CREDIT UNION IFRS FINANCIAL STATEMENTS

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1 CREDIT UNION IFRS FINANCIAL STATEMENTS Tips to help prepare and improve (2012 & Beyond) BDO CANADA LLP February 1, 2013 Page 1

2 With an introduction from Richard Dale, Director, Regulatory Affairs of DICO

3 CREDIT UNION IFRS FINANCIAL STATEMENTS Facilitators Craig Cross Paul Vetrone Page 3

4 CREDIT UNION IFRS FINANCIAL STATEMENTS Agenda IFRS Update 2012 Financial Statements - New or amended standards for December 31, Tips for improving financial statement disclosures Standards effective in New or amended standards for December 31, and beyond! - IASB work plan and developments Page 4

5 AGENDA 2012 Financial Statements - Amended Standards Page 5

6 STANDARDS EFFECTIVE IN 2012 Amendments to Standards Effective for 2012 Years beginning on or after IFRS 1 Exemption for severe hyperinflation July 1, 2011 IFRS 1 Removal of fixed dates July 1, 2011 IFRS 7 Disclosures on transfers of financial assets July 1, 2011 IAS 12 Accounting for investment properties January 1, 2012 Page 6

7 AMENDMENT TO STANDARDS EFFECTIVE 2012 IFRS 7 Financial Instruments: Disclosures Result of the financial crisis Extended disclosures for continuing exposure in: - Financial Assets not derecognized in their entirety (minor) - Financial Assets derecognized in their entirety (major) Presented in single note Comparative information not required Effective for annual period beginning on or after 1 July 2011, with early application permitted Page 7

8 AMENDMENT TO STANDARDS EFFECTIVE 2012 IFRS 7 Financial Instruments: Disclosures Disclosures for financial assets that are NOT derecognized in their entirety Description of nature and relationship between transferred assets and associated liabilities, including restrictions arising from the transfer on the reporting entity s use of the transferred assets When the counterparty (counterparties) to the associated liabilities has (have) recourse only to the transferred assets, a schedule should be included that sets out: the fair value of the transferred assets; the fair value of the associated liabilities; and the net position (the difference between the fair value of the transferred assets and the associated liabilities) Page 8

9 AMENDMENT TO STANDARDS EFFECTIVE 2012 IFRS 7 Financial Instruments: Disclosures EXAMPLE Page 9

10 AMENDMENT TO STANDARDS EFFECTIVE 2012 IFRS 7 Financial Instruments: Disclosures Transferred financial assets that ARE derecognized in their entirety Nature and purpose of continuing involvement The carrying amount of contingent involvement and maximum exposure to loss Future cash outflows to repurchase derecognized assets Gain / loss at derecognition Income from continuing i involvement Details if derecognition activity is not evenly distributed over financial year Page 10

11 AMENDMENT TO STANDARDS EFFECTIVE 2012 IFRS 7 Financial Instruments: Disclosures EXAMPLE Page 11

12 AMENDMENT TO STANDARDS EFFECTIVE 2012 IFRS 7 Financial Instruments: Disclosures EXAMPLE Page 12

13 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures Page 13

14 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures Common disclosure issues: A. IFRS Transition notes remove! B. Business combinations / Amalgamations / Mergers C. Judgments and estimates t D. Additional GAAP measures Page 14

15 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures B) Business Combinations Disclosure deficiencies have been noted in the following areas: - Reason for business combination - Qualitative description of what makes up goodwill (if any) - Bargain purchases - Revenue and profit or loss since acquisition date - Pro forma revenue and profit or loss - Gross contractual amounts of acquired receivable and an estimate of amounts not expected to be collected - Business combinations completed after the reporting period but before financial statements are authorized for issue Page 15

16 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures C) Judgments and Estimates t Focus on the most significant judgments and estimates; Provide clear distinction between judgments and estimates; Provide sufficient i detail to understand d the nature of the judgment, the factors considered and the basis for management s determination; and Ensure the basis for judgment is well documented. Page 16

17 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures C) Judgments and Estimates Sources of Estimation Uncertainty and Judgements: From the CICA HANDBOOK PART I IAS 1 Presentation of Financial Statements - An entity shall disclose, in the summary of significant accounting policies or other notes, the judgements, apart from those involving estimations (see paragraph 125), that management has made in the process of applying the entity s accounting policies and that have the most significant effect on the amounts recognised in the financial statements (IAS 1.122) - In the process of applying the entity's accounting policies, management makes various judgements, apart from those involving estimations, that can significantly affect the amounts it recognises in the financial statements. For example, management makes judgements in determining: - Whether financial assets are held-to-maturity investments; - When substantially all the significant risks and rewards of ownership of financial assets and lease assets are transferred to other entities; - Whether, in substance, particular sales of goods are financing arrangements and therefore do not give rise to revenue; and - Whether the substance of the relationship between the entity and a special purpose entity indicates that the entity controls the special purpose entity (IAS 1.123) Page 17

18 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures C) Judgments and Estimates Common Judgment Areas for a Credit Union Member loan loss provision; - Objective evidence of impairment of individually significant financial assets; - Collective assessment -group member loans with similar il credit risk ik characteristics iti Other Financial Assets; - Available-for-sale carried at cost - Objective evidence of impairment - Derecognition through loan securitization transactions Hedge accounting; Income taxes; PP&E and intangible asset depreciation / amortization rates; Member shares classification; Lease operating or finance Page 18

19 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures C) Judgments and Estimates Sources of Estimation Uncertainty and Judgements: From the CICA HANDBOOK PART I IAS 1 Presentation of Financial Statements IAS Sources of estimation uncertainty. An entity shall disclose information about the assumptions it makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year. In respect of those assets and liabilities, the notes shall include details of: Their nature; and Their carrying amount as at the end of the reporting period Page 19

20 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures C) Judgments and Estimates Sources of Estimation Uncertainty and Judgements: From CICA HANDBOOK PART I IAS 1 Presentation of Financial Statements: IAS Estimate Disclosures The nature of the assumption or other estimation uncertainty; The sensitivity of carrying amounts to the methods, assumptions and estimates underlying their calculation, including the reasons for the sensitivity; The expected resolution of an uncertainty and the range of reasonably possible outcomes within the next financial year in respect of the carrying amounts of the assets and liabilities affected; and An explanation of changes made to past assumptions concerning those assets and liabilities, if the uncertainty remains unresolved Page 20

21 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures C) Judgments and Estimates Common Estimate Areas for a Credit Union Member loan loss provision; - Estimate of individual impairment; - Estimate of collective impairment Other Financial Assets; - Estimate of fair values - Impairment Impairment of non financial assets; Income taxes Page 21

22 2012 FINANCIAL STATEMENTS Tips for improving financial statement disclosures D) Additional GAAP Measures Items to consider when presenting an additional GAAP measure: - Is the line item/subtotal unnamed? - Is the name inappropriate and include generic identifiers? - (e.g. before the undernoted or other items ) - Does the presentation of the additional GAAP measure confuse, obscure or exceed the prominence of minimum disclosure items? - Is additional disclosure required to clearly explain the measure? - Is there a discussion and analysis of the measure? Page 22

23 AGENDA New Standards or Amendments for 2013 Page 23

24 STANDARDS EFFECTIVE FOR 2013 Years beginning on or after IFRS 10 Consolidated Financial Statements January 1, 2013 IFRS 11 Joint Arrangements January 1, 2013 IFRS 12 Disclosure of Interests in Other Entities January 1, 2013 IAS 27 Separate Financial Statements January 1, 2013 IAS 28 Investments in Associates and Joint Ventures January 1, 2013 IFRS 13 Fair Value Measurement January 1, 2013 IAS 19 Employee Benefits January 1, 2013 IAS 1 Presentation of Financial Statements July 1, 2012 IFRIC 20 Stripping costs in the production phase of a surface mine January 1, 2013 Amendment to IFRS 1 First-Time Adoption of IFRS Government Loans January 1, 2013 Page 24

25 STANDARDS EFFECTIVE FOR 2013 Interaction Between IFRS 10, 11, 12 and IAS 28 CONTROL ALONE? YES Consolidation in accordance with IFRS 10 NO Joint control? Disclosures in accordance with IFRS 12 YES Define type of joint arrangement in accordance with IFRS 11 NO Significant influence? JOINT OPERATION JOINT VENTURE YES NO Account for assets, liabilities, revenues and expenses Disclosures in accordance with IFRS 12 Account for an investment in accordance with IAS 28 Disclosures in accordance with IFRS 12 IFRS 9 Page 25

26 STANDARDS EFFECTIVE FOR 2013 IFRS 10 Three Elements of Control POWER EXPOSURE TO VARIABLE RETURNS LINKED Existing rights Potential to vary with investee s performance Principal vs. agent Current ability to direct Substance Relevant activities Substantive not just protective Dividends, id d remuneration, economies of scale, etc. Page 26

27 STANDARDS EFFECTIVE FOR 2013 Joint Operation or Joint Venture NOT STRUCTURED THROUGH A SEPARATE VEHICLE STRUCTURED THROUGH A SEPARATE VEHICLE Parties have rights to the assets and obligations for the liabilities Assess the parties rights and obligations arising from the arrangement by considering: a) The legal form of the separate vehicle b) The terms of the contractual arrangement, and if relevant, c) Other facts and circumstances Parties have rights to the net assets Joint operation Joint venture Accounting for assets, liabilities, revenues and expenses in accordance with the contractual arrangements Accounting for an investment using the equity method Page 27

28 STANDARDS EFFECTIVE FOR 2013 IFRS 13 Fair Value Measurement WHAT IS THE MEASUREMENT OBJECTIVE? Not a liquidation id An exit price or price forced sale Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Market-based view A current price Page 28

29 STANDARDS EFFECTIVE FOR 2013 Amendments to IAS 19 (R) Employee Benefits Eliminates corridor approach Require recognition of changes in the net defined benefit liability (asset) Enhanced disclosures about defined benefit plans Modify accounting for termination benefits, including distinguishing benefits provided in exchange for service and benefits provided in exchange for the termination of employment and affect the recognition and measurement of termination benefits Clarification of miscellaneous issues, including the classification of employee benefits, current estimates of mortality rates, tax and administration costs and risk-sharing sharing and conditional indexation features Effective for annual periods beginning on/after January 1, 2013, with earlier application permitted Page 29

30 STANDARDS EFFECTIVE FOR 2013 Amendments to IAS 19 (R) Employee Benefits Changes in the net defined benefit liability (asset) into three components, to be presented as follows: a) Service cost presented in profit or loss b) Net interest on the net defined benefit liability (asset) presented in profit or loss; and c) Remeasurement of the net defined benefit liability (asset) presented in other comprehensive income (OCI) and not recycled through profit or loss. Page 30

31 STANDARDS EFFECTIVE FOR 2013 Amendments to IAS 19 (R) Employee Benefits Pre IAS 19R $ Original liability 3,000,000 Unamortized actuarial loss 1,000,000 Equity before Adjustment 4,500, Post IAS 19R Liability post IAS 19R 4,000,000 Unamortized actuarial loss 0 Equity after adjustment (through retained earnings) 3,500,000 Effect on regulatory capital (assume total assets $250,000,000) ) Regulatory capital prior to IAS 19R 12,000, % Regulatory capital post IAS 19R 11,000, % Page 31

32 STANDARDS EFFECTIVE FOR 2013 IAS 1 Presentation of Financial Statements Option to present OCI in a separate statement or as part of the statement of profit or loss and other comprehensive income Requires entities to present line items for OCI amount by nature and distinguish those that will be reclassified to profit or loss; and those that that will not be reclassified Present components of OCI either net of related tax effects or before tax with one amount shown for the aggregate amount of income tax relating to those components Effective for annual periods beginning on / after July 1, 2012, with earlier application permitted Page 32

33 ANNUAL IMPROVEMENTS Cycle TOPIC Repeated Application of IFRS 1 IFRS 1 IAS 1 IAS 16 IAS 32 IAS 34 Borrowing Costs Comparative Information Classification of Servicing Equipment Tax Effects of Distribution to Holders of Equity Instruments Total Asset and Total Liability Disclosure Page 33

34 AGENDA 2014 and Beyond Page 34

35 UPCOMING PROJECTS IASB Work Plan Major Projects Page 35

36 UPCOMING PROJECTS IASB Work Plan Implementation Issues Page 36

37 UPCOMING PROJECTS IASB Work Plan Interpretations Page 37

38 Upcoming Projects IAS 17 Leases Lessee accounting One approach at initial recognition, no change in fundamental approach - Recognition of a liability to make lease payments and a right to use (ROU) asset - Both measured at the present value of the lease payments - Lease term: non-cancellable period, plus any options where there is a significant economic incentive to extend or not terminate - Subsequent measurement of liability using the effective interest method - For all leases (other than short term leases) Amortization of ROU two models based on the nature of the underlying asset Page 38

39 CREDIT UNION IFRS FINANCIAL STATEMENTS QUESTIONS? Page 39

40 CREDIT UNION IFRS FINANCIAL STATEMENTS Facilitators Craig Cross Paul Vetrone BDO LLP Senior Manager National Accounting Standards ext 3624 BDO LLP Manager Client service Peterborough Office Page 40

41 CREDIT UNION IFRS FINANCIAL STATEMENTS THANK YOU Page 41

Ernst & Young IFRS Core Tools. IFRS Update. of standards and interpretations in issue at 28 February 2013

Ernst & Young IFRS Core Tools. IFRS Update. of standards and interpretations in issue at 28 February 2013 Ernst & Young IFRS Core Tools IFRS Update of standards and interpretations in issue at 28 February 2013 Contents Introduction 2 Section 1: New pronouncements issued as at 28 February 2013 4 Table of mandatory