ifrs update 2012

IFRS Update 2012 Highlighting the key issues

29 November 2012

© 2012 Deloitte Accountants B.V. IFRS Update 2012

Agenda

2

15.00 IFRS Update – Part I 16.30

17.00 IFRS Update – Part II

18.30


Agenda

3

Introduction Projects

• Financial instruments • Insurance contracts • Revenue recognition • Leases

Major platform changes 2013-2014 Conclusions

Ralph ter Hoeven

Dingeman Manschot

Ralph ter Hoeven


Testvraag

‘Een IFRS Update moet op een toegankelijke wijze de IFRS-ontwikkelingen schetsen. Voor diepgaande vaktechnische uiteenzettingen heb ik andere bronnen.’ Bent u eens met deze stelling? a) Eens b) Oneens

4

Introduction


IASB – FASB: ‘It started with the best intentions in 2002’

6


IASB – FASB: ‘The rock bottom reached in July 2012’

7


Recap convergence 2009 – 2012

Fair value measurement Classification and measurement of financial instruments Offsetting financial assets and financial liabilities Impairment financial assets Derecognition Investment entities Insurance Revenue recognition Lease accounting

?

8

?


‘At last SEC releases Staff Report on IFRS Work Plan’

9


Response to SEC Staff Report on IFRS Work Plan

10

“We are at a pivotal moment for our organisation. The IASB has started working on a new agenda. The era of convergence is coming to an end. We are revamping our institutional infrastructure to provide for a more inclusive approach to international standard setting. This is the right timing to come on board and participate in shaping the future of global accounting."

15 July 2012


IASB – FASB: How do they move on?

11

“In the early days of our relationship, we had what I would call a ‘best efforts’ approach and we accomplished a lot.”

25 October 2012

“It seems to me that going forward we can continue to achieve a lot even if the nature and structure of our relationship changes.”


IASB – FASB: How do they move on?

12

National standard-setters Regional bodies

CASC


Vraag

‘Een land kan alleen aan tafel met de IASB zitten als IFRS in dat land wordt toegepast.’ Bent u eens met deze stelling? a) Eens b) Oneens

13


What about convergence in the future?

14


Vraag

‘Iedere onderneming die publiekelijk geld ophaalt moet IFRS toepassen.’ Bent u eens met deze stelling? a) Eens b) Oneens

15

Projects

Timing of projects


IASB work plan – Current status

2012 Q4

2013 H1

IFRS 9: Financial instruments (replacement of IAS 39)

• Classification & measurement (review) Target ED

• Impairment Target ED

• Hedge accounting

• General hedge accounting Target IFRS

• Macro hedge accounting Target DP

19

Financial Crisis related projects


IASB work plan – Current status

2012 H2

2013 H1

Leases Target ED (Re-expose)

Revenue recognition Consider comments received

Target IFRS

Insurance contracts Target ED

Consolidation – Investment entities IFRS published

20

Memorandum of Understanding projects

Other projects


Future agenda of the IASB?

21

“Other Comprehensive Income has become a very crowded parking spot for sensitive accounting problems. The fact is that nobody knows what OCI really means.”

Financial instruments project


Limited amendments to IFRS 9

23

New Certain modifications of the relationship between

principal and interest are permissible


Impairment

24

The three bucket approach

Bucket 1

Present value of expected losses from loss events expected within

the next 12 months

Bucket 2

Present value of full remaining lifetime expected losses

Bucket 3

Present value of full remaining lifetime expected losses Methodology

Individual asset or portfolio basis Portfolio basis Individual asset basis

Level of recognition

All instruments in Bucket 1 on initial recognition unless purchased/originated with an incurred loss

• When there is a more than insignificant deterioration in credit quality since initial recognition and

• It is at least reasonably possible, that the contractual cash flows may not be recoverable

then transfer to Bucket 2 or 3. Allocation depends on the level of

recognition.

Interest rate (discounting) Interest rate ≤ ≤ Risk-free interest rate Effective interest rate (IFRS 9)

Transfer between buckets


General hedge accounting model

25

A better fit?


General hedge accounting model

26

Derivatives

Nominal components/ risk components Portions

Financial instruments with contractual cash flow characteristics Equity invest-

ments measured at fair value through OCI

He

dg

ed

ite

ms

Macro hedge accounting

Hed

ging

in

stru

men

ts

Cash instruments measured at fair value through profit or loss

Freestanding derivatives

Non-separated embedded derivatives

Des

igna

tion

Current requirement that retrospective effectiveness shall be between 80% and

125% abandoned

In general a qualitative analysis is sufficient to test

effectiveness

No voluntary discontinuation of hedge accounting

Closer alignment with the entity’s risk management

Internal group transactions


Hedged items – Aggregated exposures

27

(non-derivative) exposure Derivative

Hedging instrument

Aggregated exposure – combination of: (a) another exposure and (b) a derivative

Second level

relationship

First level relationship

Hedged item


Vraag

Verwacht u dat de nieuwe bepalingen inzake hedge accounting zullen leiden tot een bredere toepassing ervan? a) Ja b) Nee c) Weet ik niet

28

Insurance contracts project


Insurance contracts – Measurement of the contract

30

Building blocks

Residual margin

Risk adjustment

Time value of money Cash flows


Insurance contracts – Presentation model

31

Statement of comprehensive income

Premiums X Change in insurance liability X Claims and expenses (X) Underwriting result X Investment income X Interest on insurance liability, based on locked in discount rate

X

Net interest and investment income X Profit or loss X Effect of discount rate changes in insurance contract liability

X

Total comprehensive income X

Revenue recognition project


Understanding the core approach

33

Recognise revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services

Steps to apply the core principle:

Core principle:

1. Identify the contract(s) with the customer

2. Identify the separate performance obligations

3. Determine the transaction price

4. Allocate the transaction price

5. Recognise revenue when (or as) a performance obligation is satisfied


Understanding the core approach

34

Contract with

customer

Deliver equipment

Provide training services

Provide ongoing services

Provide warranty

€ 100

€ 5

€ 4

€ 2

When delivered

When performed

When provided

When provided

1. Identify the contract(s)

2. Identify the separate performance obligations

3. Determine the transaction price

4. Allocate the transaction price

5. Recognise revenue when (or as) a performance obligation is satisfied


How will companies be affected?

35

Possible changes to timing and

measurement of revenue

Increased disclosure

requirements


Watch out for the following …

36

New or more detailed rules/guidance on the following areas

Contract modifications

Unbundling multiple elements

Treatment of credit risk

Allocating revenue between elements

Recognising revenue at a point in time

(goods) or over time (services)

Uncertain revenue/contingent

consideration

Capitalising costs of obtaining a

contract

Detailed implementation

guidance


Disclosures

37

To enable users of financial statements to understand

the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers

Some disclosures required for

interim reporting

Disclosures

Information about

contracts with customers

Information about

judgements used

Reconciliation of contract balances

Information about long-term

contracts

Disaggregation of revenue


Vraag

Verwacht u dat de voorgestelde wijzigingen inzake het verantwoorden van opbrengsten daadwerkelijk impact zullen hebben op de timing van de verantwoording van opbrengsten? a) Ja b) Nee c) Weet ik niet

38

Leases project


“One of my great ambitions before I die is to fly in an aircraft that is on an airline’s balance sheet.”

25 April 2008


6 November 2012

“If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.”


New approach

Financial lease

Operational lease

42

Lessee recognises an asset and a liability for all lease contracts (other than short-term leases)

Lessor accounting will also change


Lessee accounting

Statement of financial position

Right-of-use asset

Lease liability


Amortisation of the right-of-use asset during lease term Interest expense during lease term

43

Right-of-use model


Vraag

Leidt het op de balans zetten van leases tot een beter inzicht in de financiële positie van een lessee? a) Ja b) Nee

44


How to allocate cost of a lease over the lease term?

45

I&A approach SLE approach

Always straight-line total expense Decreasing total expense

Financial leases?

Operational leases?

Does the lessee acquire and consume a more-than-insignificant portion of the underlying asset?

YES

NO


I&A approach or SLE approach?

46

Is the leased asset ‘property’?

YES

NO

Is the lease term a major portion of the asset’s economic life or does the PV of the fixed lease

payments account for substantially all of the asset’s fair

value?

YES

NO

I&A approach

Is the lease term insignificant to the asset’s economic life or is the PV of the fixed lease payments

insignificant relative to the asset’s fair value?

NO

YES

I&A approach

SLE approach

Nature of the underlying asset as a practical

expedient



47


NO



value?

I&A approach



NO

I&A approach

SLE approach

Example car lease

(lease term: 4 years)



48


YES



value?

NO

I&A approach



I&A approach

SLE approach

Example property

lease (lease term:

10 years)


Lessor accounting

49


Right to receive lease payments

Residual asset


Lease income (present value of the lease payments at the date of commencement of the lease)

Lease expense (cost of the underlying asset that is derecognised at the date of commencement of the lease)

Interest income (on the right to receive lease payments during lease term and as a result of accretion of residual asset)

R & R Model

Receivable

Residual


Lessor accounting

50


Leased asset


Lease income (by using a straight-line approach)

Depreciation expense for the leased asset (by using an appropriate method of depreciation)

Operational lease model


Vraag

Bent u eens met het voorstel van de IASB om de verwerking van de kosten van een lease in de winst-en-verliesrekening te laten verschillen afhankelijk van de aard van het gehuurde actief? a) Ja b) Nee

51

Major platform changes 2013-2014


Major platform changes 2012

IASB EU?

Deferred tax: Recovery of Underlying Assets (Amendments to IAS 12)

2012 2013?

53

Amendments to IAS 1 Presentation of Items of Other Comprehensive Income

1 July 2012

1 July 2012

Amendments to IFRS 7 Financial Instruments: Disclosures – Transfers of Financial Assets

1 July 2011

1 July 2011


Major platform changes 2013-2014

IASB EU?

IFRS 10 Consolidated Financial Statements 2013 2014

Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)

2014 2014

IFRS 11 Joint Arrangements 2013 2014

IFRS 12 Disclosures of Interests in Other Entities 2013 2014

IFRS 13 Fair Value Measurement 2013 2013

Disclosures – Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7)

2013 2013

Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32)

2014 2014

IAS 19 Revised (Amendments to IAS 19 Employee Benefits) 2013 2013

54

Annual Improvements 2009 – 2011 Cycle 2013 2013


Control under IFRS 10

Variable returns

Power

Link between power and

variable returns

IFRS 10.7

55

Consider all facts and

circumstances


Power arises from existing rights

Voting rights Potential voting rights Rights to appoint key personnel Decision-making rights within a contract Kick-out rights Protective rights

56

Consider only substantive

rights


Investment entities – Background

Joint convergence project with the FASB to provide comprehensive guidance for assessing whether an entity is an investment entity

57

Formal definition of an

investment entity

Exception to the general

consolidation model

Additional disclosure

requirements


Investment entities – Definition

58

An investment entity is an entity that…

Multiple investments

Multiple investors

Equity / partnership

interests

Additional characteristics

Unrelated investors

Investment Entity

Obtain funds from one or more

investors

Invest funds for returns for either capital appreciation or a

combination of capital appreciation and

investment income Manage and evaluate its

investments on a fair value basis

IFRS 10.28


An investment entity would be required to account for its investments as follows:

59

Accounting by a non-investment entity parent company: If a non-investment entity parent has subsidiary that is an investment entity, it is not permitted to retain the specialised accounting guidance of the subsidiary in its consolidated financial statements

Equity investments

Debt securities Real Estate

>50% 20%-50% <20%

Fair value (exception to IFRS 10)

Fair value (exception to

IAS 28)

Fair value (IFRS 9 / IAS 39)

Fair value (IFRS 9 / IAS 39)

Fair value (IAS 40)

Investment entities – Measurement guidance IFRS 10.B85L


IFRS 11 ‘Joint arrangements’ – Classification

60

Structure of the joint arrangement

Not structured through a separate vehicle

Structured through a separate vehicle

Joint operation Joint venture

Legal form Contractual terms Other facts and

circumstances

IFRS 11.B


IFRS 11 – Joint operation

61

IFRS 11.15

A joint arrangement whereby the parties that have joint control

of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement

Joint

operation (assets & liabilities)

Joint operator A

Joint operator B


IFRS 11 – Joint venture

62

IFRS 11.16

A joint arrangement whereby the parties that have joint control

of the arrangement have rights to the net assets of the arrangement

Joint venture

(assets & liabilities)

Joint venturer A

Joint venturer B


Vraag

Bent u reeds gestart met de analyse van de impact van IFRS 10 en IFRS 11? a) Ja b) Nee

63


IFRS 13 ‘Fair value measurement’ – Objectives

64

• Defines fair value

• Sets out a framework for measuring fair value

• Requires disclosures about fair value measurements

IFRS 13.1

How? Not when!


IFRS 13 – Fair value hierarchy

65

IFRS 13.72

Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date

Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly

Unobservable inputs for the asset or liability

Level 1

Level 2

Level 3


IFRS 13 – Disclosures

66

IFRS 13.93

Recurring Fair value measurements

Non-recurring Fair value measurements

Those that other IFRSs require or permit in B/S

at the end of each reporting period

Those that other IFRSs require or permit in B/S

in particular

circumstances


Offsetting financial assets and financial liabilities

67

IFRS 7 Disclosures

IAS 32 Offsetting

2014

2013


Offsetting – Additional disclosures in IFRS 7

68

Information about the effect or potential effect of netting arrangements on an entity’s financial position

These disclosures will also provide comparable information between: • F/Ss prepared in accordance with IFRS; and

• F/Ss prepared in accordance with US GAAP

The disclosures apply to:

All financial instruments set off in the statement of financial position in accordance with IAS 32, and financial instruments subject to a master netting arrangement or similar agreement even if not set off in the statement of financial position


Offsetting – Application guidance in IAS 32

69

the meaning of ‘currently has a legally enforceable right of set-off’

that some gross settlement systems would be considered equivalent to net settlement if they eliminate or result in insignificant credit and liquidity risk and process receivables and payables in a single settlement process or cycle

Clarification of:


IAS 19R – Presentation

70

Categories Components Comprehensive income

Service cost

• Current service cost net of employee contributions

• Non-routine settlement gain/loss • Curtailment loss/gain • All past service cost

Service cost in P&L (under operating)

Net interest Time value of money on the net defined benefit liability (asset)

Net interest cost in P&L (under operating or finance)

Remeasurements

• Actual return net of time value of money on plan assets

• Routine settlement gain/loss • Gain/loss on DBO • Effect of asset ceiling

In Other comprehensive income (OCI)


IAS 19R – Disclosures defined benefit plans

Plan characteristics

Regulatory framework of

the plan Nature of the benefits provided

by the plan

Any other entity’s

responsibility for plan governance

Description of risks to which

the plan exposes to the

entity

Description of amendments, curtailments and

settlements

71

IAS 19.139

Conclusions


Areas of focus AFM/ESMA in 2013 (FY 2012)

Reporting on credit risks arising from investments and receivables

Cash flow statement

Provisions within the scope of IAS 37

Integrated reporting

Measurement of post-employment benefit obligations

Impairment of non-financial assets

73


IFRS & NL GAAP videocasts

74

www.deloitte.nl/ifrs-nlgaap

© 2012 Deloitte Accountants B.V.

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ifrs update 2012

Documents

deloitte accountants

h1 ifrs

ifrs work plan

ifrsontwikkelingen schetsen

iasb zitten als ifrs

iasb fasb

financial crisis

eens b oneens