key highlights for preparation of financial statements ... · the scope of another standard (for...

1

Key Highlights for Preparation of Financial Statements with first adoption of IFRS/HKFRS 9 and 15Carrie Lau / Lillian Chan30 April 2019

Our Responsibilities and Obligations

All materials or explanations (not restricted to the following presentation slides) (collectively “Material”) have been and are prepared in general terms only. The Material is intended as a general guide and shall not be construed as any advice, opinion or recommendation given by Deloitte Touche Tohmatsu and/or its personnel (collectively “DTT”).

In addition, the Material is limited by the time available and by the information made available to us. You should not consider the Material as being comprehensive as we may not become aware of all facts or information. Accordingly, DTT is not in a position to and will not make any representation as to the accuracy, completeness or sufficiency of the Material for your purposes.

The application of the content of the Material to specific situations will depend on the particular situations involved. Professional advice should be sought before the application of the Material to any particular circumstances and the Materials shall not in any event substitute for such professional advice.

You will rely on the contents of the Material at your own risk. While all reasonable care has been taken in the preparation of the Material, all duties and liabilities (including without limitation, those arising from negligence or otherwise) to all parties including you are specifically disclaimed.

2

2

Agenda

• New and amendments to IFRSs mandatory effective for annual periods beginning on or after 1 January 2018

- New disclosures under IFRS 15 Revenue from Contracts with Customers

- New disclosures under IFRS 7 Financial Instruments: Disclosures

• New and amendments to IFRSs that have been issued but not yet effective

- IFRS 16 Leases

- Brief introduction on other standards / amendments

• Comments from financial statements review programs by regulators

3

New and amendments to IFRSs mandatory effective for annual periods beginning on or after 1 January 2018

3

5

New and amendments to IFRSs mandatory effective for annual periods beginning on or after 1 January 2018

New and amendments to IFRSs that are mandatory effective for annual periods beginning on or after 1 January 2018IFRS 9 Financial Instruments

IFRS 15 Revenue from Contracts with Customers and the related Amendments

IFRIC 22 Foreign Currency Transactions and Advance Consideration

Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions

Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts

Amendments to IAS 28 As part of the Annual Improvements to IFRSs 2014-2016 Cycle

Amendments to IAS 40 Transfers of Investment Property

Additional consideration:• Related consequential amendments to other IFRSs (e.g. IAS 1 and IFRS 7)• Amendments to IFRS 9 Prepayment Features with Negative Compensation (effective for

annual periods beginning on or after 1 January 2019)

© 2008 Deloitte Touche Tohmatsu


4

7


Issue

When foreign currency consideration is paid or received in advance of the item it relates to asset, expense or income, how do you determine the date of the transaction to translate the related item? For example:

- revenue transactions

- purchases and sales of property, plant and equipment / intangible assets / investment properties

- purchases of inventories

Consensus:

Date on which the entity initially recognizes the non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration

8


5


Amendments to IAS 40 Transfers of Investment Property

Amendments to IAS 40 - Evidence of “Change in use” – IAS 40.57(a) to (d)

Before Amendments After Amendments(a)Investment

properties (IP) to Property, plant and equipment (PPE)

Commencement of owner-occupation

Commencement of owner-occupation or development with a view to owner-occupation

(b) IP to Inventories Development with a view to sale

Development with a view to sale

(c) PPE to IP End of owner-occupation End of owner-occupation

(d) Inventories to IP Commencement of an operating lease to another party

Inception of an operating lease to another party

6


Consequential amendments to IAS 1 Presentation of Financial Statements

12

Statement of profit or loss and other comprehensive incomeIAS 1.82

7

13

Statement of financial position

IAS 1.54

14

Statement of financial positionIAS 1.54 – cont’d

8

15

Statement of financial position

IAS 1.55


IFRS 15 Revenue from Contracts with Customers

9

17

Transition provisions under IFRS 15

Transition Application method Disclosurerequirements

IFRS 15.C3(a) Full retrospective with practical expedients(i.e. restating comparatives)

IAS 8.28

IFRS 15.C3(b) Limited retrospective with practical expedients(i.e. adjusting opening without restating comparatives)

IFRS 15.C8

1. Without using any practical expedients2. Elect to apply IFRS 15 retrospectively only to contracts that are not

completed on the date of initial application (i.e., 1 April 2018 for entities with March financial year end)

3. Elect to apply IFRS 15 only to contract modifications that occur before the beginning of the earliest period presented or the date of initial application (i.e., 1 April 2017 or 2018 for entities with Marchfinancial year end)

4. Both choices 2 and 3

18

Transition under IFRS 15

10

19

Transition under IFRS 15Scenario 1 IAS 11 IFRS 15Contract X Completed with retention

sum / receivablesOption to apply practical expedient

Contract Y In progress IFRS 15 requirementsScenario 2 IAS 18 IFRS 15Contract A Sales of goods with

warranty provision • Sales of goods with

service type warranties

• Option to apply practical expedient

Scenario 3 IAS 18 IFRS 15Retailer R provides 30 days full refund on sales return

IAS 18.17: can reliably estimate future returns and recognizes liability for returns

• IFRS 15.56-57: Variable consideration constraint – highly probable significant reversal will not occur

• Option to apply practical expedient

20

Transiting to IFRS 15

Related balance sheet items under IAS 11 / IAS 18

Related balance sheet items upon application of IFRS 15

Assets• Trade receivables/Unbilled

revenue• Amount due from customers

for contract work• Inventories

Assets• Trade receivables• Contract assets• Contract costs• Inventories• Right to returned goods asset

Liabilities• Amount due to customers for

contract work• Deferred revenue• Deposits / advances from

customers• Provision for warranty

Liabilities• Contract liabilities• Refund liabilities• Deposits/advances from

customers?• Provision for warranty

Note: List may not be exhaustive.

11

21

Limited retrospective - disclosures of impacts under IFRS 15.C4

IFRS 15 at

Summary of effects arising from initial application of IFRS 15

The following table summarises the impacts of transition to IFRS 15 on retained profits at 1 January 2018.

22

Limited retrospective - disclosures of impacts under IFRS 15.C8 The following tables summarise the impacts of applying IFRS 15 on the Group's consolidated statement

of financial position as at 31 December 2018 and its consolidated statement of profit or loss and othercomprehensive income for the current year for each of the line items affected. Line items that were notaffected by the changes have not been included.

Amounts withoutapplication of

IFRS 15

12

23

Limited retrospective - disclosures of impacts under IFRS 15.C8 – cont’d


IFRS 15

24

Limited retrospective - disclosures of impacts under IFRS 15.C8 – cont’d


IFRS 15

13

25

IFRS 15.114-115 – Disaggregation of revenue

26

IFRS 15.114-115 – Disaggregation of revenue – cont’d

14

27

IFRS 15.119 – Information about performance obligations

28

IFRS 15 related assets and liabilities

Contract assets

An entity’s right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time (for example, the entity’s future performance).

• Work performed but can only bill after achieving specified milestone?

• Retention sum for construction contracts?• Overtime recognition of ‘goods/services” without alternative

use under IFRS 15.35(c)?

Contract libilities

An entity’s obligation to transfer goods or services to a customer for which the entity has received consideration (or the amount is due) from the customer.

• Advance payments from customers for future goods or services?

Note:Contract asset and contract liability of a contract should be presented on net basis

15

29

IFRS 15 related assets and liabilities

Refund liabilities An entity shall recognize a refund liability if the entity receives consideration from a customer and expects to refund some or all of that consideration to the customer.

• Sale with a right of return? • Deposits/advances from customers?

Right to returnedgoods asset

To account for the transfer of products with a right of refund, an entity shall recognize all of the following:

(b) a refund liability; and(c) an asset (and corresponding adjustment to cost of sales) for

its right to recover products from customers on settling the refund liability.

30

IFRS 15.116 – Contract balances

16

31

IFRS 15.116(b) & (c) – Contract balances

32

IFRS 15.117 – Typical timing of payment

17

33

IFRS 15.118 – Significant changes on contract balances

34

IFRS 15 related assets and liabilitiesContract costs

Incremental costs of obtaining a contract

An entity shall recognize as an asset the incremental costs of obtaining a contract with a customer if the entity expects to recover those costs.

• Only costs that would not have been incurred if the effort was not successful can be capitalized

• Costs incurred in the effort to obtain a contract irrespective of whether the effort is successful cannot be capitalized

• Timing of recognition?• Practical expedient – expense when incurred if the amortization period is

one year or less

Costs to fulfill a contract

If the costs incurred in fulfilling a contract with a customer are not within the scope of another Standard (for example, IAS 2, IAS 16 or IAS 38), an entity shall recognize an asset from the costs incurred to fulfil a contract only if those costs meet all of the following criteria:

a) the costs relate directly to a contract or to an anticipated contract;

b) the costs generate or enhance resources that will be used in satisfying performance obligations; and

c) the costs are expected to be recovered.

18

35

IFRS 15.127 & 128 – Contract costs

36

IFRS 15.120 - Information about remaining performance obligations

19

37

IFRS 15.120 - Information about remaining performance obligations – cont’d

38

IFRS 15.120 - Information about remaining performance obligations – cont’d

20

39

Other disclosures under IFRS 15

Revenue and impairment losses recognised

40

Other disclosures under IFRS 15

IFRS 15.122 & 129 Practical expedients

IFRS 15.123 Significant judgements

IFRS 15.124-125Determining the timing of satisfaction of performance obligations

IFRS 15.126Determining the transaction price and allocation to performance obligations

21


IFRS 9 Financial Instruments/IFRS 7 Financial Instruments: Disclosures

42

Transition under IFRS 9

Transition Application method Disclosurerequirements

IFRS 9.7.2.22 for general hedge accounting (except for certain aspects as specified in IFRS 9.7.2.26)

Prospective approach No specific disclosure requirements

IFRS 9.7.2.26 Retrospective application applies only to those hedging relationships that existed at the beginning of the earliest comparative period or were designated thereafter

IAS 8.28

IFRS 9.7.2.15 for classification and measurements (including impairment)

Specific transitional provisions as specified in IFRS 9• Adjusting opening without restating

comparatives, OR• Restating comparatives

IFRS 7.42I to 42S

NOT apply to financial instruments that were derecognized NOT apply to financial instruments that were derecognized before date of initial application (i.e., 1 April 2018 for entities with March financial year end)

MAY restate prior period if it is MAY restate prior period if it is possible without the use of hindsight

22

43

IFRS 9: Classification of financial assets

Equity instrument

1 2 3

Business Model

Held to Collect

Held to Collect and

SellOther Any (1-3)

Cash Flows SPPI (Solely Payments of Principal and Interest) Not SPPI

Classification Amortized Cost

FVTOCIwith recycling FVTPL FVTPL

Fair Value

FVTPL

Fair Value OptionFVTPL FVTOCI

without recycling

44

Reassessment of held for trading financial assets at date of initial application• IFRS 9:

23

45

IFRS 9: Impairment - scope

AC FVTOCI

FVTPL/ FVTOCI

Option for certain equity instruments

Within the scope of the impairment modelOutside the scope of the impairment

model

Financial assets in the scope of IFRS 9

Loan commit-ments

(unless @ FVTPL)

Financial guarantees (unless @

FVTPL)

Lease receivables

Contract assets

(IFRS 15)

Subsequent measurement …

üû

Loss allowance

Apply effective interest rate to …

Initial recognition Stage 2

Lifetime expected credit losses

Gross carrying amount

Stage 3

Incurred losses

Net carrying amount

Stage 1

12-month expected credit loss

Gross carrying amount

Objective evidence for impairment?

(Note 2)

Significant increase in credit risk?

(Note 1)

Change of credit risk since initial recognition

Note 1: rebuttable presumption – more than 30 days past dueNote 2: rebuttable presumption – more than 90 days past due

General impairment modelExpected Loss Model

24

47

ECL measurement

LGD Loss given default

ECL = PD x LGD x EAD

PD Probability of default

EAD Exposure at default

48

IFRS 7 Disclosures – initial application of IFRS 9

• IFRS 7.42I – 42S

• Key disclosures are:− measurement category under IAS 39 and IFRS 9;− designation and de-designation under FVTPL

option;− changes in carrying amounts on transition;− reconciliation of impairment allowances; and − others ……

25

49

IFRS 9: Classification and measurement – financial liabilities

50

Financial liabilities designated at FVTPL - Credit risk component to OCI

IFRS 9.B5.7.19

26

51

IFRS 7 Disclosures – significance of financial instruments for financial position and performance

• IFRS 7.7-29

• Key disclosures are:− categories of financial assets and financial

liabilities;− offsetting financial assets and financial

liabilities;− items of income, expense, gains or losses;− fair value;− hedge accounting; and− many many more ……

52

Equity instruments designated at FVTOCIIFRS 7.11A&B

27

53

Equity instruments designated at FVTOCI – cont’d

IFRS 7.11A&B – cont’d

54

Equity instruments designated at FVTOCI – cont’d

IFRS 7.11A&B – cont’d

28

55

IFRS 7 Disclosures – nature and extent of risks arising from financial instruments

• IFRS 7.31-42 qualitative and quantitative disclosures

• Key disclosures are:− credit risk− liquidity risk− market risk

• Qualitative disclosures− the exposure − risk management objectives, policies and

procedures

• Quantitative disclosures − Quantitative data− Concentration of risk


Credit risks / Expected credit losses (ECL) related disclosures

29

57

Credit risks / ECL related disclosures

• Credit risk management practices (IFRS 7.35F, 35G)

• Credit risk exposure(IFRS 7.35M, 36)

• Quantitative and qualitative information about amounts arising from ECL (IFRS 7.35H – 35L)

58

Credit risks / ECL related disclosures – cont’d

Classes of financial instruments

30

59

Credit risk management practices

• How to determine whether credit risk has increased significantly

• Definition of “default”• How instruments were grouped for collective ECL

assessment• Determination of “credit-impaired assets”• Write-off policy• Inputs, assumptions, estimation techniques used for ECL

assessment (including forward-looking information, changes in estimation techniques)

60

Credit risk exposure

• Financial assets and other items which are subject to ECL assessment(IFRS 7.35M, 35N)

• Financial assets not subject to ECL assessment (IFRS 7.36)

31

61

Credit risk exposure – cont’d

62


32

63


64


33

65

• Reconciliation of loss allowances(IFRS 7.35H)

• Explanation of significant changes(IFRS 7.35I)

• Collateral and other credit enhancement(IFRS 7.35K)

• Information about amounts written off(IFRS 7.35L)

Quantitative and qualitative information about amounts arising from ECL

66

Quantitative and qualitative information about amounts arising from ECL – cont’d

34

67

Quantitative and qualitative information about amounts arising from ECL – cont’d

New and amendments to IFRSs that have been issued but not yet effective

35

69

New and amendments to IFRSs that have been issued but not yet effective

Standard / InterpretationEffective date (annual period beginning)

IFRS 16 Leases 1 January 2019

IFRS 17 Insurance Contracts 1 January 2021

IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019

Amendments to IFRS 3 Definition of a Business 1 January 2020*

Amendments to IFRS 9 Prepayment Features with Negative Compensation

1 January 2019

Amendments to IFRS 10 and IAS 28

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

To be determined

Amendments to IAS 1 and IAS 8

Definition of Material 1 January 2020

Amendments to IAS 19 Plan Amendment, Curtailment or Settlement 1 January 2019

Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures

1 January 2019

Amendments to IFRSs Annual Improvements to IFRS Standards2015-2017 Cycle

1 January 2019

* Effective for acquisition date is on or after the beginning of that period. HKICPA has issued the amendments on 18 January 2019 and states that earlier application of the amendments to HKFRS 3 is permitted, including in annual reporting periods beginning before 18 January 2019 (the date of issuance of the amendments).


IFRS 16 Leases

36

2019 annual financial statements disclosures

2019 annual FS (before the adoption of IFRS 16)

Operating lease

commitments – IAS 17 number

Impact of new standards

issued but not yet effective

84

2019 annual financial statements disclosuresModified retrospective

approachIFRS 16.C12

85

37

• What is the lease term?

- Are periods covered by renewal and termination options taken into account?

• What is the composition of lease payments?

- Do they exclude non-lease components e.g. maintenance costs, management fees, water and electricity recharges?

- How are variable lease payments determined?

• Do they exclude committed but not yet commenced leases?

2019 annual financial statements disclosures

89

Reconciliation of operating lease commitments and lease liabilities under IFRS 16.C12(b)

89

HK$Operating lease commitments as at 31 March 2019 XXDiscounting effects using incremental borrowing rates

as at 1 April 2019(XX)

Finance lease liabilities as at 31 March 2019 XXRecognition exemption for - short term leases- leases of low-value assets

(XX)(XX)

Adjustments relating to extension/termination options XXAdjustments relating to variable lease payments

based on an index or rateXX

Lease liabilities as at 1 April 2019 XX

38

Grandfather lease v. non-lease

assessment?

Full retrospective approach

Legacy operating leases

Legacy finance leases

Modified retrospective approach

Low value asset lease exemption

Using hindsight

Remaining lease term <12 months

Impairment = onerous provision

Portfolio discount rate

Exclude initial direct costs from

RoU asset

Retrospectively from commencement date

Based on lease liability on DIA

RoU asset measurement

Lessees - disclose your transition approach

3 options

6 practical expedients

91


IFRIC 23 Uncertainty over Income Tax Treatments

39

77


IssueHow uncertainty about the acceptability by a tax authority of a particular tax treatment used by an entity in its income tax filings (‘uncertain tax treatment’) should be reflected in the financial statements?

78


2. Is it probable that the tax authority will accept thetax treatment used or planned to be used by an

entity in its income tax filings?

1. Determine whether to consider each uncertain tax treatment separately OR together, depending on which approach gives a better prediction of the

resolution of the uncertainty

Reflect the effect of uncertainty in determining the related accounting tax

positionEffect of uncertainty should be estimated using either the most likely amount OR the expected

value method, depending on which method better predicts the resolution of the uncertainty

Accounting tax position =

tax treatment used or planned to be used in the entity’s income tax

filings

Yes No

40


Amendments to IFRS 3 Definition of a Business

80


41

81


The concentration test (optional)

An optional test that provides a simplified assessment of whether an acquired set of activities and assets is not a business is introduced.

If the concentration test is met, the set of activities and assets is determined not to be a business and no further assessment is needed.

The concentration test is met if substantially all of the fair value of the gross assets (with certain asset items excluded) acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

82


42

83


84


43



86


Background

• IFRS 9.B4.1.11(b) stated that the prepayment of a debt instrument at an amount that includes ‘reasonable additional compensation’ for the early termination of the instrument results in contractual cash flows that are solely payments of principal and interest (‘SPPI’) on the principal amount outstanding.

Issue

• Whether “additional compensation” includes negative compensation, i.e. where the party exercising the option receives compensation from, as opposed to paying compensation to, the other party for early termination?

The amendments

• Clarifies that for the purpose of assessing whether a prepayment feature meets the SPPI condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment.

• Prepayment features with negative compensation do not automatically fail SPPI.

44


Amendments to IAS 1 and IAS 8 Definition of Material

88


Old definition

Omissions or misstatements of items are material if they could,

individually or collectively, influence the economic decisions that

users make on the basis of the financial statements.

New definition

Information is material if omitting, misstating or obscuring it could

reasonably be expected to influence the decisions that the

primary users of general purpose financial statements make on the

basis of those financial statements, which provide financial

information about a specific reporting entity.

45

89


• The existing definition only focused on omitting or misstating information, however, the Board concluded that obscuring material information with information that can be omitted can have a similar effect. Although the term obscuring is new in the definition, it was already part of IAS 1 (IAS 1.30A).

•Examples include:• if the language regarding a material item, transaction or other event is vague or

unclear;• if information regarding a material item, transaction or other event is scattered in

different places in the financial statements;• if dissimilar items, transactions or other events are inappropriately aggregated;• if similar items, transactions or other events are inappropriately disaggregated;

and• if material information is hidden by immaterial information to the extent that it

becomes unclear what information is material.

Obscuring

•The existing definition referred to 'could influence' which the Board felt might be understood as requiring too much information as almost anything ‘could’ influence the decisions of some users even if the possibility is remote.

Could reasonably be expected to influence

•The existing definition referred only to 'users' which again the Board feared might be understood too broadly as requiring to consider all possible users of financial statements when deciding what information to disclose.

Primary users

New aspects of the new definition


Amendments to IAS 19 Plan Amendment, Curtailment or Settlement

46

91

Amendments to IAS 19 Plan Amendment, Curtailment or Settlement

Background

• IAS 19.99 requires the net defined benefit liability (asset) be measured using the current fair value of plan assets and current actuarial assumptions

• However, Basis of Conclusion implies that an entity should not revise any assumptions during the period when calculating the current service cost and net interest, and IAS 19 did not specify how net interest is calculated on plan amendments, curtailment or settlement

•à It is inconsistent to revise assumptions when measuring the net defined benefit liability (asset) but not when measuring current service cost

The amendments

• Clarify that past service cost (or gain or loss on settlement) is calculated by measuring the defined benefit liability (asset) using updated assumptions before and after plan amendments, curtailment or settlement

• Requires an entity to use updated assumptions from the remeasurement of defined benefit liability (asset) to determine current service cost and net interest for the remainder of the reporting period



47

93


Issue

There was uncertainty in practice about whether IFRS 9, in particular its impairment requirements, applies to an entity’s long-term interests in an associate or joint venture to which the equity method is not applied but that form part of the entity’s net investment in the investee. Such long-term interests include long-term loans for which settlement is neither planned nor likely to occur in the foreseeable future.

The amendments

The amendments clarifies that IFRS 9, including its impairment requirements, applies to long-term interests. Furthermore, in applying IFRS 9 to long-term interests, an entity does not take into account adjustments to their carrying amount required by IAS 28 (i.e., adjustments to the carrying amount of long-term interests arising from the allocation of losses of the investee or assessment of impairment in accordance with IAS 28).

94


1. Apply IFRS 9, including its impairment assessment, to long-term interests (i.e. preference shares, long-term loans) attheir carrying amounts under IFRS 9

2. Apply equity method on ordinary share investment inaccordance with IAS 28

3a. If loss is recognised and ordinary share investment becomes zeroà Allocate the losses to the preference shares and long-

term loans based on their seniority

3b. When profit is recognised and loss is reversedà Allocate the profit to the preference shares and long-term loans based on their seniority (to the extent the amount of losses previously allocated to them)

Illustrative Example (extracted from IAS 28)

An investor has the following three types of interests in an associate:a) Ordinary share investment (equity method is applied under IAS 28)b) Preference shares (net investment, at fair value through P/L under IFRS 9)c) Long-term loans at amortised cost (net investment, at amortised cost under IFRS 9)

48


Amendments to IFRSs Annual Improvements to IFRS Standards 2015-2017 Cycle

96


•Clarify that an entity should recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised the transactions that generated the distributable profits

IAS 12 Income Taxes

•clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings

IAS 23 Borrowing

Costs

49

97


• Clarify that when an entity obtains control of a business that is joint operation, the entity applies the requirements for a business combination achieved in stages, including remeasuring its previously held interest in the joint operation at fair value

IFRS 3 Business

Combinations

Interest in assets/liabilities

of a joint operation

(previously held interest)

Control of the business

• Consider the transaction as business combination and remeasure the previously held interest at fair value

Before After

Acquire additional interest

98


• clarify that when a party that participates in, but does not have joint control of, a joint operation that is a business obtains joint control of such a joint operation, the entity does not remeasure its previously held interest in the joint operation

IFRS 11 Joint Arrangements

Participates in ajoint operation

that is a business

(previously held interest)

Joint control

Before After

Acquire additional interest

does not remeasure the previously held interest

50

Comments from financial statements review programs by regulators

100


Extracted from HKEx Financial Statements Review Programme Report 2017

Disclosure of possible impact of applying a new or amended HKFRS in issue but not yet effective

• Should avoid generic boilerplate disclosures and provide more tailored and granular information on the impact of new or amended HKFRSs.

• More entity-specific qualitative and quantitative information should be disclosed when describing the application of HKFRS 16 in the 2018 financial statements

51

101


Presentation and Disclosures

- Adequate information should be disclosed for users to understand the impact of significant specific transaction and events, such as:

- Effect of entrusted financial arrangements and assets

- Significant terms of financial instrument for evaluating the risks

- Circumstances or events that led to reversal of a write-down of inventories

- Nature of the major components of significant balances such as prepayments and deposits, other payables and accrued charges should be disclosed

102


HKAS 36: Impairment of assets

- Inappropriate determination of cash generating unit to which goodwill was allocated (for example, determined cash generating unit was larger than an operating segment)

- Appropriateness of measurement basis to determine the recoverable amount (replacement cost method?)

- Use of a budget or forecast that covered a period longer than 5 years without a justification disclosed

- Use of a post-tax discount rate in the value in use calculation, instead of a pre-tax discount rate as required by HKAS 36

52

103


HKAS 36: Impairment of assets – cont’d

- Reasonableness and supportable assumption in the cash flow projections based on the financial budgets or forecast for determining the recoverable amount:

- a higher or increasing level of output was used although the performance of the asset or cash generating unit is declining

- best estimate of the economic circumstances that will prevail over the remaining life of the asset or the cash-generating unit

- overly optimistic with regard to historical cash flows and result?

- growth rate used to extrapolate cash flow projections beyond the period covered by the most recent budgets/forecasts exceed the long-term average growth rate for the products, industries and countries?

104


HKAS 36: Impairment of assets – cont’d

- Commonly omitted disclosures include:

- the events and circumstance that led to the recognition or reversal of the impairment loss – should be case-specific and closely related to the reporting entity's operations and activities

- the recoverable amount of the asset (or cash generating units) and how such amount was determined (fair value less costs of disposal or value in use)

53

105


HKFRS 3: Business combination

- Overlooked for recognition of intangible assets that have not been recognised as assets in the financial statements of the acquires

- Before recognizing a significant amount of goodwill or a gain on bargain purchase, reassess whether all of the assets acquired and the liabilities are assumed, as well as any non-controlling interests in the acquire, any previously held equity interest in the acquire, and the consideration transferred have been correctly identified

- Disclosure of factors that contributed the goodwill or circumstances that gave rise to a bargain purchase

- Disclosure of amounts of revenue and profit or loss contributed by the acquire since the acquisition date and the prof forma revenue and profit or loss of the combined entity for the current reporting period as if the acquisition date had been as of the beginning of the annual reporting period

106


HKFRS 3: Business combination – cont’d

- In a step acquisition, remeasure any previously held interest in the acquire immediately at its acquisition-date fair value and recognize any resulting fair value gain or loss in the profit or loss

54

107


HKFRS 13: Fair value measurement

- Investment properties with reference to market transactions of similar transaction should not be Level 1 fair value hierarchy

- Additional disclosures in respect of fair value measurements categorized within Level 2 and Level 3

- Description of valuation and inputs used in the valuations

- If there is change in valuation techniques, disclose the fact and the reasons for the change

- For Level 3, a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in those inputs to a different amount might result in a significantly higher or lower fair value measurement

- For Level 3, a description of the valuation processes used (e.g. how an entity decides its valuation policies and procedures)

108


HKAS 33: Earnings per share

- Consider bonus element in shares issue (example: right issue) and adjust the bonus element in the calculation of earnings per share retrospectively

- Retrospective adjustment for the number of ordinary shares outstanding without a corresponding change in resource

- Conversion of participating instruments that are convertible into ordinary shares is assumed in the calculation of the diluted EPS if the effect in dilutive

- Basic and diluted earnings per share for profit from continuing operations should be included

55

About Deloitte Global Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about for a more detailed description of DTTL and its member firms.

Deloitte provides audit & assurance, consulting, financial advisory, risk advisory, tax and related services to public and private clients spanning multiple industries. Deloitte serves four out of five Fortune Global 500® companies through a globally connected network of member firms in more than 150 countries bringing world-class capabilities, insights, and high-quality service to address clients’ most complex business challenges. To learn more about how Deloitte’s approximately 245,000 professionals make an impact that matters, please connect with us on Facebook, LinkedIn, or Twitter.

About Deloitte ChinaThe Deloitte brand first came to China in 1917 when a Deloitte office was opened in Shanghai. Now the Deloitte China network of firms, backed by the global Deloitte network, deliver a full range of audit & assurance, consulting, financial advisory, risk advisory and tax services to local, multinational and growth enterprise clients in China. We have considerableexperience in China and have been a significant contributor to the development of China's accounting standards, taxation system and local professional accountants. To learn more about how Deloitte makes an impact that matters in the China marketplace, please connect with our Deloitte China social media platforms via www2.deloitte.com/cn/en/social-media.

This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively the “Deloitte Network”) is by means of this communication, rendering professional adviceor services. None of the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this communication.

© 2019. For information, contact Deloitte China.

http://www.deloitte.com/about

key highlights for preparation of financial statements ... · the scope of another standard (for...

Documents