IASB Projects A pocketbook guide. As at 31 March 2013

Transcription

1 IASB Projects A pocketbook guide As at 31 March 2013

2

3 In this edition... Introduction... 2 Timeline for major IFRS projects... 3 Financial instruments classification and measurement (proposed limited scope amendments to IFRS 9)... 4 Financial instruments impairment... 6 Financial instruments general hedge accounting... 8 Financial instruments macro hedge accounting Leases (joint project) Revenue (joint project) Insurance contracts (joint project) Rate-regulated activities comprehensive project Rate-regulated activities interim standard Implementation projects IASB Projects - A pocketbook guide 1

4 Introduction Ernst & Young s pocketbook guide summarises the key features of the active projects of the International Accounting Standards Board (IASB or the Board). This publication also includes potential financial and business implications of the proposed standards, along with our views on certain projects. This edition of the pocketbook guide summarises the active projects and tentative decisions made by the IASB up to 31 March The publication consists of two broad sections major IFRS projects (other than International Financial Reporting Standard on Small and Medium-sized Entities) and implementation projects (including interpretations). Since our last edition of the pocketbook guide in June 2012, the IASB has, amongst other things, issued amendments that provide an exception to the consolidation requirements for entities that meet the definition of an investment entity, initiated a project on rate-regulated activities and proposed narrow scope amendments to the classification and measurement of financial instruments. In this edition, we summarise each of the Board s active projects with emphasis on the revenue, financial instruments, insurance contracts and leases projects. Highlights of the IASB s work plan, updated on 25 March 2013, are provided in this publication. For details of IASB projects for which new or amended IFRS have been issued, we refer you to our publication IFRS Update of standards and interpretations in issue at 28 February 2013, which is available on We trust that you will find this guide useful. Yours sincerely, Ruth Picker Global Leader IFRS Services Global Professional Practice April 2013 IASB Projects - A pocketbook guide 2

5 Timeline for major IFRS projects Financial instruments Q3 Q4 Q1 Q2 Q3 Q4 Classification and measurement (limited scope amendments) Re-deliberations Impairment General hedge accounting RD Macro hedge accounting DP Leases Revenue recognition RT Insurance contracts Rate-regulated activities Interim standard Redeliberations Comprehensive project RFI DP RD DP RT RFI Exposure draft (including re-exposure) Final standard or amendments Review draft Discussion paper Roundtable discussions Request for information 1 The IASB is addressing this project in stages. Final standards for classification and measurement of financial instruments were issued in Q and Q IASB Projects - A pocketbook guide 3

6 Major IFRS projects Financial instruments classification and measurement (proposed limited scope amendments to IFRS 9) Background The first phase of IFRS 9 Financial Instruments, which addresses the classification and measurement of financial assets, was published in November IFRS 9 was later amended in October 2010 to include the classification and measurement requirements for financial liabilities. In December 2011, the IASB amended IFRS 9 to move the mandatory effective date from 1 January 2013 to 1 January Refer to our publication, IFRS Update of standards and interpretations in issue at 28 February 2013 for a summary of the requirements of IFRS 9. Scope The IASB is proposing limited amendments to IFRS 9 that focus on the interaction of IFRS 9 with the insurance contracts project and also on reducing differences with US GAAP. Target amendments Q The proposals would result in certain portfolios of debt instruments (e.g., a portfolio where the entity intends to maintain a certain level of investment in the financial assets for a period of time, but may seek to maximise its return through opportunistic selling and re-investment in higher yielding assets) to be classified at FVOCI. In the absence of these proposals, such portfolios would be classified and measured at FVTPL. The proposals would align IFRS 9 more closely with the FASB s proposals. Key features A new classification and measurement category, fair value through other comprehensive income (FVOCI), would be introduced. The FVOCI category is proposed as a mandatory category for portfolios of plain vanilla debt instruments that are held in a hold and sell business model. Accordingly, debt instruments (including loans) would be classified into one of three measurement categories: amortised cost, FVOCI and fair value through profit or loss (FVTPL). IASB Projects - A pocketbook guide 4

7 Financial instruments classification and measurement (proposed limited scope amendments to IFRS 9) cont d Key features cont d Classification would be based on the contractual characteristics and the business model within which debt instruments are held. Additional implementation guidance on assessing the business model is proposed. For financial assets classified at FVOCI, entities would recognise interest revenue and impairment would be computed and recognised in the same manner as for financial assets measured at amortised cost. Transition The proposed amendments are expected to be effective from 1 January 2015, as part of IFRS 9. However, entities could elect to early adopt the own credit requirements while continuing to account for their financial instruments in accordance with IAS 39 Financial Instruments: Recognition and Measurement. These provisions would require an entity to present in OCI the fair value gains and losses attributable to changes in the entity s own credit risk for financial liabilities designated as measured at fair value. The amendments also propose that entities would no longer be permitted to early adopt previous versions of IFRS 9 once all of the phases of IFRS 9 are completed and the final version is published. How we see it We welcome the proposal to allow early adoption of the own credit requirements of IFRS 9. The application of the current requirements means that earnings decrease as the entity s creditworthiness improves, and increase as the creditworthiness deteriorates. Such counter-intuitive earnings volatility can be very significant, particularly for banks. The proposals would allow entities to exclude such volatility for liabilities designated at FVTPL from their reported profits. However, many entities would prefer the amendments be made to IAS 39. Otherwise, it will only become available once IFRS 9 is completed (and, in some jurisdictions, when it is endorsed by the relevant authorities). Further information on this project can be found on IASB Projects - A pocketbook guide 5

8 Financial instruments impairment ED published Q Background The IASB issued an ED proposing the recognition and measurement of a credit loss allowance or provision based on expected rather than incurred credit losses. The FASB has published separate proposals for an expected credit loss model. The IASB and the FASB jointly deliberated some aspects of their individual proposals, but were unable to achieve a converged solution. Scope Applies to financial assets measured at amortised cost or at FVOCI under IFRS 9 (including retail and commercial loans, debt securities and trade receivables), irrevocable loan commitments and financial guarantee contracts that are not accounted for at fair value through profit or loss under IFRS 9, and lease receivables. Key features When financial instruments are initially recognised, an entity would generally recognise a credit loss allowance or provision equal to 12-month expected credit losses (i.e., based on the probability of a default occurring in the next 12 months). The 12-month expected credit losses would be replaced by lifetime expected credit losses if the credit risk has increased significantly since initial recognition (the lifetime expected credit losses criterion). The expected credit losses model would likely result in earlier recognition of credit losses compared to the current incurred loss model of IAS 39. This is because it would require the recognition of either a 12-month or lifetime expected credit losses allowance or provision that includes not only credit losses that have already occurred, but also losses that are expected in the future. The proposed impairment approach would likely result in significant changes to systems and processes, particularly with respect to the integration between credit risk management and financial reporting. Although the IASB s proposals differ from the FASB s proposals, both Boards will jointly discuss comments on their respective proposals after the comment periods end. IASB Projects - A pocketbook guide 6

9 Financial instruments impairment cont d Key features cont d The credit loss allowance or provision would revert to 12-month expected credit losses if the credit quality subsequently improves and the lifetime expected credit losses criterion is no longer met. As an exception to the above, a simplified approach would be available for trade and lease receivables. The estimate of expected credit losses would reflect a probability-weighted outcome, the time value of money and the best available information. The comment period on the IASB s ED ends on 5 July 2013, while comments on the FASB s proposals are due by 31 May How we see it We encourage interested parties to participate in the IASB s staff outreach to help the development of a robust standard that is operationally viable and serves the interest of all stakeholders. Transition Full retrospective application, with some relief, is proposed and early adoption would be permitted only if the financial instruments impairment proposals are adopted together with all other IFRS 9 requirements that have been previously finalised. Further information on this project can be found on IASB Projects - A pocketbook guide 7

10 Financial instruments general hedge accounting Target final standard Q2 or Q Background The IASB is finalising a more principle-based approach for hedge accounting that will be added to IFRS 9. Scope An entity may choose to designate a hedging relationship between a hedging instrument and a hedged item as defined in the proposed approach. Key features Hedge accounting would be permitted for risk components of financial and, for the first time, non-financial hedged items provided the risk components can be separately identified and reliably measured. There would be no bright line tests for the hedge effectiveness assessment. Instead, there must be an economic relationship between the hedged item and the hedging instrument, and the effect of credit risk must not dominate the value changes that would result from that relationship. However, hedge ineffectiveness would still have to be measured and recognised. The fair value changes of cross-currency swaps that are attributable to changes in the foreign exchange basis risk would be accounted for as costs of hedging, i.e., recognised in other comprehensive income (OCI) and amortised to profit or loss over the life of the hedging relationship. There would be a better link between an entity s risk management strategy, the rationale for hedging and the impact of hedging on the financial statements. For entities that already apply IFRS, it is expected that almost all of the previous hedge accounting relationships under IAS 39 would still qualify under the proposed approach. The proposals are likely to have a significant impact on entities that use economic hedging practices, but are currently unable to reflect this in their financial statements. The most significant benefit may be for non-financial services entities, because hedge accounting would be permitted for risk components of non-financial items. IASB Projects - A pocketbook guide 8

11 Financial instruments general hedge accounting cont d Key features cont d A hedging relationship would be rebalanced after inception when the hedge ratio is adjusted for risk management purposes, rather than being de-designated and re-designated as currently required under IAS 39. Rebalancing applies for hedging relationships that involve basis risk. Transition: The proposals are expected to be applicable prospectively from 1 January 2015, with early application permitted only if the hedge accounting proposals are adopted together with all other IFRS 9 requirements that have been previously finalised. How we see it The ability to designate risk components for non-financial as well as financial items will, in our view, facilitate hedge accounting for many industries. In particular, given the typical volatility of commodity prices, we believe that this proposed amendment will make hedge accounting (and, as a result, hedging for risk management purposes) more attractive to many entities exposed to commodity risks. Further information on this project can be found on IASB Projects - A pocketbook guide 9

12 Financial instruments macro hedge accounting Target DP Q2 or Q Background The IASB decided to decouple the project on accounting for macro hedging from the IFRS 9 project. Consequently, the development of this project will not impact the effective date or timing of the completion of the general hedge accounting project. Scope This project will address specific accounting for risk management strategies relating to open portfolios (i.e., macro hedging), for which the hedge accounting proposals do not provide specific solutions. Key features IASB discussions on accounting for macro hedging to date have focused on strategies to hedge the net interest margin of financial institutions. The potential new accounting approach would be a fundamentally new concept that would reflect typical strategies for managing risks in open portfolios. How we see it The potential new accounting approach for macro hedging could be substantially different from what is colloquially referred to as macro hedging under IAS 39. In our view, fundamental changes to accounting concepts require a broad discussion with all constituents. Therefore, we support the IASB s decision to issue a discussion paper. We encourage entities that have macro hedging strategies to follow the IASB s deliberations closely to understand potential opportunities or risks in applying this accounting to their risk management strategies. IASB Projects - A pocketbook guide 10

13 Financial instruments macro hedge accounting cont d Key features cont d The IASB is developing an approach based on a revaluation of exposures by risk, which could also include exposures such as core deposits and items with prepayment features where the cash flow estimates are based on the behaviour of customers. Transition: Accounting for macro hedging has been separated from the IFRS 9 project and would have an application date later than 1 January The IASB is expected to carry forward the existing IAS 39 macro fair value hedge accounting requirements until the new macro hedge accounting approach is finalised and becomes effective. Further information on this project can be found on IASB Projects - A pocketbook guide 11

14 Leases (joint project) Target revised ED Q Background: The Boards issued an exposure draft in 2010 proposing that most leases be recognised on the balance sheets of lessees. The Boards re-deliberated a number of issues with the proposals but have retained the view that leases should be recognised on the balance sheet by lessees. A revised proposal is expected to be exposed in Q Scope: While the scope would include leases of most assets, generally, the proposals would apply to leases of property, plant and equipment. The Boards clarified the key concepts underlying the definition of a lease to align control concepts with other standards. These changes could scope out certain contracts that are currently accounted for as leases. Key features: Lessees and lessors could elect to apply a method similar to current operating lease accounting for short-term leases (maximum lease term of one year). Leases would be classified based primarily on the nature of the underlying asset being leased and whether the lessee is expected to acquire and consume more than an insignificant portion of the underlying asset over the lease term. Reassessment of certain key considerations (e.g., lease term, variable rents based on an index or rate) would be required throughout the life of the lease. Lessees would recognise a liability to pay rentals with a corresponding asset for both types of leases. Some leases would have expenses recognised on a straightline basis (generally leases of property), while others would have an accelerated lease expense recognition pattern (e.g., leases of equipment). Recognition of virtually all leases on the balance sheet by lessees would be a significant change from existing IFRS. In addition, the lease expense recognition pattern for lessees would be accelerated for some of today s operating leases. As a result, key balance sheet metrics such as leverage and finance ratios, debt covenants and income statement metrics such as EBITDA could be impacted. For lessors, the measurement of amounts recognised on the balance sheet, as well as the amount and timing of income recognised, would change for some leases. Initial and ongoing estimation and measurement would require new processes and changes to information systems to capture information required by the proposed standard (e.g., lease term, lease and non-lease components). Given the significant accounting implications, entities will have to pay more attention to their contracts to identify any that are or contain leases. In addition, entities would need to focus on separating payments for other components (e.g., services) from existing operating leases. Previously these costs may not have been split out as the accounting treatment for such payments was often the same as operating lease payments under existing IFRS. IASB Projects - A pocketbook guide 12

15 Leases (joint project) cont d Key features cont d Lessors would use the same classification principle as lessees. Current operating lease accounting would be applied to some leases (generally leases of property) and the receivable and residual approach would be applied to other leases (e.g., leases of equipment). Under the receivable and residual approach, lessors would recognise a lease receivable, allocate the carrying value of the underlying asset being leased between the right of use granted to the lessee and the portion retained by the lessor ( residual asset ), and recognise profit, if any, at the commencement of the lease. Over the term of the lease, lessors would recognise income related to interest on the receivable and accretion of the residual asset. How we see it We support the Boards decision to re-expose and encourage entities to evaluate the new proposals and provide feedback to the Boards. Transition: The Boards proposed a modified retrospective approach for transition. Certain optional relief would be available. Full retrospective application would also be permitted. Further information on this project can be found on IASB Projects - A pocketbook guide 13

16 Revenue (joint project) Target final standard Q Background: The IASB and the FASB have completed their substantive re-deliberations on a comprehensive new revenue recognition standard that they expect to issue in the coming months. Scope: The final standard would apply to revenue arising from contracts with customers and the sale of some non-financial assets that are not an output of the entity s ordinary activities (i.e., sale of property, plant and equipment or intangibles). Key features: The proposed approach is based on the following five steps: 1. Identify the contract with a customer Contracts can be written, verbal or implied. 2. Identify the separate performance obligations in the contract A good or service would be a separate performance obligation if the customer can benefit from the good or service on its own or together with other readily available resources. 3. Determine the transaction price The transaction price would be the amount of consideration to which an entity expects to be entitled (excluding credit risk). The estimated transaction price may be constrained (i.e., limited because of variable consideration and rights of return). The notion of transfer of control is expected to have a significant impact on revenue recognition, particularly for long-term contracts. This would affect new and existing contracts. The final standard is expected to provide detailed requirements for arrangements with multiple performance obligations, which may impact the timing of revenue recognition. The final standard is expected to require additional disaggregated disclosures of revenue, information about changes in contract asset and liability account balances between periods, and disclosure of key estimates. These changes may require significant modifications to existing internal data gathering efforts and processes. IASB Projects - A pocketbook guide 14

17 Revenue recognition (joint project) cont d Key features cont d 4. Allocate the transaction price to the separate performance obligations Estimated transaction prices would be allocated based on the relative stand-alone selling prices, with limited exceptions. 5. Recognise revenue when (or as) the entity satisfies a performance obligation An entity would satisfy a performance obligation by transferring control of a promised good or service to the customer, which could occur over time or at a point in time. The onerous contract requirements of IAS 37 Provisions, Contingent Liabilities and Contingent Assets would continue to apply to contracts with customers. How we see it The application of a constraint on variable consideration when estimating the transaction price could result in a change for some entities. For example, it is unclear how this constraint would be applied to long-term construction contracts in which frequent changes in total estimated consideration are common. Transition: Entities would transition following either a full retrospective approach or a modified retrospective approach (i.e., an approach that would allow certain types of relief that the Boards designed to reduce transition costs). The proposals are expected to be effective from 1 January The IASB is expected to permit early application; the FASB is not. Further information on this project can be found on IASB Projects - A pocketbook guide 15

18 Insurance contracts (joint project) Target revised ED Q Background: The Board issued an ED in 2010 that proposed a comprehensive method of accounting for all types of contracts, with a modified method for certain short duration insurance contracts. A number of issues with these proposals were raised by constituents and considered during re-deliberations. A revised proposal is expected to be exposed Q Scope: Applies to all types of insurance contracts (life, non-life, direct insurance and re-insurance) as well as certain contracts with discretionary participation features. Key features: The proposed approach for the measurement of insurance contracts is based on the following building blocks: Expected present value of future cash flows A risk adjustment A residual margin that eliminates any gain at inception of the contract and will be adjusted subsequently for changes in estimates of future cash flows in most cases A discount rate to measure insurance contracts that would be updated at the end of each reporting period (i.e., the discount rate would not be locked in at inception of the contract) The Board s proposals are far-reaching and may have a significant impact on insurers (e.g., estimating all future cash flows arising from the fulfilment of an insurance contract on a probability-weighted basis, and reporting revenue under the building block approach). This would have a related impact on key processes and internal controls. The tentative decisions made by the IASB differ from the FASB decisions in some important areas (e.g., margins, acquisition costs, and when to use the premium allocation approach). As a result, the Boards have acknowledged they will not reach a converged solution. The FASB is expected to issue its ED in mid IASB Projects - A pocketbook guide 16

19 Insurance contracts (joint project) cont d Key features cont d Rather than prescribing a rate for discounting insurance contracts, the proposed approach would be based on the principle that the rate should reflect the characteristics of the liability. Changes in insurance liabilities resulting from changes in the discount rate would be split between OCI and net income, depending on the components (e.g., impacted by the changes in crediting rate) of the cash flows for those contracts. For contracts with participating features that contain a contractual right to share in the return of underlying items, measurement and presentation of the insurance liability should be consistent with those items. Revenue would be reported in the income statement through earned premiums representing the insurer s performance under the contracts in the period. An approach based on a premium allocation could be applied to the liability for remaining coverage if contracts meet certain eligibility criteria (e.g., contracts with a coverage period of one year or less). How we see it A significant effort was made by the Board to mitigate concerns about the earnings volatility of insurance contracts, including those with participating features. This signals that, while the revisions to the model may reduce the potential for earnings volatility, they come with the potential for increased operational complexity. Transition: The Board has not yet concluded on the effective date, but it is expected to be around three years from the issuance of the final standard. Application of the new standard at transition is expected to be based on a modified retrospective approach. Further information on this project can be found on IASB Projects - A pocketbook guide 17

20 Rate-regulated activities comprehensive project Target DP Q Background: The objective of the rate-regulated activities project is to consider whether rate regulation creates assets or liabilities in addition to those already recognised in accordance with IFRS for non-rate-regulated activities. The IASB issued an ED on rate-regulated activities in 2009, which focused on the accounting for a cost-of-service regulatory scheme. The IASB received divergent views from constituents on how the consequences of rate regulation should be reflected in financial statements, if at all. In light of feedback received from its three-yearly agenda consultation, the Board decided to restart the rate-regulated activities project. In Q1 2013, the Board issued for public comment an RFI Rate Regulation seeking high-level overviews of the types of rate regulations existing in practice. The RFI is open for comment until 30 May The Board will use the information received on the RFI to determine the scope of a DP expected to be issued by the end of The purpose of the DP will be to identify what information on rate-regulated activities would be most useful to the users of IFRS financial statements and whether the Board should develop specific accounting requirements for rate-regulated activities. How we see it We encourage entities with rate-regulated activities to respond to the IASB s RFI detailing the types of rateregulated schemes that exist in practice. This information will assist the IASB staff in developing a robust DP that considers the potential implications for a wide range of rate-setting mechanisms. Further information on this project can be found at IASB Projects - A pocketbook guide 18

21 Rate-regulated activities interim standard Target ED Q Background: In addition to the comprehensive project on rate-regulated activities discussed above, the IASB is considering proposals for an interim standard for rate-regulated activities. The proposals may introduce diversity in accounting for certain rate-regulated activities between existing IFRS reporters and entities that apply the interim standard when adopting IFRS for the first time. Key features: The interim standard would allow entities adopting IFRS for the first time to recognise a separate asset or liability for certain types of rate-regulated activities, in line with their local GAAP, until the comprehensive rate-regulated activities project is completed. An ED on the interim standard is expected in Q Further information on this project can be found at IASB Projects - A pocketbook guide 19

22 Implementation projects In addition to the major IFRS projects, the IASB also has a number of items on its current work plan dealing with implementation issues. These include narrow scope amendments and interpretations. Below is a listing of the current implementation projects based on the IASB s work plan as at 25 March Narrow scope amendments Acquisition of an Interest in a Joint Operation (Proposed amendments to IFRS 11) The IASB proposed amendments to IFRS 11 Joint Arrangements that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business as defined in IFRS 3 Business Combinations, must apply the relevant principles for business combinations accounting in IFRS 3 and other standards, and disclose the relevant information specified in those standards for business combinations. Actuarial Assumptions: Discount Rate (Proposed amendments to IAS 19) The IASB is expected to propose clarifications for interpreting the meaning of high-quality corporate bonds for purposes of discounting employee benefit obligations under IAS 19 Employee Benefits. Next steps Comment period ends 23 April 2013 Amendments expected Q ED expected Q IASB Projects - A pocketbook guide 20

23 Narrow scope amendments Annual improvements The annual improvements process deals with non-urgent, but necessary, amendments to IFRS. In November 2012, the IASB issued an ED on Annual Improvements to IFRSs Cycle, which contains proposed changes to four standards: IFRS 1 First-time Adoption of International Financial Reporting Standards; IFRS 3; IFRS 13 Fair Value Measurement; and IAS 40 Investment Property. In May 2012, the IASB issued an ED on Annual Improvements to IFRSs Cycle. The ED proposed changes to 11 standards (excluding consequential amendments): IFRS 2 Share-based Payment; IFRS 3; IFRS 8 Operating Segments; IFRS 13; IAS 1 Presentation of Financial Statements; IAS 7 Statement of Cash Flows; IAS 12 Income Taxes; IAS 16 Property, Plant and Equipment; IAS 38 Intangible Assets; IAS 24 Related Party Disclosures; and IAS 36 Impairment of Assets. The IFRS Interpretations Committee is currently reviewing issues for the annual improvements cycle. Bearer Plants (Proposed amendments to IAS 41) The IASB is expected to propose that bearer biological assets should be included in the scope of IAS 16, rather than IAS 41 Agriculture. After initial recognition, bearer biological assets would be measured using either the cost model or the revaluation model in IAS 16. Produce growing on a bearer biological asset would remain in scope of IAS 41. Next steps Amendments on the and annual improvements cycles expected Q ED on the annual improvements cycle expected Q ED expected Q2 or Q IASB Projects - A pocketbook guide 21

24 Narrow scope amendments Clarification of Acceptable Methods of Depreciation and Amortisation (Proposed amendments to IAS 16 and IAS 38) The IASB proposed a limited-scope amendment to IAS 16 and IAS 38 to prohibit the use of revenue-based depreciation or amortisation methods. Defined Benefit Plans: Employee Contributions (Proposed amendments to IAS 19) The IASB proposed amendments to the accounting for contributions from employees or third parties when the requirements for such contributions are set out in the formal terms of a defined benefit plan. The objective of the proposed amendments is to provide a more straight-forward alternative for accounting when the employee contributions payable in a particular period are linked solely to the employee s service rendered in that period. Disclosure Requirements about Assessment of Going Concern (Proposed amendments to IAS 1) The IASB is expected to propose guidance on how to identify material uncertainties about an entity s ability to continue as a going concern and clarify the requirements on what to disclose about those material uncertainties. Equity Method: Share of Other Net Asset Changes (Proposed amendments to IAS 28) The IASB proposed amendments to IAS 28 Investments in Associates and Joint Ventures that an investor should recognise, in its investor s equity, net asset changes that are not recognised in profit or loss or OCI, or are not distributions received. Examples of the types of transactions that are likely to be included in 'other net asset changes' are movements in the share capital of the associate and movements in other reserves, such as share-based payment reserves. Next steps Amendments expected Q Comment period ends 25 July 2013 Amendments expected Q ED expected Q2 or Q Amendments expected Q IASB Projects - A pocketbook guide 22

25 Narrow scope amendments Fair Value Measurement: Unit of Account (Proposed amendments to IFRS 13) The IASB is expected to clarify the unit of account for investments in subsidiaries, joint ventures and associates, that is, whether the unit of account is the investment as a whole or the individual financial instruments that make up the investment as a whole. Novation of OTC Derivatives and Continuation of Hedge Accounting (Proposed amendments to IAS 39 and IFRS 9) The IASB proposed a narrow exception to the requirement for the discontinuation of hedge accounting in IAS 39 and IFRS 9 in circumstances when a hedging instrument is required to be novated to a central counterparty as a result of laws or regulations. Put Options Written on Non-controlling Interests (Proposed amendments to IAS 32) The IFRS Interpretations Committee issued a draft interpretation that proposed that all changes in the measurement of put options written on non-controlling interests should be recognised in profit or loss in accordance with IAS 39 and IFRS 9. During discussion of constituents feedback, the IASB tentatively decided to reconsider the requirements in paragraph 23 of IAS 32 Financial Instruments: Presentation, including whether all or a particular category of put options and forward contracts written on an entity's own equity should be measured on a net basis at fair value. Recognition of Deferred Tax Assets for Unrealised Losses (Proposed amendments to IAS 12) The objective of this project is to clarify the accounting for deferred tax assets for unrealised losses on debt instruments measured at fair value. Next steps ED expected Q Amendments expected Q2 or Q ED expected Q3 or Q ED expected Q IASB Projects - A pocketbook guide 23

26 Narrow scope amendments Recoverable Amount Disclosures for Non-Financial Assets (Proposed amendments to IAS 36) The IASB proposed amendments to IAS 36 in respect of the disclosure of information about the recoverable amount of impaired assets, particularly if that amount is based on fair value less costs of disposal. The proposed amendments are intended to clarify the IASB s original intentions when amendments were made to IAS 36 as a result of the issuance of IFRS 13. The IASB also proposed additional disclosures (based on IFRS 13 requirements) if an entity has recognised or reversed an impairment loss based on fair value less costs of disposal. The proposals would also require an entity to disclose the discount rate that was used in a present value technique in order to determine the recoverable amount of an impaired asset, regardless of whether that recoverable amount was based on fair value less costs of disposal or value in use. Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Proposed amendments to IFRS 10 and IAS 28) The IASB proposed amendments to address the acknowledged inconsistency between the requirements in IFRS 10 and IAS 28 (2011), in dealing with the loss of control of a subsidiary that is contributed to an associate or a joint venture. The proposals would require a full gain or loss to be recognised on the sale or contribution of assets that constitute a business, as defined in IFRS 3, between an investor and its associate or joint venture. Next steps Amendments expected Q Comment period ends 23 April 2013 Amendments expected Q IASB Projects - A pocketbook guide 24

27 Narrow scope amendments Separate Financial Statements (Equity Method) (Proposed amendments to IAS 27) The IASB is considering whether to amend IAS 27 Separate Financial Statements to include an option to use the equity method of accounting when measuring investments in subsidiaries, joint ventures and associates. This project will also consider clarifying other matters related to balances with subsidiaries and joint arrangements in separate financial statements. Next steps ED expected Q2 or Q Interpretations Levies The IFRS Interpretations Committee proposed requirements on the accounting for levies, other than income taxes, imposed by governments on entities in accordance with legislation. The interpretation is expected to clarify that the obligating event giving rise to a liability to pay a levy is the activity that triggers the payment of the levy as identified by the legislation. The interpretation is also expected to clarify that for levies that are triggered if a minimum threshold is reached, the obligating event is the activity undertaken after the threshold is reached. Interpretation expected Q IASB Projects - A pocketbook guide 25

28 Ernst & Young Assurance Tax Transactions Advisory About Ernst & Young Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 167,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential. Ernst & Young refers to the global organisation of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organisation, please visit About Ernst & Young s International Financial Reporting Standards Group The move to International Financial Reporting Standards (IFRS) is the single most important initiative in the financial reporting world, the impact of which stretches far beyond accounting to affect every key decision you make, not just how you report it. We have developed the global resources people and knowledge to support our client teams. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide. It s how Ernst & Young makes a difference EYGM Limited. All Rights Reserved. EYG no. AU This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organisation can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.