ifrs update selected projects

International Financial Reporting Standards

The views expressed in this presentation are those of the presenters, not necessarily those of the IASB or the IASC Foundation

IFRS UpdateSelected projects

November 2009

Outline

• IAS 39 replacement

• Financial statement presentation

• Revenue recognition

• Fair value measurement

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IAS 39 replacementWayne Upton, Director of International Activities

Major projects—financial crisis 4

Project Progress towards milestones

Financial instruments: recognition and measurement

Milestone 2010 converged requirements

Work done DP on complexity issued

ED on classification and measurement issued

DP on credit risk in liability measurement issued

FCAG issued report issued

FASB-IASB joint round table discussions in Tokyo, London and Norwalk

Major projects—financial crisis continued 5


Financial instruments: recognition and measurementcontinued

Expect ED impairment methodology in November 2009

Final IFRS on classification and measurement of financial assets during November 2009. To be followed by IFRS on financial liabilities during 2010

ED hedge accounting in December 2009

FASB to issue comprehensive ED on financial instruments in late 2009/early 2010

TimetableOne project – three phases

2008 IASC Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.iasb.org

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Project phase Exposure Draft Finalisation

1. Classification and measurement

July 2009 For financial assets in time for 2009 year end financial statements

For financial liabilities during 2010

2. Impairment methodology

November 2009 In 2010

3. Hedge accounting

(Board deliberations ongoing)

December 2009 In 2010

* The above is in addition to a project on derecognition of financial instruments. ED Derecognition was published in March 2009.


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Overview of classification model for financial assets only

Fair Value (No impairment)

Amortised cost(one impairment

method)Managed on a contractual cash flow

basis

Basic loan features

+FVO for

accounting mismatch (option)

All other instruments:• Equities• Derivatives• Some hybrid contracts• …

Equities: OCI presentation

available(option)

Tentative decision – reclassification to be required when business model changes


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Current state:Incurred loss impairment

IAS 39 requires an incurred loss approach for financial assets

• What does that mean?Impairment loss only recognised when:

– Trigger (loss) event occurs– Impact can be reliably estimated

• Consequence: Expected losses not recognised before trigger events


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Impairment Exposure DraftExpected cash flow approach

• Main features:– interest revenue is recognised on the basis of expected

cash flows (including initial expected credit losses)

– impairment results from an adverse change in credit loss expectations

– reversal of impairment loss when expectations change favourably

– re-estimation of expected cash flows each period end


10Hedging – Broad direction

• Consider using cash flow hedge accounting mechanics for fair value hedges

– Gains and losses on effective portion recognised in OCI – Hedged item not remeasured– ‘Lower of’ test NOT to be used for fair value hedges

• Simplify cashflow hedge accounting methodology

• Phasing:– broad hedging model first– then consider portfolio hedge accounting and net

investment hedging


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Project to replace IAS 39Next steps

November 2009:

IASB publishes ED on impairment of financial assets

Q4/2009:

IASB to issue final IFRS on classification and measurement of financial assets

IASB to publish ED on hedge accounting

During 2010:

IASB to complete replacement of IAS 39 by issuing final guidance on:

• impairment

• derecognition*

• hedge accounting

• financial liabilities

1 January 2013:

Expected mandatory effective date for Phase I classification and measurement

*separate project

1 January 2014:Expected mandatory effective date forPhase II impairment



Financial statement presentation

Tatsumi Yamada, IASB member

MoU projects 13


Financial statement presentation


Work done DP issued

Expect ED in Q2 2010

Presentation objectives

Financial statements should:

• Portray a cohesive financial picture – Relationships are clear, statements are complementary

• Disaggregate information so that it is useful in assessing the amount, timing, and uncertainty of future cash flows

– Common sections and categories, more line items

• Present information about liquidity and financial flexibility

– Ability to meet financial commitments and invest in business opportunities

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Key features of the proposed approach

• Management approach to classification

• Single statement of comprehensive income– Current OCI treatment retained

– Current tax allocation retained

• Direct method for presenting operating cash flows

• Reconciliation schedule– Reconciliation of SCF and SCI

– Separate identification of remeasurements

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Redeliberation decisions (IASB to Oct)

• Liquidity and flexibility should not be core objectives

• Cohesiveness not required at line item level

• Disaggregation both by function and nature

• Retain discontinued operation presentation

• Retain financing section (consisting of debt and equity).

• Categories in the business section (investing and operating) and definitions being revised.

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Redeliberation decisions (IASB to Oct)

• Require information about net debt– Net debt = financing section less resources available to

service those liabilities

• Statement of cash flows:– present cash flows using direct method

– only significant operating cash flows

• Reconciliation schedule– replace it with an analysis of the changes in balances of

all significant asset and liability line items.

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Other key decisions for the boards

• Cohesiveness– Application to 2 or 3 statements

• Presentation of statement of financial position

• Disaggregation– Overall principle and segment reporting

• Statement of comprehensive income– Disaggregation of remeasurements information

• Basket transactions– Single line or disaggregation

• Presentation of net debt information

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Revenue recognitionPrabhakar Kalavacherla (PK), IASB member

MoU projects 20


Revenue recognition


Work done DP issued

Expect ED in Q2 2010

Project objective

• To converge, simplify, and clarify the principles for recognising revenue across various industries

• Improvements to financial reporting:– Remove inconsistencies and weaknesses

– Provide a robust framework for resolving issues

– Improve comparability

– Simplify preparation

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Overview of proposals

• Single revenue recognition model for contracts with customers

• Revenue recognised when a performance obligation in the contract is satisfied

– a performance obligation is satisfied when a good or service has been transferred to the customer, which is when customer obtains control of the good or service

• Amount of revenue recognised is the amount of the transaction price allocated to the performance obligation

Revenue depicts the transfer of goods and services to the customer, not necessarily the activities of the entity

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23Recent decisions: Control

Proposals

• Entity recognises revenue when it transfers goods or services to the customer

• Transfer of good or service depends on when customer obtains control of it

Recent decisions

• Definition of control: the present ability to direct the use of and receive the benefit from the good or service

• Indicators of control:

• Payment / legal title / ability to sell / physical possession/ customisation / continuing involvement

Not abolishing continuous revenue recognition for many construction contracts

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Recent decisions: Allocating the transaction price

Proposals

• Transaction price allocated to individual performance obligations on a relative standalone selling price basis

• Standalone selling price estimated if good/service not sold separately

Recent decisions

• When goods and services are transferred continuously, transaction price allocated to contract segments rather than to individual performance obligations

• A contract segment includes one or more performance obligations for which the entity has evidence of a market—ie evidence that a segment could be sold separately



Fair value measurement guidance

Wei-Guo Zhang

Major projects—financial crisis continued 26


Fair value measurement guidance

Milestone 2010 converged guidance

Work done ED issued

Expect Round table discussions in Q4 2009

IFRS in Q2 2010

Project overview 27

When?

How? IFRS on fair value measurement guidance

IAS 39

IAS 41

IFRS 3 IFRS 5 ...

does not introduce new fair values does not change the measurement objective in

existing IFRSs

What does ‘fair value’ mean?

• Proposed definition in exposure draft

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date

– an exit price (directly or indirectly)

– a current price (as of the measurement date)

– the transaction takes place between market participants (it is market-based, not entity-specific)

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Overview of the proposals 29

Guidance and other requirements

Fair value at initial recognition

Valuation techniques

Inputs to valuation techniques

Fair value hierarchy

Core principle

The asset or liability

The transaction

Market participants

The price Disclosures

Application to assets, liabilities and equity

Milestones 30

Discussion paper

(using SFAS 157 as a basis for forming preliminary views)

Nov 2006

Expert Advisory Panel report Measuring and disclosing the fair value of financial instruments in markets that are no longer active

Oct 2008

Exposure draft

May 2009

Round-table meetings

(USA, Japan, UK)

Nov/Dec 2009 2010

IFRS

31Questions or comments?

Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenters. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation.

ifrs update selected projects

Documents

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