IFRS in mining. Iain Selfridge & Tim McAllister. London School of Mines

Transcription

1 IFRS in mining Iain Selfridge & Tim McAllister

2 IFRS in mining Agenda Standard setting update Applying IFRS 15 Revenue recognition for miners Applying IFRS 16 Leasing for miners Accounting for alternative financing arrangements Proceeds of test production IFRIC update Liquidity focus Accounting Regulator activity UK GAAP conversion Common issues Slide 2

3 Standard setting update Slide 3

4 Little change for 2016 year ends Standard IAS 1 IASs 16 and 38 Amendments to IFRSs 10, 11 and IAS 28 IFRS 14, Regulatory deferral accounts IFRS 10 and IAS 28 Annual improvements Nature of amendment Disclosure initiative Methods of depreciation Acquisition of interests Rate-regulated activities Investment entities Various 4

5 What s next? The big three IFRS 9 Financial instruments Published July 2014 Effective 2018 EFRAG predict EU endorsement soon IFRS 15 Revenue Published May 2014 Effective 2018 EFRAG predict EU endorsement soon IASB and FASB proposing amendments already IFRS 16 Leases Published in January 2016 Effective 2019, can be early adopted (Almost) all leases on-balance sheet Must have also adopted IFRS 15 5

6 Revenue Recognition for miners Slide 6

7 IFRS 15 Revenue recognition model IAS 18 /11 Separate models for: Construction contracts Goods Services Focus on risk and rewards IFRS 15 Single model for performance obligations: Satisfied over time Satisfied at a point in time Focus on control Limited guidance on: Multiple element arrangements Variable consideration Licences More guidance: Separating elements, allocating the transaction price, variable consideration, licences, options, repurchase arrangements, etc. Slide 7

8 Revenue Recognition Expected impact on mining Product exchanges Agency relationships - Non monetary exchanges scoped out - Similar but provided in new context Recognition of CIF/CFR arrangements - Evaluate whether there are separate performance obligations for goods and freight services Provisional pricing arrangements - Judgement as to whether there is an embedded derivative or variable consideration Take or pay and similar LT agreements - Judgement required in identification of performance obligations Disclosure of quantitative and qualitative information on customer relationships, key judgements and assets recognised from the costs to obtain or fulfil contracts required. Slide 8

9 Leasing for miners Slide 9

10 Lessee accounting Single approach All leases on Balance Sheet as with finance leases under IAS 17 Exemptions for short term leases and leases of low value assets ($5,000) Balance sheet Right of use (ROU) asset Lease liability Income statement Depreciation expense Interest expense 10

11 Lessor accounting Finance leases Operating leases Balance sheet Derecognise the underlying asset and record a net investment in the lease. Underlying asset remains on balance sheet. Income statement Interest income on the net investment. Any selling profit or loss on the underlying asset. Lease income Straight line over term of lease. The classification between finance leases and operating leases for lessors is as under IAS 17. Regional Office Visits Accounting Update 11

12 Leasing Expected impact on mining Right to use asset Lease components IFRS6 Exploration/Evaluation Long term energy/power supply - Operating leases now on balance sheet - Splitting services (IFRS15) from leasing (IFRS16), policy choice - no change, not in scope of IFRS16 - May contain a lease if using dedicated assets and customer has control Monetising assets - Selling assets for cash but then leasing back substitutability Some transition relief: Not required to reassess existing contracts, ie IAS17 rolls into IFRS16 Applies retrospectively on a full or modified (no restatement of comparatives, practical expedients may be applied lease by lease) basis Slide 12

13 Proceeds of test production Slide 13

14 Proceeds of test production IFRIC has been considering the accounting for net proceeds from selling items produced before an item of property, plant and equipment is capable of operating as intended by management. Tentative decision to prohibit the deduction of any proceeds from the cost of the asset. To be achieved via a narrow scope amendment to IAS16 not a quick fix IASB staff currently working on disclosure implications and transition requirements Slide 14

15 Alternative Financing for the extractive industries Slide 15

16 Alternative financing for the extractive industries Widely used in North America / precious metals, now more common place among larger miners. Streaming particularly popular, allows quick monetisation of portion of an asset Results in immediate net debt reduction in exchange for giving up future earnings potential which is currently heavily discounted. Streaming does not easily fit any of the existing accounting models Contractual terms will impact whether a derivative, borrowings or considered a forward sale. Determine treatment early, before contract executed, and allow time to work through the contract terms. Disclosure of accounting policy, key estimates, judgements and uncertainties and the impact on the financial statement line items particularly key for first time streamers. Slide 16

17 Liquidity considerations Slide 17

18 Liquidity disclosures Higher gearing means greater investor and regulatory focus on liquidity disclosures Liquidity is a risk that needs to be managed, and disclosed Transparent net debt and liquidity disclosures valued tell the story Viability statements longer term focus Covenant compliance Particularly EBITDA related, a new focus and can require more precise forecasting and monitoring Impact of covenant breaches, even if subsequently remedied, is to reclassify related debt as short term borrowings Off balance sheet debt and classification. Impact of lease accounting and revenue recognition think ahead. Slide 18

19 Accounting Regulator activity Slide 19

20 Regulators Australia ASIC role in project feasibility Canada Reserves reporting TSX focus UK Thematic reviews of financial statements risk focussed Pre-warning of reviews Tax reporting reconciliations, explanations of movements, deferred tax Globally Impairment of assets assumptions, discount rates, sensitivities 20

21 FRC priority sectors 2016/2017 Companies in the extractive industries (and those servicing the extractive industries), Media companies and; Companies servicing the public sector 2015/16 Insurance Food, drink and consumer goods manufacturers and retailers Companies servicing the extractive industries Business services 21

22 FRC year-end reminders Letter to audit committee chairs Clear & concise reporting * Strategic report, inc. risks * Accounting policies, judgements & estimates * Alternative performance measures * Dividends Cash flows * Quarterly reporting New UK GAAP reduced disclosures Digital reporting * Focus of separate letter to CFO s of smaller listed and AIM companies Junes 2016 Slide 22

23 Focus on tax FRC undertaking a thematic review of FTSE350 companies tax reporting to encourage more transparent reporting of the relationship between tax charges and accounting profit Focus on: the transparency of tax reconciliation disclosures how well the sustainability of the effective tax rate is conveyed; and uncertainties relating to tax liabilities and assets totality of reporting (i.e. disclosures in strategic, other narrative reports and accounting disclosures) More data disclosed telling the story Publish what you pay / Country by Country reporting Cash paid versus tax expense 23

24 Non-GAAP / Alternative performance measures ESMA guidelines effective from 3 July 2016 an APM is a financial measure of historical or future performances, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. Ie an APM is not defined or specified in GAAP Apply to APMs disclosed in regulated information published by issuers with securities traded on regulated markets but not APMs that legislation requires an entity to disclose - Front half of Annual and interim reports - management reports disclosed to the market under the Transparency Directive - ad-hoc disclosures including financial earnings - Prospectuses Slide 24

25 Non-GAAP performance measures Be clear and consistent in definitions of measures no bias or confusingly similar names Explain why APM is used Reconcile back to GAAP Give equal prominence to GAAP and non-gaap measures in all communications Consistency over time Slide 25

26 UK GAAP conversion Common issues Slide 26

27 New UK GAAP is here! Regional Office Visits Accounting Update 27

28 FRS 101 and FRS 102 Common Pitfalls 1 6 Transition Is the entity eligible to apply FRS 101? Parent Company with P&L exemption 2 Common Pitfalls 5 Additional disclosures Disclosure exemptions Formats

29 Changes to Company Law 1 New EU Accounting Directive now implemented into Company Law (SI 2015/980) Effective date 1 January 2016 for most changes Main impact of changes on small and micro companies Consolidation exemption conditions changed A full list of related undertakings (direct and indirect) is required for accounts approved after 1 July 2015 IFRS formats for P&L and balance sheet allowed 2 The notes to the financial statements are to be presented in the order in which, where relevant, the items to which they relate are presented in the statement of financial position and in the income statement. New UK GAAP standards a moving target until recently 29

30 Questions? 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.

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