ifrs update for financial services

IFRS Update for Financial Services

3 April 2014

KPMG AG, Zurich

1 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Agenda

Overview IFRS developments

IFRS 13 – Fair value measurement

Offsetting – IFRS 7, IAS 32

Determining cash generating units (CGU)


Timeline – change ahead

Consolidation – Investment

entities

Equity method

Intangibles

Common control

FI - equity Emission trading

Final published:

ED/DP expected in Q2 2014: *

Final expected in Q2 2014: **

IFRS 9 – FI ** (IAS 39

replacement )

To Be Determined 2014

IAS 32 Offsetting

Annual improvements (2011-2013)


?

Discount rates

Standard Inter-

pretation Potential projects

IFRIC 21 Levies

IAS 39/IFRS 9 Novation and

hedging IAS 19

Employee contributions

IFRS10/IAS 28 Asset sale or contribution **

IAS 28 Other net assets changes **

IAS 27 Separate FS: equity method

Rate-regulated activities *

IAS 12 DTA recognition for unreal. losses *


IFRS 11 Interest in joint operations **

Status as of March 2014 Impact for companies with a

calendar year end

Revenue

recognition **

FI Macro-

hedging *

Insurance

Leases

IAS 32 NCI

put options

Disclosure initiative

IAS 36 Recoverable amount discl.

2018 ...


IFRS 9 – Financial Instruments Early adoption - what can you do now?

Early adoption Mandatory effective

Now 2Q2014 ? 2015-2017 2018

IFRS 9 (2010) Classification & Measurement

C&M limited amendments

Mandatory adoption of all requirements

(without Macro Hedging)

Ability to early adopt IFRS 9 (2010) & new hedge accounting

ECL not mandatory

Longer implementation period for ECL

Multiple implementation efforts

All parts of IFRS 9 would be required

Cannot early adopt piecemeal

Liabilities FVtP&L (Credit risk)

IFRS 9 (2013) Hedge Accounting

Expected Credit Losses (ECL)


ED/2014/1 Disclosure Initiative Proposed amendments to IAS 1

Preparers should be better able to provide more company-specific information Proposals would not require significant change to current practice, but should facilitate

improved reporting

Bottom line

Key clarifications

Immaterial discosures need not be made Notes may be re-ordered and combined Aggregation and disaggregation clarified Additional requirements for presenting subtotals


Agenda






IFRS 13 – Fair value measurement Disclosure in half year 2014

Disclosure in interim financial statements

• For financial instruments that are measured at fair value on

a recurring and non-recurring basis: all fair value disclosures in accordance with IFRS 13 and IFRS 7.

No disclosure requirement in interim financial statements

• Non-financial assets and liabilities measures at fair value

(i.e. investment properties) • Financial instruments not measured at fair value (i.e. loans)


IFRS 13 – Fair value measurement Level 3 - look back at 2013

Source: Deutsche Bank, Interim Report 2013

Example disclosure


IFRS 13 – Fair value measurement Issues in practice

Use of disclosure exemption (IFRS 7.29)

Determination if inputs are significant

unobservable

Are markets with price

information active?


IFRS 13 – Fair value measurement Active Markets: Examples for Transfers Between Level 1 and Level 2

Source: Barclays PLC, annual report 2013

Source: HSBC, annual report 2013


IFRS 13 – Fair value measurement Consideration of an “Active Market”

HDAT trading volume (€m)

January February March April May June 3-Jan 6 1-Feb 110 1-Mar 53 1-Apr 25 2-May 51 1-Jun 41 4-Jan 33 2-Feb 75 2-Mar 34 4-Apr 23 3-May 42 2-Jun 13 5-Jan 5 3-Feb 27 3-Mar 36 5-Apr 16 4-May 59 3-Jun 4 7-Jan 6 4-Feb 42 4-Mar 24 6-Apr 49 5-May 24 6-Jun 28 10-Jan 66 7-Feb 17 8-Mar 61 7-Apr 15 6-May 20 7-Jun 12 11-Jan 127 8-Feb 40 9-Mar 50 8-Apr 187 9-May 44 8-Jun 36 12-Jan 76 9-Feb 44 10-Mar 101 11-Apr 34 10-May 35 9-Jun 22 13-Jan 20 10-Feb 60 11-Mar 77 12-Apr 23 11-May 31 10-Jun 22 14-Jan 28 11-Feb 63 14-Mar 94 13-Apr 75 12-May 38 14-Jun 29 17-Jan 12 14-Feb 33 15-Mar 58 14-Apr 231 13-May 40 15-Jun 20 18-Jan 24 15-Feb 87 16-Mar 61 15-Apr 176 16-May 10 16-Jun 6 19-Jan 52 16-Feb 59 17-Mar 36 18-Apr 107 17-May 13 17-Jun 8 20-Jan 34 17-Feb 51 18-Mar 69 19-Apr 40 18-May 33 20-Jun 24 21-Jan 16 18-Feb 8 21-Mar 82 20-Apr 209 19-May 30 21-Jun 18 24-Jan 29 21-Feb 7 22-Mar 52 21-Apr 16 20-May 68 22-Jun 30 25-Jan 20 22-Feb 26 23-Mar 18 26-Apr 77 23-May 41 23-Jun 9 26-Jan 49 23-Feb 17 24-Mar 18 27-Apr 40 24-May 36 24-Jun 9 27-Jan 50 24-Feb 29 28-Mar 6 28-Apr 52 25-May 14 27-Jun 13 28-Jan 25 25-Feb 22 29-Mar 23 29-Apr 9 26-May 13 28-Jun 8 31-Jan 29 28-Feb 30 30-Mar 13 27-May 13 29-Jun 13

31-Mar 8 30-May 9 30-Jun 3 31-May 31

Is this an active market?

Source: HDAT Greek bonds trading volume Jan-June 2011


IFRS 13 – Fair value measurement Consideration of an “Active Market”: Greek Bonds


IFRS 13 – Fair value measurement Significant Unobservable Inputs: Reasons for Transfers

No quoted prices for similar assets

available anymore.

Volume of activity of the observable

input has reduced.

Credit spreads are not anymore observable.

Liquidity adjustments need

to be incorporated.

Entity specific synergies are

incorporated in the fair value

measurement.

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=HoV0vCRIIylsWM&tbnid=jabz38_Tjy0_hM:&ved=0CAUQjRw&url=http://kymkemp.com/2011/feb/15/humboldt-fog-where-the-cheese-gets-its-name/&ei=InU6U5a2KOjI0AXY4IHoCA&bvm=bv.63934634,d.d2k&psig=AFQjCNF6mAu2qXoQYq0gWrJTYFrJ_Dtd3w&ust=1396426390191657


IFRS 13 – Fair value measurement Significant Unobservable Inputs: Examples for Transfers in and out of Level 3

Source: Barclays PLC, annual report 2013


IFRS 13 – Fair value measurement Significant Unobservable Inputs: Examples for Transfers in and out of Level 3



IFRS 13 – Fair value measurement Disclosure exemption



Agenda






IFRS 7 Offsetting Disclosures Observed in 2013 (1/3)

Offsetting disclosure, Deutsche Bank 2013



Offsetting disclosure, HSBC 2013



Offsetting disclosure, UBS 2013


IFRS 7: Offsetting application issues What’s in Scope?

FV of Derivatives

Reverse repos, Repos

Securities borrowed,

Securities lent

“Set in stone”....


IFRS 7: Offsetting application issues Disclosures in interim financial statements

Clarification is part of the Annual Improvements to IFRS 2012-14 cycle

Are offsetting disclosures required in interim financial reports ?


Amendments to IAS 32: Overview

The amendments clarify: • When entity currently has a legally

enforceable right to set-off, which is when: • the right is not contingent on a future

event; and • it is enforceable both in the normal

course of business and in the event of default , insolvency or bankruptcy of the entity and all counterparties

• When gross settlement is equivalent to net settlement.

Annual periods beginning on or after January 2014.

What?

New!

Enforceable

All parties

Settlement method


IAS 32 – Legal enforceability of the right to set off: LCH rule

The London Clearing House (LCH) rulebook contains Regulation 34 which allows the clearing house to unilaterally vary the rules without consulting members and is effective for existing open contracts, such that the legal right to set off could apparently be withdrawn.

Issue


IAS 32 – Right of all parties to enforce set off

The standard ISDA master agreement states the following about netting: Issue


IAS 32: Gross settlement equivalent to net settlement

Gross settlement systems

Objective of IAS 32 – instruments settled through clearing houses would meet ‘intent to settle net’ criteria

Reality of IAS 32 – offsetting expected to be limited under most clearing houses


IAS 32: What about “intent”?


Agenda






When may CGUs change?

Changing trend in customers’

demand

Change in the way to manage business (to

save cost, to streamline processes)

Investment in a significant new

subsidiary

Restructuring

Disposal of acquired

businesses

Entrance in new market, new

product

Vertical integration in

the value chain


Changes in CGU - Example

Reorganised reportable business segments I

Identified new CGUs in the business segments III

Transferred certain businesses, assets & liabilities II

In its 2012 annual report, Deutsche Bank announced changes to its business segments and CGUs.


Changes in CGU - Example

CB&S GTB AM PWM PBC CI

AWM Whole-

sale assets

Opera-ting

assets CB&S GTB PBC

2011

2012

NCOU

Reallocation of assets

Reassessment of CGU


Open discussion

Questions ?

Feedback?

Your views?

Publications

For KPMG’s Newsletter: https://www.kpmgnews.ch/en/index.htm For KPMG’s IFRS Publications: http://www.kpmg.com/global/en/topics/global-IFRS-institute

First impressions: IFRS 9 (2013) – Hedge accounting

and transition This edition of First Impressions

considers the requirements of IFRS 9 Financial Instruments (2013),

including the new general hedging model.

New on the Horizon: Financial Instruments- Expected credit losses

The IASB's revised proposals are a step change in accounting for

impairment, with big impacts likely for banks and similar financial

institutions.

Insights into IFRS 2013/14

KPMG’s updated publication explains the requirements of IFRS

and provides extensive interpretative and application guidance.

Save-the-Date IFRS Update for Financial Services Thursday, 30 October 2014 Save this date for our next Update!

Thank you!

Contact details

Patricia Bielmann Partner

IFRS Financial Services

KPMG AG Badenerstrasse 172

8026 Zurich

Phone +41 58 249 41 88 Fax +41 58 249 48 64

[email protected]

Lisa Busedu Director

IFRS Financial Services

KPMG AG Badenerstrasse 172

8026 Zurich

Phone +41 58 249 56 16 Fax +41 58 249 48 64

[email protected]

mailto:[email protected]

mailto:[email protected]

Disclaimer:

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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