Accounting Standards Update

Lyceum of the Philippines University

General Trias Cavite
6 December 2013

New pronouncements effective reporting periods

beginning 1 January 2013
Pronouncements
Amendments to PAS 1, Presentation of Items of
Other Comprehensive Income

Effective for the annual periods

beginning on or after
1 July 2012

Amendments to PFRS 1, Government Loans

1 January 2013

Amendments to PFRS 7, Disclosures - Offsetting

Financial Assets and Financial Liabilities

1 January 2013

PFRS 10, Consolidated Financial Statements and

PAS 27, Separate Financial Statements

1 January 2013

PFRS 11, Joint Arrangements and

PAS 28, Investments in Associates and Joint
Ventures

1 January 2013

New pronouncements effective reporting periods

beginning 1 January 2013
Pronouncements

Effective for the annual periods

beginning on or after

PFRS 12, Disclosure of Interests in Other Entities

1 January 2013

PFRS 13, Fair Value Measurement

1 January 2013

PAS 19, Employee Benefits (Revised)

1 January 2013

Philippine Interpretation IFRIC20, Stripping Costs

in the Production Phase of a Surface Mine

1 January 2013

Annual improvements to PFRSs

2009-2011 cycle

1 January 2013

Amendments to PAS 1,
Presentation of Items of Other
Comprehensive Income

Amendments to PAS 1, Presentation of Items of

Other Comprehensive Income
What has changed?
Items in OCI to be grouped into:
Items that would be reclassified to profit or loss at a future point in time
Items that will never be reclassified

What has not changed?

Nature of items that can be recognized in OCI

Determination as to which items in OCI can be reclassified to profit or
loss in future periods

Transition

Retrospective application with early application permitted

Business impact
Amendments affect presentation only
No significant additional cost expected

Amendments to PAS 1,
Government Loans

Amendments to PFRS 1, Government Loans

First-time adopters shall apply the requirements in PFRS 9, Financial

Instruments (or PAS 39, as applicable) and PAS 20, Accounting for
Government Grants and Disclosure of Government Assistance
prospectively to government loans existing at the date of transition to
PFRSs.

Recognition of corresponding benefit of a government loan at

below-market rate of interest as a government grant is not allowed.

Entities may choose to apply the requirements of PFRS 9 and PAS 20 to

government loans retrospectively if the information needed to do so
has been obtained at the time of initially accounting for that loan.

These amendments give first-time adopters the same relief as existing

preparers of PFRS financial statements and therefore will reduce the
cost of transition to PFRSs.

Amendments to PFRS 7,
Disclosures - Offsetting
Financial Assets and
Financial Liabilities

Amendments to PFRS 7, Disclosures - Offsetting

Financial Assets and Financial Liabilities
Objective: To enable financial statement users to evaluate the effect or
potential effect of netting arrangements on an entitys financial
position

New disclosure requirements:

Gross
amounts

Amounts
offset in
accordance
with PAS 32

Net amounts
presented in
SFP

Other
amounts in
scope but not
offset in SFP

Net amounts

C=A-B

E=C-D

Amendments effective for annual periods beginning on or after 1

January 2013 and interim periods within those annual periods

Retrospective application

PFRS 10, Consolidated

Financial Statements and
PAS 27, Separate Financial
Statements

PFRS 10, Consolidated Financial Statements and

PAS 27, Separate Financial Statements
Overview:
Contains a single model for consolidation for all entities
Core principle:

New definition (PFRS 10): An investor controls an investee when it is

exposed, or has rights, to variable returns from its involvement with the
investee and has the ability to affect those returns through its power over
the investee.
Old definition (PAS 27): Control is the power to govern the financial and
operating policies of an entity so as to obtain benefits from its activities.
SIC-12: An extension of PAS 27 that retained the power concept but placed
greater emphasis on exposure to risks and rewards.

Consolidate all controlled entities

No bright lines consider all facts and circumstances

Key differences between PFRS 10

and PAS 27/SIC-12
Broader

definition of power that applies to all

entities
Considers

relevant activities rather than

financial and operating policies

Focuses on

returns rather than benefits

Established

a linkage between power and returns

Introduces principal

or agent considerations

Power

Returns

Activities that
significantly
affect returns

Current ability
to direct those
activities

Exposure or
rights to variable
(positive and/or
negative) returns

Examples:
Operating and
financing policies
Capital decisions
Appointing and
remunerating key
management

Examples:
Voting rights
Potential voting
rights
Right to appoint ,
re-assign or
remove key
management
Decision making
rights

Understand purpose and design

Assessing returns

Activities

Evaluating power

Identifying relevant activities

Assessing Control

Examples:
Dividends
Remuneration
Returns that are
not available to
other interest
holders

Control Assessment Example

Enterprise A and B form a

venture, C Ventures

The purpose and design of C

Ventures is to manufacture,
distribute and sell ice cream
Each enterprise contributes
cash and receives 50% equity
interest
Enterprise A and B are
unrelated

How should the enterprises

determine which party
controls C Ventures?

Ent. A

Ent. B

50%

50%

C Ventures

Control Assessment Example

1.

Consider the purpose and design and the risks C Ventures

was designed to distribute

2.

Identify relevant activities

3.

Identify party or parties with the current ability to direct

the relevant activities

4.

Assess whether the investor is exposed to returns

Relevant Activity

Responsible Party

Manufacturing

Enterprise A

Distributing

Enterprise B

Selling

Enterprise B

Transition (June 2012)

Effective for

annual periods beginning on or after

1 January 2013
Date of initial application the beginning of the
annual reporting period in which PFRS 10 is
applied for the first time.
Retrospective application and transition relief:

As if it was always consolidated (since the date of gaining control)

If not practicable to apply retrospectively, consolidate as of earliest
date when practicable, which may be the current period
An investor would not required to apply PFRS 10 to an investee
when the previously unconsolidated investee would be consolidate
in prior periods as a result of adopting PFRS 10, but the interest is
disposed of before the date of initial application of PFRS 10

Transition (2012) Contd

Other amendments/clarifications:

Difference between previously recognized (IAS 27/SIC-13) amounts

and revised amounts recognized on initial application of IFRS 10
must be recorded as adjustment to equity.
Presentation of the adjusted comparative information for IFRS 10
(also applies to IFRS 11 and IFRS 12) are required for the preceding
year only. However, an entity would not be prohibited from
adjusting comparatives for earlier periods
Control obtained and changes in NCI before effectivity date of IFRS
3(2008) and IAS 27(2008), respectively:
Investee is a business There is flexibility in determining which
version of IFRS to use, based on which version of IFRS 3 is suitable
for a particular investee.
Investee is not a business measure the assets, liabilities and NCI
applying acquisition method as described by IFRS 3 (at fair value)

Business Impact
Gather information
Changes to

the entities being consolidated

Additional

procedures required to assess control

on a continuous basis

Compliance

with bank covenants and regulatory

requirements

Structuring mergers

and acquisitions or
transactions and arrangements

PAS 27, Separate Financial Statements

Consolidated

financial statements will be covered

by PFRS 10.
Requirements in

PAS 28, Investments in

Associates and PAS 31, Interests in Joint Ventures
regarding separate financial statements were
relocated to PAS 27 (Amended in 2011).

PFRS 11, Joint

Arrangements and
PAS 28, Investments in
Associates and Joint
Ventures

Jointly controlled
assets

Jointly controlled
entities

Recognize its assets,

liabilities, expenses, and its
share of income.

Recognize its assets, liabilities,

revenue, and expenses, and/or
its relative shares thereof.

Equity method or
proportionate consolidation

Joint operations

Joint ventures

The parties with joint control have

rights to the assets and obligations for
the liabilities of the arrangement.

The parties with joint control have

rights to the net assets of the
arrangement.

Recognize its assets, liabilities,

revenue, and expenses, and/or its
relative shares thereof

Equity method

Joint ventures

Jointly controlled
operations

Joint arrangements

PFRS 11

PAS 31

PFRS 11, Joint Arrangements and

PAS 28, Investments in Associates and Joint Ventures

Joint Arrangement Assessment

Does the contractual arrangement give all
the parties (or a group of parties) control of
the arrangement collectively?

No

Outside scope of
PFRS 11 (not a joint
arrangement)

Yes

Does the decision about the relevant

activities require the unanimous consent of
all parties that collectively control the
arrangement?

No

Yes

Joint Arrangement

Joint Operation
Joint Venture

Classifying Joint Arrangement

Is the arrangement set up as a separate
vehicle?

No

Yes

Do the contractual terms of the

arrangement specify rights to assets and
obligations for liabilities?

Yes

Joint Operation

No

Do other facts and circumstances specify

rights to the assets/obligations for the
liabilities?

Yes

No

Joint Venture
The economic substance of an arrangement overrides the formal structure of the
arrangement

Transition and Business Impact

Transition

PFRS 11 must be applied using a modified retrospective

approach with earlier application permitted.

Business Impact

Gather information

Estimates and valuation

Impact on key financial metrics

Income taxes

PFRS 12, Disclosure of

Interests in
Other Entities

PFRS 12, Disclosure of Interests in

Other Entities
Overview

Integrates disclosures for subsidiaries, joint arrangements,

associates and unconsolidated structured entities into a
single standard

Disclosures should enable users to understand:

Nature of, and risks associated with, interests in other

entities

Effects of those interests on financial position, financial

performance, and cash flows

PFRS 13, Fair Value

Measurement

PFRS 13, Fair Value Measurement

Overview

Clarifies definition of fair value

Single framework for how to measure fair value

Does not change when fair value is used

Converges with US GAAP

Increases disclosures about fair value measurements

Applies to financial and non-financial assets and liabilities

Applies to recurring and non-recurring measurements

Fair Value Measurement Approach

Definition: 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)

Determine:

Particular asset or liability that is being measured

For a non-financial asset, the valuation premise

Principal (or most advantageous) market

Appropriate valuation technique(s)

Inputs to valuation technique(s) based on market participant

assumptions

Transition and Business Impact

Transition

Applied prospectively as of the beginning of the annual period in which PFRS 13 is

initially adopted
Early application is permitted.
Disclosures are not required for comparative periods.

Business Impact

Consider whether entity has appropriate expertise, processes, and systems

Significant increase in required disclosures for non-financial instruments that
are measured at fair value (e.g., investment property measured using fair
value, some biological assets)
If PFRS 13 will change amount recognized, consider:
Covenant compliance
Remuneration plans
Shareholder communications
Analyst expectations

PAS 19, Retirement Benefits

(Revised)

PAS 19, Employee Benefits (Revised)

Effective for annual periods beginning on or after 1 January 2013

Key requirements
Defined benefit plans
Corridor approach removed, requires immediate
recognition of changes to plan assets/obligations
Concept of expected returns removed, interest must
be recognized on net plan obligation/asset
Service cost and net interest charged to P&L
Remaining changes in plans recognized in OCI
Past service cost recognized immediately
New disclosures, including sensitivity analyses of defined
benefit plans
Other changes
Short-term vs. long-term employee benefits classification
based on expected timing of settlement rather than
employee entitlements
Timing of recognition of termination benefits

Financial statement impact

Higher

balance sheet
volatility for those following
corridor approach or having
unvested past service cost

Remeasurements,

including
actuarial movements,
permanently bypass earnings

Post-employment benefits: disclosures

plan types and risks
Plan types and risks (PAS 19.139)
An entity shall disclose:
a) Information about the characteristics of the defined
benefit plan
i.

The nature of the benefits

ii. A description of the regulatory framework

More detailed information

required

iii. A description of any other entitys responsibilities for

the governance of the plan
b) Information about the risks to which the plan exposes
the entity, focused on any unusual, entity-specific or
plan-specific risk

New requirement

c) A description of any plan amendments, curtailments and

settlements

New requirement

PAS19.139 requires disclosure of information about the nature of the plan and the
related risks.

Post-employment benefits: disclosures

financial impact
Financial statements (PAS 19.140144)
An entity shall provide a reconciliation from the opening
balance to the closing balance of the net defined benefit
liability (asset) and any reimbursement rights; this
reconciliation shall include detailed information on each item.

Not explicitly required in the past,

but the information could be
deducted from all other disclosures

The entity shall disaggregate the fair value of the plan assets
into classes that distinguish the nature and risk of those assets,
subdividing each class of plan asset into those that have a
quoted market price in an active market and those that do not
have an active market.

New, especially the information

about assets with a quoted market
price

The entity shall disclose the fair value of the entitys own
transferable financial instruments held as plan assets and the fair
value of plan assets that are property occupied by the entity.

No change

The entity shall disclose the significant actuarial assumptions

used to determine the present value of the defined benefit
obligation.

More judgement required to

identify the key actuarial
assumptions

PAS 19.140144 require more disclosures

Post-employment benefits: disclosures

cash flow impact
Cash flow impact (PAS 19.145147)
An entity shall disclose:
i.

A sensitivity analysis for each significant actuarial assumption

ii.

The methods and assumptions used

New, especially the sensitivity

analysis of the defined benefit
liability

iii. Changes in the methods and assumptions

The entity shall disclosure a description of any asset

liability matching strategies used by the plan or the

New requirement

equity

An entity shall disclose:

i.

A description of any funding arrangements and policy that

affect future contributions

ii.

The expected contributions to the plan for the next period

Sensitivity analysis required for the key assumptions

New requirement

Transition and Business Impact

Transition

Retrospective application with limited exceptions

Business Impact

Entities should consider impact to key performance measures

and potentially on debt covenants.
Increased disclosures and changes in accounting for defined
benefit plans will require early communications with actuaries.
Some of the seemingly minor adjustments, such as the changes
in definition for short-term employee benefits and changes in
recognition for termination benefits may require further analysis
of existing arrangements.

Philippine Interpretation
IFRIC-20, Stripping Costs in
the Production Phase
of a Surface Mine

Scope
Applies

to waste removal (stripping) costs

incurred in production phase of a surface mine
(production stripping costs)

Does

not apply to:

Underground
Stripping

mining activities

costs incurred prior to production

Recognition Requirements

Production of inventory shall be accounted in accordance with

PAS 2, Inventory
Improved access to ore shall be accounted as non-current asset
called stripping activity asset(SAA). Production stripping costs are to
be recognized as SAA if, and only if, all of the following are met:
a)
b)
c)

It is probable that the future economic benefits (improved access to an ore

body) associated with the stripping activity will flow to the entity;
The entity can identify the component of an ore body for which access has
been improved; and
The costs relating to the improved access to that component can be
measured reliably.

The stripping activity asset shall be accounted for as an addition to, or

as an enhancement of, an existing asset. In other words, the stripping
activity asset will be accounted for as part of an existing asset.

Measurements
The SAA:
must be carried at cost less depreciation or amortization, and
any impairment losses.
must be depreciated or amortized on a systematic basis, over
the expected useful life of the identified component of an ore
body that becomes more accessible as a result of the
stripping activities. The units of production method is to be
used, unless another method is more appropriate.
Where stripping costs cannot be specifically allocated between
the inventory produced during the period and the SAA, the
Interpretation requires an entity to use an allocation basis that is
based on a relevant production measure.

Transition

An entity shall apply this Interpretation to production stripping costs

incurred on or after the beginning of the earliest period presented.
For any production phase stripping costs incurred and capitalized up to
the start of the earliest period presented, the predecessor stripping
asset, an entity is required to reclassify such a balance as part of an
existing asset to which the stripping activity related, to the extent
there remains an identifiable component of the ore body with which
the stripping activity asset can be associated.
These balances are to then be depreciated or amortized over the
remaining expected useful life of the identified component of the ore
body to which each existing asset balance relates.
If there is no identifiable component of the ore body to which that
predecessor stripping asset relates, it is required to write off this asset
via opening retained earnings at the beginning of the earliest period
presented.

Annual Improvements to
PFRSs 2009-2011 cycle

Annual Improvements to PFRSs

2009-2011 cycle
PFRS and subject of amendment Change(s)

Implication(s)

PFRS 1, First-time Adoption of

Philippine Financial Reporting
Standards

Prior to this amendment, it was

not clear whether an entity was
permitted or required to apply
PFRS 1 more than once. This
amendment clarifies that an
entity that stopped applying
PFRSs in the past and chooses,
or is required, to apply PFRSs
again, has the option to re-apply
PFRS 1. If PFRS 1 is not reapplied, an entity must
retrospectively restate its
financial statements as if it had
never stopped applying PFRSs. If
an entity re-applies PFRS 1 or
applies PAS 8, additional
disclosures are required.

Repeated application of
PFRS 1

Clarifies that an entity that has

stopped applying PFRSs may
choose to either to:
Re-apply PFRS 1, even if the
entity applied PFRS 1 in a
previous reporting period
Or
Apply PFRSs retrospectively in
accordance with PAS 8 (i.e., as
if it had never stopped
applying PFRSs)
in order to resume reporting
under PFRSs

Annual Improvements to PFRSs

2009-2011 cycle
PFRS and subject of amendment Change(s)

Implication(s)

PFRS 1

First-time adopters may carry

forward borrowing costs
capitalized in accordance with
previous GAAP in the opening
statement of financial position at
the date of transition to PFRSs.

After transition, borrowing costs,

including those incurred for
assets under construction, are
recognized in accordance with
PAS 23.

Voluntary additional
comparative information
- Present related notes for
those additional statements

When voluntary
comparative information is
presented, it does not need to
be a complete set of
financial statements. The
information may consist of one
or more statements.

Third balance sheet

- No need to present the
supporting notes related to
the third balance sheet

This additional balance sheet

provides users of the financial
statements with a starting point
to understand the impact of the
change.

Borrowing costs

PAS 1, Presentation of Financial

Statements
Clarification of the requirements
for
comparative information

Annual Improvements to PFRSs

2009-2011 cycle
PFRS and subject of amendment Change(s)

Implication(s)

PAS 16, Property, Plant and

Equipment

Spare parts, and

stand-by equipment and
servicing equipment are
recognized as PPE when they
meet the definition of PPE.

This amendment clarifies when

certain assets are PPE or
inventory. This will help ensure
that entities consistently record
and present these assets.

Clarifies that income taxes

arising from distributions to
equity holders and to
transaction costs of an equity
transaction are accounted for in
accordance with
PAS 12.

This amendment is unlikely to

change the current tax
treatment of distributions.

Classification of servicing
equipment

PAS 32, Financial Instruments:

Presentation

Tax effect of distribution to

holders of equity instruments

Annual Improvements to PFRSs

2009-2011 cycle
PFRS and subject of
amendment

PAS 34, Interim Financial

Reporting
Interim financial reporting and
segment information for total
assets and liabilities

Change(s)

Implication(s)

Total assets and liabilities for a

particular reportable segment
need to be disclosed only when
such amounts are regularly
provided to the chief operating
decision maker and if there has
been a material change from the
amount disclosed in the last
annual financial statements for
that reportable segment

This amendment aligns the

disclosure requirements for total
segment assets with total
segment liabilities in the interim
financial statements. This
clarification also ensures that
interim disclosures are aligned
with annual disclosures.

Questions???