New IFRS standards and interpretations Warsaw, December 2012
Agenda Pronouncements Effective First annual year of application* IFRS 1 First-time Adoption of International Financial Reporting Standards (Amendment) - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters Zatwierdzony przez UE?** 1 July 2011 31 December 2012! IFRS 7 Financial Instruments: Disclosures (Amendment) 1 July 2011 31 December 2012 IAS 12 Income Taxes (Amendment) - Deferred Taxes: Recovery of Underlying Assets IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 1 January 2012 31 December 2012! 1 July 2012 31 December 2013 IFRS 1 Government Loans - Amendments to IFRS 1 1 January 2013 31 December 2013! IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements IFRS 11 Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures 1 January 2013 31 December 2013 1 January 2013 31 December 2013 1 January 2013 31 December 2013 * Financial year = calendar year ** as of 26 November 2012 Page 2
Agenda (contd.) Pronouncements Effective First annual year of application* Zatwierdzony przez UE?** IFRS 12 Disclosure of Interests in Other Entities 1 January 2013 31 December 2013 Guidance (Amendments to IFRS 10, IFRS 11 and IFRS 12) 1 January 2013 31 December 2013! IFRS 13 Fair Value Measurement 1 January 2013 31 December 2013 IAS 19 Employee Benefits (Revised) 1 January 2013 31 December 2013 IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013 31 December 2013 Annual Improvements to IFRSs - 2009-2011 Cycle 1 January 2013 31 December 2013! IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) 1 January 2014 31 December 2014 1 January 2014 31 December 2014 IFRS 9 Financial Instruments - Classification and Measurement 1 January 2015 31 December 2015 * Financial year = calendar year ** as of 26 November 2012 Page 3
IFRS 1 First-time Adoption of IFRS (Amendment) - Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters Effective for annual periods beginning on or after 1 July 2011 Provides guidance on how an entity should resume presenting IFRS financial statements when its functional currency ceases to be subject to severe hyperinflation Creates new exemption on transition to IFRS on or after the functional currency normalisation date Allows the use of fair value as deemed cost of assets and liabilities Provides relief from the requirement to provide comparative information Removes legacy fixed dates relating to derecognition and day one gain or loss transactions; replaced with the date of transition to IFRS Allows entities that were subject to severe hyperinflation in the past to recommence reporting under IFRS Relief to first-time adopters by reducing the cost and resources required to retrospectively restate past transactions Requires source and documentation of the fair value estimation if the new deemed cost exemption availed Earlier application permitted, which must be disclosed Page 4
IFRS 7 Financial Instruments: Disclosures (Amendment) Effective for annual periods beginning on or after 1 July 2011 Additional quantitative and qualitative disclosures relating to transfers of financial assets when: Financial assets are derecognised in their entirety, but there is a continuing involvement in them (e.g., options or guarantees on the transferred assets) Financial assets are not derecognised in their entirety More extensive disclosures, e.g., estimated maximum exposure to loss arising from continuing involvement May require modification of management information systems and internal controls to obtain the necessary quantitative information to make the disclosures No comparative disclosures required for any period beginning before the effective date Earlier application permitted, which must be disclosed Page 5
IAS 12 Income Taxes (Amendment) - Deferred Taxes: Recovery of Underlying Assets Effective for annual periods beginning on or after 1 January 2012 Investment properties at fair value under IAS 40 Introduces a rebuttable presumption - deferred tax measured on a sale basis Unless Non-depreciable assets measured using IAS 16 revaluation model Deferred tax always measured on a sale basis May change deferred tax measurement in certain jurisdictions for applicable assets Requires exercise of judgement to determine deferred tax basis, including analyses of business model Business model indicates consumption of the property in the business Deferred tax measured on an own use basis Retrospective application; earlier application permitted, which must be disclosed Page 6
IAS 1 Presentation of Items of Other Comprehensive Income - Amendments to IAS 1 Effective for annual periods beginning on or after 1 July 2012 Changes the grouping of items presented in OCI OCI items to be reclassified to P&L in future (e.g., effective portion of changes in hedging instruments in a cash flow hedge) presented separately from items never reclassified to P&L (e.g., changes in PPE revaluation surplus) Does NOT change: Nature of items recognised in OCI Determination of whether OCI items are reclassified through P&L in future Enables easier identification of the potential impact that OCI items may have on future P&L No significant consideration Retrospective application; earlier application permitted, which must be disclosed Page 7
IFRS 1 Government Loans - Amendments to IFRS 1 Effective for annual periods beginning on or after 1 January 2013 Current IFRS requires entities to measure government loans with below-market interest rates at fair value, with the benefit accounted for as a government grant Amendment to IFRS 1 requires a first-time adopter to apply this requirement prospectively to government loans existing at the date of transition to IFRS A first-time adopter may choose to apply these requirements retrospectively to any government loan, if the information needed had been obtained at the time of initially accounting for the loan Relief to first-time adopters by reducing the cost of transition to IFRS Restriction on retrospective fair valuation of government loans may impact: Financial position at date of transition to IFRS Future P&L Source documentation and timing of fair value information required if entity chooses retrospective application Earlier application permitted, which must be disclosed Page 8
IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 Effective for periods beginning on or after 1 January 2013 At minimum, the following disclosure is required Gross amount Amounts offset in accordance with IAS 32 Financial Instruments: Presentation Net amount reported in statement of financial position Amounts subject to an enforceable master netting agreement that do not result in net presentation A B C=A-B D Provides information useful in evaluating the effect of netting arrangements on an entity s financial position Retrospective application, combined with 2013 effective date, creates an urgent need to gather related data and information to make these disclosures May require modification of management information systems and related internal controls, including linking credit systems to accounting systems Net amount E= C-D Retrospective application No reference to early adoption. However, if an entity chooses to early adopt IAS 32 Offsetting Financial Assets and Financial Liabilities Amendments to IAS 32, it must also make the disclosures required by this amendment Page 9
IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements Effective for annual periods beginning on or after 1 January 2013 Consolidation model entirely founded on the notion of control applicable to all entities (including SPEs) New definition of control Power to direct relevant activities + Exposure or rights to variable returns + Link between power and exposure Continuous reassessment of control required New and broader definition of control may result in changes to a consolidated group: On transition to IFRS 10 In future reporting periods due to continuous reassessment Requires: Judgement of facts and circumstances Assessment of control, including comprehensive understanding of: Investee s purpose, design and activities Investor s rights and exposures to variable returns Rights and returns of other investors Additional procedures and internal controls to: Identify controlled entities Assess internal and external evidence Inputs from sources outside accounting function Modified retrospective application taking into account whether the control assessment is different under IFRS 10 Only one comparative period required to be restated Early adoption permitted if IFRS 11, IFRS 12, IAS 27(Revised) and IAS 28 (Revised) also adopted at the same time Page 10
IFRS 11 IAS 31 IFRS 11 Joint Arrangements, IAS 28 Investments in Associates and Joint Ventures Effective for annual periods beginning on or after 1 January 2013 Jointly controlled operations(jco) Recognise assets, liabilities, expenses and share of income Jointly controlled assets (JCA) Joint operations (JO) Parties have rights to the assets and obligations for the liabilities of the arrangement Recognise assets, liabilities, revenue, and expenses, and/or relative shares thereof Recognise share of assets, liabilities, income and expenses Jointly controlled entities (JCE) Equity method or proportionate consolidation Joint ventures (JV) Parties have rights to the net assets of the arrangement Equity method (now sunder IAS 28) Proportionate consolidation coped prohibited New classification may change accounting for arrangements previously considered to be JCEs as they may be potentially classified as JOs Significant change for entities currently applying proportionate consolidation to account for JCEs Requires significant judgement and comprehensive analysis of existing arrangements to: Assess whether joint control exists Determine the appropriate classification Modified retrospective application; similar to the IFRS 10 relief, only one comparative period required to be restated Early adoption permitted if IFRS 10, IFRS 12, IAS 27(Revised) and IAS 28 (Revised) also adopted at the same time Page 11
IFRS 12 Disclosure of Interests in Other Entities Effective for annual periods beginning on or after 1 January 2013 Draws together disclosure related to Subsidiaries Joint arrangements Associates Unconsolidated structured entities Objective: to establish the information necessary to evaluate: Nature of, and risks associated with, interests in other entities Effects of those interests on the financial position, financial performance and cash flows Disclosure of significant judgements and assumptions Key financial information of group entities Disclosure of interest in unconsolidated structured entities More extensive disclosures available to users when making assessment of the financial impact of group entities Requires additional procedures, and changes to information systems, to gather information to make new disclosures Requires significant judgement to determine unconsolidated structured entities Retrospective application with some relief; similar to the IFRS 10, only one comparative period required to be restated Earlier application permitted including partial application Page 12
IFRS 13 Fair Value Measurement Effective for annual periods beginning on or after 1 January 2013 Establishes a single set of principles on how to determine fair value of financial and non-financial assets and liabilities, when required or permitted under IFRS Requires new disclosures on valuation techniques and inputs used to determine fair values and the effect of certain inputs on fair value measurement May lead to changes in fair value measurement May require additional disclosures to be provided Requires: Re-evaluation of techniques, inputs, processes and procedures to determine fair value and provide appropriate disclosures Availability of appropriate valuation expertise Prospective application; earlier application permitted, which must be disclosed Page 13
IAS 19 Employee Benefits (Revised) Effective for annual periods beginning on or after 1 January 2013 Defined benefit plans: Corridor approach removed, requires immediate recognition of changes to plan assets/obligations Concept of expected returns removed, interest must be recognised on net plan obligation/asset Service cost and net interest charged to P&L Remaining changes in plans recognised in OCI Past service cost recognised immediately New disclosures, including sensitivity analyses of defined benefit plans Other changes: Short-term vs long-term employee benefits classification based on expected timing of settlement rather than employee entitlements Timing of recognition of termination benefits Defined benefit plans: Higher balance sheet volatility for those following corridor approach or having unvested past service cost Remeasurements, including actuarial movements, permanently bypass earnings Retrospective application with limited exceptions; earlier application permitted, which must be disclosed Requires: Compliance by actuaries with the revised requirements Additional procedures, internal controls and actuarial information for new/revised disclosures, such as disclosure of sensitivity analyses Additional judgement and estimates, e.g., to determine expected timing of settlement of employee benefits Page 14
IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine Effective for annual periods beginning on or after 1 January 2013 Requires capitalisation of production stripping costs as part of an asset, if criteria met Classified as: Inventory, if benefits realised in current period Non-current asset ( stripping activity asset ) if the benefit is the improved access to ore, recognised as addition to or enhancement of existing asset, e.g., mine asset Initially measured at cost plus directly attributable overhead Subsequently measured using either: Cost model Or Revaluation model May represent a change from the current approach used, e.g., average life of mine strip ratio Depending on the specific facts and circumstances, these changes may impact both the financial position and P&L Requires management judgement for assessment of: The capitalisation criteria Identification of components of mine Depreciation approach IFRIC 20 applied to stripping costs incurred on or after the beginning of the earliest period presented Full retrospective application not required, instead practical expedient provided for stripping costs incurred and capitalised prior to that date Earlier application permitted, which must be disclosed Page 15
Annual Improvements to IFRSs - 2009-2011 Cycle Effective for annual periods beginning on or after 1 January 2013 IFRS 1 First-time Adoption of International Financial Reporting Standards The first amendment clarifies that an entity that has stopped applying IFRS may choose either of the following in order to resume reporting under IFRS : Re-apply IFRS 1, even if it had applied IFRS 1 in a previous reporting period Or Apply IFRS retrospectively (i.e., as if it had never stopped applying IFRS) An entity must disclose the reasons why it previously stopped and subsequently resumed reporting under IFRS The second amendment clarifies that, upon adoption of IFRS, an entity that capitalised borrowing costs under previous GAAP: May carry forward, without adjustment, the amount previously capitalised in the opening statement of financial position at the date of transition Is required to apply IAS 23 Borrowing Costs to subsequent borrowing costs, including those incurred on qualifying assets under construction IAS 1 Presentation of Financial Statements The amendment clarifies the difference between voluntary additional comparative information and the required minimum comparative information : When additional financial statements are voluntarily provided: Need not be a complete set of financial statements - only related notes are required When a third balance sheet is required under IAS 1: Need not present related notes to the opening balance sheet Page 16
Annual Improvements to IFRSs - 2009-2011 Cycle (contd.) IAS 16 Property, Plant and Equipment Classification of servicing equipment: The amendment clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory IAS 12 Income Taxes Tax effects of distribution to holders of equity instruments: The amendment removes existing income tax requirements from IAS 32 Financial Instruments: Presentation and requires entities to apply the IAS 12 requirements to any income taxes arising from distributions to equity holders IAS 34 Interim Financial Reporting The amendment clarifies the requirements in IAS 34 relating to segment information for total assets and liabilities for each reportable segment to enhance consistency with the requirements in IFRS 8 Operating Segments: Total assets and liabilities for a particular reportable segment need to be disclosed only when: The amounts are regularly provided to the chief operating decision maker And There has been a material change in the total amount disclosed in the entity s previous annual financial statements for that reportable segment Retrospective application; earlier application permitted, which must be disclosed Page 17
IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 Effective for annual periods beginning on or after 1 January 2014 Clarifies the meaning of currently has a legally enforceable right to set-off Clarifies the criteria for non-simultaneous settlement mechanisms of clearing houses (e.g., batch processing) to qualify for offsetting May change assets and liabilities eligible for net presentation Changes in offsetting may impact leverage ratios and regulatory capital requirements Requires review of legal documentation and settlement procedures to ensure that offsetting is still possible in cases where it has been achieved in the past Retrospective application; early application permitted, only if disclosure of the fact made and the disclosures required by IFRS 7 Disclosures Offsetting Financial Assets and Financial Liabilities Amendments to IFRS 7 made Page 18
Investment entities amendments to IFRS 10, IFRS 12 and IAS 27 Effective for annual periods beginning on or after 1 January 2014 The exception to consolidation requires investment entities to account for subsidiaries at fair value through profit or loss in accordance with IFRS 9 Financial Instruments. An entity must meet all three elements of the definition and consider whether it has four typical characteristics in order to qualify as and investment entity. When making an assessment all facts and circumstances need to be considered including purpose and design. Entities that meet the definition will deconsolidate subsidiaries and measure them at FVTPL. May have little to no effect on banks, insurers and many other organizations involved in investment activities. Entities will need to consider how much planning and preparation time will be needed to update systems and processes to accommodate new requirements including disclosure requirements. Retrospective application; early application permitted Page 19
IFRS 9 Financial Instruments - Classification and Measurement Effective for annual periods beginning on or after 1 January 2015 Requires classification of financial assets on the basis of: The objective of entity s business model for managing the financial assets And The characteristics of contractual cash flows All IAS 39 classification and measurement requirements for financial liabilities, other than for those designated at fair value through P&L (using the fair value option), carried forward Changes classification and measurement of financial assets For liabilities designated at fair value through P&L, fair value changes attributable to changes in credit risk are presented in OCI instead of P&L Requires exercise of judgement, including the assessment of: Business model Characteristics of contractual cash flows May require changes in internal systems to meet new requirements, e.g.: Determine fair value changes attributable to credit risk in designated financial liabilities Determine fair values of financial instruments that do not qualify for amortised cost measurement Specific transition requirements on adoption Phased early application permitted i.e., early adoption of financial assets only or financial assets and financial liabilities permitted Phased adoption to be removed when the final standard is issued IASB s current projects on limited modification to classification and measurement, impact of impairment and general hedging still to be incorporated Page 20
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