STATEMENTS FROM THE SWEDISH FINANCIAL REPORTING BOARD (UFR)

Transcription

1 UFR These statements constitute a translation of the Swedish statements UFR. In case of uncertainty, the Swedish version takes precedence. January 2010 STATEMENTS FROM THE SWEDISH FINANCIAL REPORTING BOARD (UFR) 1 (21)

2 Contents UFR 2 Group contributions and shareholders contributions... 3 UFR 3 Classification of ITP plans financed by insurance in Alecta... 5 UFR 4 Accounting for special employer s contribution and tax on returns... 7 UFR 5 Accounting for transition from application of paragraph 30 of IAS 19 Employee Benefits to paragraph UFR 6 Multi-employer pension plans UFR 7 IFRS 2 and social security contributions for listed enterprises UFR 8 Accounting for group equity (21)

3 STATEMENT FROM THE SWEDISH FINANCIAL REPORTING BOARD UFR 2 Group contributions and shareholders contributions Responsibility for UFR 2, published in December 2001 by the Emerging Issues Task Force of the Swedish Financial Accounting Standards Council, has been taken over by the Swedish Financial Reporting Board (the Board) for application by listed enterprises Issue This statement deals with the accounting of group contributions and shareholders contributions. Shareholders contributions can be either conditional or unconditional. The statement is prompted by the fact that shareholders contributions and group contributions are often presented as appropriations in the income statement. The statement is aimed at accounting that reflects the economic significance of group contributions and shareholders' contributions. Accounting of group contributions Group contributions are a form of capital transfer between enterprises within a group. It is assumed in this statement that group contributions do not constitute payment for services rendered. The view of the Emerging Issues Task Force is that group contributions are primarily to be presented according to their economic significance. Group contributions made and received with the aim of minimising the group s tax are presented as a decrease or increase respectively in non-restricted equity. Group contributions whose economic significance is not clearly apparent are also presented in this way. Group contributions that can be equated to dividend are presented as a decrease in equity for the donor and as a financial income item 1 for the recipient. A group contribution that can be equated to a shareholders contribution is presented as a shareholders contribution, as described below. Group contributions paid are normally a tax-deductible expense and group contributions received are normally taxable income. Under IAS 12 Income Taxes paragraph 61 tax is to be charged or credited directly to equity if the tax relates to items that are credited or charged directly to equity. An enterprise that pays group contributions thus has to present the decrease in tax to which the contribution leads as an increase in equity. Similarly the enterprise that has received a group contribution has to present the additional tax as a decrease in equity. As a consequence of this accounting only the tax attributable to income and expense in the income statement will be presented in the income statement. Accounting of shareholders contributions Shareholders contributions paid are reported for the donor as an increase in the item Participations in group companies. In particular if the contribution pertains to covering of losses, it should be examined whether write-down of the value of the shares is necessary. This examination follows normal rules for valuation of the asset item. 1 Special rules apply to credit institutions and securities enterprises, among other things on the layout of the income statement. 3 (21)

4 Shareholders contributions received are credited for the recipient directly to equity. If, however, the shareholders contribution has been paid in connection with a new share issue and the contribution is essential for the shares to be subscribed to at an advantageously low price, the contribution is to be added to the share premium reserve. 4 (21)

5 STATEMENT FROM THE SWEDISH FINANCIAL REPORTING BOARD UFR 3 Classification of ITP plans financed by insurance in Alecta Responsibility for UFR 3, published in March 2003 by the Emerging Issues Task Force of the Swedish Financial Accounting Standards Council, has been taken over by the Swedish Financial Reporting Board (the Board), for application by listed enterprises. IAS 19 Employee Benefits deals with the distinction between defined-contribution and defined-benefit plans for post-employment benefits. The classification of the ITP (Supplementary Pension for Salaried Employees) plan is of particular interest in this connection as it is a generally occurring plan and has formed the basis for the design of other similar plans. Reference: IAS 19 Employee Benefits Issue Defined-contribution plans and defined-contribution plans for post-employment benefits are defined in paragraph 7 of IAS 19. The classification is also discussed in paragraphs Multi-employer plans are dealt with in paragraphs The issue is: a) Whether an ITP plan financed by insurance in Alecta is to be classified as a defined-contribution or defined-benefit plan. b) Whether such a plan is a multi-employer plan. Assessment An ITP plan financed by insurance in Alecta is to be classified as a defined-benefit plan. An ITP plan financed by insurance in Alecta is a multi-employer plan. Considerations Under the ITP agreement the size of the employee s pension is decided by the number of years of service and final salary at the time of retirement. An increase in salary leads to an increase in level of pension which is applied to the whole period of service, and thus to the period of service both before and after the increase in salary. On the other hand, the premium payable to Alecta for the increased retirement benefit as a result of the increase in salary is only distributed across the employee s remaining period of service. The employee s pension benefit remains vested, i.e. not conditional on continued service, in line with the enterprise s payments of premium. On each occasion the employee thus has both a vested and a non-vested pension benefit. According to the principles of IAS 19 the enterprise has to take account not just of the vesting but also of the non-vested benefits. However, the premiums paid at any time as a consequence of the increase in salary only cover the vested benefits and thus not the non-vested benefits. The definition of a defined-contribution plan is consequently not met. A pension plan under the ITP plan financed through insurance in Alecta is therefore to be classified as a defined-benefit plan. 5 (21)

6 An ITP plan meets the two requirements stated in the definition of a multi-employer plan, namely that the plan a) combines assets that have been contributed from different enterprises that are not under joint control, and b) uses these assets to provide benefits to the employees of more than one enterprise on the basis of the principle that the levels of contribution and benefit are established without taking account of the enterprise in which the employees are employed. As an ITP plan financed through insurance in Alecta is a multi-employer definedbenefit plan, as a principal rule it is to be accounted for in accordance with paragraph 29 of IAS 19. This means that the company has to report its proportional share of the defined-benefit obligation and of the plan assets and costs associated with the plan in the same way as for any other defined-benefit plan and provide the information required regarding such plans. Where there is insufficient information for such accounting, the enterprise is to account for the plan in accordance with paragraph 30 of IAS 19. This means that the enterprise has to account for the plan as if it were a defined-contribution plan and disclose the information stated in paragraph 30. Application Application of this statement is to begin at the same time as an enterprise starts to apply IAS 19 Employee Benefits. 6 (21)

7 STATEMENT FROM THE SWEDISH FINANCIAL REPORTING BOARD UFR 4 Accounting for special employer s contribution and tax on returns Responsibility for UFR 4, published in December 2004 by the Emerging Issues Task Force of the Swedish Financial Accounting Standards Council, has been taken over by the Swedish Financial Reporting Board (the Board) for application by listed enterprises Reference: IAS 19 Employee Benefits Issue Swedish enterprises are obliged to pay both a special employer s contribution on the enterprise s pension expenses and a tax on returns on what has been accounted for as Pension provision. Tax on returns is also to be paid by pension benefit plans. The taxes are established annually in conjunction with general tax assessment. Application of IAS 19 Employee Benefits means that the pension expense/obligation presented for Swedish group enterprises in the consolidated accounts may deviate from the total of pension expenses/obligations in the individual enterprises. An issue concerns whether this situation is to be taken into account in accounting for special employer's contribution in the preparation of the consolidated accounts. Another issue concerns whether provision is to be made for tax on returns when the calculation of pension obligation is based on IAS 19. Under paragraph 93A of IAS 19 Employee Benefits, enterprises may choose in principle to recognise actual gains and losses directly in equity. An issue is whether a special employer s contribution calculated on these actuarial gains and losses is to be recognised directly in equity. Assessment Special employer's contribution The special employer s contribution is to be calculated on the basis of how the pension expense for the period has been established. When the pension expense, established with application of IAS 19, is higher (lower) than that established in a legal entity, a provision (receivable) for special employer's contribution is to be recognised based on the difference. Enterprises that recognise actuarial gains and losses directly in equity are to include special employer s contribution in these gains and losses. Provision for special employer s contribution is not to be subject to present value computation. Tax on returns Provision for tax on returns is not to be made when the calculation of the pension obligation is based on IAS 19. Tax on return is thus to be recognised as a current expense. Anticipated tax on returns is to be taken into account, however, when an enterprise establishes the expected return on plan assets. Considerations Special employer s contribution The pension expense recognised in the group may differ from what is recognised in a legal entity as a result of the various assumptions made with regard, among other things, to the discount rate. As the pension expense is the same, the differences are due to the expense being allocated to periods in different ways. The special employer s contribution 7 (21)

8 is paid on the enterprise s pension expenses. The assessment made by the Emerging Issues Task Force is therefore that the special employer s contribution is to be allocated to periods in the same way as the pension expense. According to paragraph 93A of IAS 19 Employee Benefits, enterprises may choose in principle to recognise actuarial gains and losses in equity. The Emerging Issues Task Force put a question to IFRIC in 2006 on whether they could clarify whether special employer s contribution is to be included in such gains and losses as are recognised directly in equity. It is evident from IFRIC Update, January 2007, that IFRIC did not consider it possible to issue an interpretation on this issue within a reasonable time. This assessment was confirmed by the IFRIC at a meeting in March It is also evident from IFRIC Update, January 2007, that the IFRIC has made the following observations: a) Taxes paid by a defined-benefit plan are included in the definition of return on plan assets. b) Income taxes paid by the enterprise are accounted for in accordance with IAS 12. c) IAS 19 does not only cover benefits to employees but also certain expenses that are related to such benefits and are paid to others. d) There may be many other taxes attributable to pensions in the world and it is a matter of judgement whether these are income taxes that fall within IAS 12 Income Taxes, part of benefits in accordance with IAS 19 or another type of provision that falls within IAS 37, Provisions, Contingent Liabilities and Contingent Assets. Regarding item d) it is apparent from IAS 12 that income taxes are taxes paid on the enterprise's income. IAS 12 consequently cannot be applicable to the special employer s contribution. It is evident from IAS 37 that the standard is not applicable to provisions that fall within IAS 19. The issue to which the Emerging Issues Task Force has had to respond is consequently whether special employer s contribution is to be included in the commitment for pensions. IAS 19 does not provide a clear answer. The assessment made by the Emerging Issues Task Force is that as a commitment for pensions requires an enterprise to pay special employer s contribution, the employer s contribution is to be included in the commitment. It is evident from IAS 37 that when the time value is substantive, the provision is to be made up of the current value of expected payments. The provision (receivable) for special employer s contribution is not to be subject to current value computation, however, as the basis of the provision, the pension expense, has been calculated as a current value. Tax on returns The Emerging Issues Task Force has considered whether tax on returns constitutes part of pension expenses. IAS 19, paragraph 7, defines post-employment benefits as employee benefits which are payable after the completion of employment. The conclusion reached by the Emerging Issues Task Force is that the tax on returns does not form part of such a benefit and provision consequently does not have to be made. The tax on return does, however, form part of personnel expenses and is therefore to be accounted for among these in the income statement. The Emerging Issues Task Force has also considered whether a provision for tax on return is to be made in accordance with what is required under IAS 37, Provisions, Contingent Liabilities and Contingent Assets. The assessment made by the Emerging Issues Task Force is based on tax on return being considered to be a tax on the return on the assets that safeguard the pension obligations. With the aim of achieving a simplification, the basis for the tax consists of the recognised pension obligation (in account provisions) or the value of the assets in pension benefit plans. The obligating 8 (21)

9 event is consequently the annual establishment of the value of the pension obligation or the pension plan assets and not the fact that an employee has earned a pension right. It is evident from paragraph 7 in IAS 19 that enterprises have to take account of expected administrative expenses and any taxes payable when they establish the anticipated return on fund assets. This means that if the anticipated return is 8 per cent before account is taken of tax on return and the tax on return and government borrowing interest rate are 15 and 5 per cent respectively, the expected return after tax on return is stated as 7.25 per cent, i.e (0.15 x 0.05). 9 (21)

10 STATEMENT FROM THE SWEDISH FINANCIAL REPORTING BOARD UFR 5 Accounting for transition from application of paragraph 30 of IAS 19 Employee Benefits to paragraph 29 Responsibility for UFR 5, published in February 2005 by the Emerging Issues Task Force of the Swedish Financial Accounting Standards Council, has been taken over by the Swedish Financial Reporting Board (the Board), for application by listed enterprises. Reference: IAS 19 Employee Benefits Issue Enterprises that take part in a multi-employer plan (an example of such a plan is Alecta) have applied paragraph 30 of IAS 19 Employee Benefits, according to which the pension plan is to be recognised as defined-contribution. When enterprises receive information that leads to the plan having to be recognised as defined-benefit in accordance with paragraph 29, the following questions arise: 1. Is the transition to be recognised as a change of accounting policy or as a change of assessment? 2. From what time is the pension plan to be recognised as defined-benefit? Assessment When there is information that means that a multi-employer pension plan changes over to being recognised as defined-benefit from having been recognised as definedcontribution, the transition is to be recognised as a change in accounting policy in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. When the change in accounting policy takes place during the annual financial period, all previous reporting periods are to be recalculated in accordance with IAS 34 Interim Financial Reporting where this is not impracticable. Considerations In accordance with paragraph 25 of IAS 19, entities are to classify a multi-employer post-employment benefits plan either as defined-contribution or as defined-benefit. Under UFR 3 Classification of ITP Plans Financed through Insurance in Alecta. The pension plan administered by Alecta, like other similar plans, is an example of a defined-benefit plan. It has not, however, been possible to recognise the plan as defined-benefit as it has not been possible to provide the information described in paragraphs of IAS 19. The plan has instead been recognised as definedcontribution in accordance with paragraph 30 of IAS 19. Discussions have been held which may lead to the pension plan administered by Alecta having to be recognised as defined-benefit instead of as defined-contribution. What the Emerging Issues Task Force has been asked to comment on is whether such a change is to be recognised in accordance with what applies to changed assessments, see the section on definitions in paragraph 5 of IAS 8, or as a change in accounting policy, see paragraphs 14ff of IAS 8. A changed assessment is a consequence of it not being possible to measure items in the financial statements with complete precision. A common example is changed assumptions on the useful life of an asset. When a pension plan provides such information as is described in paragraphs of IAS 19 this does not mean, 10 (21)

11 however, that a new assessment is made of how the pension plans are to be recognised in the framework of an applied policy. The new information instead leads to entities gaining a basis which means that the pension plans have to be recognised in a different way than previously. This change entails a change in accounting policy, as it requires a new approach to accounting rather than a new assessment of how the measurement or assessment is to be made. A transition to accounting in accordance with paragraph 29 in IAS 29 therefore signifies a change in accounting policy. A change in accounting policy normally takes place at the start of a new annual financial period. As is apparent from paragraphs of IAS 34 Interim Financial Reporting a change may also, however, take place during an annual financial period. If this has taken place, financial statements for previous reporting periods are also to be recalculated to ensure that a single accounting policy has been consistently applied unless this is impracticable. 11 (21)

12 STATEMENT FROM THE SWEDISH FINANCIAL REPORTING BOARD UFR 6 Multi-employer pension plans Responsibility for UFR 6, published in March 2005 by the Emerging Issues Task Force of the Swedish Financial Accounting Standards Council, has been taken over by the Swedish Financial Reporting Board (the Board) for application by listed enterprises Issue In the autumn of 2004 Alecta provided information which was to make it possible to account for ITP pensions financed through insurance in Alecta as defined-benefit in accordance with paragraph 29 of IAS 19 Employee Benefits. FAR SRS has questioned whether the information provided by Alect is calculated in a way that is consistent with IAS 19. FAR SRS has therefore asked the Emerging Issues Task Force to indicate how ITP pensions financed through insurance in Alecta are to be accounted for. The issue dealt with by this statement is what conditions have to be met for enterprises covered by multi-employer plans to account for these as defined-benefit in accordance with paragraph 29 of IAS 19. Assessment Enterprises covered by a multi-employer pension plan classified as defined-benefit are to account for their proportional share of the plan s obligations, plan assets and costs in the same way as for any other defined-benefit plan. Accounting for the enterprise s proportional share of obligations, plan assets and costs presupposes that these have been established for the plan as a whole. Calculation of the proportional share also presupposes that there is a consistent and reliable method of sharing obligations etc. among the participants. This necessitates the plan containing rules on how surpluses and deficits in the plan will affect the enterprise s contributions in the future. When there is insufficient information to make accounting in accordance with the above possible, enterprises are to account for multi-employer pension plans as defined-contribution. The information notified by Alecta to member companies in 2004 is not presented in accordance with the above. Enterprises that have financed their obligations as ITP pensions in Alecta are therefore to account for these as defined-contribution in accordance with paragraph 30 of IAS 19. The conditions indicated above are required to be met for it to be possible for the obligations and plan assets to be accounted for as defined-benefit in 2005 or later. Disclosures Enterprises which are covered by multi-employer plans and account for these as defined-benefit are to provide the information referred to in paragraph 120 of IAS 19. When a multi-employer plan is accounted for as defined-contribution, the enterprise is to provide the information stated in paragraphs 30 b and c and 46 of IAS 19. Considerations ITP pensions financed through insurance in Alecta are examples of a multi-employer plan. This is apparent from a statement from the Emerging Issues Task Force, UFR 3 12 (21)

13 Classification of ITP plans financed through insurance in Alecta. Multi-employer pension plans are to be accounted for either as defined-benefit, see paragraph 29 of IAS 19, or as defined-contribution, see paragraph 30 in IAS 19. Even if the plans are defined-benefit, they are to be accounted for as definedcontribution if there is no information making it possible for enterprises to establish their share of the plan s obligations, plan assets and costs in a reliable way. It is apparent from paragraph 32 of IAS 19 that this is the case if a) the enterprise does not have access to information on the plan that fulfils the requirements of this recommendation or b) the plan exposes the participating enterprises to actuarial risks associated with current and former employees in other enterprises, which means that there is no consistent and reliable basis for the sharing of obligations, plan assets and costs between the individual enterprises covered by the plan. For it to be possible for paragraph 29 of IAS 19 to be applied it is required that obligations, plan assets and costs can be shared proportionally between the enterprises covered by the plan in a consistent and reliable manner. The assessment made by the Emerging Issues Task Force is based upon this necessitating obligations, plan assets and costs being calculated on the basis of assumptions that apply to the plan as a whole and not assumptions specific to the enterprise concerned. Assumptions on salary increases, discount rate and staff turnover are therefore to be common to all the employees covered by the plan. The calculations which Alecta has performed for individual member enterprises are, however, conditional on assumptions regarding salary increases etc. which have been established by each enterprise. Consistent and reliable sharing of obligations, plan assets and costs additionally necessitates there being rules indicating in what way a surplus is to be shared and how a deficit is to be covered. However, it apparent from the reply given by Alecta to a draft statement from IFRIC referred for consideration, D6 Multi-Employer Plans, that according to Alecta there are no such rules. Alecta writes as follows: There is no consistent and reliable basis to allocate assets or liabilities to the participating entities within the ITP insurance. The reason for this is that it is not possible to determine from the terms of the plan to which extent a surplus or a deficit will affect future contributions. Accounting for ITP pensions insured by Alecta as defined-benefit plans according to the information supplied by Alecta for 2004 is thus not consistent with what is indicated in IAS 19. The conditions indicated under Assessment are required to be met for it to be possible for the obligations and plan assets to be accounted for as defined-benefit in 2005 or later. Disclosures When a multi-employer pension plan is accounted for in accordance with paragraph 29 of IAS 19, that is to say as defined-benefit, each enterprise is to provide information on the plan in the same way as for other defined-benefit plans. When the plan is accounted for as defined-contribution in accordance with paragraph 30 of IAS 19, information is instead to be provided on - the fact that the plan is defined-benefit and the reason why there is insufficient information to account for the plan as a defined-benefit plan, - the level of costs for the year for the plan, - the plan s surplus (deficit), how it has been calculated and any consequences for the enterprise, 13 (21)

14 - the plan s surplus (deficit) calculated according to the rules stated in IAS 19. If there is no information on this, the fact that there is no information and the reasons why this is the case are to be indicated. 14 (21)

15 STATEMENT FROM THE SWEDISH FINANCIAL REPORTING BOARD UFR 7 IFRS 2 and social security contributions for listed enterprises Responsibility for UFR 7, published in September 2005 by the Emerging Issues Task Force of the Swedish Financial Accounting Standards Council, has been taken over by the Swedish Financial Reporting Board (the Board) for application by listed enterprises Introduction This statement deals with the accounting of social security contributions in enterprises which have issued share-based instruments to employees as payment for purchased services and which account for these in accordance with IFRS 2 Share-based Payment. A common term used to designate such instruments is staff options. The statement is applicable to instruments settled both by exchange for shares and in cash. Assessment Social security contributions attributable to share-based instruments for employees as payment for purchased services are to be recognised as an expense disaggregated into the periods during the services are performed. The cost is to be calculated applying the same measurement model as was used when the options were issued. The provision that arises is to be re-measured on each reporting occasion on the basis of a calculation of the charges that may be paid when the instruments are redeemed. Considerations Under IFRS 2 enterprises that have issued share-based instruments to employees as payment for purchased services are to report a cost for the instruments disaggregated into each of the periods during which the services are performed. The assessment made by the Emerging Issues Task Force is that the social security contributions are to be disaggregated in the same way as the payroll expenses. Support for this view is provided by the arguments contained in IFRS 2, Basis for Conclusions, paragraphs BC and BC In BC it is discussed whether the allocation of options is already to provide a basis for accounting for the value of the options as an expense directly and in BC , which apply to cash-settled transactions, it is discussed whether there is any liability before the rights have been earned in full. In both cases arguments are presented in relation to what event that has occurred is to trigger recognition as an expense, and the conclusion in both cases is that it is the employee's supply of his or her services that constitutes the events. An alternative discussed by the Emerging Issues Task Force is for the enterprise to account for a provision and an expense at the time of issue of the instruments for the whole of the contribution which may be paid, that is to say without disaggregation between the periods during which the services are rendered. The fact that the value of the share-based instruments issued is disaggregated into periods in accordance with IFRS 2 is due to an assumption that they reflect the value of services rendered by the employees during the period concerned. The social security contributions are also linked in this case to the growth in value of the share-based instruments after issue and not just to the value of the services rendered by the employees. The 15 (21)

16 assessment of the Emerging Issues Task Force, despite this, is that there is such a close relation between the social security contributions and payroll expenses that the contributions are to be allocated to periods in the same way as payroll expenses. It is also apparent from the assessment that the provision for social security expenses is to be re-measured at the time of reporting. The assessment is based on an analogy interpretation of what is applicable in accordance with IFRS 2 to instruments to be settled in cash. The provision for social security contributions is to be based on the fair value of the options, that is to say the sum of the real value and time value of the options. The reason for this is that the fair value of the options is the best indication of what the options will be worth at the time of redemption. Fair value is also stipulated in the statement of the Emerging Issues Task Force on synthetic options, see URA 2. Example An enterprise has issued 1,000 options to employees entitling them to subscribe to an equal number of shares. The options can be exchanged for the enterprise s shares after no more than 5 years for SEK 100. The market price at the time of issue is SEK 100. Utilisation of the options is conditional on the employee remaining in service for three years. The value of the options has been calculated at SEK 60. Social security contributions amount to 30 per cent of the fair value of the options at the time of redemption. The enterprise applies IFRS 2. The example is based, for the sake of clarity, on the calculations being made annually instead of quarterly, as is normally the case. It is additionally assumed that no employees will leave during the entitlement-earning period. The total value of the options at the time of issue is SEK 60,000. In accordance with IFRS 2 the enterprise accounts for a payroll expense for the services contributed by the employees, that is to say at one-third of SEK 60,000 for each of the next three years. At the time of issue the enterprise also makes a calculation of future social security contributions based on the same option valuation model as is used to calculate the value of the options. The amount is SEK 18,000, that is to say 30 per cent of the option value. A similar calculation is made at the end of years 1, 2, 3 and 4 in which future contributions are estimated at SEK 18,000, 21,000, 24,000 and 10,000 respectively. The actual social security contributions when the options are redeemed total SEK 5, (21)

17 31 December Yr 1 Yr 2 Yr 3 Yr 4 Yr 5 Fair value of the options, SEK 60,000 70,000 80,000 33,000 17,000 Social security contributions, 30% SEK 18,000 21,000 24,000 10,000 5,000 Provision, SEK 6,000 14,000 24,000 10, Cost/income for the year, SEK 6,000 8,000 10, ,000 +5,000 As utilisation of the options is conditional on the employee remaining in the enterprise s service for three years, a provision and an expense for social security contributions is recognised in Year 1 at one-third of SEK 18,000, that is to say SEK 6,000. In Year 2 a provision of two-thirds of SEK 21,000, or SEK 14,000 is recognised. The expense in Year 2 is thus SEK 8,000. In Year 3 a provision of SEK 24,000 and an expense of SEK 10,000 are recognised. In Year 4 the provision amounts to SEK 10,000 and the enterprise recognises a dissolution of a previous provision of SEK 14,000. Finally in Year 5 a further dissolution of the provision is made in the sum of SEK 5,000, after which the remaining provision is used to settle the liability to the Swedish Tax Agency. 17 (21)

18 STATEMENT FROM THE SWEDISH FINANCIAL REPORTING BOARD UFR 8 Accounting for group equity Responsibility for UFR 8, published in March 2006 by the Emerging Issues Task Force of the Swedish Financial Accounting Standards Council, has been taken over by the Swedish Financial Reporting Board (the Board) for application by listed enterprises Reference: IAS 1 Presentation of Financial Statements IAS 19 Employee Benefits Issue The Emerging Issues Task Force has received a question concerning how equity is to be accounted for in consolidated accounts prepared in accordance with IFRS. Assessment In accordance with paragraphs 68 o) and p) of IAS 1 Presentation of Financial Statements, the balance sheet has to at least include the sums of issued capital and reserves attributed to equity holders of the parent and minority interest. The assessment made by the Emerging Issues Task Force is that the portion of equity attributable to equity holders in the parent should be recognised in the balance sheet disaggregated into - Share capital; - Other contributed equity 2 ; - Reserves; and - Retained earnings including net profit for the year. Enterprises are additionally to present a statement of change in equity. This is to show each item of income and expense for the period which has been recognised directly in equity as required by standards or interpretations issued by the IASB. Certain disclosures are also to be made, as indicated below. Considerations In accordance with paragraphs 68 o) and p) of IAS 1 Presentation of Financial Statements, the balance sheet has to at least include the sums of contributed capital and other equity attributed to equity holders of the parent and minority interest. Under paragraphs 69 and 74 a further disaggregation of equity is required when necessary for an understanding of the entity s position and operations. It is mentioned as an example in paragraph 75 e) that equity is disaggregated into various classes, such as paid-in capital, other contributed capital and other equity. 2 This disaggregation can be disclosed either in the balance sheet or in a note. A disaggregation of equity into these items may be of significant information value and contribute to the increased understanding of the financial position and operations of the group referred to in paragraphs 69 and 74. Considerations of this type suggest that the disaggregation should be apparent from the balance sheet. The Emerging Issues Task Force has argued similarly with regard to retained earnings, which are of a different nature than the other items in equity. 2 In accordance with IAS 1 equity is to be disaggregated into various classes, such as paid-in capital, share premium and other equity. The meaning is difficult to understand as premium forms part of paid-in equity. A division into share capital, other contributed capital and other equity is more comprehensible. 18 (21)

19 The term Reserves is not defined in IAS 1 or in interpretations of IAS 1. However, it is indirectly apparent from paragraphs 96 and 97 that reserves include income and expense, taking account of tax effects, which according to IFRS and interpretations of IFRS have been recognised directly in equity. Examples of such items are revaluation reserves (see IAS 16 Property, Plant and Equipment paragraph 39 and IAS 38 Intangible Assets paragraph 85), translation differences (see IAS 21 The Effects of Changes in Foreign Exchange Rates paragraphs 31, 32 and 39), fair value reserve (see IAS 39 Financial Instruments: Recognition and Measurement paragraph 55), profits and losses attributable to non-settled cash-flow hedging (see IAS 39 paragraph 95) and profits and losses that arise in the hedging of net investments in a foreign operation (see IAS 39 paragraph 102). In accordance with paragraph 93A of IAS 19 Employee Benefits actuarial gains and losses, under certain circumstances, may also be recognised directly in equity. Such gains and losses are, however, to be recognised in retained earnings in accordance with paragraph 93D of IAS 19, and are not to be recognised in profit and loss in a subsequent period. According to the assessment made by the Emerging Issues Task Force the equity portion of untaxed reserves is to be accounted for as part of retained earnings. The reason for this is that the provision for untaxed reserves is made up of the enterprise's earned funds. Items to be presented in the statement of changes in equity in accordance with paragraph 96 of IAS 1 a) profit or loss for the period; b) each item of income and expense for the period that, as required by other standards or by interpretations, is recognised directly in equity, and the total of these items; c) total income and expense for the period (calculated as the sum of (a) and (b), showing separately the total amounts attributable to equity holders of the parent and to minority interest; and d) for each component of equity, the effects of changes in accounting policies and corrections of errors recognised in accordance with IAS 8. - Items to be presented in accordance with paragraph 97 of IAS 1 e) the amounts of transactions with equity holders acting in their capacity as equity holders, showing separately distributions to equity holders; 3 f) the balance of retained earnings (i.e. accumulated profit or loss) at the beginning of the period and at the balance sheet date, and the changes during the period; and g) a reconciliation between the carrying amount of each class of contributed equity and each reserve at the beginning and end of the period, separately disclosing each change. The items listed under e) g) may be presented either in the statement of changes in equity or in the notes. Enterprises that have chosen to recognise actuarial gains and losses in equity in accordance with paragraph 93 of IAS 19 are to present these in a report which only includes those items listed under a) d) (statement of recognised income and expense). It is not permitted to present actuarial gains and losses in the table 3 The formulation of item e) is based on the English original as the official Swedish translation lacks a requirement for disclosure of distribution. 19 (21)

20 described in paragraph 101 of IAS 1 that reconciles the opening and closing balances of each element within equity. Nor is it permitted to present such gains and losses in another table comprising the items described in paragraph 97 of IAS 1. - Information which an enterprise has to provide either in the balance sheet or in the notes in accordance with paragraph 76 of IAS 1 a) for each class of share capital the number of shares authorised; the number of shares issued and fully paid, and issued but not fully paid; par value per share 4, or that the shares have no par value; a reconciliation of the number of shares outstanding at the beginning and at the end of the period; the rights, preferences and restrictions attaching to that class including restrictions on the distribution of dividends and the repayment of capital; shares in the entity held by the entity or by its subsidiaries or associates; and shares reserved for issue under options and contracts for the sale of shares, including the terms and amounts; and b) a description of the nature and purpose of each reserve within equity. 4 In the Companies Act (2005:551) shares do not have a par value but a quotient value, which is made up of the share s portion of the share capital (Chapter 1, section 6). 20 (21)

21 Copyright Rådet för finansiell rapportering 2010 (Swedish Financial Reporting Board 2010) The contents of this publication are protected under the Act on Copyright in Literary and Artistic Works. Reproduction, in whole or in part, without the permission of the Swedish Financial Reporting Board is prohibited. Rådet för finansiell rapportering (Swedish Financial Reporting Board) Box 7680 SE Stockholm Sweden Telephone: +46 (0) Fax: +46 (0) (21)