Professional Documents
Culture Documents
January 2009
A. F. FERGUSON & C O.
Chartered Accountants
A member firm of
Agenda
Revisions/New standards
• IAS 1 (revised), Presentation of Financial Statements
• IAS 23 (revised), Borrowing Costs
• Consolidation − IFRS 3 (revised), IAS 27 (revised)
• Segment reporting − IFRS 8
• Cost of investment − IAS 27 and IFRS 1 amendment
• Financial instruments
• Share-based payment − IFRS 2
‘Credit crunch’ Amendment
• Reclassification of financial assets -IAS 39 & IFRS 7
IFRIC update
• Customer Loyalty Programmes – IFRIC 13
• Limit on defined benefit asset – IFRIC 14
• Construction contracts − IFRIC 15
• Hedges of a Net Investment in a Foreign Operation – IFRIC 16
• Distributions of non-cash assets to owners – IFRIC 17
2008 Improvements
2009 Improvements (EDs)
Third wave of IFRS – major ongoing projects
January 2009
Slide 2
IAS 1 (revised), Presentation of Financial Statements
January 2009
Slide 3
(revised), Presentation of Financial Statements
General requirements
• Effective for annual periods beginning on or after January 2009
• Consequential amendments to other IASs and IFRSs
• Part of a larger joint project of the IASB and the FASB
• Phase “A” similar to the requirements of FASB Statement 130
- IAS 1 clarifies the presentation of transactions with owners
and the performance of the entity.
• Phase “B” discussion paper issued in 4Q 2008
• Under phase “B”, B/S, P/L & CF would be divided into 5 sections
i.e Business, Financing, Income taxes, Discontinued operations
and Equity. Business would comprise of Operating and investing
activities.
• Expected date of issuance of phase B : 2011
January 2009
Slide 4
IAS 1 (revised), Presentation of Financial Statements
Components of Financial Statements
January 2009
Slide 6
(revised), Presentation of Financial Statements
Reporting owner changes
January 2009
Slide 7
(revised), Presentation of Financial Statements
Other matters
January 2009
Slide 8
Statement of Comprehensive Income
January 2009
Slide 9
Statement of Comprehensive Income
January 2009
Slide 10
Statement of Comprehensive Income
January 2009
Slide 11
Reclassification of items included in Statement of Other
Comprehensive Income
January 2009
Slide 12
IAS 23 (revised), Borrowing Costs
January 2009
Slide 13
IAS 23 (revised), Borrowing Costs
Overview
• Issued in March 2007
• Part of IASB/FASB short-term convergence project
• Revisions primarily concerned with eliminating the option
to expense borrowing costs
• Enhances comparability and overall improvement in
financial reporting
• Effective for annual periods beginning on or after
January 1, 2009
• Earlier application is permitted
January 2009
Slide 14
IAS 23 (revised), Borrowing Costs
Highlights:
January 2009
Slide 15
IAS 23 (revised), Borrowing Costs
General requirements
January 2009
Slide 16
IAS 23 (revised), Borrowing Costs
General requirements, continued
• Capitalise when…
– borrowing costs are being incurred; and
– asset preparations are in progress
January 2009
Slide 17
IAS 23 (revised), Borrowing Costs
Other application points
January 2009
Slide 18
Quick guide to applying IAS 23 revised Handout 1
January 2009
Slide 19
Business Combination and Consolidation IFRS 3 & IAS 27
Convergence of IFRS and US GAAP
IAS 22
IFRS 3 IFRS 3R
IAS 27R
FAS 141R
FAS 160
APB 16 FAS 141
FAS 10
The IFRS journey
Pooling method
Purchase method Purchase method Acquisition method
MI share of net assets Net assets at fair Net assets at fair
at book value value value
MI share of net assets Goodwill parent share Goodwill parent
at fair value Transaction costs share
Goodwill parent share capitalised in BC Goodwill includes
Goodwill amortised Earn-out adjusts cost NCI share
Transaction costs of BC
capitalised
Earn-out adjusts
goodwill
Principles – IFRS 3 (Revised)
January 2009
Slide 23
The effect on earnings
January 2009
Slide 24
Consolidation – IFRS 3 (revised) and IAS 27 (revised)
January 2009
Slide 25
Scope and applicability
Scope
It now includes combinations of mutual entities and combinations
without considerations
Definition
Definition of a business has been amended slightly. It now states
that the elements are ‘capable of being conducted’ rather than
‘are conducted and managed’. Bring more transactions into
acquisition accounting.
Common Control Transactions
Common control transactions (JVs, businesses under common
control) remain outside the scope of the new standard.
Applicability
Standards applicable from years beginning on or after 1 July 2009
• Early application permitted
• Both standards should be applied together
• Prospective – previous accounting largely unchanged
January 2009
Slide 26
Method of accounting – only acquisition method (formerly
purchase method)
January 2009
Slide 27
Consideration – components
January 2009
Slide 29
Consideration – what has been transferred for the business
acquired
Issue Implication
Issue Implication
Options given to selling • Payments for ownership interest (part of
shareholders consideration) or for post-combination
employment?
• Payments for employment expensed in
income statement January 2009
Slide 30
Consideration – what has been transferred for the business
acquired
Issue Implication
Issue Implication
January 2009
Slide 32
Goodwill
January 2009
Slide 33
Goodwill
Issue Implication
January 2009
Slide 34
Impairment of Goodwill testing when fair value Handout 2
(full value) method is chosen
January 2009
Slide 35
Impairment of Goodwill testing when proportionate Handout 3
method is chosen
January 2009
Slide 36
Assets and liabilities recognised – what has been acquired
January 2009
Slide 37
Asset and liability recognition...contd.
January 2009
Slide 38
Assets and liabilities recognised – what has been acquired
Issue Implication
Issue Implication
Issue Implication
January 2009
Slide 40
Changes in ownership interest
January 2009
Slide 41
Changes in ownership interest – No loss of control
Issue Implication
January 2009
Slide 42
Changes in ownership interest – Loss of control
Issue Implication
January 2009
Slide 43
Other issues
January 2009
Slide 44
Other issues
January 2009
Slide 45
Summary
January 2009
Slide 46
Handout 4
Principles of business combinations
A
January 2009
Slide 47
Handout 4
Principles of business
combinations …contd. A
January 2009
Slide 48
Handout 4
Principles of business
combinations …contd.
January 2009
Slide 49
Step acquisitions and disposals Handout 5
January 2009
B Slide 50
Handout 5
B
January 2009
Slide 51
Moving to IFRS 8
Agenda
• IFRS 8 basics
• The Road to IFRS 8 – 4 simple steps
- Identification of the CODM
- Identification of operating segments
- Determining the reportable segments
- Disclosures
• Other considerations
• How this will affect companies?
• Summary
January 2009
Slide 53
IFRS 8 – Background & problems
January 2009
Slide 54
Moving to IFRS 8
11
2
3
4
5
January
2009
(annual reports
beginning on or
after)
January 2009
Slide 55
Why IFRS 8
(is this only about convergence with US GAAP?)
January 2009
Slide 56
IFRS 8
Core principle
January 2009
Slide 57
IFRS 8
January 2009
Slide 58
IFRS 8
Financial information
management uses
January 2009
Slide 59
The Road to IFRS 8 – 4 simples stages:
Allocates resources
Assesses performance
January 2009
Slide 61
Find CODM 1
January 2009
Slide 62
1
Excerpts from recent Committee Meeting minutes:
January 2009
Slide 63
The CODM is - 1
The Executive Committee
January 2009
Slide 66
Operating segment : 2
– a component that has all the following features:
Engages in business
activities
Start up activities ?
R&D operation ?
Vertically integrated
business ?
Functional department?
January 2009
Slide 67
Operating segment : 2
– a component that has all the following features:
e a
a v t o
Its operating results are regularly rly h tabl e
reviewed by CODM to assess u la u n M
r e g c c o D
performance and make decisions ld a C O
o u c t l y t he
n t w dire it h
m e is t w
g
e financialh o ta c
Several sets s
of w n
t in g
g er a r c o Use the one which is most
information
e ra (components)?
a n a
g ul consistent with financial
o p m s re
n
A me n t statements
ta in
s e g a in
Matrixd moperation?
an Use products & services to
identify segment
January 2009
Slide 68
Operating segment : 2
– a component that has all the following features:
• Reliable ie verifiable
• Consistent with CODM approach to
operate business
• Used by CODM
January 2009
Slide 69
The Road to IFRS 8 – 4 simples stages:
Optional
For the remaining operating segments below 10% threshold,
aggregate with each other if majority of aggregation criteria met
January 2009
Slide 71
Determining reportable segments 3
Aggregation criteria:
January 2009
Slide 73
The Road to IFRS 8 – 4 simples stages:
Disclose if provided in
Must disclose some manner to CODM
Non-GAAP
Measures
January 2009
Slide 75
Disclosure considerations
Disclosure of certain minimal information - must disclose 4
• General information-factors used to identify segments (which of 5
basis used?)
• Types of products and services of each segment
• Assets
• Liabilities
January 2009
Slide 77
Disclosure considerations 4
• Retrospective application in all the following:
- When adopted
- When segment is initially identified as reportable
- Changes in organization structure
January 2009
Slide 78
4 simples stages - recap:
January 2009
Slide 79
IFRS 8 – Other considerations – Issues??
January 2009
Slide 80
IFRS 8 – How this will affect companies
January 2009
Slide 81
IFRS 8 – How this will affect companies ?
• Management reporting may require substantial improvement
• Documentation of analysis and conclusions required to make
information reliable
• Inconsistencies in basis within segments be removed
• Previous segment reporting may no longer be acceptable
• Potentially more segments
• May affect goodwill allocation and impairment
• Regulators expect consistency
• Education of investors may be required
• Can be different from competitors
January 2009
Slide 82
Moving to IFRS 8
January 2009
Slide 83
Handout 6
January 2009
Slide 84
Cost of investment − amendments to IFRS 1 and IAS 27
The cost of a subsidiary, jointly controlled entity or associate in a
parent’s separate financial statements, on transition to IFRS, is
determined under IAS 27 or as a deemed cost. Deemed cost is
either fair value or the carrying amount under the previous
accounting practice
January 2009
Slide 86
Puttable financial instruments and obligations arising on
liquidation – amendments to IAS 32 and IAS 1
January 2009
Slide 87
Puttable financial instruments and obligations arising on
liquidation – amendments to IAS 32 and IAS 1
The amendment applies to certain financial instruments issued by an
entity that give the investor the right to get its capital back from the
issuing entity for cash or another financial asset:
January 2009
Slide 88
Share-based payment – IFRS 2 (Amendment)
vesting conditions & cancellation
The amendment narrows the definition of vesting conditions only to
service and performance conditions.
January 2009
Slide 91
Handout 7
Flowchart –when reclassification is possible
January 2009
Slide 92
Interpretations (IFRIC) update
January 2009
Slide 93
Interpretations (IFRIC) update
IFRIC 13 – Customer Loyalty Programmes
Fr • Multi-element transaction
fly equ
m er ent
• Analysed from the perspective of the customer
ile • Allocation of consideration issues
s
- Fair value
Hotel points - Forfeitures
programmes - Change in estimates
• Variety of programmes
e • Variety of awards
l i n
Air s
m ile
Miles Effective for annual periods beginning on or after 1 July 2008
credit
cards
January 2009
Slide 94
Interpretations (IFRIC) update
January 2009
Slide 95
Interpretations (IFRIC) update
January 2009
Slide 97
Handout 8
Analysis of a single agreement for the construction
of real state
January 2009
Slide 98
Interpretations (IFRIC) update
IFRIC 16 – Hedges of a Net Investment in a Foreign Operation
IFRIC 16 applies to an entity that hedges the foreign currency risk arising from its
net investments in foreign operations and wishes to qualify for hedge accounting in
accordance with IAS 39.
January 2009
Slide 101
Handout 9
January 2009
Slide 102
Handout 9
January 2009
Slide 103
Handout 9
January 2009
Slide 104
Handout 9
January 2009
Slide 105
Handout 9
January 2009
Slide 106
Handout 9
January 2009
Slide 107
Handout 9
January 2009
Slide 108
Handout 9
January 2009
Slide 109
Handout 9
January 2009
Slide 110
2009 Annual improvements – exposure draft
January 2009
Slide 111
2009 Annual improvements – exposure draft, continued
IFRS 8
- Disclosures – only require the asset disclosures if they are provided
in the CODM package
IAS 7
- Clarification that expenditure is classified as investing only when it is
an asset recognised on the balance sheet – relevant to extractive
industries and advertising and promotion as well as R&D activities
IAS 18
- Additional guidance on identification of principal and agent
January 2009
Slide 112
Third Wave of IFRS – major ongoing projects
January 2009
Slide 113
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