PUBLICATIONS AND ANNOUNCEMENTS
IFRS 9 and IFRS 15 are effective for reporting periods starting on or after 1 January 2018.
IFRS 9 Financial Instruments
IFRS 9 specifies how an entity should classify and measure financial assets, financial liabilities, and some contracts to buy or sell non-financial items. It introduces an “expected credit loss” model for impairment of financial assets, and changes to the requirements related to hedge accounting that align them more closely with risk management.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes the principles that an entity applies when reporting information about the nature, amount, timing and uncertainty of revenue and cash flows from a contract with a customer. The core principle is that an entity should recognise revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
IFRS INTERPRETATIONS COMMITTEE (IC) LATEST DECISIONS SUMMARY
The following is a summarised update on the main discussions taken by the IC at its meeting on 16 January 2018.
For more detailed and comprehensive information on the IC’s discussions see: https://www.ifrs.org/news-and-events/updates/ifric-updates/january-2018/
CONTRIBUTING PROPERTY, PLANT AND EQUIPMENT TO AN ASSOCIATE (IAS 28 INVESTMENTS IN ASSOCIATES AND JOINT VENTURES)
The IC analysed a request about how an entity accounts for a transaction in which it contributes property, plant and equipment (PPE) to a newly formed associate in exchange for shares in that associate. In response to three questions posed in the request, the Committee concluded that;
- Paragraph 7 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires an entity to apply an IFRS Standard to a transaction when that Standard applies specifically to the transaction and that unless a Standard specifically excludes common control transactions from its scope, an entity applies the applicable requirements in the Standard to common control transactions.
- Paragraph 28 of IAS 28 requires an entity to recognise gains and losses resulting from upstream and downstream transactions with an associate only to the extent of unrelated investors’ interests in the associate.
- If the fair value of the PPE contributed differs from the fair value of the equity interest in the associate received in exchange for that PPE, the Committee observed that it would generally expect the fair value of PPE contributed to be the same as the fair value of the equity interest in the associate that an entity receives in exchange. If there is initially any indication that the fair value of the PPE contributed might differ from the fair value of the acquired equity interest, the investor first assesses the reasons for this difference and reviews the procedures and assumptions it has used to determine fair value. The Committee also observed that in applying the requirements in IFRS Standards, an entity recognises a gain or loss on contributing PPE and a carrying amount for the investment in the associate that reflects the determination of those amounts based on the fair value of the PPE contributed—unless the transaction provides objective evidence that the entity’s interest in the associate might be impaired (in which case, the investor also considers the impairment requirements in IAS 36 Impairment of Assets. If, having reviewed the procedures and assumptions used to determine fair value, the fair value of the PPE is more than the fair value of the acquired interest in the associate, this would provide objective evidence that the entity’s interest in the associate might be impaired.
The Committee concluded that the principles and requirements in IFRS provide an adequate basis for an entity to account for the contribution of PPE to an associate for all three questions in the fact pattern described in the request, and not to add this matter to its standard setting agenda.
The Committee also noted that the contribution of PPE to a newly formed associate in exchange for shares in that associate is outside the scope of the Board’s research project on Business Combinations under Common Control (BCUCC); however, the Board will consider the interaction between the accounting for transactions within the scope of the BCUCC research project and the accounting for other transactions between entities under common control.
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB) LATEST DECISIONS SUMMARY
The following is a summarised update of the main discussion and tentative decisions taken by the IASB at its meeting on 24 - 25 January 2018.
For more details and comprehensive information on the IASB’s discussion see: https://www.ifrs.org/news-and-events/updates/iasb-updates/january-2018/
Primary Financial Statements
Concerning the requirements for management performance measures, the Board tentatively decided that:
- all entities should specify their key performance measure(s) in the financial statements;
- if any of these measures are not specified or defined in IFRS, an entity should identify such measurements as management performance measures; and
- the key performance measures identified in the financial statements should include, as a minimum, the key performance measures communicated in the annual report.
The Board also tentatively decided that a reconciliation between a management performance measure and the most appropriate measure specified or defined in IFRS Standards be included in the notes to the accounts when the requirements to include as a subtotal in the statement of financial performance are not met (as tentatively decided at the December 2017 meeting (https://www.rsm.global/insights/ifrs-news/issue-77-ifrs-news-brief).
Concerning the presentation of the share of the profit or loss of ‘integral’ associates and joint ventures, the Board tentatively decided that entities should be required to present the results of ‘integral’ associates and joint ventures separately from those of ‘non-integral’ associates and joint ventures.
Financial Instruments with Characteristics of Equity (FICE)
The Board discussed an issue on the pre-ballot draft of the FICE Discussion Paper which is related to how non-derivative instruments with a complex payout structure are classified. The Board tentatively decided to seek feedback and raise a question in the Discussion Paper before proposing any particular accounting treatments.
The Board received an update on the current status of the Conceptual Framework project.. The Board plans to publish the revised Conceptual Framework in March 2018 and References to the Conceptual Framework with or shortly after the revised Conceptual Framework.
Goodwill and Impairment
The following methods of simplifying the value in use calculation required by IAS 36 are under consideration by the Board:
- removing the requirement for an entity to exclude from the value in use calculation cash flows resulting from a future restructuring or a future enhancement, and
- removing the explicit requirement to use pre-tax inputs to calculate value in use and to disclose the pre-tax discount rates used. Instead, an entity would be required to use internally consistent assumptions about cash flows and discount rates, and to disclose the discount rate(s) actually used.
RSM INTERNATIONAL COMMENT LETTERS
On 9 January 2018, RSM International submitted the following comment letters to the IASB on its Exposure Draft:
- ED/2017/5 - Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8)
- ED/2017/6 - Definition of Material (Proposed amendments to IAS 1 and IAS 8)
The comment letters listed above are available at: https://www.rsm.global/service/rsm-comment-letters