IFRS update Israel December 2013

Size: px

Start display at page:

Download "IFRS update Israel December 2013"

Bathsheba Griffin
6 years ago
Views:

1 IFRS update Israel December

2 Agenda 1. What s new? 2. Developments at the IASB - Leases - Revenue - Financial instruments - Conceptual framework - Rate regulation 3. Future improvements to IFRSs Slide 2

3 1. What s new?

4 Timeline new standards and amendments No mandatory date IFRS 1 amendment Government grants IFRS 7 amendment Assets and liabilities offsetting IFRS 10 Consolidated financial statements IFRS 11 Joint arrangements IFRS 12 Disclosure of interests in other entities IFRS 13 Fair value measurement Amendments to IFRSs 10, 11, and 12 Transitional guidance IAS 1 amendment Presentation of items of OCI IAS 19 amendment Employee benefits IAS 27 (revised 2011) Separate financial statements IAS 28 (revised 2011) Associates and joint ventures IFRIC 20 Stripping costs Annual improvement 2011 IAS 32 amendment Assets and liabilities offsetting Amendment to IFRS 10, 11 and IAS 27 Exception from consolidation for investment entities IAS 36 amendment Recoverable amount disclosures for nonfinancial assets IAS 39 amendment Novation of derivatives and continuation of hedge accounting IFRIC 21 Levies IAS 19R amendment employee contributions IFRS 9 Financial instruments Slide 4

5 IFRIC 21 - levies Scope Levies in the scope of IAS 37 Timing and amount to pay is certain Key provisions What is the obligating event that gives rise to a liability? - Event identified by the legislation triggering obligation to pay When is a liability to pay a levy recognised? - When the obligating event occurs o o At a point of time or over time Triggered by reaching minimum threshold Transition Effective 2014 Retrospectively applied, early adoption permitted Slide 5

6 IFRS 9 general hedge accounting Issued in November No mandatory effective date for now. Possible alternatives: Keep applying IAS 39 until macro hedging project is completed Adopt IFRS 9 hedge accounting chapter immediately Retain three types of hedges Relax the requirements for hedge effectiveness Documentation and designation Greater alignment with risk strategy Risk components in nonfinancial items Derivatives as hedged items Net exposures Accounting for time value of options, forwards and currency basis spread Removal of effectiveness bright lines Slide 6

7 2. Developments at the IASB

8 IASB work plan Major project Q Q IFRS 9: impairment IFRS 9: classification and measurement IFRS IFRS Macro hedging Insurance contracts Leases Revenue Conceptual framework Rate regulation DP Redeliberations Redeliberations IFRS Redeliberations DP Slide 8

9 2.1 Leases

10 Lease accounting Key proposals Lessee accounting - Recognise an asset (right to use the leased item) - Recognise a liability (obligation to pay rentals) Income statement accounting depends on type of lease - Similar to finance lease if most of the value is consumed - Otherwise similar to an operating lease - Rebuttable presumption for property - What is property? Lessor accounting - Similar to today, based on similar criteria Slide 10

11 Lease accounting Key proposals Lease term - Include optional extension periods only when there is significant economic incentive to extend Contingent rents - Excluded What distinguishes a lease from a service? Slide 11

12 Lease accounting Over 600 comment letters (and increasing) Varied messages - Lessee o o o Limited support for dual approach Dividing line for lease classification Costly and complex - Lessor no mandate for change? Improvement in accounting? Slide 12

13 2.2 Revenue

14 Revenue from contracts with customers Long standing project expected to finish shortly Discussion paper and two exposure drafts Consistent model across all geographies, industries and capital markets Replace limited existing GAAP Re-deliberations continued through October Final standard expected first quarter 2014 Expected to be effective 2017 Joint implementation group with FASB announced Slide 14

15 Revenue from contracts with customers Recognition Step 1: Identify the contract with the customer XXX Step 2: Identify the separate performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price Step 5: Recognise revenue when (or as) a performance obligation is satisfied Slide 15

16 Revenue from contracts with customers Final decisions Collectibility Probable threshold to determine whether revenue guidance is applied Probable under both IFRS and US GAAP, so convergence not achieved, but both consistent with existing practice Variable consideration Variable consideration included if it is highly probable that a subsequent change in the estimate would not result in a significant revenue reversal Exception for sales based royalties revenue when uncertainty resolved Licences Two types of licences: (1) Right transferred at point in time (2) Service of providing access over time Criteria to distinguish different types Identify separate performance obligations first Slide 16

17 2.3 Financial instruments

18 Impairment proposed credit deterioration model Change in credit quality since initial recognition Recognition of expected credit losses 12 month expected credit losses Lifetime expected credit losses Lifetime expected credit losses Interest revenue Effective interest on gross carrying amount Stage 1 Stage 2 Stage 3 Initial recognition* Effective interest on gross carrying amount Assets with significant increase in credit risk since initial recognition* Effective interest on amortised cost carrying amount (i.e. net of credit allowance) Credit impaired assets *except for purchased or originated credit impaired assets Slide 18

19 Impairment proposed credit deterioration model Simplified approach Class Upon origination Expected credit loss Trade receivables without significant financing Trade receivables with significant financing Simplified approach Measure receivable at invoice amount Accounting policy choice: General model; or Simplified approach Lifetime expected credit losses Provision matrix can be used Depends on the accounting policy choice decision made. Lease receivables As trade receivables with significant financing Slide 19

20 Convergence? IASB/FASB No joint decisions. Convergence seems unlikely Responses to IASB suggest support for the credit deterioration model IASB tentatively decided: Not to provide a definition of default, but to require entities to use the definition used for credit risk management. Rebuttable presumption of default at 90 days past due Clarify application of low credit risk exception Clarify that the discount rate is effective interest rate (EIR) or an approximation thereof Final standard expected in first half of Expected effective date no earlier than 2017 Slide 20

21 IFRS 9 - classification and measurement Limited amendments Original objectives to change IFRS 9 Address IFRS 9 application issues Consider its interaction with the insurance project Address differences between IFRS 9 and FASB model Summary of proposed changes Introduction of the fair value OCI category with recycling for debt instruments Clarify solely payments of principal and interest Revised business model guidance to clarify the scope of the amortised cost category Transition guidance requires that all phases of IFRS 9 are adopted together once the final standard is issued Slide 21

22 Convergence? IFRS 9 - Classification & measurement (limited amendments) Joint meetings with FASB on-going In the November both boards tentatively agreed: To retain the fair value categories FVOCI and FVPL Sales should not drive business model in the hold to collect measurement category Final standard expected in the first half of 2014 Slide 22

23 2.4 Conceptual framework

24 Conceptual framework Disclosure forum (Jan) Discussion paper (July) 2014 Comment period ends (Jan) Exposure draft expected 2015? Final publication date Slide 24

25 Conceptual framework Key questions Debt/equity Strict obligation approach or narrow equity Conditional liabilities Three possible views for conditional and constructive liabilities Other comprehensive income (OCI) A principle? Proposed formats: sub-total of profit or loss with bridging/mismatch/recycling items in OCI? Prudence Removed from Framework in 2010 and not considered in the DP Slide 25

26 2.5 Rate regulation

27 Rate regulation Discussion paper Accounting for rate regulation Interim standard Discussion paper expected early 2014 Consultative working group formed Background research: - IASB should explore rate regulation based on rights and obligations rather than types of regulation - Consider of interactions with IFRIC 12 - Description of rate regulation in several different territories Slide 27

28 3. Future improvements to IFRSs IASB / IC agenda items

29 3. IASB / IC agenda items IAS 12 IAS 16/ IAS 38 IAS 19R IAS 32 IFRS 2 Recognition of deferred tax assets for unrealized losses Clarification of acceptable methods of depreciation and amortization Employee contributions Discount rates Puts on non-controlling interests Debt/equity Dual pricing Measurement of cash settled awards Contingent settled features Slide 29

30 3. IASB / IC agenda items IAS 27 / IAS 28 / IFRS 10 / IFRS 11 Equity method in separate financial statements Equity method share of other net assets changes IFRS 11 implementation issues IFRs 10 implementation issues IFRS 13 Fair value measurement unit of account for financial assets that are investments in subsidiaries, JV and associates measured at FV Exposure draft of IAS 41 Bearer plants in the scope of IAS 16 instead of IAS 41 Slide 30

31 3. IASB / IC agenda items Disclosure initiative Short term project Disclosure initiative, including - materiality - disaggregation - order of notes - net-debt reconciliation Going concern Current and non-current classification of liabilities Medium term project Single standard replacing IAS 1, IAS 7 and IAS 8? General review of disclosure in existing standards Slide 31

32 Thank you This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. PricewaterhouseCoopers LLP. All rights reserved. In this document, refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

What is new on IFRS?

www.pwc.com.br What is new on IFRS? Agenda 1. What s new for 2014 2. What is in the pipeline IFRS 15 Revenue from contract with customers IFRS 9 Financial instruments IAS 41 Amendments ( bearer plants