IFRS: Changes on the way
Financial reporting expert Steve Collings sifts through the latest IASB exposure draft containing amendments to 11 standards.
On 3 May 2012, the International Accounting Standards Board (IASB) published an exposure draft of proposed amendments to 11 IFRSs as part of its annual improvements project. Responses should be submitted to the IASB by 5 September 2012.
The assumed “effective from” date for all the amendments is for annual periods commencing on or after 1 January 2014, with the exception of the amendments to IFRS 3 ‘Business Combinations’ and the consequential amendment to IFRS 9, which are planned for annual periods commencing on or after 1 January 2015. Earlier adoption is permissible for all the amendments, but if this is the case financial statements should disclose the amendments have been adopted earlier than scheduled.
A summary of the project is as follows:
IFRS 2 ‘Share-based Payment’ - Currently IFRS 2 does not define separate “performance condition” or “service condition”; instead the existing standard describes the two concepts within the definition of “vesting conditions”. A new paragraph 63B refers to the effective date. The IASB also amended paragraphs 15 and 19 to IFRS 2 and Appendix A to define performance condition and service condition separately.
IFRS 3 ‘Business Combinations’ - The board will amend IFRS 3 on the contingent consideration to be treated as a liability or an equity instrument when the contingent consideration is a financial instrument. This will have a direct consequential effect on IFRS 9 ‘Financial Instruments’. The IASB wants to clarify that contingent consideration is classified as either a liability or equity instrument only on the basis of the provisions contained in IAS 32 ‘Financial Instruments: Presentation’. In its current form, IFRS 3 refers to IAS 32 and “other applicable IFRSs”. Deleting this phrase in paragraph 40 will clear up any ambiguity.
IFRS 8 ‘Operating segments’ - The board is proposing to amend paragraph 22 to IFRS 8 to require reporting entities to disclose the factors used to identify their reportable segments when operating segments have been aggregated. In addition, the IASB is planning to amend paragraph 28(c) to clarify that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should be disclosed when that amount is regularly provided to the chief operating decision maker so as to be consistent with the requirements of paragraph 23 to IFRS 8.
IFRS 13 ‘Fair Value Measurement’ - The board will amend IFRS 13 ‘Basis for Conclusions’ in respect of short-term receivables (debtors) and payables (creditors). The provisions in IFRS 13 removed paragraphs B5.4.12 in IFRS 9 ‘Financial Instruments’ and paragraph AG79 of IAS 39 ‘Financial Instruments: Recognition and Measurement’. The IASB became aware that deleting these two paragraphs could be interpreted as removing the ability for an entity to measure short-term receivables and payables with no stated interest rate at invoice amounts without discounting to present date values, when the effect of not discounting to present day values is immaterial.
IAS 1 ‘Presentation of Financial Statements’ - When an entity has an obligation to refinance or “roll over” an obligation for at least 12 months after the reporting date, the amended IAS 1 will require the liability to be classified as non-current if the entity expects (and has the discretion) to refinance or roll over such an obligation with the same lender, on the same or similar terms.
IAS 7 ‘Statement of Cash Flows’ - The amendments to IAS 7 relate to interest paid which is capitalised as part of the cost of an asset in the statement of financial position (balance sheet). There appears to be confusion in the application of paragraph 16 to IAS 7, which some interpret as classifying paid interest that has been capitalised in the statement of financial position (balance sheet) as an investing cash flow in the statement of cash flows. This is not consistent with the requirements in paragraphs 32 and 33, both of which require interest paid to be classified only as an operating, or financing, cash flow.
IAS 12 ‘Income Taxes’ - IAS 12 will be amended on the recognition of deferred tax assets for unrealised losses. The board proposes that:
- Entities assess whether to recognise the tax effect of a deductible temporary difference as a deferred tax asset in combination with other deferred tax assets.
- Taxable profit (which the reporting entity assesses a deferred tax asset for recognition) is the amount prior to any reversal of deductible temporary differences.
- A tax planning opportunity will only occur if the opportunity creates or increases taxable profit. Simply reversing existing deductible temporary differences is not a tax planning opportunity in itself.
IAS 16 ‘Property, Plant and Equipment’ and IAS 38 ‘Intangible Assets’ - In both IAS 16 and IAS 38, the IASB wants to clarify the current revaluation method to alleviate concerns regarding the calculation of accumulated depreciation at the date the revaluation occurs.
IAS 24 ‘Related Party Disclosures’ - Amendments to IAS 24 are proposed regarding “key management personnel” as follows:
- The definition of a related party will be extended so as to include management entities (this will be achieved by amending paragraph 9 to extend the scope);
- Key management personnel compensation provided to an entity’s own employees by a management entity is excluded from the disclosure requirements contained in paragraph 17 to avoid duplication (this will be achieved by the inclusion of paragraph 17A); and
- Paragraph 18 which refers to the disclosure requirements in IAS 24 will be extended to require separate disclosure of transactions for the provisions of key management personnel services (this will be achieved by the addition of paragraph 18A).
IAS 36 ‘Impairment of Assets’ - The disclosure requirements in IAS 36 will be amended to clarify that the rules relating to value in use are also applicable to fair value less costs of disposal in instances where there has been a material impairment loss, or reversal of a previously recognised impairment loss, in the period.
Steve Collings is audit and technical partner at Leavitt Walmsley Associates and the author of ‘Interpretation and Application of International Standards on Auditing’. He is also the author of ‘The AccountingWEB Guide to IFRS’ and ‘IFRS For Dummies’ and was named Accounting Technician of the Year at the 2011 British Accountancy Awards.