Lesson 15 International Accounting Lelio Bigogno, Stefano Santucci

Transcription

1 Università degli studi di Pavia Facoltà di Economia a.a Lesson 15 International Accounting Lelio Bigogno, Stefano Santucci 1

2 IFRS 1 First Time Adoption of International Financial Reporting Standards International Accounting Lesson 12 2

3 IFRS1 was developed by the International Accounting Standards Board (IASB) to help entities transition from national Gaap to International Financial Reporting Standards (IFRS) as their basis for financial reporting. International Accounting Lesson 12 3

4 It applies to an entity s first IFRS financial statements and interim reports presented under IAS34, Interim financial reporting, for the part of the period covered by the first IFRS financial statements. International Accounting Lesson 12 4

5 MAIN STEPS forthe adoption of IFRSs - DIAGNOSTIC - Selection of ACCOUNTING POLICIES (DESIGN) - Preparing OPENING IFRS BALANCE (TRANSITION) - PRESENTATION AND DISCLOSURES International Accounting Lesson 12 5

6 STEP 1:DIAGNOSTIC Identify major ITAGaap-IFRS differences; Identify nature of potential effects of IFRS conversion on tax position; Preliminarly assess impact of IFRS on tax accounts and reporting; Indentify major disclosures data gaps. International Accounting Lesson 12 6

7 STEP 2: ACCOUNTING POLICIES (DESIGN) Select accounting policies that comply with the IFRSs in force at the closing balance sheet date for the first IFRS financial statements. The selected accounting policies are applied retrospectively to all of the periods presented in the first IFRS financial statements. International Accounting Lesson 12 7

8 STEP 3: OPENING IFRS BALANCE (TRANSITION) Prepare an opening IFRS balance sheet at thedateoftransitionto IFRSs. This is the beginning of the earliest period for which full comparative information is presented in accordance with IFRS. International Accounting Lesson 12 8

9 Example: first IFRS financial statements december,31 st 2014 Date of transition January 1 st,2013 = December 31 st,2012.that means to prepare: 1) 3 balance sheet (31 December 2012,2013 and 2014); 2) 2 cash flow statements as of the same dates (YE 2013 and 2014); 3) 2 profit and loss (31 December 2013 and 2014); 4) 2 Notes to the financial statements (disclosures) with specific prospects to explain the IFRS transition and its impact to net equity and net result. International Accounting Lesson 12 9

10 The accounting policies selected are used to prepare the opening balance sheet which.. International Accounting Lesson 12 10

11 Includes all the assets and liabilities required by IFRSs. Excludes any assets and liabilities not permitted by IFRSs. Classifies all assets, liabilities and equity in accordance with IFRSs. Measures all items in accordance with IFRSs. International Accounting Lesson 12 11

12 Derecognitionof some previous GAAP assets and liabilities The entity should eliminate previous- GAAP assets and liabilities from the opening balance sheet if they do not qualify for recognition under IFRSs International Accounting Lesson 12 12

13 Examples: IAS 38 does not permit recognition of expenditure on any of the following as an intangible asset: research start-up, pre-operating, and pre-opening costs training advertising and promotion moving and relocation If the entity's previous GAAP had recognised these as assets, they are eliminated in the opening IFRS balance sheet International Accounting Lesson 12 13

14 If the entity's previous GAAP had allowed accrual of liabilities for "general reserves", restructurings, future operating losses, or major overhauls that do not meet the conditions for recognition as a provision under IAS 37, these are eliminated in the opening IFRS balance sheet; If the entity's previous GAAP had allowed recognition of contingent assets as defined in IAS 37.10, these are eliminated in the opening IFRS balance sheet International Accounting Lesson 12 14

15 Recognition of some assets and liabilities not recognized under previousgaap The entity should recognise all assets and liabilities that are required to be recognised by IFRS even if they were never recognised under previous GAAP International Accounting Lesson 12 15

16 Examples: IAS 39 requires recognition of all derivative financial assets and liabilities, including embedded derivatives. These were not recognised under many local GAAPs. IAS 37 requires recognition of provisions as liabilities. Examples could include an entity's obligations for restructurings, onerous contracts, decommissioning, remediation, site restoration, warranties, guarantees, and litigation International Accounting Lesson 12 16

17 IAS 19 requires an employer to recognise a liability when an employee has provided service in exchange for benefits to be paid in the future. These are not just post-employment benefits (eg, pension plans) but also obligations for medical and life insurance, vacations, termination benefits, and deferred compensation. In the case of 'over-funded' defined benefit plans, this would be a plan asset. Deferred tax assets and liabilities would be recognised in conformity with IAS 12 International Accounting Lesson 12 17

18 Reclassification The entity should reclassify previous-gaap opening balance sheet items into the appropriate IFRS classification International Accounting Lesson 12 18

19 Examples: IAS 10 does not permit classifying dividends declared or proposed after the balance sheet date as a liability at the balance sheet date. If such liability was recognised under previous GAAP it would be reversed in the opening IFRS balance sheet. If the entity's previous GAAP had allowed treasury stock (an entity's own shares that it had purchased) to be reported as an asset, it would be reclassified as a component of equity under IFRS. International Accounting Lesson 12 19

20 Items classified as identifiable intangible assets in a business combination accounted for under the previous GAAP may be required to be reclassified as goodwill under IFRS 3 because they do not meet the definition of an intangible asset under IAS 38. The converse may also be true in some cases. IAS 32 has principles for classifying items as financial liabilities or equity. Thus mandatorily redeemable preferred shares that may have been classified as equity under previous GAAP would be reclassified as liabilities in the opening IFRS balance sheet. International Accounting Lesson 12 20

21 The reclassification principle would apply for the purpose of defining reportable segments under IFRS 8. Some offsetting (netting) of assets and liabilities or of income and expense items that had been acceptable under previous GAAP may no longer be acceptable under IFRS. International Accounting Lesson 12 21

22 Adjust ments required to move from previous GAAP to IFRSs at the date of tran si tion should be recog nised directly in retained earnings or, if appro priate, another category of equity at the date of tran si tion to IFRSs International Accounting Lesson 12 22

23 Estimates: IFRS 1 does not permit the use of hindsight to revise estimates or to make new estimates. In preparing IFRS estimates at the date of transition to IFRSs retrospectively, the entity must use the inputs and assumptions that had been used to determine previous GAAP estimates as of that date (after adjustments to reflect any differences in accounting policies) International Accounting Lesson 12 23

24 Estimates included in the opening IFRS balance sheet must be consistent with estimates made at the same date under previous GAAP, unless there is objective evidence of an error. entity is not permitted to use information that became available only after the previous GAAP estimates were made except to correct an error. THAT MEANS THAT THE ERROR WAS MADE ALSO APPLYING PREVIOUS GAAP. International Accounting Lesson 12 24

25 Example: A provision for a liability associated with litigation recognised under previous GAAP would not be revised under IFRS just because the outcome of the case is known when the first IFRS financial statements are later prepared. International Accounting Lesson 12 25

26 However, an entity may need to make estimates at the transition date under IFRS that were not required under previous GAAP. Such estimates under IFRS should reflect conditions at the date of the opening IFRS balance sheet. In particular, estimates at the date of transition of market prices, interest rates or foreign exchange rates should reflect market conditions at that date. International Accounting Lesson 12 26

27 The key principle of IFRS 1 is full retrospective application of IFRS standards that are effective as of the entity s first IFRS reporting period. International Accounting Lesson 12 27

28 However, IFRS 1 establishes two types of exception from the principle of full retrospective application of standards effective at the end of the first IFRS reporting period International Accounting Lesson 12 28

29 (1) optional exemptions from some of the requirements of certain IFRS and (2) mandatory exceptions from the requirement for the retrospective application of other IFRS. International Accounting Lesson 12 29

30 Why optional exemptions? because in the IASB s view the cost of complying with them is likely to exceed the benefits to users of financial statements from some of the requirements of certain IFRS International Accounting Lesson 12 30

31 Optional exemptions relate to: Business combinations Deemed cost Employee benefits Cumulative currency translation differences Compound financial instruments Assets and liabilities of subsidiaries Associates and joint ventures International Accounting Lesson 12 31

32 Designation of previously recognised financial instruments Share-based payment transactions Insurance contracts. Decommissioning liabilities included in the cost of property, plant and equipment Leases International Accounting Lesson 12 32

33 Service concession arrangements Borrowing costs Investments in subsidiaries, jointly controlled entities and associates Transfers of assets from customers International Accounting Lesson 12 33

34 There are various optional exemptions, each of them can be considered separately by first-time adopters. Some of the exemptions are applied to all relevant items in the opening IFRS balance sheet, but some can be applied to individual items International Accounting Lesson 12 34

35 Why mandatory exceptions? IFRS 1 prohibit retrospective application of IFRS in some areas, particularly when retrospective application would require judgments by management about past conditions after the outcome of a particular transaction is already known. THE IFRS GENERAL PRINCIPLE SAYS THAT EACH TRANSACTION MUST BE TREATED ON THE BASIS OF THE INFORMATION AVAILABLE AT THE DATE ON WHICH THE TRANSACTION OCCURRED. International Accounting Lesson 12 35

36 The reasoning behind the mandatory exceptions is that retrospective application of IFRS in these situations could easily result in an unacceptable use of hindsight and lead to arbitrary or biased restatements, which would be neither relevant nor reliable. International Accounting Lesson 12 36

37 Prior to 1 January 2010, there were three exceptions to the general principle of retrospective application. On 23 July 2009, IFRS 1 was amended, effective 1 January 2010, to add two additional exceptions with the goal of further simplifying the transition to IFRSs for first-time adopters. The five exceptions are. International Accounting Lesson 12 37

38 Derecognition of financial instruments (IAS39) Hedge accounting (IAS 39) Full cost oil and gas assets Non-controlling interests (IAS27) Determine whether an arrangement contains a lease International Accounting Lesson 12 38

39 Derecognition of financial istruments: A first-time adopter shall apply the derecognition requirements in IAS 39 prospectively for transactions occurring on or after 1 January However, the entity may apply the derecognition requirements retrospectively provided that the needed information was obtained at the time of initially accounting for those transactions. International Accounting Lesson 12 39

40 Hedge accounting: The general rule is that the entity shall not reflect in its opening IFRS balance sheet (statement of financial position) a hedging relationship of a type that does not qualify for hedge accounting in accordance with IAS 39. However, if an entity designated a net position as a hedged item in accordance with previous GAAP, it may designate an individual item within that net position as a hedged item in accordance with IFRS, provided that it does so no later than the date of transition to IFRSs.. International Accounting Lesson 12 40

41 Non controlling interest IFRS 1. paragraph B7 lists specific requirements of IAS 27 (2008) that shall be applied prospectively. International Accounting Lesson 12 41

42 Full-cost oil and gas assets Entities using the full cost method may elect exemption from retrospective application of IFRSs for oil and gas assets. Entities electing this exemption will use the carrying amount under its old GAAP as the deemed cost of its oil and gas assets at the date of first-time adoption of IFRSs. International Accounting Lesson 12 42

43 Determining whether an arrangement contains a lease If a first-time adopter with a leasing contract made the same type of determination of whether an arrangement contained a lease in accordance with previous GAAP as that required by IFRIC 4Determining whether an Arrangement Contains a Lease, but at a date other than that required by IFRIC 4, the amendments exempt the entity from having to apply IFRIC 4 when it adopts IFRSs International Accounting Lesson 12 43

44 STEP 4: PRESENTATION AND DISCLOSURES An entity shall explain how the transition from previuos ITAGaap to IFRSs affected its reported financial position, financial performance and cash flows. International Accounting Lesson 12 44

45 Comparative Information An entity s first IFRS financial statement shall include at least three statements of financial position, two statements of comprehensive income, two separate income statements (if presented), two statements of cash flows and two statements of changes in equity and related notes, including comparative information. International Accounting Lesson 12 45

46 Reconciliations An entity shall explain how the transition from previous GAAP to IFRSs affected its reported financial position. International Accounting Lesson 12 46

47 Reconciliations An entity s first IFRS financial statemens shall include: Reconciliation of itsequity reported in accordance with previuos GAAP to its equity in accordance with IFRS for both of the following dates International Accounting Lesson 12 47

48 -The date of transition to IFRS AND - The end of the latest period presented in the entity s most recent annual financial statements in accordance with previuos GAAP International Accounting Lesson 12 48

49 a riconciliation to its total comprehensive income in accordance with IFRSs for the latest period in the entity s most recent annual financial statements. International Accounting Lesson 12 49

50 The starting point shall be total comprehensive income in accordance with previous Gaap for the same period or, if an entity did not report such total, profit and loss under previous Gaap. International Accounting Lesson 12 50