accounting standards update 2013

8/11/2019 Accounting Standards Update 2013

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Accounting Standards Update

Lyceum of the Philippines UniversityGeneral Trias Cavite

6 December 2013

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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 IFRIC –20, Stripping Costsin 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 OtherComprehensive Income



Amendments to PAS 1,

Government Loans



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 entity’s 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


Overview:

► Contains a single model for consolidation for all entities

► Core principle:

► New definition (PFRS 10): An investor controls an investee when it isexposed, or has rights, to variable returns from its involvement with theinvestee and has the ability to affect those returns through its power overthe investee.

► Old definition (PAS 27): Control is the power to govern the financial andoperating 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 placedgreater 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 keymanagement

Power

Current ability

to direct those

activities

Examples:

► Voting rights

► Potential voting

rights

► Right to appoint ,

re-assign orremove key

management

► Decision making

rights

Returns

Exposure or

rights to variable

(positive and/or

negative) returns

Examples:

► Dividends

► Remuneration

► Returns that are

not available toother interest

holders

Understand purpose and design



Control Assessment Example

► Enterprise A and B form aventure, C Ventures

► The purpose and design of CVentures is to manufacture,distribute and sell ice cream

► Each enterprise contributescash and receives 50% equityinterest

► Enterprise A and B are

unrelated► How should the enterprises

determine which partycontrols 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 directthe relevant activities

4. Assess whether the investor is exposed to returns

Relevant Activity Responsible PartyManufacturing Enterprise A

Distributing Enterprise B

Selling Enterprise B



Transition (June 2012)

► Effective for annual periods beginning on or after1 January 2013

► “Date of initial application” – the beginning of the

annual reporting period in which PFRS 10 isapplied 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 earliestdate when practicable, which may be the current period

► An investor would not required to apply PFRS 10 to an investeewhen the previously unconsolidated investee would be consolidatein prior periods as a result of adopting PFRS 10, but the interest isdisposed of before the date of initial application of PFRS 10



Transition (2012) Cont’d…

► Other amendments/clarifications:► Difference between previously recognized (IAS 27/SIC-13) amounts

and revised amounts recognized on initial application of IFRS 10must 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 precedingyear only. However, an entity would not be prohibited fromadjusting comparatives for earlier periods

► Control obtained and changes in NCI before effectivity date of IFRS3(2008) and IAS 27(2008), respectively:

► Investee is a business – There is flexibility in determining whichversion of IFRS to use, based on which version of IFRS 3 is suitablefor a particular investee.

► Investee is not a business – measure the assets, liabilities and NCIapplying 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 controlon a continuous basis

► Compliance with bank covenants and regulatory

requirements

► Structuring mergers and acquisitions or

transactions and arrangements




► 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 andPAS 28, Investments in Associates and Joint Ventures

P A S 3 1

P F R S 1 1

Jointly controlled

entities

Jointly controlled

assets

Jointly controlled

operations

Joint venturesThe parties with joint control have

rights to the net assets of the

arrangement.

Joint operationsThe 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 separatevehicle?

Yes

No

Joint Operation

No

YesDo 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 inOther Entities



PFRS 12, Disclosure of Interests inOther 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 anasset or paid to transfer a liability in an orderlytransaction between market participants at themeasurement 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 participantassumptions




Transition

► Applied prospectively as of the beginning of the annual period in which PFRS 13 isinitially 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 thatare measured at fair value (e.g., investment property measured using fairvalue, 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: disclosuresplan 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 entity’s 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

settlementsNew requirement



Financial statements (PAS 19.140 –144)

PAS 19.140 –144 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 entity’s own

transferable financial instruments held as plan assets and the fairvalue of plan assets that are property occupied by the entity.

No change

The entity shall disaggregate the fair value of the plan assetsinto 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: disclosuresfinancial impact



Post-employment benefits: disclosurescash flow impact

Cash flow impact (PAS 19.145 –147)

Sensitivity analysis required for the key assumptions


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


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► 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 definedbenefit plans will require early communications with actuaries.

► Some of the seemingly minor adjustments, such as the changesin definition for short-term employee benefits and changes inrecognition for termination benefits may require further analysisof existing arrangements.



Philippine InterpretationIFRIC-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 withPAS 2, Inventory

► Improved access to ore – shall be accounted as non-current assetcalled “stripping activity asset”(SAA). Production stripping costs are tobe 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 orebody) associated with the stripping activity will flow to the entity;

b) The entity can identify the component of an ore body for which access hasbeen improved; and

c) The costs relating to the improved access to that component can bemeasured reliably.

► The stripping activity asset shall be accounted for as an addition to, oras an enhancement of, an existing asset. In other words, the strippingactivity asset will be accounted for as part of an existing asset.



Measurements

The SAA:

► must be carried at cost less depreciation or amortization, andany impairment losses.

► must be depreciated or amortized on a systematic basis, over

the expected useful life of the identified component of an orebody that becomes more accessible as a result of thestripping activities. The units of production method is to beused, unless another method is more appropriate.

Where stripping costs cannot be specifically allocated between

the inventory produced during the period and the SAA, theInterpretation requires an entity to use an allocation basis that isbased on a relevant production measure.



Transition

► An entity shall apply this Interpretation to production stripping costsincurred on or after the beginning of the earliest period presented.

► For any production phase stripping costs incurred and capitalized up tothe start of the earliest period presented, the “predecessor strippingasset”, an entity is required to reclassify such a balance as part of an

existing asset to which the stripping activity related, to the extentthere remains an identifiable component of the ore body with whichthe stripping activity asset can be associated.

► These balances are to then be depreciated or amortized over theremaining expected useful life of the identified component of the orebody to which each existing asset balance relates.

► If there is no identifiable component of the ore body to which thatpredecessor stripping asset relates, it is required to write off this assetvia opening retained earnings at the beginning of the earliest periodpresented.



Annual Improvements to

PFRSs 2009-2011 cycle

A l I t t PFRS



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 PFRSs2009-2011 cycle

A l I t t PFRS




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.


A l I t t PFRS




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 totransaction 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.


A l I t t PFRS



PFRS and subject ofamendment

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.




Questions???



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accounting standards update 2013

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