ifrs/pfrs amendments 2003

8/12/2019 ifrs/pfrs amendments 2003

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IFRS/PFRS Amendments:

Consolidation, Joint

Arrangements, Fair Value,

Employee Benefits and

Disclosures, IFRS for SMEs

February 8, 2013

Oliver C. Bucao

© 2013 Manabat Sanagustin &Co., CPAs, a Philippine partnership and a member firm of the KPMG network of

independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swissentity. All rights reserved.

I FRS /PF RS A mendm en ts – PI CPA 1

Consolidation Suite of Standards

Consists of

– IFRS 10 Consolidated Financial Statement s

– IFRS 11 Joint Arrangements

– IFRS 12 Disclosures of Involvement with Other Entities

– IAS 27 Separate Financial Statements (2011)

– IAS 28 Investments in Associates and Joint Ventures (2011)

■ Published on May 2011

■ Each of the five new standards has an application date for accounting

periods beginning on or after 1 January 2013, (i.e. December 2013 year-ends) with early adoption is permitted.








The model in one slide

To have power, it is necessary for investor to have existing rights that give it

current ability to direct activities that significantly affect investee’s returns

(i.e. the relevant activities).

Link between

power and

returns

ConsolidationPower

Exposure to

variability

in returns




Power over relevant activities: Gating question

Voting rights are relevantRights other than voting

rights are relevantMajority of voting rights Less than a majority

Consider… Consider… Consider…

■ Rights held by others ■ Agreements with other

vote holders

■ Other contractual

agreements

■ Potential voting rights

■ De facto power

■ Purpose and design

■ Evidence of practical

ability to direct

■ Special relationships

■ Exposure to variabilityof returns

Consider only substantive rights






Assessing potential voting rights

Whether potential voting rights are currently

exercisable is not necessarily determinative and in

some cases may not be a necessary condition.

Whether potential voting rights are currently

exercisable is not necessarily determinative and in

some cases may not be a necessary condition.

Whether those rights are substantive is key:Whether those rights are substantive is key:

■ Barriers that prevent holder from exercising.

■ Whether several parties need to agree.■ How holder would benefit from exercise.

■ Purpose and design of potential voting rights.

■ Barriers that prevent holder from exercising.

■ Whether several parties need to agree.■ How holder would benefit from exercise.

■ Purpose and design of potential voting rights.




When de facto control may exist

STEP 1STEP 1

Investor considers all facts and circumstancesInvestor considers all facts and circumstances

Potential voting

rights

Potential voting

rights

Consider additional facts and circumstancesConsider additional facts and circumstances

Size of voting

rights compared

to others

Size of voting

rights compared

to others

Other contractual

arrangements

Other contractual

arrangements

Number of

active voters

at previousmeetings

Number of

active voters

at previousmeetings

Level of

exposure to

variablereturns

Level of

exposure to

variablereturns

Evidence of

power

Evidence of

power

Special

relationships

Special

relationships

Not

conclusive

Not clear

STEP 2STEP 2

The investor does not consolidateThe investor does not consolidate






When supplier relationships are considered

Power to direct the relevant activities.Power to direct the relevant activities.

Other contractual agreements.Other contractual agreements.

Exposure to variable returns.Exposure to variable returns.

Of itself, economic dependence of a supplier on a customer ≠ consolidation.But ...

Of itself, economic dependence of a supplier on a customer ≠ consolidation.But ...




From SIC-12 ... to IFRS 10

SIC-12 testsSIC-12 tests IFRS 10 factorsIFRS 10 factors

■ Purpose and design.

■ Evidence of practical ability to

direct.

■ Special relationships.

■ Exposure to variability in returns.

■ Purpose and design.

■ Evidence of practical ability to

direct.

■ Special relationships.

■ Exposure to variability in returns.

■ Activities on behalf of the entity

according to business needs.

■ Entity has decision-making powers

to obtain the majority of the

benefits.

■ Has rights to benefits and is

exposed to risks.

■ Retains majority of residual or

ownership risks.

■ Activities on behalf of the entity

according to business needs.

■ Entity has decision-making powers

to obtain the majority of the

benefits.

■ Has rights to benefits and is

exposed to risks.

■ Retains majority of residual or

ownership risks.





IFR S/PFRS Amen dm en ts – P ICPA 1 0

When rights other than voting rights are relevant

Purpose and design■ Involvement and decisions made at

inception.

■ Contractual arrangements.

■ Investor’s commitment to continued

operation of investee.

Evidence of practical ability to direct■ Appointing key management

personnel (KMP).

■ Directing investee to enter into

significant transactions for investor’s

benefit.

Special relationships

■ Investee’s KMP are current or

previous employees.

■ Investee’s operations depend on

investor (funding, technology etc).

■ Disproportionate exposure to returns

compared to voting rights.

Exposure to variability of returns

■ Relative exposure to variability of

returns due to investor’s involvement

in investee.




IFRS 12 might be challenging

Interests in subsidiaries.

Interests in unconsolidated

structured entities.

Interests in joint arrangements

and associates.

Disclosures are much

broader.

Consider increased disclosures and whether

systems are designed to provide such

information.






PFRS 11 Joint Arrangements

May 12, 2011

Standard published

January 1, 2012

Retrospective application

December 31, 2013

First annual financial

statements in which

standard would apply

■ PFRS 11 divides joint arrangements into two types:

– Joint ventures – parties have right to the net assets

of the arrangement. Equity accounting required

– Joint operations – parties have rights to the assets

and obligations for the liabilities relating to the

arrangement. Recognises own assets and liabilities

Overview

■ Determine whether joint control exists

■ Determine the type of joint arrangement by considering:

– The structure

– The legal form

– The contractual arrangement

– Other facts and circumstances (in-substance test)

How to apply the standardHow to apply the standard

January 1, 2013

Date of initial application




Separate vehicle

Old vs new requirements

IAS 31

Line-by-line

accounting

Choice: equity

accounting or

proportionate

consolidation

No separate vehicleJCO/

JCA

JCE

Line-by-line

accounting of

the underlying

assets and

liabilities

Equity

accounting

IFRS 11

A separate vehicle, but

separation overcome

by form, contract or

other facts and

circumstances

A separate vehicle with

separation maintained

JO

JV






Joint venture vs joint operation

StructureStructure

Legal formLegal form

Contractual

arrangement

Contractual

arrangement

Other facts

and

circumstances

Other facts

and

circumstances

Is the arrangement structured through a vehiclethat is separate from the parties?

Is the arrangement structured through a vehiclethat is separate from the parties?

Does the legal form of the vehicle give the parties rights to the

assets and obligations for the liabilities of the arrangement?



Do the contractual arrangements give the parties rights to the


Do the contractual arrangements give the parties rights to the


Do the parties have rights to substantially all the economic

benefits of the assets of arrangement?

Does the arrangement depend on the parties on a continuous

basis for settling its liabilities?





Joint VentureJoint Venture

J o i n t O p e r a t i o n


Y

N

N

N

N

Y

Y

Y

1

2

3

4




IFRS 11: Separate vehicle

StructureIs the arrangement structured through a vehicle

that is separate from the parties?

More questions…More questions… J o i n t O p e r a t i o n


Y

N

“A joint arrangement that is not structured through

a separate vehicle is a joint operation.”

1






Mini-case 1: Separate vehicle

Entities by statuteEntities by statute

Operating segmentOperating segmentCircumscribed

area of business

Circumscribed

area of business

Bank accountBank account

AccountingAccounting

recordsrecords

Q1: Which of these examples is a separate vehicle?

1




Solution: Separate vehicle

Entities by statuteEntities by statute

Operating segmentOperating segmentCircumscribed

area of business

Circumscribed

area of business

Bank accountBank account

AccountingAccounting

recordsrecords

Learning points:

■ A ‘separately identifiable financial structure, including entities recognised

by statute, regardless of having legal personality’.

■ Needs at least some sort of legal form.

1






IFRS 11: Legal form

Legal formLegal formDoes the legal form of the vehicle give the parties rights to the






N

Y

“A joint operation is a joint arrangement whereby the partiesthat have joint control have rights to the assets,

and obligations for the liabilities, relating to the arrangement.”

2




Mini-case 2: Legal form

■ A and B set up Unlimited Co.

■ A and B have unlimited liability

for the liabilities of Unlimited

Co.

Q2: Does the legal form of the arrangement give the parties rights to the


Partner A Partner B

Unlimited Co:

separate legal personality

2

50% equity

interest

50% equity

interest






Solution: Legal form

Learning points:

■ The separate vehicle has a separate legal personality and therefore a

primary obligation for its liabilities.

■ The unlimited nature of the parties is essentially a guarantee and this

does not cause the arrangement to be a joint operation.

■ Rights to the assets are also required for joint operation classification.

Answer: No.

2




IFRS 11: Contractual arrangements

Contractual

arrangement

Do contractual arrangements give the parties rights to the




N

Y

“…the parties use the contractual arrangement to reverse or modify the

rights and obligations conferred by the legal form of the separate vehicle.”

3






Mini-case 3: Contractual arrangements

■ A and B each sell theirdefence contracting

businesses to a new,

jointly controlled, legally

separate vehicle,

Defence Co, for fair

value.

■ Defence Co funds the

payment with bank debt

guaranteed by A and B.

Q3: Do the contractual arrangements give A and B rights to the assets

and obligations for the liabilities of the arrangement?

Partner A Partner B

Defence Co

Bank

Loan

Guarantee

3

50%

equity

interest

50%

equity

interest




Solution: Contractual arrangement

Learning points:

■ A guarantee does not, in itself, determine that the parties have

obligations for the liabilities of a separate vehicle.

■ In this example, the recourse of the bank to the parties is only in the

event of a default of the loan by Defence Co.

■ Only a primary, not a secondary obligation, would meet the ‘obligation

for the liabilities’ criterion.

■ Rights to the assets are also required for joint operation classification.

Answer: No.

3






IFRS 11: Other facts and circumstances

Other facts

and

circumstances

Other facts

and

circumstances









Joint VentureJoint Venture

N

Y4






IFRS 11: Other facts and circumstances

JA must give parties

rights to substantially all

economic benefits relating

to arrangement

(asset side).

JA must cause

arrangement to depend

on parties on a

continuous basis for

settling its liabilities

(liability side).

+ = Joint

OperationAsset side Liability side

4






IFRS 11: Asset side requirement

■ When activities of arrangement are designed to provide output to theparties:

– This indicates that parties have rights to substantially all economic

benefits of the assets of the arrangement. [IFRS 11.B31]

– Parties to such arrangements often ensure their access to outputs by

preventing arrangement from selling output to third parties.

[IFRS 11.B31]

■ Application guidance included in IFRS 11:

– B32 Example 5.

– Illustrative Example 3.




IFRS 11: Liability side requirement

■ If purpose and design of JA is to provide output to the parties, then

effect is that liabilities incurred by JA are, in substance, satisfied by

cash flows received from parties through their purchases of output.

[IFRS 11.B32]

■ When the parties are substantially the only source of cash flows

contributing to continuity of operations of JA, this indicates that the

parties have an obligation for the liabilities relating to the arrangement.

[IFRS 11.B32]

■ Application guidance included in IFRS 11:

– B32 Example 5.

– Illustrative Example 3.






IFRS 12 might be challenging

Significant judgements / assumptions■ In determining joint control over

another entity.

■ In determining classification of joint

arrangements in separate vehicles.

Summarised financial information■ Several new line items required.

■ Amounts in investee’s financial

statements adjusted to reflect group

measures.

■ Reconciliation to investor’s financial

statements.

Specific requirements

■ Name / place of business.

■ Relationship with investor.

■ Proportion owned.

■ Accounting model.

Aggregation

■ Possible aggregation of similar

entities, but JVs and associates can’t

be aggregated.




PFRS 12 Disclosure of Interests in Other Entities

May 12, 2011

Standard published

December 31, 2013

First annual financial

statements in which


■ PFRS 12 combines in a single standard the disclosure

requirements for subsidiaries, associates and joint

arrangements, as well as unconsolidated structured

entities.

Overview

■ Present a more detailed disclosure objectives and

requirements for the specific disclosure areas addressed

in PFRS 12.

■ Assess the structured entities and apply the new

disclosures.

How to apply the standardHow to apply the standardJanuary 1, 2013







PFRS 12 Disclosures of Interests in Other Entities

■ First year of application is less than

12 months away

■ Financial statements may have additional

disclosures as required

Bottom lineKey impacts

■ Expanded disclosures about subsidiaries,

joint arrangement and associates.

■ New disclosures about unconsolidated

structured entities.




The amendments simplify the process of adopting PFRSs 10 and 11 and provide relief from

the disclosures in respect of unconsolidated structured entities.

- Depending on the extent of comparative information provided in the financial

statements, the amendments simplify the transition and provide additional relief from

the disclosures that could have been onerous.

- The amendments limit the restatement of comparatives to the immediately preceding

period; this applies to the full suite of standards. Entities that provide comparatives for

more than one period have the option of leaving additional comparative periods

unchanged.

- In addition, the date of initial application is now defined in PFRS 10 as the beginning ofthe annual reporting period in which the standard is applied for the first time. At this

date, an entity tests whether there is a change in the consolidation conclusion for its

investees. These amendments are effective for annual periods beginning on or after

January 1, 2013 with early adoption permitted.

Impact of AmendmentsImpact of Amendments

Consolidated Financial Statements, Joint Arrangements and Disclosure of

Interest in Other Entities: Transition Guidance (Amendments to PFRS 10, 11 &

12)






PFRS 13 Fair Value Measurement

May 12, 2011

Standard published

December 31, 2013

Earliest annual financial

statements in which


■ PFRS 13 replaces existing guidance in individual IFRSs

■ PFRS 13 establishes:

– a single definition of fair value (FV)

– a framework for measuring FV

– disclosure requirements for FV measurements

■ PFRS 13 does not require additional FV measurements

in addition to those already existing

Overview

■ Understand guidance and principles of FV measurement

■ Analyse differences between current application and

new FV measurement and disclosure requirements

■ Categorise inputs and fair value measurements in the FV

hierarchy

■ Apply FV measurement and disclosure requirements

How to apply the standard

January 1, 2013

Date of adoption




PFRS 13 Fair Value Measurement

■ FV measurement based on exit price and

market participant view

■ Valuation specialists may be needed

■ Extensive disclosures required

■ New systems may be required to comply

with disclosure requirements

■ Training required for finance, treasury

and asset management teams

■ FV measurement based on exit price and

market participant view

■ Valuation specialists may be needed

■ Extensive disclosures required

■ New systems may be required to comply

with disclosure requirements

■ Training required for finance, treasury

and asset management teams

■ No significant impact on the entity’s

financial ratios expected

■ Significantly more disclosure in financial

statements

■ May involve significant judgement and

estimation uncertainty

■ No significant impact on the entity’s

financial ratios expected

■ Significantly more disclosure in financial

statements

■ May involve significant judgement and

estimation uncertainty

Bottom lineBottom lineKey impactsKey impacts






Background

What

Why

When

Defines FV.

Sets out single framework for FV

measurement.

Requires specific FV

measurement disclosures.

Consolidate FV measurement

guidance into single standard.

Increase convergence with

US GAAP.

Annual periods beginning on or

after 1 January 2013.

Early application permitted.




Which of these is in the scope of IFRS 13?

Item

Interest rate

swap

Y: Initial and subsequent

measurement

Loan measured

at amortised

cost

Y: Initial measurement and

FV disclosure

Property plant

and equipment

Y: Subsequent measurement

based on revaluation model

N: Subsequent measurement

based on cost model

Revenue Y: Measurement of revenue

In scope of FV

measurement requirements

Investment

property

(cost model)

Y: FV disclosure

In scope of FV

disclosure requirements

Y: Subsequent FV

measurement

Y: FV disclosure

Y: Subsequent measurement

based on revaluation model

N: Subsequent measurement

based on cost model

N: Item not recognised in the

statement of financial position

Y: FV disclosure






General IFRS 13 requirements on scope

Apply IFRS 13

FV measurement

requirements

if not explicitly

scoped out

O t h e r I F R S p e r m i t s / r e q u i r e s ? Initial measurement

(based on) FV

Subsequent

measurement

(based on) FV

Disclosure about

measurement (based

on) FV

Apply IFRS 13

disclosure

requirements

if not explicitly

scoped out




Implications of IFRS 13’s FV definition

The amount for which an asset could be exchanged, or a

liability settled , between knowledgeable, willing parties

in an arm’s length transaction.

Pre

IFRS 13

Exit price notion

Liabilities: transfer vs settlement

Market participant vs entity specific measurement

Measurement date

The price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market

participants at the measurement date. IFRS 13






Employee Benefits (Amendments to PAS 19)

June 16, 2011

Amendment Published

January 1, 2012


January 1, 2013

Date of adoption

December 31, 2013First annual financial

statements with amended

PAS 19 applied

■ No changes to fundamental measurement method under

which benefits are attributed to periods of service

■ No changes to the requirement to recognise expense on

a straight-line basis when employee service in later

years will lead to a materially higher level of benefit than

in earlier years

OverviewOverview

■ All actuarial gains and losses are recognized

immediately in other comprehensive income

■ Revise the calculation for finance costs (net interest cost

on the net defined benefit liability (asset) calculated

based on the discount rate used to discount the

obligation)

■ Evaluate the classification of short-term and other long-

term employee benefits based upon the amended

definitions

How to apply the amendmentsHow to apply the amendments




Highlights

Less deferred past service cost

Less fair value of plan assets

Plus/less deferred actuarial

gains and losses

Defined benefit liability (asset)

Defined benefit obligation

Less fair value of plan assets

Net defined benefit liability

(asset)

Defined benefit obligation

Current IAS 19 Amended IAS 19

Less deferred past service cost

Plus/less deferred actuarial

gains and losses

Effect of asset ceiling Effect of asset ceiling






Highlights

Service costs

Interest income

and expected

return on plan

assets

Actuarial gains

and losses

P&L

OCI

Or

Service costs

Net interest

Remeasuremen

ts

P&L

OCI





Post-employment benefits – recognition

The net defined benefit liability is recognised in the statement of financial position.

This is:

The present value of the defined benefit obligation

Less the fair value of plan assets

Adjusted for the asset ceiling

Elimination of the corridor method for recognising actuarial gains and losses

Unvested past service cost is recognised immediately

surplus/deficit







CurtailmentsPlan amendments

♦ Introduction of a plan

♦ Withdrawal of a plan

♦ Changes to a plan

♦ Significant reduction in the number

of employees covered by the plan

Recognised at the earlier of the following:

If plan amendment/curtailment arises as part of restructuring, when the

restructuring costs are recognised

If plan amendment/curtailment is linked to termination benefits, when the related

termination benefits are recognised

When plan amendment/curtailment occurs

Past service costs

55IFRS/PFRS Amendments – PICPA





Recognition of plan amendments:

• Can no longer be deferred

• Could be earlier than when the plan amendment occurs

Recognition of curtailments:

• Demonstrable commitment is no longer relevant

• Could be recognised before related restructuring costs if occurs earlier

• Could be recognised earlier than when curtailment occurs if related to

termination benefits recognised






Post-employment benefits – measurement


Plan administration costs either reduce

the return on plan assets, or are

included in the actuarial assumptions

used to measure the defined benefit

obligation.

• Only costs of managing plan assets

reduce the return on plan assets.

• Other plan administration costs are

recognised when the administration

services are provided but are not

deducted from the return on plan

assets.

The current standard does not state

specifically how to deal with optionality

permitted by a plan.

Actuarial assumptions include an

assumption about the proportion of

plan members who will select eachform of settlement option available

under the plan terms.








specifically how to deal with employee and

third party contributions.

• The amended standard specifically

requires an entity to consider whether third

party contributions reduce the cost of

benefits to the entity or are instead a

reimbursement right.

• Discretionary contributions by employees

or third parties reduce service cost upon

payment of the contributions to the plan.

• Contributions that are set out in the formal

terms of the plan either:

• Reduce service cost, if they are linked

to service, by being attributed to

periods of service as a negativebenefit, or

• Reduce remeasurements of the net

defined liability (asset), if the

contributions are required to reduce a

deficit arising from losses on plan

assets or actuarial losses.










specifically how to deal with risk-

sharing features.

Actuarial assumptions include the best

estimate of the effect of performance

targets or other criteria.

For example, the terms of a plan may

state that it will pay reduced benefits or

require additional contributions from

employees if the plan assets are

insufficient. These kinds of criteria are

reflected in the measurement of the

defined benefit obligation.





Post-employment benefits – presentation

Interest costs under current

IAS 19

Interest cost on defined benefit

obligation

Expected return on plan assets

Interest costs under Amended

IAS 19

Net interest cost on the net defined

benefit liability (asset)

calculated based on discount rate

used to discount the obligation:

Interest cost on defined benefit

obligation

Interest income on plan assets

Interest on the effect of the asset

ceiling







Post-employment benefits – presentation

Actuarial gains and lossesunder IAS 19, recognised in

P&L or OCI

AGL on the defined benefit

obligation

The difference between the

return on plan assets and the

expected return on plan assets

Remeasurements under AmendedIAS 19 recognised in OCI

AGL on the defined benefit

obligation

The difference between the

return on plan assets and the

amounts included in net

interest

Any change to the effect of the

asset ceiling, excluding

amounts included in net

interest

Any change to the effect of the

asset ceiling is recognised inP&L or OCI





Post-employment benefits – disclosure

Characteristics of and risks associated with defined benefit plans

• For example, narrative description about the characteristics of the entity’s defined benefit

plans and of the risks to which the plan exposes the entity

Amounts in the financial statements arising from the defined benefit plans

• For example, a detailed numerical reconciliation from the opening balance to the closing

balance

How the defined benefit plans may affect the amount, timing and

uncertainty of the entity’s future cash flows

• For example, sensitivity analysis, narrative description of any asset-liability matching

strategies used by the plan or the entity, and a narrative description of any funding

arrangements and funding policy that affect future contributions

An entity shall assess whether all or some disclosures should be

disaggregated to distinguish plans or groups of plans with materially

different risks

Additional disclosure for both multi-employer plans and group plans






Effective date and transition

The effective date for the application of the amended standard is annualperiods beginning on or after January 1, 2013. Earlier application is

permitted, subject to making disclosure of this fact.

The amendments are generally to be applied retrospectively, with two

exceptions:

• An entity need not adjust the carrying amount of assets outside the scope of IAS 19

(such as inventories and property, plant and equipment) for changes in employee benefit

costs that were included in their carrying amount before the date of initial application.

• In financial statements for periods beginning before 1 January 2014, an entity need not

present comparative information for the disclosures required about the sensitivity of the

defined benefit obligation.




IFRS for SMEs

• Stable platform

- No amendments since the time of adoption

• Review after 2 years of implementation

- initial comprehensive review of the Standard to

enable the IASB to assess the first two years’

experience commenced in 2012

• Guidance for micro-sized entities

- The guidance for micros will be a ‘sub-set’ of the

IFRS for SMEs. It will not be a separate standard.

No fixed timetable for completion of the guidance.



Disclaimer: The information contained herein is of a generalnature and is not intended to address the circumstances of anyparticular individual or entity. Although we endeavor to provideaccurate and timely information, there can be no guarantee thatsuch information is accurate as of the date it is r eceived or that itwill continue to be accurate in the future. No one should act onsuch information without appropriate professional advice after athorough examination of the particular situation.

© 2013 Manabat Sanagustin & Co., CPAs, a Philippinepartnership and a member firm of the KPMG network ofindependent m ember firms affiliated with KPMG InternationalCooperative ("KPMG International"), a Swiss entity. All rightsreserved. Printed in the Philippines.

The KPMG name, logo and “cutting through complexity” areregistered trademarks or trademarks of KPMG International.

Documents

ifrs/pfrs amendments 2003