NCL 20190305

05/03/2019
Financial Reporting Update 2019
(with Sample Financial Statements for Year Ended 31 Dec. 2018) 5 March 2019
LAM Chi Yuen Nelson 林智遠
CFA® charterholder FCPA(Practising)
MBA MSc BBA CPA(US) CTA FCA FCCA FCPA(Aust.) FSCA
Persepolis @ Iran Stephanie & Nelson © 2013 www.Facebook.com/NelsonCFA
© 2013‐2019 Nelson Consulting Limited 1
Petra @ Jordan
© 2013‐2019 Nelson Consulting Limited Photo taken by Stephanie and Nelson © 2018 2
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Effective for 2018 Dec. Year‐End
Selected new interpretations and amendments to Effective for periods
HKFRSs beginning on/after
• HKFRS 9 (2014) Financial Instruments  1 Jan. 2018
• Amendments to HKFRS 9 Clarify the Basis for Conclusions  Not specified
• HKFRS 15 Revenue from Contracts with Customers  1 Jan. 2017
• Amendments to HKFRS 15 Effective Date of HKFRS 15  1 Jan. 2018
Revenue from Contracts with Customers
• Amendments to HKFRS 15 Clarifications to HKFRS 15  1 Jan. 2018
• Amendments to HKFRS 2 Classification and Measurement of  1 Jan. 2018
Share-based Payment Transactions
• Amendments to HKFRS 4 Applying HKFRS 9 and HKFRS 4  1 Jan. 2018
• Amendments to HKAS 40 Transfers of Investment Property  1 Jan. 2018
• Annual Improvements to HKFRSs 2014-2016 Cycle  1 Jan. 2018
(Amendments to HKFRS 1 and HKAS 28)
• Hong Kong (IFRIC) Interpretation 22 Foreign Currency  1 Jan. 2018
Transactions and Advance Consideration
© 2013‐2019 Nelson Consulting Limited Updated to HKICPA Update No. 228 of February 2019 3
• HKFRS 16 Leases  1 Jan. 2019
• Hong Kong (IFRIC) Interpretation 23 Uncertainty over Income  1 Jan. 2019
Tax Treatments
• Amendments to HKFRS 9 Prepayment Features with Negative  1 Jan. 2019
Compensation.
• Amendments to HKAS 28 Investments in Associates and Joint  1 Jan. 2019
Ventures
• Amendments to HKAS 19 Employee Benefits  1 Jan. 2019
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Effective after 2019 Dec. Year‐End
• Revised Conceptual Framework for Financial Reporting  1 Jan. 2020
• Amendments to HKFRS 3 Definition of a Business  1 Jan. 2020
• Amendments to HKAS 1 Amendments to Definition of Material  1 Jan. 2020
• HKFRS 17 Insurance Contracts  1 Jan. 2021
• Amendments to HKFRS 10 and HKAS 28 Sale or Contribution  1 Jan. 2016 (a date
of Assets between an Investor and its Associate or Joint to be determined by
Venture the IASB)
Selected new interpretations and amendments to

SME-FRF & SME-FRS
• Amendments to SME-FRF & SME-FRS (as a consequence of  1 Feb. 2019
The Companies (Amendment) (No. 2) Ordinance 2018)
Updated to HKICPA Update No. 223 of December 2018
Today’s Agenda
Recap and
Update
New or Revised HKFRS
Real Cases
Effective for 2018
Examples and
Samples New or Revised HKFRS
Effective for 2019
Effective after 2019
Full Version of the Presentation can be found in:
Petra @ Jordan Stephanie & Nelson © 2018
www.Facebook.com/NelsonCFA
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Today’s Agenda
Effective for 2018
Effective for 2019
Today’s Agenda
Effective for 2018
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SNAI, Shanghai @ China
© 2013‐2019 Nelson Consulting Limited Photo taken by Stephanie and Nelson © 2015‐18 9
• HKFRS 9 (2014) Financial Instruments  1 Jan. 2018
• Amendments to HKFRS 9 Clarify the Basis for Conclusions  Not specified
• HKFRS 15 Revenue from Contracts with Customers  1 Jan. 2017
• Amendments to HKFRS 15 Effective Date of HKFRS 15  1 Jan. 2018
• Amendments to HKFRS 15 Clarifications to HKFRS 15  1 Jan. 2018
• Amendments to HKFRS 2 Classification and Measurement of  1 Jan. 2018
Share-based Payment Transactions
• Amendments to HKFRS 4 Applying HKFRS 9 and HKFRS 4  1 Jan. 2018
• Amendments to HKAS 40 Transfers of Investment Property  1 Jan. 2018
(Amendments to HKFRS 1 and HKAS 28)
• Hong Kong (IFRIC) Interpretation 22 Foreign Currency  1 Jan. 2018
Transactions and Advance Consideration
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HKFRS 9 Financial Instruments
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Chapter 4.1 Classification of FA
• Unless para. 4.1.5 of HKFRS 9 (so‐called “fair value option”)
applies, an entity shall classify financial assets as subsequently
measured at either
– amortised cost,
– fair value through other comprehensive income, or
– fair value through profit or loss
on the basis of both:
a) the entity’s business model for managing the financial assets; and
b) the contractual cash flow characteristics of the financial asset.
(para. 4.1.1)
Fair Value Through Other Fair Value Through
Amortised Cost
Comprehensive income Profit or Loss
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Determine the category of a
financial asset for subsequent
measurement
Choose fair value option Yes
(designate at fair value
through profit or loss)?
No
Held within a business No Held within a business No
model to collect contractual model to collect contractual
cash flow? cash flow and selling FA?
Yes Yes
Contractual cash flows No Contractual cash flows No
are solely principal and are solely principal and
interest? interest?
Entitle and elect to present
Yes Yes Yes
fair value changes in other
comprehensive income
No
Amortised Cost
© 2013‐2019 Nelson Consulting Limited Source: Intermediate Financial Reporting, 3rd (2017) by Nelson Lam & Peter Lau 13
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• Even the common understanding views that there are three
categories in HKFRS 9 for the classification and subsequent
measurement of a financial asset, a financial asset can be
classified into the following five categories or sub‐categories:
1. Financial asset at amortised cost;
2. Financial asset (not being investment in equity instrument) at fair value
through other comprehensive income;
3. Financial asset, being investment in an equity instrument, irrevocable
elected to measure at fair value through other comprehensive income.
4. Financial asset at fair value through profit or loss; and
5. Option to designate a financial asset at fair value through profit or loss;
1 2 3 4 5
Amortised Cost
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• A financial asset shall be measured at fair value through profit or
loss unless it is measured
– at amortised cost in accordance with para. 4.1.2 or
– at fair value through other comprehensive income in accordance with
parag. 4.1.2A.
• However an entity may make
– an irrevocable election at initial recognition for particular investments in
equity instruments that would otherwise be measured at fair value through
profit or loss to present subsequent changes
in fair value in other comprehensive income
(see para. 5.7.5–5.7.6). (para. 4.1.4) Entitle and elect to present
Yes
comprehensive income
No
Amortised Cost
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Chapter 5.7 Gains and Losses
For those classified as
measured at fair value
• At initial recognition, an entity may make
an irrevocable election to present in Part of hedging relationship
other comprehensive income subsequent
No
changes in the fair value of an investment
in an equity instrument within the scope Fair value option?
of HKFRS 9 that is neither held for trading No
nor contingent consideration recognised Equity instrument?
by an acquirer in a business combination
Yes
to which HKFRS 3 applies. (para. 5.7.5) Held for trading? and/or
• If an entity makes the above election in contingent consideration?
para. 5.7.5, it shall recognise in profit or No
Entitle and elect to present
loss dividends from that investment in Yes
accordance with para. 5.7.1A. (para. 5.7.7) comprehensive income
Amortised Cost
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Chapter 5.7 Gains and Losses
For those classified as
measured at fair value
• This election (para. 5.7.5) is made on an
instrument‐by‐instrument (ie share‐by‐ Part of hedging relationship
share) basis.
No
• Amounts presented in other Fair value option?
comprehensive income shall not be
subsequently transferred to profit or loss. No
• However, the entity may transfer the Equity instrument?
cumulative gain or loss within equity. Yes
(para. B5.7.1) Held for trading? and/or
contingent consideration?
• The gain or loss that is presented in other No
comprehensive income in accordance Entitle and elect to present
Yes
with para. 5.7.5 includes any related fair value changes in other
foreign exchange component. (para. comprehensive income
B5.7.3)
Fair Value Through Other
Comprehensive income
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HKFRS 9 – Real Case
Real Case
• 2018 Interim Report
– HKFRS 9 sets out the requirements for
recognizing and measuring financial assets, financial liabilities, impairment
of financial assets and hedge accounting.
– Upon adoption of HKFRS 9, the Group’s available‐for‐sale financial asset
have been reclassified to financial asset at fair value through other
comprehensive income (“FVOCI”).
– The accounting for FVOCI remains largely the same, except that gains or
losses realized upon the disposal of financial asset at FVOCI will no longer be
transferred to profit or loss on disposal, but instead reclassified below the
line from the FVOCI reserve to retained earnings.
– For the Group’s financial liabilities, there will be no impact, as the new
requirements only affect the accounting for financial liabilities that are
designated at fair value through profit or loss and the Group does not have
any such liabilities.
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Real Case
• Annual Report 2017 – Accounting policy
– Financial assets and financial liabilities are recognized
in the statements of financial position when a group
entity becomes a party to the contractual provisions
of the instrument.
– Financial assets and financial liabilities within the scope of HKFRS 9 are
initially measured at fair value and transaction costs that are directly
attributable to the acquisition or issue of financial assets and financial
liabilities are added to or deducted from the fair value of the financial
assets or financial liabilities, as appropriate, on initial recognition.
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Real Case
• Annual Report 2017 – Accounting policy
– The Group’s financial assets, including receivables,
time deposits and cash and cash equivalents, are
subsequently measured at amortized cost using
the effective interest method, less identified impairment charges (see note
2e) as the assets are held within a business model whose objective is to
hold assets in order to collect contractual cash flows and the contractual
terms of the financial assets give rise on specific dates to cash flows that
are solely payments of principal and interest on the principal amount
outstanding.
– Financial liabilities include lease liabilities, payables and accruals. All
financial liabilities are subsequently measured at amortized cost using the
effective interest method, except for lease liabilities as stated in note 2i.
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HKFRS 9 – Selected Sections in SFS
Example
Sample financial statements (SFS) Page 6
Statement of profit or loss and other comprehensive income (extract)
For the year ended 31 December 2018
Profit for the year
Other comprehensive income:
Items that will not be reclassified subsequently to profit or loss:
Equity investments at fair value through other comprehensive 18
income – fair value changes during the year ‐
Items that may be reclassified subsequently to profit or loss:
Available‐for‐sale financial assets 18
- Fair value changes during the year ‐
- Reclassification adjustments for gain included in profit or loss ‐
- Income tax ‐
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Example
i) Investments in equity instruments – after the adoption of HKFRS 9 SFS Page 14
– An investment in equity instruments is classified as fair value through profit or loss,
except for those investments in equity instrument not held for trading and are
designated as financial assets at fair value through other comprehensive income.
The company makes an irrevocable election at initial recognition for the investment
in equity instruments to present subsequent changes in fair value in other
comprehensive income. This election is made on an instrument‐by‐instrument (i.e.
share‐by‐share) basis. Amounts presented in other comprehensive income for such
investment are not be subsequently transferred to profit or loss until the
investment is disposed of. At the time of disposal of an investment in equity
instruments, the cumulative gain or loss of the investment is transferred from fair
value reserves to retained earnings.
ii) Investments in non‐equity instruments – after the adoption of HKFRS 9
– An investment in non‐equity instruments is classified as at:
a) Amortised cost – if the investment is held within a business model whose
objective is to hold the investment in order to collect contractual cash flows,
and the contractual terms of the investment give rise on specified dates to
cash flows that are solely payments of principal and interest on the principal
amount outstanding.
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Example
ii) Investments in non‐equity instruments – after the adoption of HKFRS 9
– An investment in non‐equity instruments is classified as at: SFS Page 14
b) Fair value through other comprehensive income – if the investment is held
within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets, and the contractual terms of
the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding. A gain
or loss on an investment in non‐equity instruments measured at fair value
through other comprehensive income is recognised in other comprehensive
income, except for impairment gains or losses and foreign exchange gains and
losses, until the investment is derecognised. When such investment is
derecognised, the cumulative gain or loss previously recognised in other
comprehensive income is reclassified from fair value reserves equity to profit
or loss as a reclassification adjustment.
c) Fair value through profit or loss – if the investments are not classified as at
amortised cost and at fair value through other comprehensive income.
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Chapter 5 Measurement
Initial measurement
• Except for trade receivables within the scope To align HKFRS 15
of para. 5.1.3, Initial Measurement
– at initial recognition, an entity shall measure a Fair Value
financial asset or financial liability +
• at its fair value Transaction Cost
• plus or minus, in the case of a financial asset or financial liability not at
fair value through profit or loss, transaction costs that are directly
attributable to the acquisition or issue of the financial asset or financial
liability. (para. 5.1.1)
• However, if the fair value of the financial asset or financial
liability at initial recognition differs from the transaction price,
an entity shall apply para. B5.1.2A. (para. 5.1.1A)
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Subsequent Measurement of Financial Assets
• After initial recognition, an entity shall measure a financial asset
in accordance with para. 4.1.1–4.1.5 at:
a. amortised cost;
b. fair value through other comprehensive income; or
c. fair value through profit or loss. (para. 5.2.1)
Amortised Cost
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Subsequent Measurement of Financial Assets
• An entity shall apply the impairment requirements in Section 5.5
– to financial assets that are measured at amortised cost in accordance with
para. 4.1.2 (i.e. under the “hold to collect” business model) and
– to financial assets that are measured at fair value through other
comprehensive income in accordance with para. 4.1.2A (i.e. under the
“hold to collect and sell” business model). (para. 5.2.2)
Impairment requirements applied to these two categories
only (implied that equity instruments are not subject to
impairment requirements) Entitle and elect to present
Yes comprehensive income
1 2 No
Amortised Cost
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Chapter 5.5 Impairment
Recognition of Expected Credit Losses – General Approach
• An entity shall recognise a loss allowance for expected credit losses on
– a financial asset that is measured in accordance with para. 4.1.2 or 4.1.2A,
– a lease receivable,
– a contract asset or
– a loan commitment and a financial guarantee
contract to which the impairment requirements
apply in accordance with para. 2.1(g), 4.2.1(c)
or 4.2.1(d). (para. 5.5.1)
HKFRS 9 defines expected credit losses as:
• The weighted average of credit losses with the
respective risks of a default occurring as the
weights.
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• To understand and apply these requirements, an entity has to
ascertain
– the scope of the impairment in HKFRS 9,
– the concept of expected credit losses,
– the approach in recognition of expected credit losses,
– the financial instruments with the scope in recognition of expected credit
losses but not falling within the three‐stage model,
– the assessment of the credit risk on a financial instrument since initial
recognition,
– the determination of financial instruments being credit‐impaired, and
– the three‐stage model in such recognition.
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Is the financial instrument a purchased or Yes
originated credit‐impaired financial asset? • Always recognise a loss
No allowance for changes in
Is simplified approach for trade lifetime expected credit
Yes
receivables, contract assets and lease losses, and
receivables applicable? • Calculate a credit‐adjusted
No effective interest rate
Does the financial instrument No
have low credit risk at the reporting date?
Yes
Is the low credit No Has there been a significant Yes
risk simplification increase in credit risk since
applied? initial recognition?
Yes No
Recognise 12‐month expected
Recognise lifetime expected credit losses
credit losses
Is the financial instrument a credit‐impaired
financial asset? (Section 16.5.1.6)
Stage 1 Stage 2 No Yes Stage 3
Calculate interest revenue on Calculate interest revenue on Calculate interest revenue on
gross carrying amount gross carrying amount amortised cost
© 2013‐2019 Nelson Consulting Limited Adapted from the flowchart after HKFRS 9.IE102 29
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Approach in Recognition of Expected Credit Losses
• To achieve the objective and comply the impairment
requirements in HKFRS 9, an entity is required to have the
following 3 kinds of assessment:
1. “Asset type assessment” – to assess the type of the financial asset and
determine whether it is
a) purchased or originated credit‐impaired financial assets;
b) trade receivables, contract assets and lease receivables for which the
entity applies simplified approach; or
c) other financial assets.
2. “Credit risk assessment” – To assess the credit risk on the financial asset;
and
3. “Credit‐impaired assessment” To determine whether the financial asset is
credit impaired.
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Is the financial instrument a purchased or
originated credit‐impaired financial asset?
Is simplified approach for trade
Asset type assessment
receivables, contract assets and lease
receivables applicable?
Does the financial instrument
Credit risk assessment
Is the low credit Has there been a significant
Credit‐impaired assessment
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Is the financial instrument a purchased or Yes
originated credit‐impaired financial asset? • Always recognise a loss
No allowance for changes in
Is simplified approach for trade lifetime expected credit
Yes
receivables, contract assets and lease losses, and
receivables applicable? • Calculate a credit‐adjusted
effective interest rate
Recognise lifetime expected credit losses
Stage 2 No Yes Stage 3
Calculate interest revenue on Calculate interest revenue on
gross carrying amount amortised cost
© 2013‐2019 Nelson Consulting Limited Adapted from the flowchart after HKFRS 9.IE102 32
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Example
• Bonnie Corporation is a manufacturer and has a portfolio of trade
receivables of $30 million in 2015 and operates only in Singapore.
Bonnies determines that:
– The customer base consists of a large number of small clients.
– The trade receivables are categorised by common risk
characteristics that are representative of the customers’
abilities to pay all amounts due in accordance with the
contractual terms.
– The trade receivables do not have a significant financing
component in accordance with HKFRS 15.
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Example
• In accordance with HKFRS 9, the loss allowance for such trade
receivables is always measured at an amount equal to lifetime
time expected credit losses.
• To determine the expected credit losses for the portfolio, Bonnie
uses a provision matrix.
• The provision matrix is based on its historical observed default
rates over the expected life of the trade receivables and is
adjusted for forward‐looking estimates.
• At every reporting date, the historical observed default rates are
updated and changes in the forward‐looking estimates are
analysed. In this case, it is forecast that economic conditions will
deteriorate over the next year.
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Example
• On that basis, Bonnie estimates the following provision matrix:
1–30 days 31–60 days 61–90 days Over 90 days
Current
past due past due past due past due
Default rate 1% 3% 5% 10% 15%
• Trade receivables from the large number of small customers
amount to $30 million and are measured using the provision
matrix as follows:
Gross carrying Default Lifetime expected
amount rate credit loss allowance
Current $15,000,000 1% $150,000
1–30 days past due 7,500,000 3% 225,000
31–60 days past due 4,000,000 5% 200,000
61–90 days past due 2,500,000 10% 250,000
Over 90 days past due 1,000,000 15% 150,000
$30,000,000 $975,000
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Does the financial instrument
Is the low credit Has there been a significant
– At each reporting date, for all financial instruments, other than purchased
or originated credit‐impaired financial assets, or financial assets that
simplification approach is applied,
• an entity is required to assess whether the credit risk on a financial
instrument has increased significantly since initial recognition.
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• Risk of Default and Past Due Information
– HKFRS 9 incorporates two rebuttable presumptions in assessing significant
increases in credit risk and risk of default:
i. 30 Days past due rebuttable resumption in respect of significant
increases in credit risk
– Regardless of the way in which an entity assesses significant increases in
credit risk, there is a rebuttable presumption that the credit risk on a
financial asset has increased significantly since initial recognition when
contractual payments are more than 30 days past due (HKFRS 9.5.5.11).
ii. 90 Days past due rebuttable resumption in respect of default occurred
– In defining default, there is a rebuttable presumption that default does not
occur later than when a financial asset is 90 days past due unless an entity
has reasonable and supportable information to demonstrate that a more
lagging default criterion is more appropriate.
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Real Case
• Annual Report 2017
– The Group recognizes loss allowances for expected credit
loss on the financial instruments that are not measured
at fair value through surplus or deficit.
– The Group considers the probability of default upon initial recognition of
financial assets and assesses whether there has been a significant increase
in credit risk on an ongoing basis.
– The Group considers the credit risk on a financial instrument is low if
• the financial instrument has a low risk of default,
• the debtor has a strong capacity to meet its contractual cash flow
obligations in the near term and
• adverse changes in economic and business conditions in the longer term
may, but will not necessarily, reduce the ability of the debtor to fulfill its
contractual cash flow obligations.
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Real Case
– The carrying amount of the receivables is reduced through
the use of the receivable impairment charges account.
– Changes in the carrying amount of the receivable impairment charges
account are recognized in surplus or deficit.
– The receivable is written off against the receivable impairment charges
account when the Group has no reasonable expectations of recovering the
receivable.
– If, in a subsequent period, the amount of expected credit losses decreases,
the reversal would be adjusted to the receivable impairment charges
account at the reporting date.
– The amount of any reversal is recognized in surplus or deficit.
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Real Case
• Interim Report 2018
– HKFRS 9 replaces the “incurred loss” impairment model in HKAS 39 with a
forward‐looking “expected credit loss” (“ECL”) model.
– It is no longer necessary for a loss event to occur before an impairment loss
is recognised under the new model.
– Under the new expected loss approach, the Group assesses on a forward
looking basis the expected credit losses associated with its financial assets.
– The impairment methodology applied depends on whether there has been
a significant increase in credit risk.
– The new impairment model applies to
• debt instruments measured at amortised cost and at FVOCI,
• contract assets under HKFRS 15,
• lease receivables,
• loan commitments and
• certain financial guarantee contracts.
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Real Case
• Interim Report 2018
– The Group applies the simplified approach to recognise lifetime expected
losses for trade receivables, due from customers and contract assets.
– As regards lease receivables, loan commitments, financial guarantee
contracts, and certain other financial assets (which are presented under
Liquid funds and other listed investments, and other unlisted investments)
the Group considers that they have low credit risk and hence recognises
12‐month expected credit losses for such items.
– The application of this new guidance represents a change in accounting
policy.
– The Group was required to revise its impairment methodology under
HKFRS 9 for these classes of assets.
– The results of the revision at 1 January 2018 have not resulted in any
material change in impairment provision or any material impact on the
carrying amount of the Group’s financial assets.
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Real Case
• 2016 Annual Report
– The Group has early adopted the complete version
of HKFRS 9, Financial Instruments (“HKFRS 9”) in
the consolidated financial statements for the year
ended 31 December 2016.
– Other than the changes mentioned below, the adoption of HKFRS 9 has no
significant impact on the Group’s financial statements.
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Real Case
– HKFRS 9 introduces
• new classification and measurement requirements
for financial assets on the basis of
– the Group’s business model for managing the financial assets and
– the contractual cash flow characteristics of the financial assets,
• a new expected credit loss model that replaces the incurred loss
impairment model used in HKAS 39, Financial Instruments: Recognition
and Measurement (“HKAS 39”), with the result that a loss event will no
longer need to occur before an impairment allowance is recognised, and
• a new hedge accounting model where the hedged ratio is required to be
the same as the one used by an entity’s management for risk
management purposes.
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Real Case
– As at 1 January 2016, the Directors of the Company
have reviewed and reassessed the Group’s financial
assets on that date and the results for the period.
– The initial application of HKFRS 9 has had impacts on the following financial
assets and results of the Group:
(i) investments in equity securities (not held for trading) of HK$5,723 million
that were previously classified as available‐for‐sale investments and
measured at fair value at each reporting date under HKAS 39 have been
designated as equity investments measured at fair value through other
comprehensive income (“FVTOCI”). Group profit for the year has been
reduced by HK$14 million, representing the gain on disposal of equity
securities recognised through other comprehensive income instead of
the income statement as previously accounted for (2015: HK$178 million
profit).
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Real Case
(ii) impairment based on expected credit loss model
on the Group’s rental, sales and trade receivables
have no significant financial impacts.
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Example
vi) Impairment of investments and other financial assets SFS Page 15
– The company recognises loss allowances for expected credit loss on the financial
instruments that are not measured at fair value through profit or loss. The company
considers the probability of default upon initial recognition of financial assets and
assesses whether there has been a significant increase in credit risk on an ongoing
basis.
– The company considers the credit risk on a financial instrument is low if the financial
instrument has a low risk of default, the debtor has a strong capacity to meet its
contractual cash flow obligations in the near term and adverse changes in economic
and business conditions in the longer term may, but will not necessarily, reduce the
ability of the debtor to fulfil its contractual cash flow obligations.
– The carrying amount of the receivables is reduced through the use of the receivable
HKFRS impairment charges account. Changes in the carrying amount of the receivable
15 impairment charges account are recognised in profit or loss. The receivable is
written off against the receivable impairment charges account when the company
has no reasonable expectations of recovering the receivable.
– If, in a subsequent period, the amount of expected credit losses decreases, the
reversal would be adjusted to the receivable impairment charges account at the
reporting date. The amount of any reversal is recognised in profit or loss.
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Chapter 7 Effective Date and Transition
• An entity shall apply HKFRS 9 for annual periods beginning on or
after 1 January 2018.
– Earlier application is permitted. (HKFRS 9.7.1)
– With some restrictions, an entity may elect to early apply some
requirements only. (HKFRS 9.7.1.2)
• An entity shall apply HKFRS 9 retrospectively, in accordance with
HKAS 8, except as specified in para. 7.2.4–7.2.26 and 7.2.28.
– HKFRS 9 shall not be applied to items that have already been derecognised
at the date of initial application. (HKFRS 9.7.2.1)
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• For the purposes of the transition provisions in para. 7.2.1, 7.2.3–
7.2.28 and 7.3.2, the date of initial application is
– the date when an entity first applies those requirements of HKFRS 9 and
must be the beginning of a reporting period after the issue of HKFRS 9.
• Depending on the entity’s chosen approach to applying HKFRS 9,
the transition can involve one or more than one date of initial
application for different requirements. (HKFRS 9.7.2.2)
• HKFRS 9 provides further transition arrangements for
– Classification and measurement
– Impairment
– Hedge accounting
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• Classification and measurement
– At the date of initial application,
• an entity shall assess whether a financial asset meets the condition in
para. 4.1.2(a) (i.e. “hold to collect” business model) or 4.1.2A(a) (i.e.
“hold to collect and sell” business model) on the basis of the facts and
circumstances that exist at that date.
– The resulting classification shall be applied retrospectively irrespective of
the entity’s business model in prior reporting periods. (HKFRS 9.7.2.3)
1 2
Fair Value Through Other
Amortised Cost
Comprehensive income
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– At the date of initial application
• an entity may designate:
a. a financial asset as measured at fair value through profit or loss in
accordance with paragraph 4.1.5; or
b. an investment in an equity instrument as at fair value through other
comprehensive income in accordance with paragraph 5.7.5.
– Such a designation shall be made on the basis of the facts and
circumstances that exist at the date of initial application.
– That classification shall be applied retrospectively.
(HKFRS 9.7.2.8)
3 5
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– If an entity previously accounted at cost (in accordance with HKAS 39), for
an investment in an equity instrument that does not have a quoted price in
an active market for an identical instrument (ie a Level 1 input) (or for a
derivative asset that is linked to and must be settled by delivery of such an
equity instrument) it shall measure that instrument at fair value at the date
of initial application.
– Any difference between the previous carrying amount and the fair value
shall be recognised in the opening retained earnings (or other component
of equity, as appropriate) of the reporting period that
includes the date of initial application. (HKFRS 9.7.2.12)
3 4 5
51
• Impairment
– An entity shall apply the impairment requirements in Section 5.5
retrospectively in accordance with HKAS 8 subject to para. 7.2.15 and
7.2.18–7.2.20. (HKFRS 9.7.2.17)
– At the date of initial application, an entity shall use reasonable and
supportable information that is available without undue cost or effort to
• determine the credit risk at the date that a financial instrument was
initially recognised (or for loan commitments and financial guarantee
contracts at the date that the entity became a party to the irrevocable
commitment in accordance with para. 5.5.6) and
• compare that to the credit risk at the date of
initial application of HKFRS 9. (HKFRS 9.7.2.18)
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• Impairment
– When determining whether there has been a significant increase in credit
risk since initial recognition, an entity may apply:
a. the requirements in para. 5.5.10 and B5.5.22–B5.5.24; and
b. the rebuttable presumption in para. 5.5.11 for contractual payments that are
more than 30 days past due if an entity will apply the impairment requirements
by identifying significant increases in credit risk since initial recognition for those
financial instruments on the basis of past due information. (HKFRS 9.7.2.19)
– If, at the date of initial application, determining whether there has been a
significant increase in credit risk since initial recognition
would require undue cost or effort,
• an entity shall recognise a loss allowance at an amount
equal to lifetime expected credit losses at each
reporting date until that financial instrument is
derecognised (unless that financial instrument is low
credit risk at a reporting date, in which case
para. 7.2.19(a) applies). (HKFRS 9.7.2.20)
53
Example
Changes in accounting policies
Sample Financial Statements (SFS) Page 21
– Before 2018,
• the company applied HKAS 39, Financial instruments: recognition and
measurement and its investments were classified as trading securities and
available‐for‐sale financial assets, and impairment losses on financial assets, except
for trading securities, were recognised in profit or loss when there was objective
evidence that an impairment loss had been incurred at the end of each reporting
period. Fair value changes on available‐for‐sale financial assets was recognised
directly in equity.
– From 2018,
• after the adoption of HKFRS 9, which replaces HKAS 39, the company’s available‐
for‐sale financial assets of HK$[ ] have been reclassified to financial asset at fair
value through other comprehensive income. The accounting for financial asset at
fair value through other comprehensive income remains largely the same, except
that gains or losses realised upon the disposal of financial asset at fair value
through other comprehensive income will no longer be transferred to profit or loss
upon disposal, but instead reclassified from fair value reserves to retained
earnings.
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Example
– For impairment losses on
[trade and other receivables, contract assets and financial guarantee contracts],
• HKFRS 9 introduces a new “expected credit loss” model that replaces the “incurred
loss” impairment model in HKAS 39, with the result that a loss event will no longer
need to occur before an impairment allowance is recognised.
– Under the new “expected credit loss” model, it is no longer necessary for a credit
event to have occurred before credit losses are recognised. Instead, the company
always accounts for expected credit losses, and changes in those expected credit
losses. The amount of expected credit losses is updated at each reporting date to
reflect changes in credit risk since initial recognition and, consequently, more timely
information is provided about expected credit losses.
– The adoption of HKFRS 9 has resulted in changes in accounting policies.
• The company has applied HKFRS 9 retrospectively and taken the transitional
provisions in HKFRS 9 not to restate comparative information with respect to
classification and measurement (including impairment) requirements. The
adoption of HKFRS 9 [does not have any material effects on the company’s
financial performance and positions].
55
HKFRS 7 – Fin. Instruments: Disclosures
Investments in equity instruments designated at fair value through OCI
– If an entity has designated investments in equity instruments to be measured at fair
value through other comprehensive income (OCI), as permitted by para. 5.7.5 of
HKFRS 9, it shall disclose:
(a) which investments in equity instruments have been designated to be measured
Disclosures of financial
at fair value through other comprehensive income.
(b) the reasons for using this presentation alternative.
instruments sets out in
(c) the fair value of each such investment at the end of the reporting period.
HKFRS 7
(d) dividends recognised during the period, showing separately those related to
investments derecognised during the reporting period and those related to
investments held at the end of the reporting period.
(e) any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers. (HKFRS 7.11A)
– If an entity derecognised investments in equity instruments measured at fair value
through other comprehensive income during the reporting period, it shall disclose:
(a) the reasons for disposing of the investments.
(b) the fair value of the investments at the date of derecognition.
(c) the cumulative gain or loss on disposal.
© 2013‐2019 Nelson Consulting Limited
(HKFRS 7.11B)
56
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Example
18. Non‐current financial
assets 2018 2017
HK$ HK$
Financial assets measured at fair value through profit or loss
‐ Listed equity securities in Hong Kong
Equity securities designated at fair value through other
comprehensive income:
‐ Unlisted equity securities ‐
‐ Listed equity securities outside Hong Kong ‐
• Unlisted equity securities are investments in equity securities issued by DEF Limited,
incorporated in Hong Kong and listed equity securities are investments in equity
securities issued by GHI Limited, incorporated and listed in the United States.
• All these investments are designated as at fair value through other comprehensive
income because they are held for strategic purposes.
• No dividend were received on these investments during the year.
57
Example
Extended disclosures required on credit risk
– From HKFRS 7.35A to 35N
– For trade receivables, contract assets and lease receivables to which an entity applies
paragraph 5.5.15 of HKFRS 9, the information provided in accordance with paragraph
35M may be based on a provision matrix (see paragraph B5.5.35 of HKFRS 9). (HKFRS
7.35N)
The following table provides information about the company’s exposure to credit risk
and expected credit losses for trade receivables and contract assets as at 31 Dec. 2018:
Expected loss Gross carrying Loss
loss rate amount allowance
HK$’000 HK$’000
Past due up to:
- 30 days
- 31 to 60 days
- 61 to 90 days
- Over 90 days
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Example
Movement in loss allowance account in respect of trade receivables and
contract assets during the year is as follows:
2018 2017
HK$’000 HK$’000
Balance at 31 December under HKAS 39
Impact on initial application of HKFRS 9 ‐
Adjusted balance at 1 January
Amount written off during the year
Impairment losses recognised during
the year
Balance at 31 December
Seville @ Spain
© 2013‐2019 Nelson Consulting Limited Photo taken by Stephanie and Nelson © 201259
59
HKFRS 15 Revenue
from Contracts with Customers
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HKFRS 15 Issued in 2014
Step 5:
Step 3:
Step 1: Step 2: Step 4: Recognise
Determine
Identify the Identify the Allocate the revenue when or
the
contract with a performance transaction as performance
transaction
customer obligations price obligation is
price
satisfied
• HKFRS 15 establishes a comprehensive framework for determining
• when to recognise revenue and
• how much revenue to recognise.
• The core principle is that an entity recognises revenue
– to depict the transfer of promised goods or services to customers
– in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services
• Under HKFRS 15, an entity applies a 5‐step approach in recognising
revenue
61
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Effective Date
– An entity shall apply HKFRS 15 for annual reporting periods beginning on or
after 1 January 2017 2018. (HKICPA Update No. 174)
– Earlier application is permitted.
– If an entity applies HKFRS 15, it shall disclose that fact.
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Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• HKFRS 15 supersedes the following Standards:
a. HKAS 11 Construction Contracts
b. HKAS 18 Revenue
c. HK(IFRIC)‐Int 13 Customer Loyalty Programmes
d. HK(IFRIC)‐Int 15 Agreements for the
Construction of Real Estate
e. HK(IFRIC)‐Int 18 Transfers of Assets from Customers
f. HK(SIC)‐Int 31 Revenue — Barter Transactions
Involving Advertising Services
63
Real Case
– HKFRS 15 replaces HKAS 18 which
covers contracts for goods and services and HKAS 11 which covers
construction contracts.
– The new standard is based on the principle that revenue is recognized when
control of a good or service transfers to a customer.
– The Group has adopted HKFRS 15 Revenue from Contracts with Customers
from January 1, 2018.
– The adoption on HKFRS 15 has no significant impact on the Group.
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Scope
Apply other
Is the contract within HKFRS 15?
No HKFRSs
Yes
For a contract within HKFRS 15, there
are one or more components within
other HKFRSs? No
Yes
Yes Other HKFRSs specify how to separate
and/or initially measure one or more
part if the contract? No
First apply other HKFRSs (the separation
and/or measurement requirements of
other HKFRSs)
• Exclude from transaction price the
amount measured by other HKFRSs as
Apply the requirements in HKFRS 15
above
• Apply HKFRS 15 on the remaining part
© 2013‐2019 Nelson Consulting Limited Source: Intermediate Financial Reporting 3rd (2017) by Nelson Lam and Peter Lau 65
65
Step 1: Identify the Contract(s)
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 1: Identifying the Contract(s)
– A contract is an agreement between two or more parties that creates
enforceable rights and obligations.
– The requirements of HKFRS 15 apply to each contract that has been agreed
upon with a customer and meets specified criteria.
• In some cases, HKFRS 15 requires an entity to combine contracts and
account for them as one contract.
• HKFRS 15 also provides requirements for the accounting for contract
modifications. (HKFRS 15.IN7)
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• An entity shall account for a contract with a customer that is
within the scope of HKFRS 15 only when all of the following
criteria (i.e. contract criteria) are met:
a. the parties to the contract have approved the contract (in writing, orally
or in accordance with other customary business practices) and are
committed to perform their respective obligations;
b. the entity can identify each party’s rights regarding the goods or services
to be transferred;
c. the entity can identify the payment terms for
the goods or services to be transferred;
d. the contract has commercial substance
(i.e. the risk, timing or amount of the entity’s
future cash flows is expected to change as
a result of the contract); and
67
• An entity shall account for a contract with a customer that is
within the scope of HKFRS 15 only when all of the following
criteria (i.e. contract criteria) are met:
e. it is probable that the entity will collect the consideration to which it will
be entitled in exchange for the goods or services that will be transferred
to the customer.
• In evaluating whether collectability of an amount of consideration is
probable, an entity shall consider only the customer’s ability and
intention to pay that amount of consideration when it is due.
• The amount of consideration to which
the entity will be entitled may be less
than the price stated in the contract
if the consideration is variable because
the entity may offer the customer a price
concession (see HKFRS 15.52) (HKFRS 15.9)
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Step 2: Identify Performance Obligations
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 2: Identifying the Performance Obligations in the Contract
– A contract includes promises to transfer goods or services to a customer.
– If those goods or services are distinct, the promises
• are performance obligations and are accounted for separately
– A good or service is distinct if
• the customer can benefit from the good or service on its own or together with
other resources that are readily available to the customer and
• the entity’s promise to transfer the good or service to the customer is separately
identifiable from other promises in the contract. (HKFRS 15.IN7)
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• At contract inception, an entity shall
– assess the goods or services promised in a contract with a customer, and
– identify as a performance obligation each promise to transfer to the
customer either:
a. a good or service (or a bundle of goods or services) that is distinct; or
b. a series of distinct goods or services that are substantially the same
and that have the same pattern of transfer to the customer (see
HKFRS 15.23) (HKFRS 15.22)
HKFRS 15 defines performance obligation as:
Performance obligations
A promise in a contract with a customer to transfer to the customer either:
a. a good or service (or a bundle of goods or services) that is distinct; or
b. a series of distinct goods or services that are substantially the same
and that have the same pattern of transfer to the customer.
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• A good or service that is promised to a customer is distinct if both
of the following criteria are met:
a. the customer can benefit from the good or service either on its own or
together with other resources that are readily available to the customer
(i.e. the good or service is capable of being distinct); and
b. the entity’s promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract
(i.e. the good or service is distinct within the context of the contract).
(HKFRS 15.27)
Performance obligations
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Step 3: Determine Transaction Price
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 3: Determining the Transaction Prices
– The transaction price
• is the amount of consideration in a contract to which an entity expects to be
entitled in exchange for transferring promised goods or services to a customer
• can be a fixed amount of customer consideration, but it may sometimes include
– variable consideration or
– consideration in a form other than cash
• is also adjusted for the effects of the time value of money if the contract includes
a significant financing component and for any consideration payable to the
customer. (HKFRS 15.IN7)
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Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 3: Determining the Transaction Prices
– If the consideration is variable, an entity estimates the amount of
consideration to which it will be entitled in exchange for the promised goods
or services.
– The estimated amount of variable consideration will be included in the
transaction price
• only to the extent that it is highly probable that a significant reversal in the
amount of cumulative revenue recognised will not occur when the uncertainty
associated with the variable consideration is subsequently resolved. (HKFRS
15.IN7)
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• The nature, timing and amount of consideration
promised by a customer affect the estimate of
the transaction price.
• When determining the transaction price, an
entity shall consider the effects of all of the
following:
a. variable consideration (see HKFRS 15.50–55 and 59); Variable Consideration
b. constraining estimates of variable consideration Constraining Estimates
(see HKFRS 15.56–58); of Variable Con.
c. the existence of a significant financing component Significant Financing
in the contract (see HKFRS 15.60–65); Component
d. non‐cash consideration (see HKFRS 15.66–69); and Non‐cash
Consideration
e. consideration payable to a customer
Consideration Payable
(see HKFRS 15.70–72). (HKFRS 15.48) to Customer
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Is there any variable
consideration?
Yes
Choose one of the two methods
to estimate the variable
consideration (depending on
which can better predict the Variable Consideration
consideration entitled)
The expected value method The most likely amount method
(may be appropriate for (may be appropriate for
large number of contracts the contract with
with similar characteristics) only two possible outcomes)
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Real Case
– HKFRS 15 requires an entity to adjust the transaction
price for the time value of money when a contract
contains a significant financing component, regardless
of whether the payments from customers are received significantly in
advance or in arrears.
– Previously, the Group did not apply such a policy when payments were
received in advance.
– Advance payments are not common in the Group’s arrangements with its
customers, with the exception of when residential
properties are marketed by the Group while the Significant Financing
property is still under construction. Component
– In this situation, the Group may collect the balance of the purchase price
early.
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Real Case
– In assessing whether such advance payments
schemes include a significant financing component,
the Group has considered the length of time between
the payment date and the completion date of legal
assignment based on typical arrangements entered into with customers.
– Where such advance payment schemes include a significant financing
component, the transaction price will need to be adjusted to separately
account for this component.
– Such adjustment will result in interest expense
being recognised to reflect the effect of the Significant Financing
financing benefits obtained from the customers Component
during the period between the payment date and
the completion date of legal assignment, with a corresponding increase to
revenue on sale of properties recognised when control of the completed
property is transferred to the customers.
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Step 4: Allocate Transaction Price to PO
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 4: Allocating the Transaction Price to Performance
Obligations
– An entity typically allocates the transaction price to each performance
obligation on the basis of the relative stand‐alone selling prices of each
distinct good or service promised in the contract.
• If a stand‐alone selling price is not observable, an entity estimates it.
– HKFRS 15 specify when an entity allocates the discount or variable
consideration to one or more, but not all, performance obligations (or
distinct goods or services) in the contract. (HKFRS 15.IN7)
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• The objective when allocating the
transaction price is
– for an entity to allocate the transaction price to
Based on Stand‐alone each performance obligation (or distinct good
Selling Price (SASP) or service) in an amount that depicts the
Allocation of a amount of consideration to which the entity
Discount expects to be entitled in exchange for
Allocation of Variable transferring the promised goods or services to
Consideration the customer. (HKFRS 15.73)
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• To meet the allocation objective, an entity
shall allocate the transaction price to each
performance obligation identified in the
Based on Stand‐alone contract on a relative stand‐alone selling
Selling Price (SASP) price basis in accordance with HKFRS
Allocation of a 15.76–80, except as specified in
Discount
Allocation of Variable – HKFRS 15.81–83 (for allocating discounts) and
Consideration – HKFRS 15.84–86 (for allocating
consideration that includes
variable amounts). (HKFRS 15.74)
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• Suitable methods for estimating SASP of a
good or service include (not limited to):
a. Adjusted market assessment approach
Based on Stand‐alone b. Expected cost plus a margin approach
Selling Price (SASP)
c. Residual approach
d. Combination of the above
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Step 5: Satisfy Performance Obligations
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 5: Satisfaction of performance obligations
– A an entity recognises revenue when (or as) it satisfies a performance
obligation by transferring a promised good or service to a customer
• which is when the customer obtains control of that good or service.
– The amount of revenue recognised is the amount allocated to the satisfied
performance obligation. (HKFRS 15.IN7)
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Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• Step 5: Satisfaction of performance obligations
– A performance obligation may be satisfied
• at a point in time (typically for promises to transfer goods to a customer)
or
• over time (typically for promises to transfer services to a customer).
– For performance obligations satisfied over time, an entity recognises
revenue over time by selecting an appropriate method for measuring the
entity’s progress towards complete satisfaction of that performance
obligation. (HKFRS 15.IN7)
83
• An entity shall recognise revenue
– when (or as) the entity satisfies a performance obligation by transferring a
promised good or service (i.e. an asset) to a customer.
• An asset is transferred
– when (or as) the customer obtains control of that asset (HKFRS 15.31)
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• For each performance obligation identified in
accordance with HKFRS 15.22–30,
– an entity shall determine at contract inception whether it
• satisfies the performance obligation over time
Over Time
(in accordance with HKFRS 15.35–37) or
• satisfies the performance obligation at a point
in time (in accordance with HKFRS 15.38). At a Point in Time
– If an entity does not satisfy a performance
obligation over time, the performance
obligation is satisfied at a point in time.
(HKFRS 15.32)
85
• Goods and services are assets, even if only momentarily, when
they are received and used (as in the case of many services).
• Control of an asset
– refers to the ability to direct the use of, and obtain
Over Time
substantially all of the remaining benefits from,
the asset.
At a Point in Time
– includes the ability to prevent other entities from
directing the use of, and obtaining the benefits
from, an asset.
• When evaluating whether a customer
obtains control of an asset,
– an entity shall consider any agreement
to repurchase the asset (see HKFRS 15.B64–B76).
(HKFRS 15.33)
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• An entity transfers control of a good or
service over time and, therefore,
satisfies a performance obligation and
recognises revenue over time, if one of
Over Time
the following criteria is met:
a. the customer simultaneously receives and consumes
the benefits provided by the entity’s performance
as the entity performs (see HKFRS 15.B3–B4);
b. the entity’s performance creates or enhances an asset (e.g. work in
progress) that the customer controls as the asset is created or enhanced
(see HKFRS 15.B5); or
c. the entity’s performance does not create an asset with an alternative use
to the entity (see HKFRS 15.36) and the entity has an enforceable right to
payment for performance completed to date (see HKFRS 15.37). (HKFRS
15.35)
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• Determine at contract inception
Yes Does the customer receive and consume the benefits
provided by the entity as the entity performs?
No
Yes Does the customer control the asset being created or
enhanced by the entity?
No
Does the entity’s performance create an asset with an Yes
alternative use to the entity?
No
Yes Does the entity have an enforceable right to payment for No
performance completed to date?
Performance obligation Performance obligations
satisfied over time satisfied at a point in time
Measuring progress towards complete
satisfaction of that performance
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Real Case
– The new revenue standard does not have significant
impact on how it recognises revenue from rental
income from investment properties and income
from logistics and hotels operation of the Group.
– However, revenue recognition for sales of development properties is
affected.
– The Group’s property development activities are carried out in Hong Kong
and Mainland China.
– Taking into account the contract terms, the Group’s business practice and
the legal and regulatory environment of Hong Kong and Mainland China, the
Group assessed that its property sales contracts do not meet the criteria for
recognising revenue over time and therefore revenue from property sales is
recognised at a point in time.
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Real Case
– Previously the Group recognised revenue from
property sales upon the later of the signing of
the sale and purchase agreement and the completion
of the property development, which was taken to be
the point in time when the risks and rewards of ownership of the property
have been transferred to the customer.
– Under the transfer‐of‐control approach in the current standard, revenue
from property sales is recognised when the legal assignment is completed,
which is the point in time when the customer has the ability to direct the
use of the property and obtain substantially all of the remaining benefits of
the property.
– This would result in revenue being recognised later than the time
recognised under the previous standard.
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Methods for Measuring Progress Measuring Progress
– Appropriate methods of measuring progress include
output methods and input methods (HKFRS 15.B14–B19
provide guidance)
– In determining the appropriate method for measuring Over Time
progress, an entity shall consider the nature of the
good or service that the entity promised to transfer
to the customer. (HKFRS 15.41)
– When applying a method for measuring progress, an entity shall exclude
from the measure of progress any goods or services for which the entity
does not transfer control to a customer.
– Conversely, an entity shall include in the measure
of progress any goods or services for which the
entity does transfer control to a customer when
satisfying that performance obligation.
(HKFRS 15.42)
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• If a performance obligation is not satisfied over time in
accordance with HKFRS 15.35–37, an entity satisfies the
performance obligation at a point in time.
• To determine the point in time at which a customer obtains
control of a promised asset and the entity
satisfies a performance obligation,
At a Point in Time
– the entity shall consider the requirements for
control in HKFRS 15.31–34. (HKFRS 15.38)
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• In addition, an entity shall consider indicators of the transfer of
control, which include, but are not limited to, the following:
a. The entity has a present right to payment for the asset
b. The customer has legal title to the asset
c. The entity has transferred physical possession of the asset
d. The customer has the significant risks and
At a Point in Time
rewards of ownership of the asset
e. The customer has accepted the asset
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5 Steps: Recognition and Measurement
Step 5:
Step 3:
Determine
the
transaction
price
satisfied
• When (or as) a performance obligation is satisfied,
– an entity shall recognise as revenue
• the amount of the transaction price (which excludes
estimates of variable consideration that are constrained in
accordance with HKFRS 15.56–58) that is allocated to that
performance obligation. (HKFRS 15.46)
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Real Case
– The recognition of revenue from contracts with customers
is based on the performance obligations identified in the
contracts.
– Revenue is recognized when (or as) the Group satisfies a performance
obligation by transferring a promised good or service (i.e. an asset) to a
customer who obtains the control of the asset:
(i) Annual subscription fees are recognized over time on a straight‐line
basis over the subscription period as the customers simultaneously
receive and consume the benefits of goods or services provided by
the Group.
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Real Case
(ii) First registration fees are recognized at a point in time
on completion of assessment services by granting
the qualification and status to the applicants.
(iii) Income from examinations is recognized over time based on the cost‐
to‐cost method as the Group’s performance does not create an asset
with an alternative use to the Group and the Group has an
enforceable right to payment for performance completed to date.
(iv) Income from seminars and courses, member and student activities is
recognized over time as the services are rendered.
(v) Accreditation income is recognized at a point in time on completion
of services.
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Example
n. Revenue and other
income recognition
• After the adoption of HKFRS 15, the company recognises revenue from contracts
with customers when (or as) the company satisfies a performance obligation by
transferring a promised good or service (i.e. an asset) to a customer. An asset is
transferred when (or as) the customer obtains control of that asset. When (or as) a
performance obligation is satisfied, the company recognises as revenue the
amount of the transaction price (which excludes estimates of variable
consideration that are constrained in accordance with HKFRS 15) that is allocated
to that performance obligation. Further details of the company’s revenue and
other income recognition policies are as follows:
i) Sales of goods
» Revenue from the sales of good is recognised when the customer takes
possession of and accepts the products. If the products are a partial
fulfilment of a contract covering other goods and/or services, then the
amount of revenue recognised is an appropriate proportion of the total
transaction price under the contract, allocated between all the goods and
services promised under the contract on a relative stand‐alone selling price
basis.
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Revenue Contract Costs
Incremental Costs of Obtaining a Contract
– An entity shall recognise as an asset the incremental costs of obtaining a
contract with a customer if the entity expects to recover those costs.
(HKFRS 15.91)
• The incremental costs of obtaining a contract are those costs that an
entity incurs to obtain a contract with a customer that it would not have
incurred if the contract had not been obtained (e.g. a sales commission).
(HKFRS 15.92)
• Costs to obtain a contract that would have been incurred regardless of
whether the contract was obtained shall be recognised as an expense
when incurred, unless those costs are explicitly chargeable to the
customer regardless of whether the contract is obtained. (HKFRS 15.93)
• As a practical expedient, an entity may recognise the incremental costs
of obtaining a contract as an expense when incurred if the amortisation
period of the asset that the entity otherwise would have recognised is
one year or less. (HKFRS 15.94)
98
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Costs to Fulfil a Contract
– If the costs incurred in fulfilling a contract with a customer are not within
the scope of another Standard (e.g. HKAS 2, HKAS 16 or HKAS 38), an entity
shall recognise 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 that
the entity can specifically identify (e.g. costs relating to services to be
provided under renewal of an existing contract or costs of designing an
asset to be transferred under a specific contract that has not yet been
approved);
b. the costs generate or enhance resources of the entity that will be used
in satisfying (or in continuing to satisfy) performance obligations in the
future; and
c. the costs are expected to be recovered. (HKFRS 15.95)
99
Costs to Fulfil a Contract
– For costs incurred in fulfilling a contract with a customer that are within the
scope of another Standard,
• an entity shall account for those costs in accordance with those other
Standards. (HKFRS 15.96)
100
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Amortisation and Impairment
– An asset recognised in accordance with HKFRS 15.91 or 95 shall be
amortised on a systematic basis that is consistent with the transfer to the
customer of the goods or services to which the asset relates.
– The asset may relate to goods or services to be transferred under a specific
anticipated contract (as described in HKFRS 15.95(a)). (HKFRS 15.99)
– An entity shall update the amortisation to reflect a significant change in the
entity’s expected timing of transfer to the customer of the goods or services
to which the asset relates.
• Such a change shall be accounted for as
a change in accounting estimate in
accordance with HKAS 8. (HKFRS 15.100)
101
Amortisation and Impairment
– An entity shall recognise an impairment loss in profit or loss to the extent
that the carrying amount of an asset recognised in accordance with HKFRS
15.91 or 95 exceeds:
a. the remaining amount of consideration that the entity expects to
receive in exchange for the goods or services to which the asset
relates; less
b. the costs that relate directly to providing those goods or services and
that have not been recognised as expenses
(see HKFRS 15.97). (HKFRS 15.101)
102
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Presentation
• When either party to a contract has performed,
– an entity shall present the contract in the statement of
financial position as
• a contract asset or
• a contract liability,
depending on the relationship between the entity’s
performance and the customer’s payment.
• An entity shall present any unconditional rights to consideration
separately as
– a receivable. (HKFRS 15.105)
103
Presentation
• If a customer pays consideration, or an entity has a right to an
amount of consideration that is unconditional (i.e. a receivable),
before the entity transfers a good or service to the customer,
– the entity shall present the contract as a contract liability
when the payment is made or the payment is due
(whichever is earlier).
– A contract liability is an entity’s obligation to transfer goods
or services to a customer for which the entity has received
consideration (or an amount of consideration is due) from
the customer. (HKFRS 15.106)
104
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Presentation
• If an entity performs by transferring goods or services to a
customer before the customer pays consideration or before
payment is due,
– the entity shall present the contract as a contract asset,
excluding any amounts presented as a receivable.
• A contract asset is an entity’s right to consideration in exchange for
goods or services that the entity has transferred to a customer.
• An entity shall assess a contract asset for impairment in
accordance with HKFRS 9.
– An impairment of a contract asset shall be measured,
presented and disclosed on the same basis as a financial
asset that is within the scope of HKFRS 9 (see also HKFRS
15.113(b)). (HKFRS 15.107)
105
Presentation
• A receivable is an entity’s right to consideration that is
unconditional.
– A right to consideration is unconditional if only the passage of time is
required before payment of that consideration is due.
– For example, an entity would recognise a receivable if it has a present
right to payment even though that amount may be subject to refund in
the future.
• An entity shall account for a receivable in accordance with
HKFRS 9.
– Upon initial recognition of a receivable from a contract with a customer,
any difference between the measurement of the receivable in
accordance with HKFRS 9 and the corresponding amount of revenue
recognised shall be presented as an expense (for example, as an
impairment loss). (HKFRS 15.108)
106
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Presentation
• HKFRS 15 uses the terms “contract asset” and “contract
liability” but does not prohibit an entity from using alternative
descriptions in the statement of financial position for those
items.
– If an entity uses an alternative description for a contract asset, the entity
shall provide sufficient information for a user of the financial statements
to distinguish between receivables and contract assets. (HKFRS 15.109)
107
Example
i. Trade and other
receivables, contract
assets and contract liabilities
• A receivable is recognised when the company’s right to consideration is
unconditional. A right to consideration is unconditional if only the passage of time
is required before payment of that consideration is due.
– If revenue has been recognised before the company has an unconditional right
to consideration, the amount is presented as a contract asset.
– Receivables are stated at amortised cost using the effective interest method
less allowance for credit losses (see note 2(f)(vi)).
• A contract asset is recognised when the company recognises revenue before being
unconditionally entitled to the consideration under the payment terms set out in
the contract. Contract assets are assessed for expected credit losses in accordance
with the policy set out in note 2(f)(vi) and are reclassified to receivables when the
right to the consideration has become unconditional.
• A contract liability is recognised when the customer pays consideration, or has an
unconditional right to consideration (in such case, a corresponding receivable is
recognised), before the company recognises the related revenue.
108
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Disclosure
• The objective of the disclosure requirements is
– for an entity to disclose sufficient information to enable users of financial
statements to understand the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with customers.
• To achieve that objective, an entity shall disclose qualitative and
quantitative information about all of the following:
a. its contracts with customers (see HKFRS 15.113–122);
b. the significant judgements, and changes in the judgements, made in
applying HKFRS 15 to those contracts (see HKFRS 15.123–126); and
c. any assets recognised from the costs to obtain or fulfil a contract with a
customer in accordance with HKFRS 15.91 or HKFRS 15.95 (see HKFRS
15.127–128). (HKFRS 15.110)
109
Example
6. Revenue
• HKFRS 15 requires the disclosures in the following areas:
2018 2017
1. Contracts with customers (para. 113) HK$ HK$
Revenue from contracts with customers 20:
2. Disaggregation of revenue (para. 114 to 115 and B87 to B89)
Sales of garments
3. Contract balances (para. 116 to 118)
Revenue from other sources:
4. Performance obligations (para. 119)
Rental income from investment property
5. Transaction price allocated to the remaining performance obligations
(para. 120 to 122)
20 In accordance with HKFRS 15, including HKFRS 15.113(a), 114, 115, and B87 to B89,
6. Significant judgements in the application of HKFRS 15 (para. 123)
7.additional disclosure of disaggregated revenue may be required when, for example,
Determining the timing of satisfaction of performance obligations (para.
nature (say, major products), amount, timing (say, recognised at a point in time or
124 to 125)
over time), and uncertainty of revenue and cash flows affected by economic factors.
8. Determining the transaction price and the amount allocated to
performance obligations (para. 126)
9. Assets recognised from the costs to obtain or fulfil a contract with a
customer (para. 127 to 128)
10. Practical expedients (para. 129)
110
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Example
21. Trade and other Sample financial statements (SFS) Page 32
receivables, contract assets and contract liabilities
2018 2017
• HKFRS 15.116 states: HK$ HK$
Receivables from contracts with customers, included in trade and other
– An entity shall disclose all of the following:
receivables
(a) the opening and closing balances of receivables, contract assets and
– Balance at 1 January
– Balance at 31 December
contract liabilities from contracts with customers, if not otherwise
Contract assets
separately presented or disclosed;
(b) revenue recognised in the reporting period that was included in the
– Balance at 31 December
Contract liabilities
contract liability balance at the beginning of the period; and
(c) revenue recognised
– Balance at 31 December in the reporting period from performance
obligations satisfied (or partially satisfied) in previous periods (for
Revenue recognised during the year that was included in the opening
contract liability balance
example, changes in transaction price).
Revenue recognised during the year from performance obligations satisfied
(or partially satisfied) in previous periods
– from changes in transaction price
– from other changes
111
Effective Date and Transition
• An entity shall apply HKFSR 15 for annual reporting periods
beginning on or after 1 January 2018.
– Earlier application is permitted.
– If an entity applies HKFRS 15 earlier, it shall disclose that fact.
(HKFRS 15.C1)
112
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• For the purposes of the transition requirements in paragraphs
C3–C8A:
a. the date of initial application is
• the start of the reporting period in which an entity first applies
HKFRS 15; and
b. a completed contract is
• a contract for which the entity has transferred all of the goods or
services identified in accordance with HKAS 11 Construction
Contracts, HKAS 18 Revenue and related Interpretations.
(HKFRS 15.C2)
113
• An entity shall apply HKFRS 15 using one of
the following two methods:
a) retrospectively to each prior reporting
period presented in accordance with Practical expedients are
HKAS 8, subject to the expedients in available
para. C5; or
b) retrospectively with the cumulative
The date of initial
effect of initially applying HKFRS 15 application is the start
recognised at the date of initial of the reporting period
application in accordance with para. in which an entity first
C7–C8. (HKFRS 15.C3) applies HKFRS 15
114
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• An entity may use one or more of the following practical
expedients when applying HKFRS 15 retrospectively in
accordance with para.C3(a):
a. for completed contracts, an entity need not restate contracts that:
i. begin and end within the same annual reporting period; or
ii. are completed contracts at the beginning of the earliest period
presented.
b. for completed contracts that have variable consideration, an entity may use
the transaction price at the date the contract was
completed rather than estimating variable consideration
amounts in the comparative reporting periods.
115
c. for contracts that were modified before the beginning of the earliest period
presented, an entity need not retrospectively restate the contract for those
contract modifications in accordance with para. 20–21. Instead, an entity
shall reflect the aggregate effect of all of the modifications that occur
before the beginning of the earliest period presented when:
i. identifying the satisfied and unsatisfied performance obligations;
ii. determining the transaction price; and
iii. allocating the transaction price to the satisfied and unsatisfied
performance obligations.
d. for all reporting periods presented before the date of initial
application, an entity need not disclose the amount of the
transaction price allocated to the remaining
performance obligations and an explanation of
when the entity expects to recognise that amount
as revenue (see para. 120). (HKFRS 15.C5)
116
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Real Case
– The Group has applied the practical expedient and thus
has not adjusted the promised amount of consideration
for the effects of any significant financing components
because the Group does not expect, at contract inception,
the period between the transfer of the promised goods or
services to the customer and the payment by the
customer exceeds one year.
117
Real Case
– HKFRS 15 establishes a comprehensive framework for
recognising revenue from contracts with customers.
– HKFRS 15 replaces HKAS 18, Revenue, which covered
revenue arising from sale of goods and rendering of services, and HKAS 11,
Construction contracts, which specified the accounting for construction
contracts.
– The Group has elected to use the cumulative effect transition method for
the adoption of HKFRS 15.
– As allowed by HKFRS 15, the Group applied the new requirements only to
contracts that were not completed before 1 January 2018.
– Since the number of “open” contracts for sales of development properties at
31 December 2017 is immaterial, there was no material impact for the
Group’s result and financial position.
118
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Example
Changes in accounting policies SFS Page 21 and 22
– Before 2018, the company applied HKAS 18, Revenue and its revenue was measured
at the fair value of the consideration ….. revenue was recognised when the company
had delivered the goods to the customers and the customer had accepted the goods
together with the risks and rewards of ownership of the goods.
– From 2018, after the adoption of HKFRS 15, which replaces HKAS 18, the company
recognises revenue from contracts with customers when (or as) the company satisfies
a performance obligation by transferring a promised good or service (i.e. an asset) to a
customer. An asset is transferred when (or as) the customer obtains control of that
asset. When (or as) a performance obligation is satisfied, the company recognises as
revenue the amount of the transaction price (which excludes estimates of variable
consideration that are constrained in accordance with HKFRS 15) that is allocated to
that performance obligation.
– The adoption of HKFRS 15 has resulted in changes in accounting policies. The company
has applied HKFRS 15 retrospectively with the cumulative effect of initially applying
HKFRS 15 recognised at the date of initial application and taken the transitional
provisions in HKFRS 15 not to restate comparative information. The adoption of HKFRS
15 [does not have any material effects on the company’s financial performance and
positions].
119
Dubrovnik @ Croatia
120
120
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Classification and Measurement of SBP
Transactions (Amendments to HKFRS 2 Share‐based Payment)
121
Amendments to HKFRS 2
• In July 2016, following the IASB’s equivalent
amendments, the HKICPA issued Classification and
Measurement of Share‐based Payment
Transactions (Amendments to HKFRS 2)
• The amendments provide requirements on the
accounting for Cash‐settled SBP
1. the effects of vesting and non‐vesting conditions Transactions
on the measurement of cash‐settled share‐based
payments;
2. share‐based payment transactions with a net Net Settlement with
settlement feature for withholding tax obligations; Withholding Tax
and
3. a modification to the terms and conditions of a share‐
based payment that changes the classification of the Modification Results in
transaction from cash‐settled to equity‐settled. Classification Change
122
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Applying HKFRS 9 with HKFRS 4
(Amendments to HKFRS 4)
123
Amendments to HKFRS 4
• The amendments provide two optional approaches to deal with
the mismatched effective dates of HKFRS 9 and the new insurance
contracts standard (forthcoming) replace HKFRS 4:
a. The overlay approach: all companies that issue insurance contracts have
the option to recognise in other comprehensive income, rather than profit
or loss, the volatility that could arise when HKFRS 9 is applied before the
new insurance contracts standard is issued; and
b. The deferral approach: companies whose activities are predominantly
connected with insurance have an optional temporary exemption from
applying HKFRS 9 until 2021. Entities that defer the application of HKFRS 9
will continue to apply HKAS 39 Financial Instruments: Recognition and
Measurement.
• The amendments are effective for annual periods beginning on or
after 1 January 2018.
• Earlier application is permitted.
124
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Transfers of Investment Property
(Amendments to HKAS 40 Investment Property)
125
Introduction
• The amendments to HKAS 40 Investment Property clarify that,
to transfer to or from, investment properties, there must be a
change in use.
• A change in use would involve
a. an assessment of whether a property meets, or has ceased
to meet, the definition of investment property; and
b. supporting evidence that a change in use has occurred.
• The amendments also re‐characterised the list of circumstances
in HKAS 40.57(a)‐(d) as a non‐exhaustive list of examples to
allow for other circumstances to be accounted for as a transfer,
as long as that change is supported by appropriate evidence.
• The amendments are effective for annual periods beginning on
or after 1 January 2018. Earlier application is permitted.
126
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Transfer to/from Investment Properties
• Transfers An entity shall transfer a property to, or from,
investment property shall be made when, and only when, there
is a change in use, evidenced by.
• A change in use occurs when the property
– meets, or ceases to meet, the definition of investment
property and
– there is evidence of the change in use.
• In isolation, a change in management's intentions for the use of
a property does not provide evidence of a change in use. (HKAS
40.57)
127
Transfer to/from Investment Properties
• Examples of evidence of a change in use include:
a) commencement of owner‐occupation, or of development
with a view to owner‐occupation, for a transfer from
investment property to owner‐occupied property;
b) commencement of development with a view to sale, for a
transfer from investment property to inventories;
c) end of owner‐occupation, for a transfer from owner‐
occupied property to investment property; or and
d) inception commencement of an operating lease to another
party, for a transfer from inventories to investment
property.
e) [deleted] (HKAS 40.57)
128
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Transitional Provisions
• An entity shall apply those amendments to changes in use that
occur on or after the beginning of the annual reporting period in
which the entity first applies the amendments (the date of initial
application).
• At the date of initial application, an entity shall reassess the
classification of property held at that date and, if applicable,
reclassify property applying paragraphs 7–14 to reflect the
conditions that exist at that date. (HKAS 40.84C)
• Notwithstanding the requirements in paragraph 84C,
an entity is permitted to apply the amendments
to paragraphs 57–58 retrospectively in
accordance with HKAS 8 if, and only if, that
is possible without the use of hindsight.
(HKAS 40. 84D)
129
Transitional Provisions
• If, in accordance with paragraph 84C, an entity reclassifies
property at the date of initial application, the entity shall:
a. account for the reclassification applying the requirements in paragraphs
59–64. In applying paragraphs 59–64, an entity shall:
(i) read any reference to the date of change in use as the date of initial
application; and
(ii) recognise any amount that, in accordance with paragraphs 59–64,
would have been recognised in profit or loss as an adjustment to the
opening balance of retained earnings at the date of initial application.
b. disclose the amounts reclassified to, or from, investment
property in accordance with paragraph 84C.
The entity shall disclose those amounts reclassified as
part of the reconciliation of the carrying amount of
investment property at the beginning and end of the
period as required by paragraphs 76 and 79.
(HKAS 40. 84E)
130
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Effective Date
• Transfers of Investment Property (Amendments to HKAS 40),
issued in April 2017, amended paragraphs 57–58 and added
paragraphs 84C–84E.
• An entity shall apply those amendments for annual periods
beginning on or after 1 January 2018.
• Earlier application is permitted. If an entity applies those
amendments for an earlier period, it shall disclose that fact.
(HKAS 40.85G)
131
Florence @ Italy
132
132
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Annual Improvements 2014‐2016 Cycle
133
A. Improvements 2014‐16: Introduction
• Annual Improvement Project
– A vehicle for making non‐urgent but necessary
amendments to IFRS (and consequentially HKFRSs)
– Introduced by the IASB in 2007 and issued each year
• The amendments contained in Annual
Improvements 2014‐2016 Cycle
– Are issued in February 2017
134
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A. Improvements 2014‐16: Introduction
HKFRS Amended Subject of Amendments
HKFRS 1 First‐time Adoption of • Deletion of short‐term exemptions for Effective
Hong Kong Financial Reporting first‐time adopters in 2018
Standards
HKFRS 12 Disclosure of • Clarification of the scope of HKFRS 12 Effective
Interests in Other Entities in 2017
HKAS 28 Investments in • Measuring an associate or joint Effective
Associates and Joint Ventures venture at fair value in 2018
135
A. Improvements 2014‐16: HKFRS 1
• In Annual Improvements to IFRS Standards
2014–2016 Cycle, the Board (IASB) deleted the
short‐term exemptions in paragraphs E3–E7 and
the related effective date paragraphs.
– They included
• Disclosures about financial instruments (HKFRS 7)
• Employee benefits (HKAS 19)
• Investment entities (HKFRS 10)
• The Board noted that the reliefs provided in
those paragraphs were no longer applicable.
• The reliefs provided had been available to
entities only for reporting periods that had
passed. (HKFRS 1.BC99)
136
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A. Improvements 2014‐16: HKFRS 1
• Annual Improvements to HKFRS Standards 2014–2016 Cycle,
issued in February 2017, amended paragraphs 39L and 39T and
deleted paragraphs 39D, 39F, 39AA and E3–E7.
• An entity shall apply those amendments for annual periods
beginning on or after 1 January 2018. (HKFRS 1.39AD)
137
A. Improvements 2014‐16: HKAS 28
• When an investment in an associate or a joint venture is held by,
or is held indirectly through, an entity that is a venture capital
organisation, or a mutual fund, unit trust and similar entities
including investment‐linked insurance funds,
– the entity may elect to measure that investments at fair
value through profit or loss in accordance with HKFRS 9.
Added by
• An entity shall make this election separately for each AI
associate or joint venture, at initial recognition of
the associate or joint venture. (HKAS 28.18)
138
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• Notwithstanding the requirement in HKAS 28.36, if an entity
that is not itself an investment entity has an interest in an
associate or joint venture that is an investment entity,
– the entity may, when applying the equity method, elect to retain the
fair value measurement applied by that investment entity associate or
joint venture to the investment entity associate’s or joint venture’s
interests in subsidiaries.
Added by
• This election is made separately for each investment AI
entity associate or joint venture, at the later of the date
on which
(a) the investment entity associate or joint venture is initially recognised;
(b) the associate or joint venture becomes an investment entity; and
(c) the investment entity associate or joint venture first becomes a
parent. (HKAS 28.36A)
139
• Annual Improvements to HKFRS Standards 2014–2016 Cycle,
issued in February 2017, amended paragraphs 18 and 36A.
• An entity shall apply those amendments retrospectively in
accordance with HKAS 8 for annual periods beginning on or after 1
January 2018.
• If an entity applies those amendments for an earlier period, it
shall disclose that fact. (HKAS 28.45E)
140
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Antananarivo @ Madagascar
141
141
Foreign Currency Transactions and Advance
Consideration (HK(IFRIC) Interpretation 22)
142
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HK(IFRIC)‐Int. 22 – Background
• HKAS 21 The Effects of Changes in Foreign
Exchange Rates requires that:
– A foreign currency transaction shall be
recorded, on initial recognition in the
functional currency, by applying to the foreign
currency amount the spot exchange rate
between the functional currency and the
foreign currency at the date of the
transaction. (HKAS 21.21)
The date of a transaction is
• the date on which the transaction first
qualifies for recognition in accordance
with HKFRSs. (HKAS 21.22)
143
HK(IFRIC)‐Int. 22 – Scope
• This Interpretation applies to
– a foreign currency transaction (or part of it) when an entity recognises a
non‐monetary asset or non‐monetary liability arising from the payment or
receipt of advance consideration before the entity recognises the related
asset, expense or income (or part of it). (para. 4)
144
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HK(IFRIC)‐Int. 22 – Scope
• This Interpretation does not apply
– when an entity measures the related asset, expense or income on initial
recognition:
(a) at fair value; or
(b) at the fair value of the consideration paid or received at a date other
than the date of initial recognition of the non‐monetary asset or non‐
monetary liability arising from advance consideration (for example,
the measurement of goodwill applying HKFRS 3 Business
Combinations). (para. 5)
• An entity is not required to apply this Interpretation to:
(a) income taxes; or
(b) insurance contracts (including reinsurance contracts) that it issues or
reinsurance contracts that it holds. (para. 6)
145
HK(IFRIC)‐Int. 22 – Issue
• This Interpretation addresses how to
determine the date of the transaction for the
purpose of determining the exchange rate to
use on initial recognition of the related asset,
expense or income (or part of it) on the
derecognition of a non‐monetary asset or non‐
monetary liability arising from the payment or
receipt of advance consideration in a foreign
currency. (para. 7)
146
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HK(IFRIC)‐Int. 22 – Conclusion
• Applying paragraphs 21–22 of HKAS 21, the date of
the transaction for the purpose of determining the
exchange rate to use on initial recognition of the
related asset, expense or income (or part of it) is
– the date on which an entity initially recognises
the non‐monetary asset or non‐monetary liability
arising from the payment or receipt of advance
consideration. (para. 8)
• If there are multiple payments or receipts in
advance,
– the entity shall determine a date of the
transaction for each payment or receipt of
advance consideration. (para. 9)
147
Example
• On Day 1, HKABC entered into a contract with a
supplier to purchase a machine for use in its
business.
• On Day 2, under the contract terms, HKABC pays
the supplier a fixed purchase price of US$1,000.
• On Day 3, HKABC takes delivery of the machine.
• HKABC initially recognises a non‐monetary asset
translating US$1,000 into its functional currency
at the spot exchange rate between the functional
currency and the foreign currency on Day 2.
− Applying HKAS 21.23(b), HKABC does not
update the translated amount of that non‐
monetary asset.
148
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Example
• On Day 3, HKABC takes delivery of the machine
and then, HKABC
− derecognises the non‐monetary asset, and
− recognises the machine as property, plant and
equipment applying HKAS 16.
• On initial recognition of the machine,
− HKABC recognises the cost of the machine
using the exchange rate at the date of the
transaction, which is Day 2 (the date of initial
recognition of the non‐monetary asset).
149
Effective Date
• An entity shall apply this Interpretation for annual reporting
periods beginning on or after 1 January 2018.
• If an entity applies this Interpretation for an earlier period, it shall
disclose that fact. (HK(IFRIC)Int. 22.A1)
150
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Transition
• On initial application, an entity shall apply this
Interpretation either:
(a) retrospectively applying HKAS 8; or
(b) prospectively to all assets, expenses and income in the
scope of the Interpretation initially recognised on or
after:
(i) the beginning of the reporting period in which the
entity first applies the Interpretation; or
(ii) the beginning of a prior reporting period presented
as comparative information in the financial
statements of the reporting period in which the
entity first applies the Interpretation.
(HK(IFRIC)Int. 22.A2)
151
Transition
• An entity that applies para. A2(b) (i.e. prospective
application of this Interpretation) shall, on initial
application, apply the Interpretation to assets,
expenses and income initially recognised on or
after the beginning of the reporting period in
para. A2(b)(i) or (ii) for which the entity has
recognised non‐monetary assets or non‐monetary
liabilities arising from advance consideration
before that date. (HK(IFRIC)Int. 22.A3)
152
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HK(IFRIC) 22 – Selected Sections in SFS
Example
c. HK(IFRIC) 22, Foreign currency transactions and advance consideration
• HK(IFRIC) 22 addresses how to determine the date of the transaction for the
purpose of determining the exchange rate to use on initial recognition of the
related asset, expense or income (or part of it) on the derecognition of a non‐
monetary asset or non‐monetary liability arising from the payment or receipt of
advance consideration in a foreign currency.
• HK(IFRIC) 22 concludes that the date of the transaction is the date on which an
entity initially recognises the non‐monetary asset or non‐monetary liability arising
from the payment or receipt of advance consideration.
• If there are multiple payments or receipts in advance, the company should
determine a date of the transaction for each payment or receipt of advance
consideration.
• The adoption of HK(IFRIC) 22 [does not have any material effects on the
company’s financial performance and positions].
153
Angkor Wat @ Cambodia
154
154
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Today’s Agenda
Effective for 2019
155
• HKFRS 16 Leases  1 Jan. 2019
• Hong Kong (IFRIC) Interpretation 23 Uncertainty over Income  1 Jan. 2019
Tax Treatments
• Amendments to HKFRS 9 Prepayment Features with Negative  1 Jan. 2019
Compensation.
• Amendments to HKAS 28 Investments in Associates and Joint  1 Jan. 2019
Ventures
• Amendments to HKAS 19 Employee Benefits  1 Jan. 2019
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HKFRS 16 Leases
Heidelberg Castle @ Germany
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Introduction
• HKFRS 16 supersedes the following
Standards and Interpretations:
(a) HKAS 17 Leases;
(b) HKFRIC 4 Determining whether an
Arrangement contains a Lease;
(c) HK(SIC)‐15 Operating Leases—
Incentives; and
(d) HK(SIC)‐27 Evaluating the Substance of
Transactions Involving the Legal Form
of a Lease.
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HKFRS 16 – Contents
1. Objective
2. Scope
3. Recognition Exemptions Today’s
4. Identifying a Lease update
5. Lease Term
6. Lessee
7. Lessor
8. Sales and Leaseback Transactions
9. Effective Date and Transition
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HKFRS 16
No
Assess a contract whether Not within
it is a lease or contains a lease? HKFRS 16
Yes
Determining lease term
Lessee accounting Lessor accounting
Reporting exemption is applicable
and elected?
No Yes
Recognise Recognise
assets and liabilities lease payments
for all leases as an expense
Sale and leaseback transactions
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3. Reporting Exemptions
• A lessee may elect not to apply the requirements in HKFRS 16
(HKFRS 16.22–49) to:
(a) short‐term leases; and
(b) leases for which the underlying asset is of low value
(as described in HKFRS 16.B3–B8).
HKFRS 16 defines short‐term lease as:
• A lease that, at the commencement date, has a lease
term of 12 months or less.
• A lease that contains a purchase option is not a short‐
term lease.
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• Leases for which the underlying asset is of low value
– A lessee shall assess the value of an underlying asset based on
the value of the asset when it is new, regardless of the age of
the asset being leased. (HKFRS 16.B3)
– The assessment of whether an underlying asset is of low
value is performed on an absolute basis.
• Leases of low‐value assets qualify for the accounting treatment in
HKFRS 16.6 regardless of whether those leases are material to the
lessee.
• The assessment is not affected by the size, nature or circumstances of
the lessee.
• Accordingly, different lessees are expected to reach the same
conclusions about whether a particular underlying asset is of low
value. (HKFRS 16.B4)
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Example
• Leases for which the underlying asset is of low value
‒ A lease of an underlying asset does not qualify as a lease of a
low‐value asset if the nature of the asset is such that, when
new, the asset is typically not of low value.
• For example, leases of cars would not qualify as leases of low‐value
assets because a new car would typically not be of low value. (HKFRS
16.B6)
‒ If a lessee subleases an asset, or expects to sublease an asset,
the head lease does not qualify as a lease of a low‐value asset.
(HKFRS 16.B7)
‒ Examples of low‐value underlying assets can include
• tablet and personal computers,
• small items of office furniture and
• telephones. (HKFRS 16.B8)
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4. Identifying a Lease
HKFRS 16 defines lease as:
• A contract, or part of a contract, that conveys the
right to use an asset (the underlying asset) for a
period of time in exchange for consideration.
• At inception of a contract, an entity shall
assess whether the contract is, or
contains, a lease.
• A contract is, or contains, a lease if the
contract conveys the right to control the
use of an identified asset for a period of
time in exchange for consideration.
(HKFRS 16.9)
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• To assess whether a contract conveys the
right to control the use of an identified
asset (see HKFRS 16.B13–B20) for a period
of time, an entity shall assess whether,
throughout the period of use, the
customer has both of the following:
a. the right to obtain substantially all of
the economic benefits from use of
the identified asset (as described in
HKFRS 16.B21–B23); and
b. the right to direct the use of the
identified asset (as described in
HKFRS 16.B24–B30)
(HKFRS 16.B9)
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• HKFRS 16 illustrates how an entity makes the assessment of
whether a contract is a lease or contains a lease, or the right to
control the use of an identified asset for a period of time, as
follows:
– Is there an identified asset?
– Does the lessee have the right to obtain substantially all of the economic
benefits from use of the identified asset throughout the period of use?
– Does the lessee have the right to direct how and for what purpose the
asset is used throughout the period of use?
Contract contains a lease Contract does not contain a lease
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4. Identifying a Lease – Simple Case
• In simple case,
– a lessee has the right to direct the use of an identified asset
throughout the period of use when the lessee has the right to
direct how and for what purpose the asset is used throughout
the period of use.
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4. Identifying a Lease – Simple Case
Is there an identified asset? (HKFRS 16.B13‐B20) No
Yes
Does the customer have the right to obtain substantially No
all of the economic benefits from use of the asset
throughout the period of use? (HKFRS 16.B21–B23)
Yes
Customer Does the customer, the supplier or neither party have the right Supplier
to direct how and for what purpose the asset is used throughout
the period of use? (HKFRS 16.B25–B30)
© 2013‐2019 Nelson Consulting Limited Adapted from HKFRS 16.B31 168
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4. Identifying a Lease – Complicated Case
• In more complicated situations, a lessee (or customer) has the
right to direct the use of an identified asset throughout the period
of use if either:
a. the customer has the right to direct how and for what purpose the asset is
used throughout the period of use; or
b. the relevant decisions about how and for what purpose the asset is used are
predetermined and:
i. the customer has the right (or to direct others) to operate the asset
throughout the period of use, without the supplier having the right to
change those operating instructions; or
ii. the customer designed the asset in a way that predetermines how and
for what purpose the asset will be used throughout the period of use.
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4. Identifying a Lease – Complicated Case
Is there an identified asset? (HKFRS 16.B13‐B20) No
Yes
Does the customer have the right to obtain substantially No
all of the economic benefits from use of the asset
throughout the period of use? (HKFRS 16.B21–B23)
Yes
Customer Does the customer, the supplier or neither party have the right Supplier
to direct how and for what purpose the asset is used throughout
the period of use? (HKFRS 16.B25–B30)
Neither; how and for what purpose the
asset will be used is predetermined
Does the customer have the right to operate the asset
Yes
throughout the period of use, without the supplier having the
right to change those operating instructions? (HKFRS 16.B24(b)(i))
No
Yes Did the customer design the asset in a way that predetermines
No
how and for what purpose the asset will be used throughout the
period of use? (HKFRS 16.B24(b)(ii))
© 2013‐2019 Nelson Consulting Limited Adapted from HKFRS 16.B31 170
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5. Lease Term
• An entity shall determine the lease term as the non‐cancellable
period of a lease, together with both:
(a) periods covered by an option to extend the lease if the lessee is
reasonably certain to exercise that option; and
(b) periods covered by an option to terminate the lease if the lessee is
reasonably certain not to exercise that option.
• In assessing whether a lessee is reasonably certain to exercise an
option to extend a lease, or not to exercise an option to terminate a
lease, an entity shall consider all relevant facts and circumstances that
create an economic incentive for the lessee to exercise the option to
extend the lease, or not to exercise the option to terminate the lease,
as described in HKFRS 16.B37–B40.
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6. Lessee – Recognition
• Recognition
– At the commencement date, a lessee shall recognise
• a right‐of‐use asset, and
• a lease liability. (HKFRS 16.22) Right‐of‐Use Asset
Lease Liability
HKFRS 16 defines right‐of‐use
asset as:
• An asset that represents a
lessee’s right to use an
underlying asset for the
lease term.
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6. Lessee – Initial Measurement
• Initial Measurement of the Right‐of‐Use Asset
– At the commencement date, a lessee shall
measure the right‐of‐use asset at cost.
(HKFRS 16.23) Right‐of‐Use Asset
HKFRS 16 defines
commencement date of a lease
as:
• The date on which a lessor
makes an underlying asset
available for use by a lessee.
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• The cost of the right‐of‐use asset shall comprise:
(a) the amount of the initial measurement of the lease liability, as Lease liab.
described in HKFRS 16.26; amount
(b) any lease payments made at or before the commencement Incl. rental
date, less any lease incentives received; incentives
(c) any initial direct costs incurred by the lessee; and excl. rental
(d) an estimate of costs to be incurred by the lessee in deposits
dismantling and removing the underlying asset, restoring the
Incl. costs
site on which it is located or restoring the underlying asset to
in restoring
the condition required by the terms and conditions of the Similar to
lease, unless those costs are incurred to produce inventories. HKAS 16 PPE
• The lessee incurs the obligation for those costs either
– at the commencement date or
– as a consequence of having used the underlying asset
during a particular period. (HKFRS 16.24)
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• Initial Measurement of the Lease Liability
– At the commencement date, a lessee shall measure the lease
liability at the present value of the lease payments that are
not paid at that date.
– The lease payments shall
Lease Liability
be discounted using
the interest rate implicit in the lease,
Use that rate first
• If that rate (i.e. the interest rate implicit
in the lease) can be readily determined,
 the lessee shall use that rate
• If that rate cannot be readily determined,
 the lessee shall use the lessee’s Affected by, e.g.
the credit rating
incremental borrowing rate. (HKFRS 16.26)
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• At the commencement date, the lease payments included in the
measurement of the lease liability comprise the following
payments for the right to use the underlying asset during the
lease term that are not paid at the commencement date:
(a) fixed payments (including in‐substance fixed payments as described in
HKFRS 16.B42), less any lease incentives receivable;
(b) variable lease payments that depend on an index or a rate, initially
measured using the index or rate as at the commencement date (as
described in HKFRS 16.28);
(c) amounts expected to be payable by the lessee under residual value
guarantees;
(d) the exercise price of a purchase option if the lessee is reasonably certain to
exercise that option (assessed considering the factors described in HKFRS
16.B37–B40); and
(e) payments of penalties for terminating the lease, if the lease term reflects
the lessee exercising an option to terminate the lease.
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Example
• Melody Investment Inc. entered into a lease of a floor of a
building with the following terms:
– A lease of 10‐year, with an option to extend for five years
– Lease payments were $50,000 per year during the initial term and
$55,000 per year during the optional period, all payable at the
beginning of each year.
– For the lease, Melody incurred initial direct costs of $20,000, incl.
• $15,000 relates to a payment to a former tenant of the lease, &
• $5,000 relates to a commission paid to the real estate agent that
arranged the lease.
– As an incentive to Melody for entering into the lease, Singapore
Landlord Company (SLC) agreed to reimburse to Melody
• the real estate commission of $5,000 and
• Melody’s leasehold improvements of $7,000.
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Example
• At the commencement date, Melody concluded and
performed the following:
– It would not be reasonably certain to exercise the option to extend
the lease and, therefore, determined that the lease term is 10
years.
– The interest rate implicit in the lease was not readily determinable.
– Melody’s incremental borrowing rate was 5 per cent per annum,
which reflected the fixed rate at which Melody could borrow an
amount similar to the value of the right‐of‐use asset, in the same
currency, for a 10‐year term, and with similar collateral.
– It made the lease payment for the first year, incurred initial direct
costs, received lease incentives from SLC
– It measured the lease liability at the present value of the remaining
nine payments of $50,000, discounted at the interest rate of 5 per
cent per annum, which was $355,391.
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Example
• In consequence, Melody initially recognised assets and
liabilities in relation to the lease as follows.
Dr Right‐of‐use asset $405,391
Cr Lease liability $355,391
Cash (lease payment for the first year) $50,000
Dr Right‐of‐use asset $20,000
Cr Cash (initial direct costs) $20,000
Dr Cash (lease incentive) $5,000
Cr Right‐of‐use asset $5,000
In case Melody applied HKAS 17 (which did not address the accounting for
initial direct cost for operating lease), it might account for the lease as follows:
Dr Profit or loss – rental expenses $50,000
Cr Cash (lease payment for the first year) $50,000
Dr Profit or loss 20,000
Cr Cash (initial direct cost) $20,000
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Example
• Melody accounted for the reimbursement of leasehold
improvements from SLC applying other relevant IFRS and
not as a lease incentive applying IFRS 16.
• This is because costs incurred on leasehold improvements
by Melody are not included within the cost of the right‐of‐
use asset.
• Thus, the initial cost of the right‐of‐use asset was $420,391
while the initial measurement of the lease liability was
$355,391.
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6. Lessee – Subsequent Measurement
• Subsequent Measurement of the Right‐of‐Use Asset
– After the commencement date, a lessee shall measure the
right‐of‐use asset
• applying a cost model, Right‐of‐Use Asset
• unless it applies either of Cost
the measurement models Model
described in HKFRS 16.34 and 35. Measurement
(HKFRS 16.29) Models
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• To apply a cost model, a lessee shall measure the right‐of‐use
asset at cost:
(a) less any accumulated depreciation
and any accumulated impairment Right‐of‐Use Asset
losses; and
Cost
(b) adjusted for any remeasurement Model
of the lease liability specified
in HKFRS 16.36(c).
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• If a lessee applies the fair value model in HKAS 40 Investment
Property to its investment property,
the lessee shall also apply
that fair value model to right‐of‐use Right‐of‐Use Asset
assets that meet the definition of
investment property in HKAS 40.
• If right‐of‐use assets relate to a class of
Measurement
property, plant and equipment to which Models
the lessee applies the revaluation model
in HKAS 16, a lessee may elect to apply
that revaluation model to all of the
right‐of‐use assets that relate to that class
of property, plant and equipment.
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• Subsequent Measurement of the Lease Liability
– After the commencement date, a lessee shall measure the
lease liability by:
(a) increasing the carrying amount
to reflect interest on the lease
Lease Liability
liability;
(b) reducing the carrying amount to
reflect the lease payments made; and
(c) remeasuring the carrying amount
– to reflect any reassessment or lease modifications
specified in HKFRS 16.39–46, or
– to reflect revised in‐substance fixed lease payments (see
HKFRS 16.B42). (HKFRS 16.36)
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Summary – Effect on Fin. Position
© 2013‐2019 Nelson Consulting Limited The IASB’s Effect Analysis on IFRS 16 of January 2016 185
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Summary – Effect on Profit or Loss
© 2013‐2019 Nelson Consulting Limited The IASB’s Effect Analysis on IFRS 16 of January 2016 186
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6. Lessee – Presentation
Real Case
• Annual Report 2017 – Accounting policy (lessee)
– All leases with a term of more than 12 months are recognized (i.e. an asset
representing the right to use of the underlying asset and a
liability representing the obligation to make lease payments),
unless the underlying asset is of low value.
– Both the asset and the liability are initially measured on a present value
basis.
– Right‐of‐use assets are recognized under fixed assets and are measured at
cost less any accumulated depreciation and impairment losses and
adjusted for any remeasurement of the lease liabilities.
– Right‐of‐use assets are depreciated on a straight‐line basis over the shorter
of the useful life of the assets and the lease term.
– Lease liabilities are initially measured at the present value of unpaid lease
payments and subsequently adjusted by the effect of the interest on and
the settlement of the lease liabilities, and the re‐measurement arising from
any reassessment of the lease liabilities or lease modifications.
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6. Lessee – Presentation
Real Case
Annual Report 2017 – Note 4 to Financial Statements
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6. Lessee – Disclosure
Real Case
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Real Case
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Real Case
a. The Group’s and the Institute’s right of use in leasehold
land represents prepaid lease payments. The leasehold land,
together with the owned buildings held for own use,
comprise the 37th floor and 27th floor of Wu Chung House located at 213
Queen’s Road East, Wanchai, Hong Kong with a total gross area of 49,722 sq.
ft. acquired on 8 July 2005 and 28 February 2006 respectively. The leasehold
land is held on medium‐term leases expiring on 30 June 2047.
b. The Group entered into lease agreements in respect of premises at two
industrial buildings for storage purpose in Hong Kong, one office building in
Beijing and one office building for the promotion of the Institute’s
qualification programme in Zhuhai and Guangzhou respectively. All of these
agreements were entered into by the Institute except for the office buildings
in Beijing and Guangzhou. The lease terms range from two to three years with
no extension or termination options and all the lease payments are fixed.
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Real Case
c. The Institute entered into lease agreements in respect of
copiers and server racks in Hong Kong. The lease term ranges
from two to five years with no extension or termination
options. Apart from the fixed payments, the rentals of the copiers also
include variable payments based on usage which are recognized in surplus or
deficit in the period during which the expenses are incurred.
d. The Group entered into lease agreements in respect of venues for
examination or event in Hong Kong and Mainland China. The lease terms
were mainly on daily basis with no extension or termination options.
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Amanohashidate @ Japan
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Uncertainty over income Tax

Treatments (HK(IFRIC) Interpretation 23)
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HK(IFRIC) Interpretation 23
• HK(IFRIC)‐Int 23 Uncertainty over Income Tax Treatments supports
the requirements in HKAS12 Income Taxes by
– specifying how to reflect the effects of uncertainty in
accounting for income taxes.
• It is effective for annual periods beginning
on or after 1 January 2019.
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Background
• HKAS 12 Income Taxes specifies requirements for current and
deferred tax assets and liabilities.
– An entity applies the requirements in HKAS 12 based on
applicable tax laws. (HK(IFRIC)‐Int. 23.1)
• It may be unclear how tax law applies to a particular transaction
or circumstance.
• The acceptability of a particular tax treatment under tax law may
not be known until the relevant taxation authority or a court takes
a decision in the future.
– Consequently, a dispute or examination of a particular tax
treatment by the taxation authority may affect an entity’s
accounting for a current or deferred tax asset or liability.
(HK(IFRIC)‐Int. 23.2)
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Background
• In this Interpretation:
(a) ‘tax treatments’ refers to the treatments used by an entity
or that it plans to use in its income tax filings.
(b) ‘taxation authority’ refers to the body or bodies that
decide whether tax treatments are acceptable under tax
law. This might include a court.
(c) an ‘uncertain tax treatment’ is a tax treatment for which
there is uncertainty over whether the relevant taxation
authority will accept the tax treatment under tax law.
• For example, an entity’s decision not to submit any
income tax filing in a tax jurisdiction, or not to include
particular income in taxable profit, is an uncertain tax
treatment if its acceptability is uncertain under tax
law. (HK(IFRIC)‐Int. 23.3)
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Scope
• This Interpretation clarifies how to apply the recognition and
measurement requirements in HKAS 12 when there is uncertainty
over income tax treatments.
• In such a circumstance, an entity shall recognise and measure its
current or deferred tax asset or liability applying the requirements
in HKAS 12 based on
– taxable profit (tax loss),
– tax bases,
– unused tax losses,
– unused tax credits and
– tax rates
determined applying this Interpretation.
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Issues
• When there is uncertainty over income tax
treatments, this Interpretation addresses:
(a) whether an entity considers uncertain tax Consider Separately
treatments separately;
(b) the assumptions an entity makes about
Examination by
the examination of tax treatments by
Taxation Authorities
taxation authorities;
(c) how an entity determines taxable profit Determining Relevant
(tax loss), tax bases, unused tax losses, Tax Items
unused tax credits and tax rates; and
(d) how an entity considers changes in facts Changes in facts and
and circumstances. (HK(IFRIC)‐Int. 23.5) circumstances
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Conclusions
• An entity shall determine whether to consider each uncertain tax
treatment separately or together with one or more other
uncertain tax treatments based on
Consider Separately
– which approach better predicts
the resolution of the uncertainty.
• In determining the approach that better predicts the resolution
of the uncertainty, an entity might consider, for example,
(a) how it prepares its income tax filings and supports tax
treatments; or
(b) how the entity expects the taxation authority to make its
examination and resolve issues that might arise from that
examination. (HK(IFRIC)‐Int. 23.6)
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Conclusions
• If, applying paragraph 6 (as set out in the
previous slide), an entity considers more than
one uncertain tax treatment together,
Consider Separately
– the entity shall read references to an
‘uncertain tax treatment’ in this
Interpretation as referring to the group of
uncertain tax treatments considered
together. (HK(IFRIC)‐Int. 23.7)
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Conclusions
• In assessing whether and how an uncertain tax
treatment affects the determination of
taxable profit (tax loss), tax bases, unused tax
losses, unused tax credits and tax rates,
– an entity shall assume that a taxation
authority will Examination by
Taxation Authorities
• examine amounts it has a right to
examine and
• have full knowledge of all related
information when making those
examinations. (HK(IFRIC)‐Int. 23.8)
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Conclusions
• An entity shall consider whether it is probable
that a taxation authority will accept an
uncertain tax treatment. (HK(IFRIC)‐Int. 23.9)
• If an entity concludes it is probable that the
taxation authority will accept an uncertain tax Probable
Acceptance
treatment,
Not Probable
– the entity shall determine the taxable profit Acceptance
(tax loss), tax bases, unused tax losses,
Determining Relevant
unused tax credits or tax rates consistently Tax Items
with the tax treatment used or planned to
be used in its income tax filings. (HK(IFRIC)‐Int.
23.10)
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Conclusions
• If an entity concludes it is not probable that the
taxation authority will accept an uncertain tax
treatment,
– the entity shall reflect the effect of
uncertainty in determining the related
taxable profit (tax loss), tax bases, unused
Not Probable
tax losses, unused tax credits or tax rates.
Acceptance
Tax Items
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Conclusions
• Then, an entity shall reflect the effect of uncertainty for each
uncertain tax treatment by using either of the following
methods, depending on which method the entity expects to
better predict the resolution of the uncertainty:
(a) the most likely amount
— the single most likely amount in a range of
possible outcomes. The most likely amount Not Probable
may better predict the resolution of the Acceptance
uncertainty if the possible outcomes are Determining Relevant
binary or are concentrated on one value. Tax Items
(b) the expected value
— the sum of the probability‐weighted amounts in a range of possible
outcomes. The expected value may better predict the resolution of
the uncertainty if there is a range of possible outcomes that are
neither binary nor concentrated on one value. (HK(IFRIC)‐Int. 23.11)
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Conclusions
• If an uncertain tax treatment affects current
tax and deferred tax (for example, if it affects
both taxable profit used to determine current
tax and tax bases used to determine deferred
tax),
– an entity shall make consistent judgements
Not Probable
and estimates for both current tax and
Acceptance
deferred tax. (HK(IFRIC)‐Int. 23.12)
Tax Items
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Conclusions
• An entity shall reassess a judgement or
estimate required by this Interpretation if the
facts and circumstances on which the
judgement or estimate was based change or as
a result of new information that affects the
judgement or estimate.
– For example, a change in facts and
circumstances might change an entity’s
conclusions about the acceptability of a tax
treatment or the entity’s estimate of the
effect of uncertainty, or both. Changes in facts and
– Paragraphs A1–A3 set out guidance on circumstances
changes in facts and circumstances.
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Conclusions
• An entity shall reflect the effect
– of a change in facts and circumstances or
– of new information
as a change in accounting estimate applying
HKAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors.
• An entity shall apply HKAS 10 Events after the
Reporting Period to determine whether a
change that occurs after the reporting period
is an adjusting or non‐adjusting event.
(HK(IFRIC)‐Int. 23.14) Changes in facts and
circumstances
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• An entity shall apply this Interpretation for annual reporting
periods beginning on or after 1 January 2019.
• If an entity applies this Interpretation for an earlier period, it shall
disclose that fact. (Appendix B.B1)
209
• On initial application, an entity shall apply this Interpretation
either:
(a) retrospectively applying HKAS 8, if that is possible without the use of
hindsight; or
(b) retrospectively with the cumulative effect of initially applying the
Interpretation recognised at the date of initial application.
• If an entity selects this transition approach, it shall not restate
comparative information.
• Instead, the entity shall recognise the cumulative
effect of initially applying the Interpretation
as an adjustment to the opening balance of
retained earnings (or other component of
equity, as appropriate).
• The date of initial application is the beginning
of the annual reporting period in which an entity
first applies this Interpretation. (Appendix B.B2)
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Himeji Castle @ Japan
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Today’s Agenda
Effective for and after 2019
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Effective after 2019 Dec. Year‐End
• Revised Conceptual Framework for Financial Reporting  1 Jan. 2020
• Amendments to HKFRS 3 Definition of a Business  1 Jan. 2020
• Amendments to HKAS 1 Amendments to Definition of Material  1 Jan. 2020
• HKFRS 17 Insurance Contracts  1 Jan. 2021
• Amendments to HKFRS 10 and HKAS 28 Sale or Contribution  1 Jan. 2016 (a date
of Assets between an Investor and its Associate or Joint to be determined by
Venture the IASB)
Selected new interpretations and amendments to

SME-FRF & SME-FRS
• Amendments to SME-FRF & SME-FRS (as a consequence of  1 Feb. 2019
The Companies (Amendment) (No. 2) Ordinance 2018)
Updated to HKICPA Update No. 223 of December 2018
213
SME‐FRF and FRS (Revised February 2019)
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• The Companies (Amendment) (No. 2) Ordinance
2018 (2018 Amendment Ordinance)
– was enacted on 28 November 2018 and
– commences operation on 1 February 2019
215
• As a consequence, the SME‐FRF & SME‐FRS has been updated to
reflect the following key amendments:
1. Mixed groups (i.e. groups comprising a mix of small private companies,
eligible private companies and small guarantee companies) and groups
which include non‐Hong Kong body corporates are eligible for the reporting
exemption, and hence the use of SME‐FRF & SME‐FRS for financial
reporting if they meet the qualifying criteria for the reporting exemption.
2. For groups of eligible private companies, the adoption of reporting
exemption will now require a resolution by members of
the holding company only. It is no longer necessary for
the holding company to also obtain approval
from the shareholders of any of its subsidiaries.
3. A partially owned subsidiary of an entity, can now be
exempted from preparing consolidated financial
statements if all members agree in writing before the
end of the financial year.
216
108
05/03/2019
• Consistent with sections 366A(1)(c) and 359(6) of the new CO, as
amended by the 2018 Amendment Ordinance, the amendments
in paragraphs 22, 27A, 28, 30A, 31‐33, 35 and 37‐40 which relate
to the reporting exemption criteria for mixed groups and non‐
Hong Kong body corporates are effective for a Qualifying Entity's
financial statements which cover a financial year beginning on or
after 1 February 2019.
• All other amendments to SME‐FRF and
SME‐FRS come into effect immediately
on 1 February 2019.
• Earlier application is not permitted.
(SME‐FRF para. 54)
217
Possible Impact of Amendments ……
Example
• HKFRS 16 introduces significant changes on lessee
accounting including the requirements of a lessee to recognise right‐of‐use
assets and lease liabilities for the rights and obligations created by all leases
Effective for 2018
with a term of more than 12 months, unless the underlying asset is of low
value. Both the asset and the liability are initially measured on a present value
basis. Right‐of‐use assets are recognised under property, plant and equipment
Effective for 2019
and are measured at cost less any accumulated depreciation and impairment
losses and adjusted for any remeasurement of the lease liabilities.
• The company previously charged the operating leases payments to the
statements of profit or loss and other comprehensive income on a straight‐line
basis over the lease term. With the adoption of HKFRS 16, all leases with a
term or a remaining term of more than 12 months, unless the underlying asset
is of low value, are recognised as right‐of‐use assets and lease liabilities. The
company estimates that its adoption of HKFRS 16 may recognise right‐of‐use
assets and the corresponding lease liabilities of approximately [$xxx]. The
adoption has no impact on the company’s net assets. SFS Page 46
218
109
05/03/2019
Yinchuan @ China
219
219
Q&A Session
220
110
05/03/2019
Full Version of the Presentation

can be found in:
Facebook.com/NelsonCFA
221
Sample financial statements
Printable PDF file without password:
www.facebook.com/NelsonCFA
Word file with password‐protected:
www.SCAACPA.org.hk LAM Chi Yuen Nelson 林智遠
www.NelsonCPA.com.hk/samples.htm
222
111

NCL 20190305

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05/03/2019

Selected new interpretations and amendments to

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© 2013‐2019 Nelson Consulting Limited Updated to HKICPA Update No. 228 of February 2019 156

© 2013‐2019 Nelson Consulting Limited The IASB’s Effect Analysis on IFRS 16 of January 2016 185

© 2013‐2019 Nelson Consulting Limited The IASB’s Effect Analysis on IFRS 16 of January 2016 186

Uncertainty over income Tax

Full Version of the Presentation can be found in:

Selected new interpretations and amendments to

© 2013‐2019 Nelson Consulting Limited Updated to HKICPA Update No. 228 of February 2019 213

Full Version of the Presentation

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