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									Financial Reporting Standards Update

          Tony Sweetman
         Kaplan Publishing
           February 2012
                   New and revised reporting
• IFRS 10 - Consolidated Financial Statements
                              – replaces most of IAS 27
• IFRS 11 - Joint Arrangements
                                       – replaces IAS 31
• IFRS 12 – Disclosure of Interests in Other Entities
                              – replaces parts of IAS 27
• IAS 27 – Separate Financial Statements (revised)
• IAS 28 – Investments in Associates and Joint
  Ventures (revised)
• Effective from 1 January 2013
                    IFRS 10 – Consolidated
                       Financial Statements
• Provides single definition for control that
  must be subject to continuous
  – Power over the investee
  – Exposure of rights to variable returns
  – Ability to use power to affect those returns
• Does not change basic mechanics of
              Accounting for associates &
                            joint ventures
• IAS 28 (revised) does not change
  accounting for associates using the
  equity method
• It now includes accounting for joint
  arrangements which comply with the
  definition of a joint venture per IFRS 11
           IFRS 11 – Joint Arrangements
• Joint arrangements - arrangements
  where two or more parties have joint
  control, and that this will only apply if
  the relevant activities require
  unanimous consent of those who
  collectively control the arrangement
• Joint arrangements may be either:
  – joint ventures, or
  – joint operations
          IFRS 11 – Joint Arrangements
• Joint ventures are defined as joint
  arrangements whereby the parties have
  joint control of the arrangement and
  have rights to the net assets of the
  arrangement. The equity method of
  accounting per IAS 28 (revised) should
  be used in this situation.
           IFRS 11 – Joint Arrangements
• Joint operations are defined as joint
  arrangements whereby the parties that
  have joint control have rights to the
  assets and obligations for the liabilities.
  Normally, there will not be a separate
  entity established to conduct joint
                  IFRS 13 – Fair Value
• Issued in 2011, and effective for
  accounting periods commencing on or
  after 1 January 2013, with early
  adoption permitted
• Single source of guidance when a FVM
  is required by a reporting standard
• Common framework for FVM in both US
                       IFRS 13 – Fair Value
• IFRS 13 does not apply to:
  – Share-based payments covered by IFRS 2
  – Lease transactions covered by IAS 17
• IFRS 13 does not apply where a
  different measure is required by a
  reporting standard, e.g.:
  – Net realisable value
  – Value in use
                IFRS 13 – Definition of fair
• “...the price that would be received to
  sell an asset or transfer a liability in an
  orderly transaction between market
  participants at the measurement date.”
                                  IFRS 13 para 9
• May apply to an individual asset or
  liability, or to a collection of assets
  and/or liabilities, depending upon
  requirements of a particular reporting
                 IFRS 13 – Definition of fair
• Comments on definition:
  – It is an exit price based upon an active
    market, or otherwise based upon a
    valuation technique
  – It is not the result of a distress transaction
  – Presumed to take place in principal market
    or, failing that, the most advantageous
  – Transactions costs ignored – they are not a
    characteristic of the asset or liability to be
           IFRS 13 – Fair value hierarchy
• Established by IFRS 13 to categorise
  inputs to measure fair value
• An asset or liability is regarded as
  having been measured using the lowest
  level of inputs that is significant to its
  – Level 1 inputs – “observable” quoted prices
    in an active market for an identical asset or
    liability at the measurement date
         IFRS 13 – Fair value hierarchy
– Level 2 inputs – observable inputs, other
  than those included in level 1 above. This
  may include:
  • prices in active markets for similar, not
    identical, assets or liabilities
  • prices in inactive markets for identical assets or
– Level 3 inputs – unobservable inputs,
  based on the best information available:
  • internally produced forecasts and data
            IAS 1 – Presentation of financial
• Amended to require OCI to be separately classified
   – Items which will not be reclassified (i.e. recycled)
     through profit or loss in a later period
       • e.g. changes in revaluation surplus
   – Items that may be reclassified through profit or
     loss in a later period
       • e.g. foreign exchange gains and losses on
         retranslation of a foreign subsidiary
• Effective from 1 July 2012
             IAS 19 - Employee benefits
• Radical revision in 2011
• Effective from 1 January 2013
IAS 19 - Employee benefits
                  Defined benefit schemes
• Service cost component includes:
  – Current service cost
  – Past service cost
  – Curtailments and settlements
• Net interest component includes:
  – Finance cost on plan obligation, less
    interest return on plan assets
                 Defined benefit schemes
• Remeasurement component comprises:
  – Actuarial gains and losses on the plan
  – Actuarial gains and losses on the plan
  – Income received on plan assets, less any
    amount included within net interest
                  Defined benefit schemes
• Impact of revision in 2011:
  – Actuarial gains and losses now renamed
    and included within remeasurement
  – Remeasurement component now taken to
    OCI – previously three alternative
  – Simplification of accounting for past service
IAS 19 - Other issues
          IFRS 9 - Financial Instruments
• Piecemeal updating to replace IAS 39
• Initially issued November 2009 to deal
  with financial assets
• Updated October 2010 to deal with
  financial liabilities
• Effective date 1 January 2015
• IAS 39 still relevant for impairment,
  hedging and derivatives until withdrawn
   IFRS 9 - financial assets –
recognition and measurement
          Impairment of financial assets
• Financial assets at fair value through profit
  or loss - the accounting treatment includes
  accounting for the effect of any impairment
• Financial assets at fair value through other
  comprehensive income – the effect of any
  impairment is taken to OCI
• Financial assets at amortised cost – need
  annual assessment of whether there is
  evidence of impairment – if so, do
  impairment test
                            Financial liabilities
• Effectively transferred IAS 39
  requirements to IFRS 9:
  – Financial liabilities at fair value through
    profit or loss
  – Other financial liabilities at amortised cost
  – Fair value option for financial liabilities
                   IAS 12 – Income taxes
• Amended December 2010 re
  investment property measured at fair
  value – normal presumption that
  carrying value will be recovered through
  sale – this presumption can be rebutted
• Consequence – may change tax rate to
  apply on temporary difference based
  upon when expected to reverse
• Effective from 1 January 2012
            PS1 – Management Commentary

• Practice Statement 1 – issued December
  2010 and can be adopted any time thereafter
• Provides broad non-binding framework for
  use when an entity prepares a management
  commentary relating to IFRS-compliant FS
• Provides management’s view of performance,
  position and progress
• Should supplement and complement
  information in the FS – not merely repetition
            PS1 – Management Commentary

• Elements of a management
  – nature of the business
  – objectives, and strategies to achieve the
  – significant resources, risks and
  – operational results, and future prospects
  – critical performance measures and
    indicators, together with commentary
                Small and medium-sized
                          entities (SME)
A SME is typically defined as:
• owner-managed by a relatively small
  group of shareholders,
• relatively small in terms of revenues
  generated and assets and liabilities
  under control of the entity,
• relatively small number of employees,
• undertake less complex transactions.
                              IFRS for SME
• Issued by the IASB in July 2009 and
  adopted by many countries
• Provides a framework for preparation of
  financial statements for eligible entities
• Substantially reduced financial reporting
  compliance burden in comparison with
  full IFRS compliance
                                IFRS for SME
Omitted subject matter from IFRS for
• EPS (IAS 33)
• Interim reporting (IAS 34)
• Segmental reporting (IFRS 8)
• Assets held-for-sale (IFRS 5)
• No size criteria for eligibility – only
  public accountability criteria
                            IFRS for SME
Simplified reporting under IFRS for SME:
• R&D always expensed
• Goodwill amortised over 10 years
• No revaluation of PP&E
• Finance costs never capitalised
                             IFRS for SME
Expected benefits of adoption:
• Improved comparability for users of
  accounts of SME
• Reduced financial reporting compliance
  costs for preparers of accounts
• IFRS for SME may provide a platform
  for progression towards adoption of full
  IFRS GAAP as entities grow
                              IFRS for SME
• In principle, approved for use in the UK,
  subject to appropriate legal and
  regulatory issues dealt with
                             UK FRSSE (2008)
• Introduced 1997 and periodically
• Current version updated previous
  version for effect of CA2006
• Size criteria – small per CA2006
                      Net       Gross
 Turnover (£m)        6.5        7.8
 Balance sheet (£m)   3.26       3.9
 Employees (max)      50         50
                         UK FRSSE (2008)
• Does not apply to:
  – Listed entities
  – Large or medium-sized entities or groups
  – Entities complying with IFRS
  – Entities undertaking excluded activities
• Use only limited specified headings in
  BS and P&L as applicable plus reduced
  and simplified disclosures
                               UK Developments
• Possible multi-tier development of
  corporate reporting in UK:
  – Listed entities – apply IFRS
  – Unlisted entities could apply:
     •   Full IFRS
     •   Full UK GAAP
     •   Abbreviated accounts as small/medium*
     •   UK FRSSE*
     •   FRS for SME (when approved)*
                                         *if applicable
Financial Reporting Standards Update

          Tony Sweetman
         Kaplan Publishing
           February 2012

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