Financial Reporting Alert IFRS NOVEMBER 2015 IFRS Year-End Round-Up 2015 New Standards, Interpretations, Narrow Scope Amendments and Annual Improvements International Financial Reporting Standards (IFRSs) continue to evolve as the International Accounting Standards Board (IASB) issues new guidance. Keeping abreast of these changes can be challenging. This Financial Reporting Alert identifies the new standards, interpretations, narrow scope amendments and annual improvements and proposes an action plan for their implementation. The content of this publication is based on information available as of November 2015. Accordingly, certain aspects of this publication may be superseded as new guidance or interpretations emerge. What are narrow scope amendments and annual improvements? A narrow scope amendment is meant to effectively address a limited-scope issue. Similarly, the IASB has adopted the annual improvements process to deal efficiently with a collection of non-urgent but necessary minor amendments to IFRSs. 1
Why do these changes matter to me? A new standard can result in significant changes to accounting principles and practices. The effect of such changes may have implications that go beyond accounting, potentially impacting the systems and processes of affected entities. Conversely, changes resulting from narrow scope amendments and annual improvements are not necessarily intended to drastically alter an existing standard(s). Nevertheless, the effect of these changes may be significant for some entities. If a standard or interpretation has been issued but has yet to be applied by an entity, IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires the entity to disclose (when material) any known or reasonably estimable information relevant to understanding the possible impact the new requirements will have on the financial statements, or indicate the reason for not doing so. Newly issued, amended or revised IFRSs become part of the CPA Canada Handbook Accounting only after they have been approved by the Canadian Accounting Standards Board (AcSB) in accordance with its due process. Generally, the time lag between the IASB and the AcSB issuing a new or amended IFRS is relatively short. Careful review and consideration of the applicability of each new standard, interpretation, narrow scope amendment and annual improvement are essential. What are the changes? The following table identifies the new standards, interpretations, narrow scope amendments and annual improvements effective for annual reporting periods beginning January 1, 2014 and beyond. The table is based on the pronouncements issued by the IASB and the IFRS Interpretations Committee as at November 1, 2015. In general, companies preparing interim financial statements on a quarterly basis will apply the new guidance to their first interim financial statements for the relevant year. For example, a company with a December 31 calendar year end will apply IFRS 15 to its March 31, 2018, interim financial statements (and subsequent interim financial statements) and to the December 31, 2018, annual financial statements. Are there any Canadian industry-specific considerations? In Canada, qualifying investment companies (as well as segregated accounts of life insurance enterprises) and entities with rate-regulated activities are required to adopt IFRS for interim and annual financial statements related to fiscal years beginning on or after January 1, 2014 and January 1, 2015, respectively. 2 Financial Reporting Alert November 2015
Pronouncement Standards IFRS 14 Regulatory Deferral Accounts IFRS 9 Financial Instruments (including amendments to IFRS 7 Financial Instruments: Disclosures) Effective Date 1 January 1, 2018 Illustrative Application to Calendar Years Ending December 31 2014 2015 2016 2017 2018 2019 3-31-2018 IFRS 15 Revenue from Contracts with Customers Interpretations January 1, 2018 IFRIC 21 Levies January 1, 2014 Narrow Scope Amendments Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) Recoverable Amount Disclosures for Non- Financial Assets (Amendments to IAS 36) Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39) Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) Sale or Contribution of Assets between an Investor and Its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) (In July 2015 the IASB decided to propose postponing the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting.) January 1, 2014 January 1, 2014 January 1, 2014 January 1, 2014 3-31-2018 Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11) Disclosure Initiative (Amendments to IAS 1) 1 Effective for annual periods beginning on or after this date except as noted. Effects of early application are not considered. Newly issued, amended or revised IFRSs are part of the CPA Canada Handbook only after they have been approved by the Canadian Accounting Standards Board (AcSB) in accordance with its due process. Generally, the time lag between the IASB and the AcSB issuing a new or amended IFRS is relatively short. November 2015 Financial Reporting Alert 3
Pronouncement Clarification of Acceptable Methods of Depreciation and Amortization (Amendments to IAS 16 and IAS 38) Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41) Effective Date 1 Illustrative Application to Calendar Years Ending December 31 2014 2015 2016 2017 2018 2019 Equity Method in Separate Financial Statements (Amendments to IAS 27) Annual Improvements (2010 2012 Cycle) IFRS 2 Share-based Payment definition of vesting conditions IFRS 3 Business Combinations accounting for contingent consideration in a business combination Applies to transactions for which the grant date is on/after. Applies to business combinations where the acquisition date is on/after. 9-30-2014 9-30-2014 IFRS 8 Operating Segments aggregation of operating segments reconciliation of the total of the reportable segments assets to the entity s assets IAS 16 Property, Plant and Equipment revaluation method proportionate restatement of accumulated depreciation IAS 24 Related Party Disclosures key management personnel services IAS 38 Intangible Assets revaluation method proportionate restatement of accumulated amortization (2011 2013 Cycle) IFRS 3 Business Combinations scope exemptions for joint ventures 4 Financial Reporting Alert November 2015
Pronouncement IFRS 13 Fair Value Measurement scope of paragraph 52 (portfolio exception) IAS 40 Investment Property clarifying the interrelationship between IFRS 3 and IAS 40 when classifying property as investment property or owneroccupied property (2012 2014 Cycle) IFRS 5 Non-current Assets Held for Sale and Discontinued Operations changes in methods of disposal IFRS 7 Financial Instruments: Disclosures servicing contracts applicability of offsetting disclosures to condensed interim financial statements IAS 19 Employee Benefits discount rate: regional market issue IAS 34 Interim Financial Reporting disclosure of information elsewhere in the interim financial report Effective Date 1 Illustrative Application to Calendar Years Ending December 31 2014 2015 2016 2017 2018 2019 What are the transitional requirements? Transition requirements vary by standard, interpretation, narrow scope amendment or annual improvement and are often complex. As such, it is important to refer to the transition guidance specific to each pronouncement. What resources are available to help me? CPA Canada CPA Canada has compiled various IFRS technical summaries, practical-application guides and frequently-asked-questions documents aimed at supporting the understanding and application of IFRS. To learn more, visit www.cpacanada.ca/ifrs. November 2015 Financial Reporting Alert 5
Accounting Standards Boards (AcSB) The Financial Reporting & Assurance Standards website contains a comprehensive list of effective dates for new IFRS pronouncements, including a general overview of the application requirements. To learn more, visit www.frascanada.ca. International Accounting Standards Board (IASB) The IASB website contains a comprehensive list of effective dates for new IFRS pronouncements, including a general overview of the application requirements. To learn more, visit www.ifrs.org. 6 Financial Reporting Alert November 2015
What is my action plan? Action Milestone (what) 1 Understand Understand the updates: Download and review the updates from the IASB website. Consider other externally prepared information on these topics (e.g., refer to the CPA Canada website for a variety of externally prepared summary documents). Discuss the implications of the updates with industry peers or a trusted business advisor. Consider education and training available on these topics. 2 Assess Assess the impact of the updates: Identify the updates relevant to the entity. Compare the amended accounting guidance to the entity s current accounting policy for each relevant update. Consider required changes in the current accounting policy. Discuss any potential changes with the entity s auditor. Adopt and communicate required changes to appropriate personnel. Consider any tax implications. Consider the effect on key financial ratios, performance metrics and covenants. 3 Review Review processes (including systems, data collection and internal controls): Consider developing a comprehensive project management process (e.g., identify a project leader) and provide appropriate resources and budgets (depending on the degree of change). Identify required but unavailable information and develop a plan for obtaining such information. Assess the adequacy of existing controls and procedures. Consider new controls needed to support any revised processes. 4 Implement Implement the updates: Consider the specific transition requirements for each identified relevant update. Consider early adoption (when applicable). Decide which transition method to apply (if there is a choice). Update the entity s accounting policies to the new guidance. Apply IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. Consider: For updates with prospective application, assess the revised accounting policy on future transactions. For updates with retrospective application, identify the relevant historical transactions to which the new guidance must be applied and apply those changes retrospectively.»» Perform required calculations.»» Document and accumulate supporting analysis.»» Adjust necessary balances (see IAS 8). Draft financial statements and notes. Determine MD&A disclosures. 5 Communicate Communicate the effects of the amendments: Communicate with the board of directors and the audit committee (if appropriate). Develop a communications plan to inform all stakeholders (e.g., lenders, investors) of the implications of applying any new requirements. Timeline (when) [Set specific due date for achieving milestones.] Resources (who) [Determine who will implement the milestones and what resources will be required.] 7 Financial Reporting Alert November 2015
Comments on this CPA Canada Financial Reporting Alert or suggestions for future CPA Canada Financial Reporting Alerts should be sent to: Alex Fisher, CPA, CA Principal, International Financial Reporting Standards Research, Guidance and Support Chartered Professional Accountants of Canada 277 Wellington Street West Toronto, Ontario M5V 3H2 email: afisher@cpacanada.ca DISCLAIMER This paper was prepared by the Chartered Professional Accountants of Canada (CPA Canada) as non-authoritative guidance. It has not been approved by the Canadian Accounting Standards Board (AcSB). CPA Canada and the authors do not accept any responsibility or liability that might occur directly or indirectly as a consequence of the use, application or reliance on this material. COPYRIGHT Copyright 2015 Chartered Professional Accountants of Canada All rights reserved. This publication is protected by copyright. Written permission is required to reproduce, store in a retrieval system or transmit in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise). For information regarding permission, please contact permissions@cpacanada.ca Extracts from the International Financial Reporting Standards, International Accounting Standards and Exposure Drafts are reproduced with permission of the IFRS Foundation. November 2015 Financial Reporting Alert 8