Maria Alano Laset September 2010 Session 4 of 6 Webinar IFRS. Amendments to Form 1

Transcription

1 Maria Alano Laset September 2010 Session 4 of 6 Webinar IFRS Amendments to Form 1

2 This session Session 4 will cover Statement E - the income statement. Session # Overview of the changes to Form 1 Planning for the changeover Opening IFRS balance sheet Prescribed IFRS departures and prescribed accounting treatments Changes to Statement A balance sheet Changes to Statement E income statement Changes to Statement F equity Other Coverage 2

3 3 Changes to Statement E A single statement to reflect both net income and other comprehensive income (OCI)

4 Changes to Statement E Reasons for the changes to Statement E The changes to Statement E have been identified in order to: Reflect the new terminology and the minimum items that must appear on the income statement Reflect the required format showing the dates, the currency and the note reference Accommodate the grossing up of revenue and expense Broaden the revenue product lines Accommodate the revaluation model for plant, property & equipment and intangible assets Accommodate other comprehensive income (OCI) and Remove the notional income tax for partnerships 4

5 Changes to Statement E The changes are primarily to conform with the IFRS presentation standard, specifically IFRS defined terms and items. Other revenue net interest Provision for (recovery of) income taxes Extraordinary items Old terminology or item Statement of income Comment To rename To rename To add a separate line item To add a separate line item To add a separate line item To add a separate line item To rename To delete To add a separate line item Statement of income and comprehensive income Other revenue - Interest Expenses Commissions and fees paid to third parties Expenses - Financing cost Expenses Corporate finance cost Income asset revaluation Expense asset revaluation Income tax expense New terminology or item Other comprehensive income items: Gain (loss) arising on revaluation of properties Actuarial gain (loss) on defined benefit pension plans 5

6 Housekeeping changes to Statement E There are non-ifrs-related changes. A few of these are housekeeping changes. Principal revenue - bonds Old terminology or item Commission revenue other options Principal revenue money market Comment To rename To add a separate line item To rename To move To add a separate line item Principal revenue - debt New terminology or item Commission revenue other listed options Commission revenue OTC derivatives Principal revenue OTC derivatives Profit (loss) for the year from discontinued operations Profit (loss) before lines 24, 25, 26 & 27 To rename To add a separate line item Profit (loss) for Early Warning test Net income before income tax 6

7 Operational and regulatory implications Although the economics have remained unchanged, the change in accounting standards may have operational and regulatory implications. Operational implication Regulatory implication Presentation of revenue and expense (Gross up) Change in accounting process to separately report revenues from expenses relating to the same transaction or product line No EW implication The non-allowable asset (related to the revenue and presented on a gross basis) will have an adverse RAC implication. Recognition of liability (Provision, constructive obligation, onerous contracts) Valuation of certain non-allowable assets (Write up and write down) Change in accounting process to recognize the liability and accompanying expense Unlikely that Dealer Members will choose the revaluation (PPE and intangibles) and fair value (investment property) models Creates complexity in the accounting process Change in accounting process to properly record the write-up and write-down of certain non-allowable assets Potential EW implication resulting from the increased likelihood of recognizing a liability No RAC or EW implication Any income and expense resulting from the asset revaluation are excluded from the EW profitability test. 7

8 Operational and regulatory implications Although the economics have remained unchanged, the change in accounting standards may have operational and regulatory implications. Operational implication Regulatory implication Extraordinary items (No longer applicable) Change in accounting process to properly recognize the gain or loss Potential EW implication However, IIROC has the ability to exercise discretion to waive any EW restrictions, if warranted. Notional income tax on partnership profits (No longer applicable) Improvement now aligned with tax law Improvement now aligned with tax law Share-based payments Change in valuation and accounting processes to recognize the share-based compensation and other share-based payment Measure the non-tradeable shares and share options at fair value Potential EW implication 8

9 9 Changes to Statement E Under IFRS, there are required format changes. In addition, there are housekeeping changes.

10 10 Changes to Statement E One housekeeping change was to renumber the line items.

11 11 Other changes to Statement E To comply with the IFRS presentation requirement of grossing up balances

12 12 Statement E Commission revenue Accompanying changes to the notes and instructions for revenue earned from agency trades were made.

13 13 Statement E - Principal trading and corporate finance Accompanying changes to the notes and instructions for revenue earned from principal trades and from corporate finance activities were made.

14 14 Other Statement E changes IFRS-related and housekeeping changes relating to non-typical gains and losses

15 Valuation of non-allowable assets Measurement for the opening balance sheet and subsequent measurement Measurement for opening balance sheet Revalue the asset based on a retroactive application of IFRS or Relief based on IFRS 1 optional exemption Use fair value as deemed cost Subsequent measurement for MFR and audited Form 1 Value the non-allowable asset based on the IFRS alternative measurement models Dealer Member must decide on an accounting policy and must update the written accounting policies and procedures to reflect the adoption of IFRS 15

16 Valuation of non-allowable assets IFRS permits the write-up and write-down of assets. Alternative models For subsequent measurement Non-allowable asset Cost Revaluation Fair value Comment Plant, property & equipment (PPE) Most Dealer Members do not own real estate properties that serve as their office premises. Instead, Dealer Members lease their office premises. Fair value (when using the revaluation model) must be measured reliably, otherwise the cost model should be chosen. Most likely, PPE for Dealer Member will be comprised of furniture and fixtures, as well as office equipment. Intangible assets A few Dealer Members have in-house developed software programs. A Dealer Member may adopt the revaluation model only if the intangible assets are traded in an active market which is rare for many intangible assets. Investment property It is unlikely that Dealer Members own investment property consisting of land or buildings used to earn rental income, for capital appreciation or both. When a Dealer Member uses the fair value model, a Dealer Member must recognize the changes in fair value directly into income. 16

17 Write up and down of non-allowable assets The volatility in P&L will not affect Early Warning profitability tests. # G/L account Nature of account Statement Line item Regular P&L 1 Income asset revaluation but excluded for Statement E E32 the Early Warning profitability test Regular P&L 2 Expense asset revaluation but excluded for Statement E E33 the Early Warning profitability test 3 Other comprehensive income Other comprehensive income (OCI) Statement E E39 4 Property revaluation reserve Equity - reserve Statement F F-(B)(5)(a) 17

18 18 Write up and down of non-allowable assets The volatility in P&L will not affect Early Warning profitability tests.

19 19 Other comprehensive income For regulatory accounting and reporting, IIROC permits two OCI items.

20 Other comprehensive income For regulatory accounting and reporting, IIROC permits two (of the five) OCI items. # IFRS OCI items For regulatory reporting Reason Operational implications 1 Revaluation gains and losses on property, plant and equipment Permitted 2 Actuarial gains and losses in relation to pension schemes Permitted 3 4 Unrealized gains and losses on available-forsale securities Gains and losses resulting from cash flow hedges X Not permitted X Not permitted Prescribed accounting treatment All firm positions are categorized as held for trading. Prescribed accounting treatment Hedge accounting is not permitted. Must have controls in place to ensure that the Dealer Member applies the prescribed accounting treatment or prescribed departure for regulatory reporting 5 Foreign currency translation adjustments X Not permitted Prescribed departure Consolidation is not permitted except for related Dealer Members. Will need to reconcile the difference between the general purpose financial statements and the regulatory report 20

21 Next session Session 5 will be on Statement F shareholders equity. Session # Overview of the changes to Form 1 Planning for the changeover Opening IFRS balance sheet Prescribed IFRS departures and prescribed accounting treatments Changes to Statement A balance sheet Changes to Statement E income statement Changes to Statement F equity Other Coverage 21