IFRS UPDATE. Standards, Amendments and Interpretations. October 2016

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1 IFRS UPDATE Standards, Amendments and Interpretations October 2016

2 Our summary of the new and revised financial reporting requirements provides an update on IFRS Standards, Amendments and Interpretations set out by effective date, as well as Post-Implementation Reviews and Proposals. Summary for 2016/17 financial statements Effective for EU financial statements for the year ended 31 Dec Mar Jun Sep 17 IAS 19 (Amendment) - Defined benefit plans: Employee contributions Annual Improvements to IFRS ( ) IAS 1 (Amendment) - Disclosure initiative IAS 16 (Amendment) and IAS 38 (Amendment) - Clarification of acceptable methods of depreciation and amortisation IAS 16 (Amendment) and IAS 41 (Amendment) - Agriculture: Bearer plants IAS 27 (Amendment) - Equity method in separate financial statements IFRS 10 (Amendment), IFRS 12 (Amendment) and IAS 28 (Amendment) - Investment entities: Applying the consolidation exception IFRS 11 (Amendment) - Accounting for acquisitions of interests in joint operations FT PY PY PY FT PY PY PY Annual Improvements to IFRS ( ) FT PY Mandatory first-time application for EU financial statements Mandatory application in prior year EU financial statements Effective for December 2016 financial statements IAS 1 (Amendment) Presentation of Financial Statements - Disclosure initiative The Disclosure Initiative aims to improve disclosures in financial reporting. The Amendment clarifies existing IAS 1 Presentation of Financial Statements requirements. IAS 16 (Amendment) Property, Plant and Equipment and IAS 38 (Amendment) Intangible Assets - Clarification of acceptable methods of depreciation and amortisation The Amendments clarify the use of a depreciation or amortisation method that is based on revenue that is generated by an activity that includes the use of an asset.

3 IAS 16 (Amendment) Property, Plant and Equipment and IAS 41 (Amendment) Agriculture - Agriculture: Bearer plants The Amendments bring bearer plants into the scope of IAS 16 Property, Plant and Equipment, however, any agricultural produce growing on a bearer plant continues to be in the scope of IAS 41 Agriculture. IAS 19 (Amendment) Employee Benefits - Defined benefit plans: Employee contributions Effective 1 July 2014 with an EU effective date of 1 February Early application is The Amendment simplifies the accounting for contributions from employees or third parties to defined benefit plans that are independent of the number of years of employee service eg employee contributions that are calculated according to a fixed percentage of salary. IAS 27 (Amendment) Separate Financial Statements - Equity method in separate financial statements The Amendment provides the option of accounting for investments in subsidiaries, joint ventures and associates using the equity method in separate financial statements. IFRS 10 (Amendment) Consolidated Financial Statements, IFRS 12 (Amendment) Disclosure of Interest in Other Entities and IAS 28 (Amendment) Investments in Associates and Joint Ventures - Investment entities: Applying the consolidation exception The Amendments clarify: Which subsidiaries of an investment entity are consolidated; The exemption from preparing consolidated financial statements for an intermediate parent of an investment entity; and The application of the equity method by a noninvestment entity investor to an investment entity investee. IFRS 11 (Amendment) Joint Arrangements - Accounting for acquisitions of interests in joint operations The Amendment clarifies the accounting for the acquisition of an interest in a joint operation that constitutes a business. Annual Improvements to IFRS ( ) Effective 1 July 2014 with an EU effective date of 1 February Early application is Annual Improvements to IFRS ( ) Effective for December 2017 financial statements IAS 7 (Amendment) Statement of Cash Flows - Disclosure initiative Effective 1 January 2017 and expected to be endorsed by the EU in Q Early application is The Disclosure Initiative aims to improve disclosures in financial reporting. The Amendment requires disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. IAS 12 (Amendment) Income Taxes - Recognition of deferred tax assets for unrealised losses Effective 1 January 2017 and expected to be endorsed by the EU in Q Early application is The Amendment clarifies the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value.

4 Effective for December 2018 financial statements IFRS 9 Financial Instruments Effective 1 January 2018 and expected to be endorsed by the EU in Q Early application is Companies apply the Standard retrospectively. IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement. It sets out the requirements for the recognition and measurement of financial assets and liabilities: Classification and measurement IFRS 9 applies a classification approach for all types of financial assets based on the company s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset. Financial assets are classified and measured at: Amortised cost when the objective of the business model is achieved by collecting contractual cash flows only; Fair value through other comprehensive income when the objective of the business model is achieved by both collecting contractual cash flows and selling financial assets; and Fair value through profit or loss for all other business models or when the company applies the fair value option to eliminate an accounting mismatch. IFRS 9 s classification approach for financial liabilities is not changing substantially. Financial liabilities are classified and measured at amortised cost or fair value through profit or loss, with changes in the fair value of a company s own credit risk recognised in other comprehensive income. Impairment methodology IFRS 9 s impairment requirements apply to financial assets that are performing, underperforming and non-performing. Initially, 12-month expected credit losses on financial assets are recognised in profit or loss, with interest revenue being calculated on the gross carrying amount. If the credit risk increases significantly, then lifetime expected credit losses on financial assets are recognised in profit or loss, with interest revenue continuing to be calculated on the gross carrying amount. If the credit risk increases significantly and the financial assets become creditimpaired, then lifetime expected credit losses on financial assets continue to be recognised in profit or loss, with interest revenue being calculated on the net carrying amount. Hedge accounting IFRS 9 introduces a new hedge accounting model, which more closely aligns hedge accounting with risk management activities. For more information please refer to our Hot Topics: IFRS 9 Financial Instruments. IFRS 15 Revenue from Contracts with Customers Effective 1 January 2018 and expected to be endorsed by the EU in Q Early application is Companies can apply the Standard retrospectively or use a modified approach, with the cumulative effect of initially applying this Standard recognised in the year of application. IFRS 15 replaces IAS 11 Construction Contracts, IAS 18 Revenue and related interpretations on revenue recognition. It sets out the principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from a company s contract with a customer and presents a five step approach to the recognition of revenue: Step 1: Identify the contract(s) with a customer A contract with a customer is an agreement that creates enforceable rights and obligations. Step 2: Identify the performance obligations in the contract A performance obligation is a promise to transfer distinct goods or services to a customer. Step 3: Determine the transaction price The transaction price is the amount of consideration to which a company expects to be entitled in exchange for transferring promised goods or services to a customer. Step 4: Allocate the transaction price to the performance obligations in the contract A company allocates the transaction price to each performance obligation identified in a contract on a relative stand-alone selling price basis. Step 5: Recognise revenue when (or as) the company satisfies a performance obligation A company recognises revenue when (or as) it satisfies a performance obligation by transferring promised goods or services to a customer. For more information please refer to our Hot Topics: IFRS 15 Revenue from Contracts with Customers. Clarifications to IFRS 15 Revenue from Contracts with Customers Effective 1 January 2018 and expected to be endorsed by the EU in H Early application is The Clarifications are in respect of issues arising from the discussions of the Transition Resource Group.

5 IFRS 2 (Amendment) Share-based Payment - Classification and measurement of share-based payment transactions Effective 1 January 2018 and expected to be endorsed by the EU in H Early application is The Amendment addresses: The measurement of cash-settled share-based payment transactions with vesting and nonvesting conditions; The classification of share-based payment transactions with net settlement features for withholding tax obligations; and The accounting for a modification to the terms and conditions of a share-based payment transaction that changes its classification from cash-settled to equity-settled. IFRS 4 (Amendment) - Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts Effective 1 January 2018 and expected to be endorsed by the EU in The Amendment provides: The overlay approach - an option for all insurers to reclassify between profit or loss and other comprehensive income the difference between the amount reported in profit or loss for the designated financial assets applying IFRS 9 and IAS 39; and A temporary exemption from IFRS 9 - an option for insurers whose activities are predominantly connected with insurance of a temporary exemption from applying IFRS 9 for annual periods beginning before 1 January Effective for December 2019 financial statements IFRS 16 Leases Effective 1 January 2019 and expected to be endorsed by the EU in Early application is permitted with application of IFRS 15 Revenue from Contracts with Customers. Companies are not required to reassess contracts for leases at the date of application. Lessees can apply the Standard retrospectively or use a modified approach, with the cumulative effect of initially applying this Standard recognised in the year of application. Lessors generally apply the Standard prospectively. interpretations on leases. It sets out the principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. Definition of a lease IFRS 16 defines a lease as a contract that conveys the right to control the use of an identified asset for a period of time in exchange for consideration. This is when both of the following conditions are met: The customer has the right to obtain substantially all of the economic benefits from the use of the asset; and The customer has the right to direct the use of the asset. Lease accounting A lessee s accounting is changing significantly, with the recognition of assets and liabilities arising from all leases, except for those with a term of 12 months or less or for which the asset is of low value. A lessor s accounting is not changing substantially. For more information please refer to our Hot Topics: The New Leases Standard. Effective for non-eu and future financial statements IFRS 14 Regulatory Deferral Accounts Effective 1 January 2016, but will not be endorsed by the EU. The Standard is an interim standard that permits an entity that is a first-time adopter of IFRS to continue to account for its regulatory deferral account balances in accordance with its previous GAAP, subject to limited changes. IFRS 10 (Amendment) Consolidated Financial Statements and IAS 28 (Amendment) Investments in Associates and Joint Ventures - Sale or contribution of assets between an investor and its associate or joint venture Effective date has been postponed indefinitely. The Amendments address an inconsistency between the requirements in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures, in dealing with the sale or contribution of assets between an investor and its associate or joint venture. IFRS 16 replaces IAS 17 Leases and related

6 Post-implementation Reviews IFRS 3 Business Combinations A feedback statement was published in June The Review identified the following highly significant areas of focus: Effectiveness and complexity of testing goodwill for impairment; and Subsequent accounting for goodwill (ie impairment only approach or amortisation and impairment approach). For more information please refer to our Hot Topics: Post-implementation review of IFRS 3. IFRS 8 Operating Segments A feedback statement was published in July The Review identified areas for potential improvement and amendment.

7 Proposals Standard-setting projects Conceptual Framework A new Conceptual Framework is expected after 6 months. The Conceptual Framework describes the objective of, and the concepts for, financial reporting. This project aims to improve financial reporting by completing, clarifying and updating the concepts, which involves revising the existing Conceptual Framework. Disclosure Initiative: Materiality Practice Statement The project direction will be decided within 3 months. The Disclosure Initiative aims to improve disclosures in financial reporting. This project aims to provide non-mandatory guidance to assist management in applying the concept of materiality to financial statements. Insurance Contracts A new Standard is expected within 6 months. Current proposals are for a five stage approach to the accounting for insurance contracts: Step 1: Identify and recognise the contract - The defining feature of an insurance contract is the presence of significant insurance risk. Step 2: Measure the contract at initial recognition - A company measures an insurance contract by incorporating information about the expected cash flows related to fulfilling the insurance contract, ensuring that the measurement is consistent with observable market information. Step 3: Remeasure the contract in subsequent periods - A company remeasures insurance contracts using updated assumptions about cash flows, discount rate and risk. Step 4: Present results in financial statements - A company can choose to split the interest expense and present cost-based interest expense in profit or loss and the effect of changes in discount rates on the insurance contract in other comprehensive income. Step 5: Provide disclosures - A company provides information about the amounts recognised in the financial statements, the significant judgements used in measuring insurance contracts and the risks arising from insurance contracts. Rate-regulated Activities A Discussion Paper is expected after 6 months. IFRS 14 Regulatory Deferral Accounts is an interim standard. This project considers the characteristics and reporting of rate-regulated activities in financial statements. Maintenance of Standards Clarifications arising from the Postimplementation Review (Proposed Amendment to IFRS 8 Operating Segments ) An Exposure Draft is expected within 6 months. The Review identified areas for potential improvement and amendment. Definition of a Business and Accounting for Previously Held Interests (Proposed Amendments to IFRS 3 Business Combinations and IFRS 11 Joint Arrangements ) An Exposure Draft was issued on 28 June 2016 and the deadline for comments is 31 October The project direction will be decided within 6 months. The draft Amendments clarify: The definition of a business; and The accounting for previously held interests when an entity obtains control of a business that is a joint operation and joint control of a business that is a joint operation. Disclosure Initiative: Classification of Liabilities (Proposed Amendment to IAS 1 Presentation of Financial Statements ) An Amendment is expected after 6 months. The Disclosure Initiative aims to improve disclosures in financial reporting. The draft Amendment clarifies: That classification of liabilities as either current or non-current is based on the rights at the end of the reporting period; and The link between the settlement of the liability and the outflow of resources.

8 Disclosure Initiative: Distinction between a change in accounting policy and a change in accounting estimate (Proposed Amendment to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors ) An Exposure Draft is expected within 6 months. The Disclosure Initiative aims to improve disclosures in financial reporting. This project aims to clarify the existing distinction between a change in an accounting policy and estimate. Foreign Currency Transactions and Advance Consideration (Proposed Interpretation) A new Interpretation is expected within 3 months. The draft Interpretation addresses how to determine the date of the transaction for the purpose of determining the spot exchange rate used to translate foreign currency transactions on initial recognition. Remeasurement on a Plan Amendment, Curtailment or Settlement / Availability of a Refund from a Defined Benefit Plan (Proposed Amendments to IAS 19 Employee Benefits and IFRIC 14 The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction ) The project direction will be decided within 3 months. The draft Amendments address: Whether other parties (eg pension trustees ) power to enhance benefits for plan members or wind up a plan affects the availability of a refund; The interaction between the asset ceiling and the past service cost or a gain or loss on settlement; and The accounting when a plan amendment, curtailment or settlement occurs. Transfers of investment property (Proposed Amendment to IAS 40 Investment Property ) An Amendment is expected within 3 months. The draft Amendment concerns: Stating that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use; and Re-characterising the exhaustive list of circumstances evidencing a change in use as a non-exhaustive list of examples of evidence of a change in use. Uncertainty over Income Tax Treatments (Proposed Interpretation) A new Interpretation is expected after 6 months. The draft Interpretation provides guidance on accounting for current and deferred tax liabilities and assets in circumstances in which there is uncertainty over income tax treatments. Post-implementation Reviews IFRS 13 Fair Value Measurement The project direction will be decided within 6 months. IFRS 10 Consolidated Financial Statements, 11 Joint Arrangements and 12 Disclosure of Interests in Other Entities A Post-implementation Review is expected to commence after 6 months.

9 EU Endorsement Status EU endorsement status EFRAG draft advice EFRAG final advice ARC vote Expected date IFRS 9 Financial Instruments Y Y Y Q IFRS 14 Regulatory Deferral Accounts Will not be endorsed by the EU N/A IFRS 15 Revenue from Contracts with Customers Y Y Y Q IFRS 16 Leases Q Q IAS 7 (Amendment) - Disclosure initiative IAS 12 (Amendment) - Recognition of deferred tax assets for unrealised losses IFRS 2 (Amendment) - Classification and measurement of share-based payment transactions IFRS 4 (Amendment) - Applying IFRS 9 with IFRS 4 Y Y Q Q Y Y Q Q Q Q H H Q Q IFRS 10 (Amendment) and IAS 28 (Amendment) - Sale or contribution of assets between an investor and its associate or joint venture Endorsement by the EU has been postponed N/A Clarifications to IFRS 15 Y Y Q H1 2017

10 Please get in touch Mazars has a specialist Financial Reporting Advisory team dedicated to providing support on accounting and financial reporting matters. For more information please contact: Steve Brice, Technical Partner T: E: steve.brice@mazars.co.uk Sophie Campkin, Technical Manager T: E: sophie.campkin@mazars.co.uk For regular topical updates please refer to our blog, Mind the GAAP. Mazars LLP is the UK firm of Mazars, an international advisory and accountancy organisation, and is a limited liability partnership registered in England with registered number OC A list of partners names is available for inspection at the firm s registered office, Tower Bridge House, St Katharine s Way, London E1W 1DD. Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Details about our audit registration can be viewed at under reference number C Mazars

IFRS UPDATE. Standards, Amendments and Interpretations. January 2017

IFRS UPDATE. Standards, Amendments and Interpretations. January 2017 IFRS UPDATE Standards, Amendments and Interpretations January 2017 Our summary of the new and revised financial reporting requirements provides an update on IFRS Standards, Amendments and Interpretations