Taken from RSM Reporting - November 2016 by Joelle Moughannie, RSM

The time has come for our annual rendezvous to take stock of the latest developments in IFRS financial reporting requirements. This article provides a high-level overview of new and amended standards and interpretations that need to be considered for financial reporting periods ending on 31 December 2016, with the objective of highlighting key aspects of these changes.(1)

Pronouncements mandatory for the first time in closing out 2016 year-end accounts (2)

IFRS 14 – Regulatory Deferral Accounts

This interim optional standard – pending the outcome of the IASB’s comprehensive project on rate-regulated activities – is applicable only by first-time adopters of IFRSs who apply IFRS 1 and conduct rate-regulated activities. Entities in the standard’s scope are permitted to continue to account, with some limited changes, for regulatory deferral accounts in accordance with their previous GAAP, both on initial adoption of IFRS and in subsequent financial statements.

Amendments to IAS 1 – Disclosure initiative

The amendments clarify guidance on materiality and aggregation, the presentation of subtotals, the structure of financial statements and the disclosure of accounting policies.

Amendments to IAS 16 – Clarification of acceptable methods of depreciation

The amendments – applicable prospectively – add guidance and clarify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset.

Amendments to IAS 16 and IAS 41 – Agriculture: bearer plants

The amendments define bearer plants as living plants which are used solely to grow produce over several periods and usually scrapped at the end of their productive lives (e.g. grape vines, rubber trees, oil palms), and include them within IAS 16’s scope while the produce growing on bearer plants remains within the scope of IAS 41.

Amendment to IAS 19 – Discount rate: regional market issue
Annual Improvements to IFRSs 2012–2014 Cycle

The amendment clarifies that in determining the discount rate for post-employment benefit obligations, it is the currency that the liabilities are denominated in that is important, and not the country where they arise. Thus, the assessment of whether there is a deep market in high quality corporate bonds is based on corporate bonds in that currency (not corporate bonds in a particular country), and in the absence of a deep market in high quality corporate bonds in that currency, government bonds in the relevant currency should be used.

Amendments to IAS 27 – Equity method in separate financial statements

The amendments reinstate the equity method option allowing entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.

Amendment to IAS 34 – Disclosure of information ‘elsewhere in the interim financial report’
Annual Improvements to IFRSs 2012–2014 Cycle

The amendment clarifies what is meant by the reference in the standard to ‘information disclosed elsewhere in the interim financial report’, and requires a cross-reference from the interim financial statements to the location of that information.

Amendments to IAS 38 – Clarification of acceptable methods of amortisation

The amendments – applicable prospectively – add guidance and clarify that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset; however, this presumption can be rebutted in certain limited circumstances.

Amendments to IFRS 5 – Changes in methods of disposal
Annual Improvements to IFRSs 2012–2014 Cycle

The amendments – applicable prospectively – add specific guidance when an entity reclassifies an asset (or a disposal group) from held for sale to held for distribution to owners, or vice versa, and for cases where held-for-distribution accounting is discontinued.

Amendments to IFRS 7 – Servicing contracts
Annual Improvements to IFRSs 2012–2014 Cycle

The amendments add guidance to clarify whether a servicing contract is continuing involvement in a transferred asset.

Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment entities: applying the consolidation exception

The amendments clarify the application of the consolidation exception for investment entities and their subsidiaries.

Amendments to IFRS 11 – Accounting for acquisitions of interests in joint operations

The amendments – applicable prospectively – require an acquirer of an interest in a joint operation in which the activity constitutes a business (as defined in IFRS 3) to apply all of the business combinations accounting principles and disclosures in IFRS 3 and other IFRSs, except for those principles that conflict with the guidance in IFRS 11. The amendments apply both to the initial acquisition of an interest in a joint operation, and the acquisition of an additional interest in a joint operation (in the latter case, previously held interests are not remeasured).


Pronouncements available for early application in closing out 2016 year-end accounts (2)

IFRS 9 – Financial Instruments

This standard will replace IAS 39 (and all the previous versions of IFRS 9) effective for annual periods beginning on or after 1 January 2018. It contains requirements for the classification and measurement of financial assets and financial liabilities, impairment, hedge accounting and derecognition.

  • IFRS 9 requires all recognised financial assets to be subsequently measured at amortised cost or fair value (through profit or loss or through other comprehensive income), depending on their classification by reference to the business model within which they are held and their contractual cash flow characteristics. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of each accounting period. All other debt investments and equity investments are measured at their fair value at the end of each accounting period.
  • For financial liabilities, the most significant effect of IFRS 9 relates to cases where the fair value option is applied: the amount of change in fair value of a financial liability designated as at fair value through profit or loss that is attributable to changes in the credit risk of that liability (the ‘own credit risk’) is recognised in other comprehensive income (with no subsequent reclassification to profit or loss), unless this creates an accounting mismatch.
  • For the impairment of financial assets, IFRS 9 introduces an ‘expected credit loss’ model based on the concept of providing for expected losses at inception of a contract; it is no longer necessary for a credit event to have occurred before a credit loss is recognised.
  • For hedge accounting, IFRS 9 introduces a substantial overhaul allowing financial statements to better reflect how risk management activities are undertaken when hedging financial and non-financial risk exposures. Key changes from the IAS 39 model include increased eligibility of hedged items and of hedging instruments, more flexibility in demonstrating a hedging relationship such as removal of quantitative thresholds for hedge effectiveness, and expanded disclosures.
  • The derecognition provisions are carried over almost unchanged from IAS 39.

IFRS 15 – Revenue from Contracts with Customers

The new standard (amended in April 2016 for clarifications and additional transitional relief) – effective for annual periods beginning on or after 1 January 2018 – replaces IAS 11, IAS 18 and their interpretations. It establishes a single and comprehensive framework for revenue recognition to apply consistently across transactions, industries and capital markets, with a core principle (based on a five-step model to be applied to all contracts with customers), enhanced disclosures, and new or improved guidance (e.g. the point at which revenue is recognised, accounting for variable consideration, costs of fulfilling and obtaining a contract, etc.).

IFRS 16 – Leases

The new standard – effective for annual periods beginning on or after 1 January 2019 – replaces IAS 17 and its interpretations. The biggest change introduced is that almost all leases will be brought onto lessees’ balance sheets under a single model (except leases of less than 12 months and leases of low-value assets), eliminating the distinction between operating and finance leases. Lessor accounting, however, remains largely unchanged and the distinction between operating and finance leases is retained.

Amendments to IAS 7 – Disclosure initiative

The amendments – applicable to annual periods beginning on or after 1 January 2017 – require entities to provide information that enable users of financial statements to evaluate changes in liabilities arising from their financing activities.

Amendments to IAS 12 – Recognition of deferred tax assets for unrealised losses

The amendments – applicable to annual periods beginning on or after 1 January 2017 – clarify the accounting for deferred tax assets related to unrealised losses on debt instruments measured at fair value, to address diversity in practice.

Amendments to IFRS 2 – Classification and measurement of share-based payment transactions

The amendments – applicable to annual periods beginning on or after 1 January 2018 – clarify the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments (SBP), the accounting for SBP transactions with a net settlement feature for withholding tax obligations, and the effect of a modification to the terms and conditions of a SBP that changes the classification of the transaction from cash-settled to equity-settled.

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

The amendments give all entities that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when IFRS 9 is applied before implementing the replacement Insurance Contracts Standard for IFRS 4 that is under drafting by the Board. Also, entities whose activities are predominantly connected with insurance are given an optional temporary exemption from applying IFRS 9 (until 2021), thus continuing to apply IAS 39 instead.

Amendments to IFRS 10 and IAS 28 - Sale or contribution of assets between an investor and its associate or joint venture

The amendments address a current conflict between the two standards and clarify that any gain or loss should be recognised fully when the transaction involves a business, and partially if it involves assets that do not constitute a business. The effective date of the amendments, initially set for annual periods beginning on or after 1 January 2016, is now deferred indefinitely but earlier application is still permitted.


(1) This article reflects pronouncements issued up to 15 October 2016. When entities prepare financial statements for the year ending 31 December 2016, they should also consider and disclose the potential impact of the application of any new or amended standard or interpretation issued by the IASB before the financial statements are authorised for issue.
(2)Unless mentioned otherwise, all the new or amended pronouncements require retrospective application, sometimes with transitional provisions.