Accounting Update. Kelly Martin. Spring 2014

Transcription

1 Accounting Update Kelly Martin Spring 2014

2 Agenda IASB update IASB timetable & new for 2014 Revenue Leasing UK GAAP update Reminder & proposed changes War stories 32

3 IASB update IASB timetable & new for 2014 Revenue Leasing

4 Changes ahead (calendar year end) Standard Published Not endorsed ** IFRS 10: Consolidation IFRS 11: Joint arrangements IFRS 12: Disclosure of interests IAS 27: Separate f/s IAS 28: Associates & JVs f Interpretation To be completed * IAS 39: Novations IFRIC 21 ** levies IAS 36: Disclosure amend IAS 32: FI Offsetting Consolidation investment entities IFRS 14: Regulatory deferral ** Annual improvements ** Annual improvements ** IAS 19 amendment** IFRS 9 FI C&M assets IFRS 9: FI C&M liabilities FI impairment * FI general hedging FI macro hedging Narrow scope amendments Leases Revenue recognition Insurance contracts * * * * * and beyond 34

5 Changes affecting from 1 Jan 2014 Consolidation suite Control Adoption of IFRS 10 Single control model Changes likely to impact around power: substantive rights, de facto control over relevant activities and key relationships Retrospective application limited to one year of comparatives; prospective disclosures for unconsolidated structured entities Most relevant for financial services companies Joint arrangements Adoption of IFRS 11 IFRS 11 divides joint arrangements into two types: Joint ventures parties have right to the net assets of the arrangement. Equity accounting required proportional consolidation no longer permitted Joint operations parties have rights to the assets and obligations for the liabilities relating to the arrangement. Recognises own assets and liabilities Retrospective application limited to one year of comparatives Disclosure of interests Adoption of IFRS 12 More disclosure of key judgements under IFRS 10/11 Expanded disclosure requirements for all investees other than 100% subsidiaries 35

6 Other changes affecting 2014 year ends Investment entities Amendment to IFRS 10, IFRS 12 and IAS 27 Relief from consolidating for qualifying investment entities Early adoption for 2013 year ends is available Offsetting Amendment to IAS 32 Clarification of offsetting eligibility Recoverable amount Amendments to IAS 36 Reverse unintended requirement in IFRS 13 to disclose recoverable amount of every cash generating unit with significant goodwill or indefinite life intangibles Can be early adopted to prevent onerous disclosure in 2013 Derivative novation Amendment to IAS 39 Levies IFRIC 21 Reverse unintended requirement in IFRS 13 to disclose recoverable amount of every cash generating unit with significant goodwill or indefinite life intangibles Can be early adopted to prevent onerous disclosure in 2013 Levies are outflows imposed by government in accordance with legislation Liability is recognised when and only when the specified triggering event occurs 36

7 IASB update IASB timetable & new for 2014 Revenue Leasing

8 Revenue proposal overview Issues A contract-based model, 5-step analysis, focusing on transfer of control Two ways to recognise revenue: at a point in time or continuously over time Significant judgement and extensive new disclosures ED issued Nov 2011; standard expected Q Expected to be applicable for periods commencing on or after 1 January 2017; early application permitted Option 1A fully retrospective Legacy GAAP New GAAP New GAAP Option 1B partial retrospective Legacy GAAP Mixed requirements New GAAP Option 2 prospective Legacy GAAP Legacy GAAP New GAAP Legacy GAAP* * For ongoing contracts only 38

9 What will be impacted Which of the following are likely to be impacted? a) Contract modifications b) Variable consideration c) Multi-element contracts d) Licences e) All of the above! 39

10 New revenue recognition model key impacts Step 1: Identify the contract Step 2: Identify the separate performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the separate performance obligations Step 5: Recognise revenue as each performance obligation is satisfied Homogenous sales Application on a portfolio basis is allowed if not materially different from individual basis. Preparation time and costs reduced. Contract modifications Modifications may require immediate true-up. Systems need to have contract modification capability. Variable consideration Revenue is generally estimated at the outset and constrained to the amount which is highly probable not to reverse. There is a limited exception for certain royalties, where revenue is recognised only when the ultimate sale or use occurs. Revenue may be accelerated or deferred. Multi-element contracts Distinct goods and services are separated into performance obligations. Revenue may be accelerated or deferred. Licenses Timing of revenue recognition depends on whether licence provides a right to use, or access to, intellectual property. Revenue may be recognised at a point in time or over time. Cash/revenue disconnect Receipts in advance and arrears may include financing. Total revenue recognised over the life of the contract may change. 40

11 New revenue recognition model key impacts (cont.) Step 1: Identify the contract Step 2: Identify the separate performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the separate performance obligations Step 5: Recognise revenue as each performance obligation is satisfied Homogenous sales Application on a portfolio basis is allowed if not materially different from individual basis. Preparation time and costs reduced. 41

12 New revenue recognition model key impacts (cont.) Step 1: Identify the contract Step 2: Identify the separate performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the separate performance obligations Step 5: Recognise revenue as each performance obligation is satisfied Contract modifications Modifications may require immediate true-up. Systems need to have contract modification capability. 42

13 New revenue recognition model key impacts (cont.) Step 1: Identify the contract Step 2: Identify the separate performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the separate performance obligations Step 5: Recognise revenue as each performance obligation is satisfied Variable consideration Revenue is generally estimated at the outset and constrained to the amount which is highly probable not to reverse. There is a limited exception for certain royalties, where revenue is recognised only when the ultimate sale or use occurs. Revenue may be accelerated or deferred. Cash/revenue disconnect Receipts in advance and arrears may include financing. Total revenue recognised over the life of the contract may change. 43

14 New revenue recognition model key impacts (cont.) Step 1: Identify the contract Step 2: Identify the separate performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the separate performance obligations Step 5: Recognise revenue as each performance obligation is satisfied Multi-element contracts Distinct goods and services are separated into performance obligations. Revenue may be accelerated or deferred. 44

15 New revenue recognition model key impacts (cont.) Step 1: Identify the contract Step 2: Identify the separate performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the separate performance obligations Step 5: Recognise revenue as each performance obligation is satisfied Licenses Timing of revenue recognition depends on whether licence provides a right to use, or access to, intellectual property. Revenue may be recognised at a point in time or over time. 45

16 IASB update IASB timetable & new for 2014 Revenue Leasing

17 Leases project current status 17 August 2010: ED Published 16 May 2013: Revised ED Proposed date of transition Proposed date of adoption Earliest annual financial statements in which proposals would apply Background Joint IASB/FASB project New lease accounting model Recognise lease assets and liabilities Reduce complexity and structuring Revised exposure draft, issued 16 May 2013 Comment deadline closed 13 September 2013 Overview of proposals Dual lease model for leases Lease classification test based on consumption of asset All leases on-balance sheet for lessees with asset/liability Simplified option for short term leases < 12 months More disclosure of leasing arrangements 47

18 Which leases will be impacted? Are the following statements true or false? All leases will come on balance sheet FALSE Only operating leases will come on balance sheet FALSE All leases will be accounted for using one model FALSE 48

19 New classification test for leases No Is the underlying asset property (land and/or a building)? Yes Type A lease Type B lease Unless Unless Lease term for an insignificant part of the economic life; or PV of the lease payments insignificant compared to FV of underlying asset Lease term for a major part of the economic life; or PV of the lease payments amounts to substantially all FV of underlying asset *But if the lessee has a significant economic incentive to exercise an option to purchase the underlying asset, then the lease is always a Type A Lease 49

20 Front-loaded P&L charge for lessee (non-property lease) Income statement/earnings illustration Type A (non-property) Type A interest Lease interest (ED) Type A total P&L Net lease expense (ED) Type A asset amortisation (assuming straight line usage) Amortisation of ROU (ED) 50

21 Straight line P&L charge (property lease) Income statement/earnings illustration Type B (property) Type B interest Lease interest (ED) Type B asset amortisation Type B total P&L Amortisation of ROU (ED) 51

22 UK GAAP update Reminder & proposed changes War stories

23 New financial reporting framework Mandatory for periods beginning on/after 1 January 2015 early adoption permitted UK GAAP Illustrative timeline for calendar year-end 31 Dec Dec Dec 2015 Transition Tax decisions needed before 31/12/14. Dividends may be paid up under old UK GAAP before 31/12/14 Comparative information required First set of financial statements under new GAAP 53

24 New UK GAAP FRS 100 Application of financial reporting requirements Which standards to apply Application of SORPs Effective date Meaning of equivalence Issued Nov 2012 FRS 101 Reduced disclosure framework List of disclosure exemptions for qualifying entities applying recognition and measurement requirements of EU-IFRS Issued Mar 2013 FRS 102 FRS applicable in the UK & ROI Operational standard derived from IFRS for SMEs List of disclosure exemptions from this FRS for qualifying entities Issued Mar 2013 FRED 51* Draft amendments to FRS 102 hedge accounting Broaden the eligibility criteria for hedge accounting and introduce less onerous qualification criteria TBC FRED 54* Draft amendments to FRS 102 debt instruments Amendments in respect of the classification of financial instruments as basic TBC * FRC: proposed changes will be in place for

25 Consistency rules under the Companies Act 2006 Unless there are, in the opinion of the directors, good reasons for not doing so, all UK subsidiary companies must follow a consistent accounting framework, being either: IAS accounts EU-IFRS Companies Act accounts FRS 102 FRS 101 FRSSE This means that qualifying entities can elect to apply FRS 102 or FRS 101 on a company-by-company basis. Early adoption can also be applied on a company-bycompany basis. For example Topco Consol IFRS Individual FRS 101 Sub 1 Individual FRS 101 Individual Early adopt Sub 2 FRS 102 Adopt y/e 31 Dec 2015 Sub 3 FRS 101 Adopt y/e 31 Dec 2015 Sub 4 FRS 102 Adopt y/e 31 Dec 2015 Sub 5 FRS 101 Early adopt 55

26 UK GAAP update Reminder & proposed changes War stories

27 War stories Transition leases DB pension scheme Transition dividend block Financial instruments Software GW & business combinations FX Convert back to UK GAAP 57