Moore Stephens Europe Limited

January 2008

David Chopping

Agenda

• IAS 23 – Borrowing Costs

• IAS 1 – Presentation of Financial Statements

• IFRS 3 – Business Combinations

• IFRICS

• Proposals

• IFRS 7

IAS 23 - Borrowing Costs

• IAS 23 revised– Mandatory capitalisation of borrowing costs, unless:

• Assets measured at fair value; or

• Inventories for mass production

– Effective 1 January 2009

– Transitional provisions

– Early adoption allowed

IAS 1

• Revised rules effective 1 January 2009

• Transactions– Statement of changes in equity shows only transactions with

owners in that capacity

– Other changes in equity in:• Income statement and statement of comprehensive income; or

• Combined statement of comprehensive income.

– Tax to be shown separately on all items in statement of comprehensive income

– Reclassification adjustments (ie recycling) to be shown

IAS 1

• Balance sheet → Statement of financial position

• Two balance sheets usually required, but three if:– Accounting policy changed retrospectively

– Retrospective restatement

– Reclassification of item in the financial statements

• Cash flow statement → Statement of cash flows

• Dividends prohibited from being in statement of comprehensive income

IFRS 3 – Business Combinations

• Published 10 January 2008

• Effective date – 1 July 2009

IFRIC 13

• Customer Loyalty Programmes

• Question: Whether, in respect of a sale covered by such a programme, providers should:– accrue for the expected costs; or

– defer part of the consideration received; or

– do either, depending on the nature of the scheme

• Option two

• Effective 1 July 2008

IFRIC 14

• Defined Benefit Assets and MFRs

• Three issues– When refunds or reductions in future contributions are

available;

– How an MFR might affect this;

– When an MFR creates a liability

• Effective 1 January 2008

IFRIC 14

• Refunds available if has an unconditional right, even if arises only in the future

• Limited if dependent on uncertain events outside entity’s control (and actuarial assumptions)

• Reductions available are the lower of:– Surplus in plan; and

– Present value of the future service cost over the shorter of the life of the plan and the life of the entity

• Can combine both

IFRIC 14

• MFR to be split between– Existing shortfall (usually ignored); and

– Future accrual of benefits

• Where there is an MFR, reductions available are the present value of:– The estimated future service cost (as previously); less

– Estimated MFR contribution required in respect of accrual of benefits for each year

IFRIC 14

• An obligation to make contributions to cover an existing shortfall creates a liability if the amounts are not available through reduced contributions or refund

IFRS 1 & IAS 27 – Transition & Cost

• Proposal– Allow deemed cost for subsidiaries

• Fair value; or

• Previous GAAP value

– Allow deemed cost for associates and joint ventures

– Require dividends from subsidiaries, associates and joint ventures to be treated as income, with a required impairment test

– Prospective application

IAS 24 – Related Parties

• Proposals– Reduce disclosure for transactions between state-controlled or

influenced entities

IAS 39 – Hedge Accounting

• Proposed clarification

• Designation of financial items as hedged items– All risks

– Interest rate risk

– Foreign currency risk

– Credit risk

– Prepayment risk

– Contractually specified cash flow (eg inflation index payments)

IAS 39 - Hedge Accounting

• Hedge of part of cash flows– Part of time period

– Percentage of total cash flows

– Cash flows connected with a one-sided risk (eg foreign exchange above/below specified rate)

– Specific contractually specified cash flows

– Risk free element of cash flows

– Portion tied to a fixed inter-bank rate

IFRS Improvements

• Annual project

• Results from complaints about technical correction process

• Short consultation period

• 2007 version proposes changes to 25 standards

• Coming into force 1 January 2009

• Not all proposals (or even standards) covered in slides

IFRS Improvements

• IFRS 1 – Restructuring of guidance, but no substantive changes

• IFRS 5 – Clarification on subsidiaries which are covered by a plan of sale, even if the company proposes to maintain a non-controlling interest

• IAS 1– Where an entity makes reference to, but does not full comply

with, IFRS then require a description of how IFRS compliance would have differed had it complied with IFRS

– Long-term liability if can defer cash or transfer of assets for twelve months, even if may have to convert into equity

IFRS Improvements

• IAS 8 – Clarify the distinction between application guidance and implementation guidance

• IAS 16 – Clarify that assets used for rental, but routinely sold at a later stage, are reclassified as inventory prior to sale

• IAS 17 – Require contingent rent to be treated as incurred

– Make classification of land and buildings consistent with all other lease classifications

IFRS Improvements

• IAS 19– Treat curtailment of extant benefits as negative past service

cost

– Replace references to amounts falling due with references to employees becoming entitled for determining current and non-current amounts

– Remove requirement to recognise contingent liabilities, as inconsistent with IAS 37

• IAS 20 – Clarify that government loans with below market interest rates are governed by IAS 39

IFRS Improvements

• IAS 28 – Clarifying that reversal of impairment is allowed even where amounts are (notionally) attributable to goodwill

• IAS 36 – Make the disclosures consistent between the valuation approaches (VIU and FV) if similar methodologies applied

• IAS 38– Clarify that expenditure on items that will not give rise to

assets can still be assets if service not yet received

– Clarify that unit of production amortisation can be used even if less prudent than straight line

IFRS Improvements

• IAS 39– Include as derivatives contracts related to non-financial

variables specific to a party to the contract

– Clarify held for trading, so that if part of a portfolio then depends on status at initial recognition

– Clarify that becoming or ceasing to be a hedging instrument is not a reclassification

– Prepayment options which compensate for lost interest are deemed to be closely related to the host contract

IFRS Improvements

• IAS 40 - Property acquired for the purposes of development as an investment property is to be within the scope of IAS 40

• IAS 41 – Allow a pre and post tax discount rate (currently pre tax only)

– Allow account to be taken of additional biological transformation to be included in cash flows

IAS 31 - Joint Arrangements

• IASB proposals– Require accounting under contractual rights

– Abolish proportionate consolidation

– Require equity accounting

– Extend disclosures, and align with associates

IFRS 2 - Groups

• Clarification of IFRS 2

• Extends scope to cover arrangements where:– suppliers receive cash payments linked to the price of the equity

instruments of the entity; or

– suppliers receive cash payments linked to the price of the equity instruments of the parent of the entity

• Under either arrangement, the parent of the entity has an obligation to make the required cash payments to the suppliers of the entity

• The entity itself does not have any obligation to make such payments to its suppliers or provide them with equity instruments

Other Issues

• Fair value proposals (D)

• Framework (D)

• Real estate sales (DI)

• Hedges of a net investment (DI)

Insurance Contracts

• Exit value approach proposed

• Exposure draft 2008

• Standard 2010

IFRS 7

• Classification

• Divide between– Assets at fair value through profit or loss

– Held to maturity

– Loans and receivables

– Available for sale

– Liabilities at fair value through profit or loss

– Liabilities at amortised cost

• Give details of reclassifications

IFRS 7

• If there are liabilities at fair value, then:– Changes in value not due to movements in interest rates

– Difference between carrying amount and contractual amount at maturity

IFRS 7

• Details of allowance accounts for credit losses

• Details of defaults and breaches in the year, unless remedied by the balance sheet date

IFRS 7

• Details of net gains or losses on:– Items at fair value through profit or loss

– Available for sale assets

– Held to maturity investments

– Loans and receivables

– Financial liabilities at amortised cost

• Details of fee income and expense on financial assets and liabilities, if not included in determining the effective interest rate

• Details of interest income on impaired assets

IFRS 7

• Impairment– Details of impairment losses by class of asset

IFRS 7

• Accounting policies– Criteria for at fair value through profit or loss

– Criteria for available for sale

– Criteria for allowance accounts and write offs

– Criteria for impairment

IFRS 7

• Qualitative risk disclosures– Details of exposures and how arose

– Objectives, policies and procedures for managing risk

– Methods used to measure risk

– Changes in any of these from the previous period

• Details of concentrations of risk

IFRS 7

• Credit risk– Maximum exposure, ignoring collateral

– Description of collateral, with fair values if practicable

– Information on credit quality of financial assets with credit risks that are neither impaired nor past due

– Details of items that are impaired or past due

– Details of collateral acquired during the period

• Liquidity risk– Maturity analysis of liabilities

– Description of how liquidity risk is managed

IFRS 7

• Market risk– Sensitivity analysis, showing the effect of changes in the

relevant variable

– Methods and assumptions used in preparing the sensitivity analysis

– Changes in the methods and assumptions since the previous periods

IAS 1 - Capital

• Capital– Qualitative information about objectives, policies and

processes for managing capital

– Summary quantitative data about capital

– Changes from the previous period

– Whether the company complied with external requirements

– Details of implications of any non-compliance with external requirements

Moore Stephens Europe Limited

January 2008

David Chopping