IFRS update 12 March 2013 Download the slides to accompany the webinar ion.icaew.com/financialreporting/26230

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1 IFRS update 12 March 2013 Download the slides to accompany the webinar ion./financialreporting/26230

2 Introduction Marianne Mau Technical Manager, Financial Reporting Faculty

3 Introduction Eddy James Technical Manager Financial Reporting Faculty Peter Hogarth Partner PwC

4 Ask a question Participate in today s webinar send us a question Audio problems

5 Downloading the slides ion./financialreporting/26230

6 Contents Financial instruments Group accounting issues Other recent exposure drafts Update on other major projects The IASB s future work programme

7 Financial instruments

8 Financial instruments Project phase Exposure draft Status / next steps 1a. Classification & measurement of financial assets 1b. Classification & measurement of financial liabilities July 2009 May Impairment November a. General hedge accounting 3b. Macro hedge accounting Supplement January 2011 IFRS 9 published in November 2009 Limited scope review underway - exposure draft published in November 2012 Added to IFRS 9 in October 2010 Target re-exposure in Q December 2010 Target IFRS in Q Yet to be issued Target discussion paper in Q1 or Q2 2013

9 Financial assets original IFRS 9 model Contractual cash flow characteristics + Business model test Amortised cost Fair value option Accounting mismatches only All other instruments Equities, derivatives & some hybrid contracts Fair value through P&L Option to take gains & losses to OCI for equities No recycling No bifurcation Reclassification required where business model changes

10 Financial assets proposed new model Contractual cash flow characteristics + Business model test Hold to collect Hold to collect and sell Amortised cost Fair value through OCI Fair value option Accounting mismatches only All other instruments Equities, derivatives & some hybrid contracts Fair value through P&L Option to take gains & losses to OCI for equities No recycling No bifurcation Reclassification required where business model changes

11 Examples Amortised cost Simple loans and bond where the objective is holding to collect Some more complex debt instruments where the objective is holding to collect eg, loans with embedded interest rate caps Fair value through OCI Portfolios where debt instruments are bought and sold more frequently but that are nonetheless managed on a yield basis Equities held for strategic reasons Fair value through P&L Debt instruments where the objective is selling before maturity Hybrid debt instruments with complex features eg, equity or commodity linked interest rates All other equities Derivatives

12 New general hedge accounting requirements IAS 39 Not linked to common risk management practices Draft IFRS 9 Aligns hedge accounting more closely with risk management Detailed rules can make achieving hedge accounting impossible or very costly More principlesbased

13 Key points Types of hedging relationship, accounting mechanics and presentation requirements largely unchanged New requirements to achieve, continue and discontinue hedge accounting Additional exposures may now be hedged items Rules on using nonderivative financial instruments and purchased options as hedging instruments relaxed Extensive new disclosures required Transition generally prospective

14 Achieving, continuing & discontinuing hedge accounting IAS 39 IFRS 9 Achieving hedge accounting Quantitative hedge effectiveness assessment Must expect to be % effective Qualitative, forward-looking hedge effectiveness assessment No arbitrary bright line Continuing hedge accounting Retrospective effectiveness test Must be % effective No retrospective test Hedging relationship may need to be rebalanced Discontinuing hedge accounting Must discontinue if cease to meet qualifying criteria Voluntary termination allowed Must discontinue if cease to meet qualifying criteria Voluntary termination prohibited

15 Additional exposures may now be hedged items Risk components of nonfinancial items Equity investments at FVOCI Noncontractually specified inflation Additional hedged items Aggregated exposures Net positions Layer components

16 Group accounting issues

17 Group accounting issues Revised standards Topic Effective date Amendments to IFRS 10, IFRS 11 & IAS 27 Amendments to IFRS 10, IFRS 11 & IFRS 12 Investment entities 1 January 2014 Transitional guidance 1 January 2013 Proposals Topic Target amendment Amendments to IAS 28 Amendments to IFRS 10 & IAS 28 Amendments to IFRS 11 Equity method share of other net assets changes Sales or contribution of assets between investor and its associate or joint venture Acquisition of an interest in a joint operation Q Q Q4 2013

18 Investment entities An investment entity is an entity that: obtains funds from one or more investors for the purpose of providing those investor(s) with investment management services commits to its investor(s) that its business purpose is to invest funds solely for returns from capital appreciation, investment income or both measures and evaluates the performance of substantially all of its investments on a fair value basis An investment entity shall be required to measure subsidiaries at fair value through profit or loss

19 Typical characteristics 19 More than one investment Unrelated investors More than one investor Ownership interests An investment entity is expected, but not required, to have these typical characteristics

20 Parents of investment entities 20 Investment entity parent Non-investment entity parent

21 Other recent exposure drafts

22 Other recent exposure drafts narrow-scope amendments Proposal Topic Target amendment Annual improvements Annual improvements Amendments to IAS 16 & IAS 38 Amendments to IAS 36 Minor amendments to eleven standards Minor amendments to six standards Clarification of acceptable methods of depreciation & amortisation Recoverable amount disclosures of non-financial assets Q Q Q Q4 2013

23 Update on other major projects

24 Update on other major projects Revenue recognition Leases Insurance contracts Clarifies approach to recognising revenue Original proposals unclear, especially for services Re-exposure issued in Nov 2011 Target IFRS Q1 or Q2 All lease assets & liabilities on balance sheet Original proposals complex & difficult to apply Re-exposure expected in Q1 A comprehensive insurance standard that will replace IFRS 4 Re-exposure expected in Q1 or Q2

25 Poll - Which of the proposed or actual changes is likely to have the greatest significance for your reporting?

26 The IASB s future work programme

27 The IASB s future work programme The IASB has concluded its far-reaching public consultation on its future agenda It received more than 240 comment letters in response to the consultation document that it had published in July 2011 It has released a Feedback Statement that maps out its future priorities

28 Five broad themes Period of relative calm Prioritise work on the conceptual framework Targeted improvements that respond to the needs of new adopters of IFRSs Pay greater attention to the implementation and maintenance of the standards Conduct more rigorous costbenefit analysis and problem definition earlier on in the standard-setting process

29 Technical work programme Conceptual framework Implementation and maintenance Major projects Complete four existing major projects New projects Agriculture, in particular, bearer biological assets Rate-regulated activities Separate financial statements use of the equity method Other projects added to research agenda

30 Technical work programme Conceptual framework Major projects Implementation and maintenance Interpretations Narrow-scope improvements Annual improvements

31 Technical work programme Conceptual framework Major projects Implementation and maintenance There is strong and broad support for the IASB to give priority to revising its conceptual framework Aiming to finalise by September 2015 The first major milestone is a discussion paper, which is expected in June 2013

32 Poll - If you had to choose one topic from the future work programme for the IASB to prioritise, which one would it be?

33 Any questions?

34 Ask a question Participate in today s webinar send us a question Click here to see questions

35 Questions Eddy James Technical Manager Financial Reporting Faculty Peter Hogarth Partner PwC

36 Future webinars and events Webinars 20 March the future of IFRS 23 April the reduced disclosure framework 16 May lease accounting Further updates as and when new standards issued Events Autumn roadshow series December IFRS conference December Information for Better Markets conference

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