) be recognised at fair value (IFRS 3.10 and 15)

– limited exceptions to general principles eg deferred tax, employee benefit obligations

• follow specific Standard for these items unless IFRS 3 contains specific requirements (IFRS 3.21-31))



• Specific recognition and/or measurement requirements for:– contingent liabilities (IFRS 3.22-23, 56)– non-market rate operating leases (IFRS 3.28-30)– reacquired rights (IFRS 3.22, 56)– indemnification assets (IFRS 3.27-28, 57)

• Explicit requirement to analyse whether any part of the consideration transferred is for something other than the acquisition (IFRS 3.52, B52-B55) eg– pre-existing contracts between acquirer and acquiree– settlement of litigation– future management compensation



• Special rules if the new parent replaces the acquiree's share based payment scheme (IFRS 3.52(b), B56-62) – allocate replacement award between consideration payable for the

acquiree and post-combination employee services

• Acquiree's assessments and designations of identifiable assets and liabilities reassessed on acquisition date (IFRS 3.15-17) eg

• financial instrument classification• embedded derivatives • hedging relationships

– except classifications of leases and insurance contracts are not reassessed



Goodwill (IFRS 3.32-33)

• Goodwill value determined at acquisition date, not date of exchange

• Goodwill valued as consideration transferred plus FV of previously held investment plus amount of non-controlling interest (NCI) less FV of identifiable assets and liabilities acquired, measured in accordance with IFRS 3

• 100% of goodwill can be recognised even if there is a non-controlling interest – NCI measured at either FV or proportionate interest in

identifiable net assets



• Changes to the measurement of goodwill subsequent to initial recognition significantly reduced – consequently more adjustments made to post-acquisition income for reassessment of estimates, eg– contingent consideration (IFRS 3.58)– contingent liabilities assumed (IFRS 3.56)– deferred tax assets not recognised at acquisition (IFRS 3.67)

• Changes to provisional amounts may be retrospectively adjusted through goodwill if identified in the measurement period, which may be less than 1 year from the acquisition date (IFRS 3.45-49)


Major changes introduced by the 2008 revisions (8)IAS 27 Consolidated and Separate Financial Statements

• Losses attributed to NCI in full, even if results in deficit balance in statement of financial position (IAS 27.28)

• Change in controlling interest (ie transactions involving acquisition or disposal of interests in a subsidiary in which control is not gained or lost) are accounted for as equity transactions (IAS 27.30-31)– no income statement gain or loss recognised– no adjustment to goodwill(reflects view that non-controlling interests are a

component of group equity)


Major changes introduced by the 2008 revisions (8)IAS 27 Consolidated and Separate Financial Statements

On loss of control of subsidiary (IAS 27.34-37)• any retained investment is recognised at fair value at date control is

lost• this fair value is included in calculation of gain or loss on disposal of

controlling interest• reclassifies to profit or loss, or transfers directly to retained earnings

any gains or losses previously recognised directly in equity, if required in accordance with other IFRSs, on same basis as if directly disposed of the related assets or liabilities

• IAS 27 made consequential amendments to – IAS 28.18-19A, 35– IAS 31.45-45B, 46 and – IAS 21.48A-48D, 49

to provide consistent treatment between loss of control, loss of significant influence and loss of joint control


Amendment to IFRS 1 and IAS 27 Cost of an investment in a Subsidiary, Jointly Controlled Entity or Associate

• IAS 27: Deletion of IAS 27's definition of the cost method in parent's separate financial statements

• Consequent elimination of need to deduct pre-acquisition dividends from cost (large dividend is an indicator of impairment)

• IFRS 1: Option to use fair value or previous GAAP carrying value as deemed cost of investment in a subsidiary in parent's separate financial statements on transition to IFRS

• Effective for periods beginning on or after 1 January 2009. Early adoption is permitted


IFRS 8Operating Segments

ScopeMain changes from IAS 14

Reportable segmentsDisclosures


Operating segmentsMain changes from IAS 14 (IFRS 8.IN10-18)effective for annual periods beginning on/after 1 January 2009

• Replaces IAS 14 Segment Reporting• Operating segments identified on basis of internal

reports to chief operating decision-maker (CODM)• Segments include components of the entity that

sell primarily or exclusively to other segments• Information measured in accordance with policies

used to report to CODM, policies disclosed and figures reconciled to IFRS accounting policy measures

• More extensive disclosures required


IFRS 8 Operating SegmentsScope (IFRS 8.2)

Same scope as IAS 14, ie– separate or individual financial statements of a relevant

entity:– consolidated financial statements of a group with a

relevant parent:

• A relevant entity or parent is one:(i) whose debt or equity instruments are traded in a public market, or

(ii) that files, or is in the process of filing, its financial statements with a regulatory organisation for the purpose of issuing any class of instruments in a public market

• If separate and consolidated financial statements are presented together, only consolidated segment information is needed


Operating segmentsDefinition (IFRS 8.5)

An operating segment is a component of an entity:(a) that engages in business activities from which it may earn

revenues and incur expenses (including revenues and expenses relating to transactions with other components of the same entity),

(b) whose operating results are regularly reviewed by the entity's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and

(c) for which discrete financial information is available.

• An operating segment may engage in business activities for which it has yet to earn revenues, for example, start-up operations may be operating segments before earning revenues.


Aggregation of segments (IFRS 8.12)

• Two or more operating segments with similar economic characteristics may be aggregated into a single operating segment if the segments are similar in each of the following respects:(a) the nature of the products and services;(b) the nature of the production processes;(c) the type or class of customer for their products and

services;(d) the methods used to distribute their products or provide

their services; and(e) if applicable, the nature of the regulatory environment,

for example, banking, insurance or public utilities.


Reportable segments Quantitative thresholds (IFRS 8.13)

• segment must be reported separately if:– revenue > 10% total (internal and external) revenue, or– assets > 10% total assets, or– results > 10% of higher of

• total profit from profitable segments• total loss of loss making segments

• if external revenue of identified reportable segments is < 75% of total external revenue, must identify additional segments to reach 75% (IFRS 8.15)


Reportable segments - example

Entity P has • total revenues, internal and external, of CU500• total assets of CU400• total loss for all segments that reported a loss is CU90• total profit for all segments that reported a profit is CU200.

Segment A has • total revenues of CU60, of which internal revenues are CU35 and

external revenues are CU25• assets of CU20• loss of CU15

Which thresholds, if any, does segment A exceed?


IFRS 8 – Disclosures (IFRS 8.20-24)

• General information

• Quantitative disclosures

– profit/loss

– total assets

– measure of liabilities

– revenue from external customers/other segments

– interest revenue/expense

– depreciation/amortisation

– material items of income/expenditure

– interest in profit or loss of associates/joint ventures (equity method)

– income tax/expense– material non-cash

items


Measurement and reconciliation of quantitative information (IFRS 8.25-28)

• Use same measurement basis as used in reports to CODM and disclose basis of accounting and how it differs from the IFRS policies used for financial reporting

• Provide reconciliation between reported segment information and the reported financial statement figures:

a) the total of the reportable segments' revenues to the entity's revenue.

b) the total of the reportable segments' measures of profit or loss to the entity's profit or loss before tax expense (tax income) and discontinued operations (unless such items are allocated to reportable segments)

c) the total of the reportable segments' assets to the entity's assets.d) the total of the reportable segments' liabilities to the entity's

liabilitiese) the totals of the reportable segments' other material items to the

entity's totals


IFRS 8 – Entity-wide disclosures (IFRS 8.31-34)

• The amounts disclosed are based on the financial information used to prepare the financial statements

• Revenue from external customers for each product and service and non-current assets (other than financial instruments, deferred tax assets, post-employment benefit assets and insurance contract rights)– attributed to or located in the entity's country of domicile– attributed to or located in all foreign countries in total (with separate

disclosure of amount attributed to an individual foreign country if material)

• If revenues from a single customer >10% of total external revenues, this is disclosed along with the total amount of revenues from such customers and the identity of the segment(s) reporting the revenues. The identity of the customer does not need to be given.


IAS 23(Revised 2007)

Borrowing Costs

Main changesGeneral requirements


IAS 23 Borrowing CostsRevised standard issued March 2007

• Main change - must capitalise qualifying borrowing costs, it is no longer permissible to expense immediately

• general requirement:– directly attributable borrowing costs relating to a

qualifying asset will need to be included in the cost of the asset ie capitalised

– other borrowing costs are recognised as an expense in the period incurred (IAS 23.1 & 8)

• limited scope exceptions eg assets reported at fair value (IAS 23.4)

• borrowing costs may be asset specific or an allocation of general borrowing costs


IAS 23 Borrowing Costs Definitions: qualifying assets and borrowing costs (IAS 23.5 - 6)

• qualifying assets – those that necessarily take a substantial period of time to get ready for intended use or sale (IAS 23.5)

• borrowing costs - interest and other costs an entity incurs in connection with borrowing of funds – may include:– interest using IAS 39 effective interest rate method – finance lease finance charges recognised in accordance

with IAS 17– exchange differences from foreign currency borrowings

to the extent regarded as adjustment to interest cost (IAS 23.6)


IAS 23 Borrowing CostsCapitalisation period (IAS 23.17-23)

• capitalisation is required during development / construction phases:– starts when activities necessary to ready asset

for intended use or sale have begun and expenditure on the asset is incurred and qualifying borrowing costs have been incurred (this is the commencement date)

– is suspended during extended period of inactivity

– stops when activities to ready asset for intended use or sale are substantially complete


IAS 23 Borrowing CostsCosts eligible for capitalisation (IAS 23.12-15)

• For funds borrowed specifically, capitalise actual borrowing costs incurred, less any investment income on temporary investment of those borrowings

• For funds borrowed generally, – apply a capitalisation rate to the expenditures on

the qualifying asset, being the weighted average cost of general borrowings outstanding during the period


IAS 23 Borrowing CostsTransition and effective date (IAS 23.27-28)

• Effective for periods beginning on or after 1 January 2009, but may adopt early by designating an earlier effective date

• Prospective application – if current policy is expensing, apply capitalisation policy to assets where commencement date for capitalisation is on/after the effective date


New IFRIC Interpretations

IFRIC 12 Service Concession ArrangementsIFRIC 13 Customer Loyalty Programmes

IFRIC 15 Agreements for the Construction of Real EstateIFRIC 17 Distributions of Non-cash Assets to Owners


IFRIC 12 Service Concessions

• Effective for periods beginning on or after 1 January 2008

• Requirements for application of IFRS to service concessions in which

– a public sector body (the grantor) engages a private entity (the operator) to provide services to the public; and

– those services involve the use of infrastructure (eg roads, hospitals, power stations) by the operator (public to private service concessions)


IFRIC 12 Service Concessions (continued)

Scope (IFRIC 12.4-9)• Applies to operator only• Applies where:

– grantor regulates services provided, who provided to and pricing arrangements

– grantor controls infrastructure– infrastructure was either constructed or acquired by

operator or provided by grantor for the purpose of the concession



Issues addressed• rights over infrastructure - do not recognise as property,

plant and equipment of the operator (IFRIC 12.11)• recognition and measurement of arrangement

consideration – account for revenue and costs in accordance with IAS 11 and IAS 18 (IFRIC 12.12-14)

• construction or upgrade services provided – record a financial asset or an intangible asset depending on the character of the receivable (IFRIC 12.15-19)

– financial asset if unconditional right to receive cash– intangible asset if receives a right (licence) to charge users



other issues addressed• other services provided during the term of the

arrangement – apply IAS 18 (IFRIC 12.20) • borrowing costs incurred in the construction phase –

book as an expense unless there is a contractual right to receive an intangible asset (IFRIC 12.22)

• subsequent accounting for the financial or intangible asset that the arrangement gives rise to – apply IAS 32/39 & IFRS 7 or IAS 38 as appropriate (IFRIC 12.23-26)


IFRIC 13 Customer Loyalty Programmes

• Effective for annual periods beginning on or after 1 July 2008

• Scope – loyalty award credits issued as part of a sales transaction that customers can redeem in future for free or discounted goods and services

• Apply IAS 18.13 to allocate fair value to award credits as separate component of revenue (IFRIC 13.5)

• If the unavoidable costs of meeting the obligations to supply the awards are expected to exceed the consideration received and receivable for them, recognise a liability for onerous contracts in accordance with IAS 37 (IFRIC 13.9)


IFRIC 13 Customer Loyalty Programmes

• If the entity supplies the awards itself, recognise revenue when:– award credits are redeemed and – the entity fulfils its obligations to supply awards

(IFRIC 13.7) • The amount of revenue recognised shall be based

on the number of award credits that have been redeemed in exchange for awards, relative to the total number expected to be redeemed (IFRIC 13.7)


Recognition of revenue when a 3rd Party supplies the awards (IFRIC 13.8)

• If a third party supplies the awards, assess whether consideration allocated to the award credits is collected as the principal or as an agent a) If collecting the consideration on behalf of the third party:

i. measure revenue as the net amount retained on its own account; and

ii. recognise this net amount as revenue when the third party becomes obliged to supply the awards and entitled to receive consideration for doing so

b) If collecting the consideration on its own account, measure revenue as the gross consideration allocated to the award credits and recognise the revenue when obligations in respect of the awards are fulfilled

• If the customer can choose to claim awards from either the entity or a third party, recognition may occur only when the customer chooses to claim awards from the third party or when the entity fulfils its obligations in respect of the awards


IFRIC 15 Agreements for the Construction of Real Estate (effective for years commencing 1 January 2009)Should IAS 11 or IAS 18 be applied?

• Provides guidance on deciding whether 'off-plan' sales of real estate (house, apartments etc) fall within scope of IAS 11 or IAS 18

• IAS 11 should be applied in accounting for construction contracts in the financial statements of contractors (IFRIC 15.13)– a construction contract is a contract specifically negotiated for the

construction of an asset or a combination of assets (IFRIC 15.11 and IAS 11.3)

– such negotiation requires the buyer to be able to specify the major structural elements of the design of the real estate before construction begins and/or specify major structural changes once construction is in progress (whether it exercises that ability or not)

• For agreements for the rendering of services (generally where the entity is not required to acquire and supply construction materials), apply IAS 18.20-21, which applies the percentage of completion method described in IAS 11 (IFRIC 15.15)


IFRIC 15 Agreements for the Construction of Real Estate Should IAS 11 or IAS 18 be applied? (continued)

• For agreements for the sale of goods (generally where construction could take place independently of the agreement; buyers have only limited ability to influence the design of the real estate; and the entity is required to supply both services and construction materials (IFRIC 15.12 and 16))– apply recognition criteria for sale of goods in IAS 18.14:

• if criteria are met continuously as construction progresses, use percentage of completion method (IFRIC 15.17) [unlikely to be frequent – IFRIC 15.BC26]

• if entity transfers control and significant risks/rewards at a single point in time (eg at completion or on delivery), recognise revenue when all criteria of IAS 18.14 are met (IFRIC 15.18)


IFRIC 15 Agreements for the Construction of Real Estate - Example

• Entity D is developing 40 residential units on an owned plot of land• During construction, D enters into binding sale agreements with buyers

of individual units:– buyer has right to acquire specified unit when ready for occupation– buyer pays deposit, refundable only if D fails to deliver the

completed unit - balance of payment due in two further instalments • one on completion of main structural elements• the remainder on contractual completion of the unit

– buyers cannot alter the main structural elements of the design but can select fixtures and fittings design specifications from a range of offerings

– if buyer fails to make specified payments, entity D retains the right to complete the unit and find an alternative buyer


IFRIC 15 Agreements for the Construction of Real Estate - Example solution

• Agreement is not a construction contract

• Agreement is a forward contract that gives the buyer – an asset in the form of a right to acquire, use and sell the completed

real estate at a later date and – an obligation to pay the purchase price in accordance with its terms.

• Entity D retains control and the significant risks and rewards of ownership of the work in progress in its current state until the completed real estate is transferred

• Therefore, revenue should be recognised only when all the criteria in IAS 18.14 are met - at contractual completion


IFRIC 17 Distributions of Non-cash Assets to OwnersScope (IFRIC 17.3 - 8)

• Applies to – distributions of non-cash assets (NCAs) to owners and – distributions that give owners a choice of receiving a non-cash

asset or cash alternativewhere all owners of the same class are treated equally

• except when– the NCA is controlled by the same party or parties before and after

the distribution– the NCA is a part of the distributing entity's ownership interests in a

subsidiary but the entity retains control of the subsidiary (use IAS 27 (2008) to account for the increase in the non-controlling interest)

• Effective for periods beginning on or after 1 July 2009, can adopt early but only if also early adopt IFRS 3 and IAS 27 (as amended 2008)


IFRIC 17 Distributions of Non-cash Assets to OwnersAccounting treatment (IFRIC 17.10-15)

• Recognise liability when dividend is appropriately authorised and no longer discretionary (IFRIC 17.10)

• If the asset(s) to be distributed are non-current assets or are a disposal group as defined in IFRS 5, apply the classification, presentation and measurement requirements of that Standard (IFRIC 17.Appendix expands to scope of IFRS 5)

• Measure liability at inception, at each reporting date and on settlement at fair value– if owners can choose to receive either a non-cash asset or a cash

alternative, estimate the liability by considering the fair value of each alternative and the probability of selection (IFRIC 17.11-12)

• On settlement, recognise the difference, if any, between the carrying value of the asset(s) distributed and the carrying amount of the liability as a separate item in profit or loss (IFRIC 17.14-15)


Annual Improvements to IFRSs effective for years commencing 1 January 2009 except as indicated

IFRS affected Issue addressed

IFRS 5 • Plan to sell controlling interest in a subsidiary• effective 1 July 2009

IAS 1 • Current/non-current classification of derivatives

IAS 16 • Recoverable amount• Sale of rental assets

IAS 19 • Curtailments and negative past service costs• Plan administration costs• Guidance on contingent liabilities• Replacement of term "fall due"


Annual Improvements to IFRSs continued


IAS 20 • Government loans with low interest rate

IAS 23 • Components of borrowing costs

IAS 27 • Measurement of subsidiary held for sale in separate financial statements when IAS 39 is applied

IAS 28 • Disclosures for investments designated at FVTPL • Impairments of associates

IAS 29 • Description of measurement basis in financial statements

IAS 31 • Disclosures for investments designated at FVTPL

IAS 36 • Disclosures of estimates


Annual Improvements to IFRSs continued


IAS 38 • Advertising and promotional activities• Units of production method of amortisation

IAS 39 • Reclassification of derivatives• Designation of hedges at segment level• Applicable effective interest rate on cessation of fair

value hedge accounting

IAS 40 • Investment property under construction

IAS 41 • Discount rate for fair value estimates • Additional biological transformation

Plus other non-substantive amendments


Current project and future developments

Financial Instruments and the 'credit crisis'IFRS for Private Entities

Forthcoming changes to IFRS


Financial Instruments and the 'credit crisis'

1990: IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions

1995: IAS 32 Financial Instruments: Disclosure and Presentation

1998: IAS 39 Financial Instruments: Recognition and Measurement and IAS 32 revised

2002-2005: IAS 32 and IAS 39 revised

IFRS 7 Financial Instruments: Disclosures issued

2008: Financial instruments 'in focus' in credit crisis

IAS 32 and IAS 39 and IFRS 7 revised


Structure of IFRS 7 – general disclosure requirements

General disclosure requirements

Nature and extent of risks arising from financial instruments

Other disclosures

Accounting policies

Fair value for all financial assets and liabilities, minor exceptions

Qualitative disclosures

Quantitativedisclosures

Credit risk

Liquidity risk

Market risk


Proposed amendments to IFRS 7 Financial instruments: DisclosuresExposure Draft released October 2008:

Proposed changes:• Liquidity risk – additional maturity disclosures

• Explanation of how fair value is determined (especially those that are complex)

• Transparency concerning off balance sheet arrangements

• Fair value measurement: the three-level fair value hierarchy (as in US GAAP)

– Level 1: quoted prices – Level 2: valuation technique based on observable market inputs, – Level 3: Valuation technique based on non-observable market

inputs – will require comprehensive additional disclosures reflecting risk of fair value measurement


Creating a 'level playing field' -Reclassification of financial assets – amendment to IAS 39 and IFRS 7: issued October 2008

• A pragmatic response to certain differences between US GAAP and IFRS - proceeded directly to issue!

• Reclassification of certain financial assets out of fair value through profit or loss category and out of the available-for-sale category in limited circumstances

• Fair value at date of reclassification becomes its new cost or amortised cost, as applicable.

• Do not reverse gains or losses previously recognised in profit or loss

• Effective date: partially retrospective from 1 July 2008, prospective from 1 November 2008


Financial Instruments: further developments

Expert Advisory Panel Educational Guidance• Valuing financial instruments in inactive markets

– use of transaction prices in 'less active markets'– forced or distressed sale not indicative of fair value– enhanced disclosures

• Doesn't change IFRS requirements

Financial Crisis Advisory Group • A high-level advisory group set up by IASB and FASB to consider

financial reporting issues arising from the global financial crisis

Current projects• Ongoing projects to reduce complexity in financial instrument reporting

and to clarify debt / equity classification


IFRS for Private Entities (Previously named IFRS for Small and Medium-sized Entities (SMEs))

• ED released February 2007, comment period ended November 2007

• Objective: an IFRS expressly designed to meet the financial reporting needs of entities that (a) do not have public accountability and (b) publish general purpose financial statements for external users

• The IFRS will:– be a stand-alone document– be derived from full IFRSs with appropriate modifications to full

IFRS based on the needs of users and cost-benefit considerations – include all accounting policy choices in full IFRS

• Board still to consider requests for more simplifications, eg accounting for defined benefit pension plans, financial instruments, and disclosure of equity-settled share-based payment schemes

• IFRS expected first half of 2009


Other changes expected during 2008/09

Project Main changes expected

Joint ventures Replacement of IAS 31

Elimination of proportionate consolidation

Consolidation Replacement of IAS 27 and SIC 12

Clarification of control relationships

Related parties Changes to IAS 24 to offer limited relief from disclosure when related party status is based on state-control

Improvements to IFRSs

Second year of annual process

ED released in 2008 proposes 12 changes to 8 standards

For more information on IASB projects refer to the IASB website www.iasb.org


Any questions?


Important information

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Important disclaimer:This presentation has been developed as an information and training resource. It is intended as a guide only and the application of its contents to specific situations will depend on the particular circumstances involved. While every care has been taken in its preparation, personnel who use this material to assist in evaluating compliance with International Financial Reporting Standards should have sufficient training and experience to do so. No person should act specifically on the basis of the material contained herein without considering and taking professional advice. Neither Grant Thornton International, nor any of its member firms, partners or employees, accept any responsibility for any errors it might contain, whether caused by negligence or otherwise, or any loss, howsoever caused, incurred by any person as a result of utilising or otherwise placing any reliance upon this document.

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