a practical guide to new ifrss 2011 (2)
TRANSCRIPT
7/31/2019 A Practical Guide to New IFRSs 2011 (2)
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A practical guide to new
IFRSs for 2011
March 2011
www.pwc.com/ifrs
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PwC’s IFRS and corporate governance publications and tools 2011
IFRS technical publications
Manual of accounting – IFRS 2011Global guide to IFRS providing comprehensive practical guidanceon how to prepare nancial statements in accordance withIFRS. Includes hundreds of worked examples and extracts fromcompany accounts. The Manual is a three-volume set comprising:• Manual of accounting – IFRS 2011• Manual of accounting – Financial instruments 2011• Illustrative IFRS corporate consolidated nancial statements
for 2010 year ends
A practical guide to capitalisation of borrowing costsGuidance in question and answer format addressing the challengesof applying IAS 23R, including how to treat specic versus generalborrowings, when to start capitalisation and whether the scopeexemptions are mandatory or optional.
IFRS pocket guide 2010Provides a summary of the IFRS recognition and measurementrequirements. Including currencies, assets, liabilities, equity,income, expenses, business combinations and interimnancial statements.
A practical guide to new IFRSs for 2011 A 24-page guide providing high-level outline of the key requirements of new IFRSs effective in 2011, in question andanswer format.
IFRS student manual 2010Designed as a practical guide to IFRS for researchers,teachers, students and those studying for professional exams.Includes worked examples and illustrations from real IFRSnancial statements.
A practical guide to segment reportingProvides an overview of the key requirements of IFRS 8, ‘Operatingsegments’, and some points to consider as entities prepare for theapplication of this standard for the rst time.
Illustrative interim nancial information 2011Illustrative information, prepared in accordance with IAS 34,reecting standards issued up to March 2011. Includes a disclosurechecklist, IAS 34 application guidance and an appendix for rst- time adopters.
A practical guide to share-based payments Answers the questions we have been asked by entitiesand includes practical examples to help management drawsimilarities between the requirements in the standard and their ownshare-based payment arrangements. Updated in February 2011.
Available in PDF format only.
Illustrative IFRS corporate consolidated nancial
statements for 2010 year endsIllustrative set of consolidated nancial statements for an existingpreparer of IFRS. Includes appendices with disclosures for rst-timeadopters, and for IFRS 9. Included with ‘Manual of accounting –IFRS 2011’; also available separately.
Executive guide to IFRS – Topic summaries 2010
Key information on the major accounting topic areas. Each summary includes an explanation of current requirements along with aresources table showing external source material as well as PwCguidance and publications that relate to the topic.
Illustrative consolidated nancial statements• Investment property, 2009 • Private equity, 2009• Banking, 2009 • Insurance, 2009• Investment funds, 2009Realistic sets of nancial statements – for existing IFRSpreparers in the above sectors – illustrating the required disclosureand presentation.
Financial instruments under IFRS – A guide through
the mazeHigh-level summary of IAS 32, IAS 39 and IFRS 7, updated in June2009. For existing IFRS preparers and rst-time adopters.
Impairment guidanceGuidance includes:• Questions and answers on impairment of nonnancial assets in
the current crisis• Top 10 tips for impairment testing.
IAS 39 – Achieving hedge accounting in practiceCovers in detail the practical issues in achieving hedgeaccounting under IAS 39. It provides answers to frequently asked
questions and step-by-step illustrations of how to apply commonhedging strategies.
Manual of accounting – Financial instruments 2011Comprehensive guidance on all aspects of the requirementsfor nancial instruments accounting. Detailed explanationsillustrated through worked examples and extracts from company accounts. Included with ‘Manual of accounting – IFRS 2011’; alsoavailable separately.
IAS 39 – Derecognition of nancial assets in practiceExplains the requirements of IAS 39, providing answers tofrequently asked questions and detailed illustrations of how to apply the requirements to traditional and innovative structures.
Preparing your rst IFRS nancial statements:
Adopting IFRSOutlines how companies should address the process of selectingtheir new IFRS accounting policies and applying the guidance inIFRS 1. Provides specic considerations for US market.
IFRS 3R: Impact on earnings – the crucial Q&A for
decision-makersGuide aimed at nance directors, nancial controllers and deal-makers, providing background to the standard, impact on thenancial statements and controls, and summary differences with
US GAAP.
IFRS and US GAAP: similarities and differences A 240 –page comparison of the similarities and differences betweenthe reporting methods and the subsequent impact on entities. Orderhard copies from [email protected].
Keeping up to dateStay informed about key IFRS developments via free email alerts.IFRS mail-shotTwice-monthly email summarising new items added to pwc.com/ifrs,including breaking news from the IASB on new standards, exposure drafts andinterpretations; PwC IFRS publications and quarterly updates; IFRS blog posts;PwC webcasts; and more.IFRS newsMonthly newsletter focusing on the business implications of the IASB’s proposalsand new standards.
To subscribe, email [email protected]
IFRS disclosure checklist 2010Outlines the disclosures required for 31 December 2010 year ends.
Only available in electronic format. To download visit ‘Publications’ page at www.pwc.com/ifrs
e
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Contents
Page
Introduction 2
1. New and amended standards
Financial instruments:
• Classicationofrightsissues–IAS32amendment 4
• Disclosuresontransfersofnancialassets–IFRS7amendment 5
• Classicationandmeasurementofnancialassets−IFRS9 6 • Classicationandmeasurementofnancialliabilities–IFRS9 8
Deferredtaxaccountingforinvestmentpropertyatfairvalue–
IAS 12 amendment 11
Related-partydisclosures–IAS24amendment 13
First-time adoption:
•Financialinstrumentdisclosures–IFRS1amendment 15
• Severehyperinationandeffectivedates–IFRS1amendments 16
2. New and amended interpretations
Pre-paymentsofaminimumfundingrequirement−
IFRIC14amendment 18
Extinguishingnancialliabilitieswithequityinstruments–IFRIC19 19
3. Annualimprovementsproject2010 21
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Introduction
ThispublicationisapracticalguidetothenewIFRSstandardsandinterpretationsthatcomeintoeffectin2011.SignicantchangestoIFRSareduetobepublishedin2011,butthereisarelativelysmallnumberofchangesthatcomeintoeffectfor2011yearends:anewnancialinstrumentstandard,anIFRIC,anumberofamendmentstostandardsandtheannualimprovementsproject.
IFRS9,‘Financialinstruments’,was reissued in 2010 to include guidance onnancialliabilitiesandderecognitionofnancialinstruments.Thismaterial wasrelocatedfromIAS39,‘Financialinstruments: Recognition andmeasurement’,withoutchange,exceptfornancialliabilitiesthataredesignatedatfairvaluethroughprotorloss.Therulesontheclassicationandmeasurementof
nancialassetswerepreviouslypublishedintheearlierversionofIFRS9.ThestandardisbeingaddedtoastheIASBendorsesdifferentphasesoftheprojecttoreplace IAS39.ThereissuedIFRS9appliesto2013yearendsbutcanbeadopted withimmediateeffect(subjecttoEUendorsement for European entities).
OnlyoneIFRIC–IFRIC19,‘Extinguishingnancialliabilitieswithequityinstruments’
–comesintoeffectin2011.Itclariestheaccountingwhenanentityrenegotiatesthetermsofitsdebtwhentheliabilityisextinguishedbythedebtorissuingitsownequity.Itappliesfrom1July2010.
Twofurtheramendmentsthathaveeffectivedatesin2010willimpact2011year
ends.AmendmentstoIAS32,‘Financialinstruments:Presentation’,onclassicationofrightsissuesandamendmenttoIFRS1,‘First-timeadoptionofIFRS’,onnancialinstrument disclosures. Amendmentsthatapplyfrom1January2011includeanamendmenttoIAS24,‘Relatedpartydisclosures’,andanamendmentto IFRIC14,‘IAS19–Thelimitonadenedbenetasset,minimumfundingrequirementsandtheirinteraction’.
TheIASB’s2010annualimprovements
projecthaveaffectedanumberofstandards.Someofthechangesaddressinconsistencyinterminologybetweenthestandards;otherswillimpactcertainentitiesandthereforeneedcarefulconsideration.
Thetableonp3summarisestheimplementationdatesforthenewandamendedIFRSsthatareconsideredin moredetailinthepagesthatfollow.
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Standard
Adopted
by EU Early-adoption status Page
Changes that apply from 1 February 2010
Amendments to IAS 32, ‘Financial instruments:Presentation’, on classication o rights issues
4 N/A 4
Changes that apply from 1 July 2010 Amendment to IFRS 1, ‘First-time adoption’, on nancialinstrument disclosures
4 N/A 15
IFRIC 19, ‘Extinguishing nancial liabilities with equityinstruments’
4 N/A 19
Annual improvements 2010
Amendment to IAS 27, ‘Consolidated and separate
nancial statements’*
4 N/A 21
Amendment to IFRS 3, ‘Business combinations’ –contingent consideration
4 N/A 23
Amendment to IFRS 3, ‘Business combinations’ – share-based payment transactions
4 N/A 24
Amendment to IFRS 3, ‘Business combinations’ –non-controlling interests
4 N/A 23
Changes that apply from 1 January 2011
Amendment to IAS 24, ‘Related party disclosures’ 4 Early adoption is permitted 13
Amendment to IFRIC 14, ‘IAS 19 – The limit on a denedbenet asset, minimum unding requirements and theirinteraction’
4 Early adoption is permitted 18
Annual improvements 2010
Amendment to IAS 1, ‘Presentation o nancialstatements’
4 Early adoption is permitted 21
Amendment to IAS 34, ‘Interim nancial reporting’ 4 Early adoption is permitted 21
Amendment to IFRS 1, ‘First-time adoption’ – interiminormation
4 Early adoption is permitted 22
Amendment to IFRS 1, ‘First-time adoption’ – deemedcost exemption
4 Early adoption is permitted 22
Amendment to IFRS 1, ‘First-time adoption’ –rate-regulated entities
4 Early adoption is permitted 23
Amendment to IFRS 7, Financial instruments:Disclosures’ – nature and extent o risks arising romnancial instruments
4 Early adoption is permitted 24
Amendment to IFRIC 13, ‘Customer loyalty programmes’– air value
4 Early adoption is permitted 24
Changes that apply from 1 July 2011
Amendment to IFRS 1, ‘First-time adoption’ – exemptionor severe hyperinfation and removal o xed dates
Early adoption is permitted 16
Amendment to IFRS 7, ‘Financial instruments:Disclosures’ – disclosures on transers o nancial assets
Early adoption is permitted 5
Changes that apply from 1 January 2012
Amendment to IAS 12, ‘Income taxes’ – deerred taxaccounting or investment properties
Early adoption is permitted 11
Changes that apply from 1 January 2013
IFRS 9, ‘Financial instruments’ – classication o nancialassets and nancial liabilities
Early adoption is permitted 6
*Eective date: Annual periods starting 1 July 2009
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Financial instruments
Classicationofrightsissues–IAS32amendment
‘Classicationofrightsissues–anamendmenttoIAS32’waspublishedon 8October2009.Theamendmentrecognisesthatthepreviousrequirementtoclassifyforeign-currency-denominatedrightsissuedtoallexistingshareholdersonaproratabasisasderivativeliabilitiesisnotconsistent
withthesubstanceofthetransaction,whichrepresentsatransactionwithownersactingintheircapacityassuch.Theamendmentthereforecreatesanexceptiontothe‘xedforxed’ruleinIAS32andrequiresrightsissueswithinthescopeoftheamendmenttobeclassiedasequity.
What is a rights issue?
Arightsissueisusedasameansofcapital-raisingwherebyanentityissuesaright,optionorwarranttoallexistingshareholdersofaclassofequityonaproratabasistoacquireaxednumberofadditionalsharesataxedstrikeprice.Thestrikepriceisusuallysetbelowcurrentmarketshareprice,andshareholdersareeconomicallycompelledtoexercisetherightssothattheirinterestintheentityisnotdiluted.Rightsissuesarenotusedforspeculativepurposesandarerequiredbylawsorregulationsinmanyjurisdictions whenraisingcapital.
Why new guidance now?
Rightsissueshavebecomepopularinthecurrentenvironmentduetoliquidityconstraintsonthemarkets.Entities
listedindifferentjurisdictionsare normallyrequiredbylawsorregulations toissuerightsdenominatedinrespectivelocalcurrencies.Unfortunately,axed
strikepriceinotherthantheentity’sfunctionalcurrencyviolates‘xedfor xed’equityclassicationcriterionin IAS32andhenceresultsintheinstrumentbeingclassiedasaderivativeliability measuredatfairvaluethroughprotor loss.Giventhatrightsissuesareusuallyrelativelylargetransactions,thiswould
haveasubstantialeffectonentities’nancialstatements.
What does the amendmentrequire?
TheIASBrecognisedthatclassifyingforeign-currency-denominatedrightsissuedtoallexistingshareholdersonaproratabasisasderivativeliabilitieswasnotconsistent withthesubstanceofthetransaction,whichrepresentsatransactionwithownersactingintheircapacityassuch.Theamendment
thereforecreatedanexceptiontothe‘xedforxed’ruleinIAS32andrequiredrightsissueswithinthescopeoftheamendmenttobeclassiedasequity.
Effective date
Annual periods beginning on or ater 1 February 2010. It should be applied
retrospectively. Early adoption is permitted.
EU adoption status
Adopted by the European Commission on 24 December 2009.
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What is the scope o the new guidance?
Thescopeisnarrowandappliesonlyto proratarightsissuestoallexistingshareholdersinaclass.Itdoesnot
extendtolong-datedforeigncurrency rightsissuesorforeign-currency-denominatedconvertiblebonds.Fortheseinstruments,theoptiontoacquiretheissuer’sequitywillcontinuetobe accountedforasaderivativeliability, withfairvaluechangesrecordedinprot or loss.
How will this change current practice?
Rightsissuesarenowrequiredtobeclassiedasequityiftheyareissuedforaxedamountofcashregardlessofthe
currencyinwhichtheexercisepriceisdenominated,providedtheyareofferedonaproratabasistoallownersofthesameclassofequity.Unlikederivativeliabilities,equityinstrumentsarenotsubsequentlyre-measuredatfairvaluethroughprotorloss.Theaccountingisthereforelesscomplex,andthereislessvolatilityinprotorloss.
How extensive are the newrequirements?
Thenewdisclosurerequirementsapplytotransferrednancialassets.Anentitytransfersanancialassetwhenittransfersthecontractualrightstoreceivecashowsoftheassettoanotherparty−for example,onthelegalsaleofabond. Alternatively,atransfertakesplacewhen
theentityretainsthecontractualrightsofthenancialassetbutassumesa contractualobligationtopaythecashowsontoanotherparty,asisoftenthecase whenfactoringtradereceivables.
Theamendmenthasdifferent requirementsforthefollowingtwocategories:• transferredassetsthatarenot derecognisedintheirentirety(for example,inatypicalsaleand repurchase(‘repo’)ofasecurityfora
xedprice,oronthetransferofassets tosecuritisationvehiclesthatare consolidatedbythetransferor);and • certaintransferredassetsthatare
derecognisedintheirentirety(for example,factoringoftradereceivables withnorecourse).
Theamendmentrequiresonlyminoradditionaldisclosurefortherstcategory;however,thenewdisclosurerequirementsforthesecondcategorycouldbeextensive.
What are the disclosurerequirements or the transerred
assets that are not derecognised?
TherequireddisclosuresforthesenancialassetsaddtothosealreadyinIFRS7.Thereareonlytwonewrequirements:
adescriptionofthenatureofthe•relationshipbetweenthetransferredassetsandtheassociatedliabilitiesshouldbeprovided,includingrestrictionsarisingfromthetransferonthereportingentity’suseofthetransferredassets;and whenthecounterpartytotheassociated•liabilitieshasrecourseonlytothetransferredassets,ascheduleshouldbegiventhatsetsoutthefairvalueofthe transferredassets,thefairvalueoftheassociatedliabilitiesandthenetposition.
Effective date
Annual periods beginning on or ater 1 July 2011. Comparative inormation is not
needed in the rst year o adoption.
EU adoption status
Not adopted by the European Commission at the time o going to print. Expected to
be adopted Q2 2011.
TheIASBissuedanamendmenttoIFRS7 on8October2010.Theamendment
requiresgreaterdisclosureoftransferrednancialassets.
Disclosuresontransfersofnancialassets–
IFRS7amendment
Financial instruments
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What are the disclosurerequirements or the transerredassets that are derecognised intheir entirety?
Thenewdisclosurerequirementsfor
derecognisednancialassetsapplyonlywheretheentityhasa‘continuinginvolvement’,whichmaynotoccurfrequentlyinpractice.Thisiswhere,aspartofthetransfer,theentityretainsanyofthecontractualrightsorobligationsinherentinthederecognisednancialassetorobtainsanynewcontractualrightsorobligationsrelatingtothetransferrednancialasset.
Thenewdisclosuresaremainlyabouttheentity’scontinuinginvolvement.Theyinclude disclosure of:
thecarryingamountandfairvalueofthe•continuinginvolvement;themaximumexposuretolossfromthe•continuinginvolvement;anyfuturecashoutowstorepurchase•thederecognisedassets(forexample,
thestrikepriceinanoptionagreement)andamaturityanalysisofthosecashoutows;adescriptionofthenatureandpurpose•ofthecontinuinginvolvementandtherisktheentityremainsexposedto;thegainorlossatdateofderecognition;•theincomeandexpenserecognisedfrom•thecontinuinginvolvement(currentandcumulative);and whethertransferactivityisunevenly•distributedintheperiod.
IFRS9,‘Financialinstruments’
IFRS9,‘Financialinstruments’,replacesIAS39,‘Financialinstruments:Recognitionandmeasurement’.Itgenerallyappliesretrospectively,withsomeexceptions.Comparativeinformationisnotrequiredtobeadjustedretrospectivelyforadoptions before2012.
IfanentityearlyadoptsIFRS9,itwillnot
berequiredtoearlyadoptsubsequentstagesintheIAS39replacementproject–thatis,impairmentandhedging.ThisistofacilitateearlyadoptionofIFRS9.However,ifanentitychoosestoearlyadoptanyofthesubsequentstages,itwillberequiredtoearlyadoptallprecedingstagesfromthesame date.
Effective date
Annual periods starting 1 January 2013. Early adoption is permitted rom 12 November
2009 (see detail below). However, the IASB is consulting – at the time o going to print
– on the eective dates o a number o standards. The eective date o IFRS 9 may
thereore change.
EU adoption statusNot adopted by the European Commission at the time o going to print.
How are nancial assets to bemeasured?
IFRS9requiresallnancialassetstobemeasuredateitheramortisedcostorfullfairvalue.Amortisedcostprovidesdecision-usefulinformationfornancialassetsthatareheldprimarilytocollectcashowsthatrepresentthepaymentofprincipalandinterest.Forallothernancialassets,
includingthoseheldfortrading,fairvalue
isthemostrelevantmeasurementbasis.
What determines classication?
IFRS9introducesatwo-stepclassicationapproach.First,anentityconsidersitsbusinessmodel−thatis,whetheritholdsthenancialassettocollectcontractualcashowsratherthantosellitpriortomaturitytorealisefairvaluechanges.Ifthelatter,theinstrumentismeasuredatfairvaluethroughprotorloss.Iftheformer,anentity
furtherconsidersthecontractualcashowcharacteristicsoftheinstrument.
Classicationandmeasurementofnancialassets
Financial instruments
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Financial instruments
What is a contractual cash fowcharacteristics test?
Anancialassetwithinaqualifying businessmodelwillbeeligiblefor amortisedcostaccountingifthe
contractualtermsofthenancialassetgiveriseonspecieddatestocashowsthat aresolelypaymentsofprincipaland interestontheprincipalamountoutstanding.Interestisdenedasconsiderationforthetimevalueofmoneyandforthecreditriskassociatedwiththeprincipal amount outstanding during aparticular period of time.
Anyleveragefeatureincreasesthe variabilityofthecontractualcashows withtheresultthattheydonothavethe
economiccharacteristicsofinterest.Ifacontractualcashowcharacteristicisnotgenuine,itdoesnotaffecttheclassicationofanancialasset.Acashow characteristicisnotgenuineifitaffectstheinstrument’scontractualcashowsonlyontheoccurrenceofaneventthatis extremelyrare,highlyabnormalandveryunlikelytooccur.
What are common eatures that would generally pass the cash
fow characteristics test?Unleveragedlinkagetoaninationindex•inthecurrencyinwhichthenancialasset is denominated.Multipleextensionoptions(forexample,•aperpetualbond).Callandputoptionsiftheyarenot•contingentonfutureevents,andthe pre-paymentamountsubstantiallyrepresents unpaid amounts of principalandinterestontheprincipalamountoutstanding,whichmayinclude
reasonableadditionalcompensationfortheearlyterminationofthecontract.Interestratecaps,oorsandcollarsthat•effectivelyswitchtheinterestratefromxedtovariableandviceversa.Inavariableratenancialasset,a•borroweroptiontochoosearateateachinterestrateresetdayaslongastheratecompensatesthelenderforthetimevalueofmoney(forexample,anoptiontopaythree-monthLIBORforathree-monthtermorone-monthLIBORforaone-monthterm).
What are common eatures that would generally ail the cash fowcharacteristics test?
Linkagetoequityindex,borrower’snet•incomeorothervariables.
Inverseoatingrate.• Calloptionatanamountnotreective •of outstanding principal and interest.Issuerisrequiredorcanchoosetodefer•interestpaymentsandadditional interestdoesnotaccrueonthose deferred amounts.Inavariableratenancialasset,a•borroweroptiontochoosearateateachinterestrateresetdaysuchthattheratedoesnotcompensatethelenderforthetimevalueofmoney(forexample,anoptiontopayone-monthLIBORforathree-monthtermandone-monthLIBORisnotreseteachmonth). Avariableratethatisresetperiodically•butalwaysreectsave-yearmaturityinave-yearconstantmaturitybond(thatis,therateisdisconnectedwiththetermoftheinstrumentexceptatorigination). Anequityconversionoptioninadebt•host(fromaholderperspective).
Are reclassications permitted?
Classicationofnancialassetsis
determined on initial recognition.Subsequentreclassicationispermittedonlyinthoserarecircumstanceswhenthereisachangetothebusinessmodelwithinwhichthenancialassetisheld.Insuchcases,reclassicationofallaffectednancialassetsisrequired.
IFRS9speciesthatchangesinbusinessmodelareexpectedtobeveryinfrequent,shouldbedeterminedbytheentity’sseniormanagementasaresultofexternalorinternalchanges,shouldbesignicantto
theentity’soperationsanddemonstrabletoexternalparties.
Forexample,anentityhasaportfolioofcommercialloansthatitholdstosellintheshortterm.Theentityacquiresacompanythatmanagescommercialloansandhasabusinessmodelthatholdstheloansinordertocollectthecontractualcashows.Theportfolio of commercial loans is no longerforsale,andtheportfolioisnowmanagedtogetherwiththeacquiredcommercialloans;allareheldtocollectthecontractual
cashows.
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Anotherexampleofachangeinthebusinessmodeliswhereanentitydecidestoshutdownalineofservice(forexample,aretailmortgagebusiness).Thelineofservicedoesnotacceptnewbusiness,andtheaffectedportfolioisbeingactivelymarketedforsale.
IFRS9indicatesthatchangesinintentions withrespecttoindividualinstruments,temporarydisappearanceofaparticularmarketortransfersofinstrumentbetweenbusinessmodelsdonotrepresentachange
inbusinessmodel.
What does this mean orequity investments?
Equityinvestmentsdonotdemonstratecontractualcashowcharacteristicsof
principalandinterest;theyarethereforeaccountedforatfairvalue.However,IFRS9providesanoptiontodesignateanon-tradingequityinvestmentatfair valuethoughprotorlossoratfairvaluethroughothercomprehensiveincome.Thedesignationisavailableonaninstrument-by-instrumentbasisandonlyoninitialrecognition.Oncemade,thedesignationisirrevocable.
Allrealisedandunrealisedfairvaluegainsandlossesfollowtheinitialdesignation,and
thereisnorecyclingoffairvaluegainsandlossesrecognisedinothercomprehensiveincometoprotorloss.Dividendsthatrepresentareturnoninvestmentfromequityinvestmentswillcontinuetoberecognisedinprotorlossregardlessofthe
designation.
Can an equity investment bemeasured at cost where noreliable air value measureis available?
IFRS9removesthecostexemptionforunquotedequitiesandderivativesonunquotedequitiesbutstipulatesthat,incertaincircumstances,costmaybeanappropriateestimateoffairvalue.Thismaybethecasewhereinsufcient
recentinformationisavailableorwherethereisawiderangeofpossiblefair valuemeasurements.Costwillnotbeanappropriateestimateoffairvalueiftherearechangesininvesteecircumstances,marketsorwidereconomy,orifthereis
evidencefromexternaltransactionsorforinvestmentsinquotedequityinstruments.Totheextentfactorsexistthatindicatecostmightnotberepresentativeoffairvalue,the
entityshouldestimatefairvalue.
What does this mean orhybrid contracts?
IFRS9requiresnancialassetstobeclassiedintheirentirety.Hybrid contractsarethoseinstrumentsthat containanancialornon-nancialhost
andanembeddedderivative.HybridcontractswithinthescopeofIFRS9− thatis,hybridcontractswithnancial assethosts−areassessedintheir entiretyagainstthetwoclassicationcriteria.Hybridcontractsoutsidethescope ofIFRS9areassessedforbifurcation underIAS39.Inmanycases,hybridcontractsmayfailthecontractualcash owcharacteristictestandshould thereforebemeasuredatfairvalue
throughprotorloss.
Is a air value option available?
Twooftheexistingthreefairvalue optioncriteriacurrentlyinIAS39 becomeobsoleteunderIFRS9,asafair- value-drivenbusinessmodelrequiresfair valueaccounting,andhybridcontracts areclassiedintheirentirety.The remainingfairvalueoptionconditionin IAS39iscarriedforwardtothenewstandard–thatis,managementmay stilldesignateanancialassetasatfair valuethroughprotorlossoninitial
recognitionifthissignicantlyreducesrecognitionormeasurementinconsistency,commonlyreferredtoas‘anaccountingmismatch’.Thedesignationatfairvaluethroughprotorlosswillcontinueto beirrevocable.
How are nancial liabilities tobe measured?
Financialliabilitiesaremeasuredatamortisedcostunlesstheyarerequiredto
bemeasuredatfairvaluethroughprot orlossoranentityhaschosentomeasure aliabilityatfairvaluethroughprot
or loss.
Classicationandmeasurementofnancialliabilities
Financial instruments
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What determines classication?
TheclassicationandmeasurementofnancialliabilitiesunderIFRS9remainsunchangedfromtheguidanceinIAS39exceptwhereanentityhaschosentomeasurealiabilityatfairvaluethroughprotorloss.Therecontinuetobetwomeasurementcategoriesfornancialliabilities:fairvalueandamortisedcost.Certainliabilitiesarerequiredtobeatfairvaluethroughprotorloss,suchasliabilitiesheldfortradingandderivatives.Otherliabilitiesaremeasuredatamortisedcostunlesstheentityelectsthefair valueoption;however,iftheliabilitycontainsembeddedderivatives,theembeddedderivativesmightberequiredtobeseparatedandmeasuredatfairvalue
throughprotorloss.
What is the accounting or nancial liabilities that arerequired to be at air valuethrough prot and loss?
Financialliabilitiesthatarerequiredtobemeasuredatfairvaluethroughprotorloss(asdistinctfromthosethattheentityhaschosentomeasureatfairvaluethroughprotorloss)continuetohaveallfairvaluemovementsrecognisedinprotorloss,with
noneofthefairvaluemovementrecognisedin‘othercomprehensiveincome’(OCI).Thisincludesallderivatives(suchasforeigncurrencyforwardsorinterestrateswaps),oranentity’sownliabilitiesthatare‘heldfortrading’.Similarly,nancialguaranteesandloancommitmentsthatentitieschoosetomeasureatfairvaluethroughprotorloss willhaveallfairvaluemovementsinprotor loss.
What is the accounting or nancial liabilities that anentity chooses to account orat air value?
IFRS9changestheaccountingfornancialliabilitiesthatanentitychoosestoaccountforatfairvaluethroughprotorloss,usingthefairvalueoption.Forsuchliabilities,changesinfairvaluerelatedtochanges inowncreditriskarepresented separatelyinOCI.
However,ifpresentingthechangesin owncreditofanancialliabilityinOCI
wouldcreateanaccountingmismatchinprotorloss,allfairvaluemovements arerecognisedinprotorloss.
Theaccountingmismatchmustarise duetoaneconomicrelationship betweenthenancialliabilityandanancialassetthatresultsinthe liability’screditriskbeingoffsetbya changeinthefairvalueoftheasset.
Theaccountingmismatch:isrequiredtobedeterminedwhen •theliabilityisrstrecognised;isnotreassessedsubsequently;and•mustnotbecausedsolelybythe•measurementmethodthatanentity usestodeterminethechangesinaliability’screditrisk.
Useofthisexemptionfromthe requirementtopresentmovementsintheowncreditriskofaliabilityinOCIisexpectedtoberare.
What are the eligibility criteria or the air value option?
Theeligibilitycriteriaforthefairvalueoptionremainthesame;theyarebased onwhether:
theliabilityismanagedonafair • valuebasis;electingfairvaluewilleliminateor•reduceanaccountingmismatch;ortheinstrumentisahybridcontract •(thatis,itcontainsahostcontract
andanembeddedderivative)for whichseparationofanembeddedderivativewouldberequired.
What might be a common reason or electing the air value option?
Acommonreasoniswhereentitieshaveembeddedderivativesthattheydonot wishtoseparatefromthehostliability.Inaddition,entitiesmayelectthefairvalueoptionforliabilitiesthatgiverisetoanaccountingmismatchwithassetsthatare
requiredtobeheldatfairvaluethroughprotorloss.
Have there been any changesin the accounting orembedded derivatives?
TheexistingguidanceinIAS39forembeddedderivativeshasbeenretainedinthisnewpartofIFRS9.Entitiesarestillrequiredtoseparatederivativesembeddedinnancialliabilitieswheretheyarenotcloselyrelatedtothehostcontract–for
example,astructurednotewheretheinterestislinkedtoanequityindex.Theseparatedembeddedderivativecontinuesto
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bemeasuredatfairvaluethroughprotorloss,andtheresidualdebthostismeasuredatamortisedcost.Theaccountingforembeddedderivativesinnon-nancialhostcontractsalsoremainsunchanged.
Is the treatment o derivativesembedded in nancial liabilities symmetrical to the treatment o derivatives embedded in
nancial assets?
No.TheexistingembeddedderivativeguidanceinIAS39isretainedinIFRS9fornancialliabilitiesandnon-nancialinstruments.Thisresultsinsomeembeddedderivativesstillbeingseparatelyaccountedforatfairvaluethroughprotorloss.However,embeddedderivativesareno
longerseparatedfromnancialassets.Instead,theyarepartofthecontractualtermsthatareconsideredindetermining whethertheentirenancialassetmeetsthecontractualcashowtest(thatis,theinstrumenthassolelypaymentsofprincipalandinterest)tobemeasuredatamortisedcostorwhetheritshouldbemeasuredat
fairvaluethroughprotorloss.
How are nancial liabilities at air value to be measured?
Entitieswillneedtocalculatetheamount ofthefairvaluemovementthatrelatestothecreditriskoftheliability.IFRS7alreadyrequiresdisclosureoftheamountoffair valuechangesthatareattributabletoowncreditriskforliabilitiesdesignatedatfair valuethroughprotorloss.TheexistingguidanceonhowtocalculateowncreditriskinIFRS7isretainedbuthasbeenrelocatedtoIFRS9,andsomeaspectshave
beenclaried.
How can own credit risk
be determined?
Thiscanbedeterminedaseither:theamountoffairvaluechangenot•attributabletochangesinmarketrisk(forexample,benchmarkinterestrates)–thisisoftenreferredtoasthedefaultmethod;oranalternativemethodthattheentity•believesmorefaithfullyrepresents thechangesinfairvaluedueto‘owncredit’(forexample,amethodthatcalculatescreditriskbasedoncreditdefault swap rates).
IFRS9clariesthatifthechangesinfairvaluearisingfromfactorsotherthanchangesintheliability’screditriskorchangesinobservedinterestrates(thatis,benchmarkratessuchasLIBOR)aresignicant,anentityisrequiredtousean
alternativemethodandmaynotusethedefaultmethod.Forexample,changesinthefairvalueofaliabilitymightariseduetochangesinvalueofaderivativeembeddedinthatliabilityratherthanchangesinbenchmarkinterestrates.Inthatsituation,changesinthevalueoftheembeddedderivativeshouldbeexcludedindeterminingtheamountofowncreditriskthatispresentedinOCI.
TheexpandedguidanceinIFRS9 conrmsthatthecreditriskofaliability
withcollateralislikelytobedifferent fromthecreditriskofanequivalent liabilitywithoutcollateralissuedbythesameentity.
Italsoclariesthatunit-linkingfeaturesusuallygiverisetoassetperformanceriskratherthancreditrisk−thatis,thevalueoftheliabilitychangesduetochangesin valueofthelinkedasset(s)andnotbecauseofchangesintheowncreditriskoftheliability.Thismeansthatchangesinthefairvalueofaunit-linkedliabilitydueto
changesinthefairvalueofthelinkedasset willcontinuetoberecognisedintheincomestatement:theyarenotregardedasbeingpartoftheowncreditriskoftheliabilitythatisrecognisedinOCI.
What is the impact o thechanges on the presentationo nancial liabilities?
Elementsofthefairvaluemovementoftheliabilityarepresentedindifferentpartsoftheperformancestatement;changesin
owncreditriskarepresentedinOCI,andallotherfairvaluechangesarepresentedinprotorloss.Thismeansthattheamountoftheoverallfairvaluemovementdoesnotchange,butitispresentedinseparatesectionsofthestatementofcomprehensiveincome.
Amounts in OCI relating to own credit arenotrecycledtotheincomestatementeven whentheliabilityisderecognisedandtheamountsarerealised.However,thestandarddoesallowtransferswithinequity.
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Why was this amendment needed?
ThecurrentprincipleinIAS12requiresthemeasurementofdeferredtaxassetsorliabilitiestoreectthetaxconsequencesthatwouldfollowfromthewaythatmanagementexpectstorecoverorsettlethecarryingamountoftheentity’sassetsorliabilities.Forexample,managementmayexpecttorecoveranassetbyusingit,bysellingitorbyacombinationofuseandsale.Management’sexpectationscan affectthemeasurementofdeferredtaxes
whendifferenttaxratesortaxbasesapplytotheprotsgeneratedfromusingandsellingtheasset.
TheIASBbelievesthatentitiesholdinginvestmentpropertiesthataremeasuredatfairvaluesometimesnditdifcultorsubjectivetoestimatehowmuchofthecarryingamountwillberecoveredthroughrentalincome(thatis,throughuse)andhowmuchwillberecoveredthroughsale,particularlywhenthereisnospecicplanfor disposal at a particular time.
Key provisions
TheIASBhasaddedanotherexception totheprinciplesinIAS12:the rebuttablepresumptionthatinvestmentpropertymeasuredatfairvalueis recoveredentirelybysale.Therebuttablepresumptionalsoappliestothedeferredtaxliabilitiesorassetsthatarisefrominvestmentpropertiesacquiredinabusinesscombination,iftheacquirersubsequentlyusesthefairvaluemodeltomeasurethoseinvestmentproperties.
Thepresumptionofrecoveryentirelybysaleisrebuttediftheinvestmentpropertyisdepreciable(forexample,buildings,andlandheldunderalease)andisheldwithinabusinessmodelwhoseobjectiveistoconsumesubstantiallyalloftheeconomicbenetsembodiedintheinvestmentpropertyovertime,ratherthanthrough sale.Thepresumptioncannotberebuttedforfreeholdlandthatisaninvestmentproperty,becauselandcanonlybe recoveredthroughsale.
Deerred tax accounting orinvestment property at air
value – IAS 12 amendment
TheIASBamendedIAS12,‘Incometaxes’,tointroduceanexceptiontotheexistingprincipleforthemeasurementofdeferred
taxassetsorliabilitiesarisingoninvestmentpropertymeasuredatfairvalue.
Effective date
Annual periods beginning on or ater 1 January 2012. Early adoption is permitted.
EU adoption status
Not adopted by the European Commission at the time o going to print. Expected to
be adopted Q3 2011.
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Theamendmentsalsoincorporate SIC21,‘Incometaxes–Recoveryofrevaluednon-depreciableassets’,into IAS12,althoughthisguidancewillnot beappliedtoinvestmentproperty measuredatfairvalue.TheSIC21
guidancehasbeenincludedbecause itisappliedbyanalogyinanumber of situations.
What are the transitionimplications?
Theamendmentiseffectiveforannualperiodsbeginningonorafter1January2012.Managementcanelecttoearly adopttheamendmentfornancial yearsending31December2010. Entitiesshouldapplytheamendment
retrospectivelyinaccordancewith IAS8,‘Accountingpolicies,changesin accountingestimatesanderrors’.
Who does the amendment aect?
Allentitiesholdinginvestmentpropertiesmeasuredatfairvalueinterritorieswherethereisnocapitalgainstaxorwherethecapitalgainsrateisdifferentfromtheincometaxrate(forexample,Singapore,NewZealand,HongKongandSouth Africa)willbesignicantlyaffected.Theamendmentislikelytoreducesignicantlythedeferredtaxassetsandliabilitiesrecognisedbytheseentities.Itwillalsomeanthat,injurisdictionswherethereisnocapitalgainstax,therewilloftenbenotaximpactofchangesinthefairvalueofinvestmentproperties.Itmightbenecessaryformanagementtoreconsiderrecoverabilityofanentity’sdeferredtaxassetsbecauseofthechangesintherecognitionofdeferred
taxliabilitiesoninvestmentproperties,andtoconsidertheimpactoftheamendmentonpreviousbusinesscombinations.
Deferred tax
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Related-party disclosures – IAS 24 amendment
IAS24,‘Related-partytransactions’,wasamendedinNovember2009.Therevisedstandardremovestherequirementforgovernment-relatedentitiestodisclosedetailsofalltransactionswiththegovernmentandothergovernment-relatedentities.Italsoclariesandsimpliesthedenitionofarelatedparty.
ThepreviousversionofIAS24didnotcontainanyspecicguidanceforgovernment-relatedentities.Theywerethereforerequiredtodisclosetransactions
withthegovernmentandothergovernment-relatedentities.Thisrequirementwasonerousinterritorieswithpervasivegovernmentcontrol;itplacedasignicantburdenonentitiestoidentifyrelated-partytransactionsandcollecttheinformationrequiredtomakethedisclosures.For
example,agovernment-controlledrailway wastheoreticallyrequiredtodisclosedetailsofitstransactionswiththepostofce.Thisinformationwasnotnecessarilyusefultousersofthenancialstatementsandwascostlyandtime-consumingtocollect.
Thenancialcrisiswidenedtherangeofentitiessubjecttorelated-partydisclosurerequirements.Thenancialsupportprovidedbygovernmentstonancialinstitutionsinmanycountriesmeansthatthegovernmentnowcontrolsorsignicantly
inuencessomeofthoseentities.Agovernment-controlledbank,forexample, wouldberequiredtodisclosedetailsofitstransactions, deposits and commitments withallothergovernment-controlledbanksandwiththecentralbank.
Effective date
Annual periods beginning on or ater 1 January 2011. Earlier adoption is permitted
either or the entire standard or or the reduced disclosures or government-related
entities.EU adoption status
Adopted by the European Commission on 19 July 2010.
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What is the denition o a government-related entity?
Government-relatedentitiesarenowdenedasentitiesthatarecontrolled,jointlycontrolledorsignicantlyinuencedbya
government.What disclosures are
government-related entitiesrequired to make?
Theamendmentintroducesanexemptionfromthedisclosurerequirementsof IAS24fortransactionsbetweengovernment-relatedentitiesandthegovernment,andallothergovernment-relatedentities.Thosedisclosuresarereplacedwitharequirementtodisclose: • thenameofthegovernmentand thenatureoftherelationship; • thenatureandamountofany individually-signicant transactions;and • aqualitativeorquantitative indicationoftheextentofany collectively-signicanttransactions.
What is the impact o the changein disclosure requirements?
Thisisasignicantrelaxationofthedisclosurerequirementsandshouldbeof
substantialbenettogovernment-relatedentities.Thecomplexityandvolumeofthedisclosuresinthenancialstatementsandthecostsofrecord-keepingwillbe reduced.Thenewdisclosureswillprovidemoremeaningfulinformationaboutthenatureofanentity’srelationshipwith thegovernment.
Why has the denition o arelated party changed?
Thepreviousdenitionofarelatedparty
wascomplicatedandcontainedanumberofinconsistencies.Theseinconsistenciesmeant,forexample,thatthereweresituationsinwhichonlyonepartytoa
transactionwasrequiredtomakerelated-partydisclosures.Thedenitionhasbeenamendedtoremovesuchinconsistenciesandtomakeitsimplertoapply.
What is the impact o the
amended denition?Whilethenewdenitionwillmakethedenitionofarelatedpartyeasiertoapply,someentitieswillberequiredtomakeadditional disclosures.
Theentitiesthataremostlikelytobeaffectedarethosethatarepartofagroupthatincludesbothsubsidiariesandassociates,andentitieswithshareholdersthatareinvolvedwithotherentities.Forexample,asubsidiaryisnowrequiredtodisclosetransactionswithanassociateof
itsparent.Similarly,disclosureisrequiredoftransactionsbetweentwoentitieswherebothentitiesarejointventures(oroneisanassociateandtheotherisajointventure)ofathirdentity.Inaddition,anentitythatiscontrolledbyanindividualthatispartofthekeymanagementpersonnelofanotherentityisnowrequiredtodisclosetransactionswiththatsecondentity.
What next steps shouldmanagement consider?
Managementofgovernment-relatedentitiesshouldconsiderwhethertheywishtoadopttheamendmentearly.Earlyadoptionislikelytobeattractiveformanyentities,butmanagementintendingtoadoptearlyshouldalsoconsiderthereviseddisclosurerequirementsandputinplaceprocedurestocollecttherequiredinformation.EUentitiescannotcurrentlyapplytheamendmentbecausetheEuropeanCommissionhasnot yetadoptedit.
Managementofallentitiesshouldconsider
thereviseddenitiontodetermine whetheranyadditionaldisclosureswillberequiredandputinplaceprocedurestocollectthatinformation.
Related-party disclosures
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What triggered this amendment?
ExistingIFRSpreparersweregrantedrelieffrompresentingcomparativeinformation forthenewdisclosuresrequiredbytheMarch2009amendmentstoIFRS7‘Financialinstruments:Disclosures’.Thereliefwasprovidedbecausethe amendmentstoIFRS7wereissuedafter thecomparativeperiodshadended,and theuseofhindsightwouldhavebeen
required.TheIASBthereforepermittedentitiestoexcludecomparativedisclosuresintherstyearofapplication.Certain rst-timeadopters(forexample,those witharstreportingperiodbeginningon orafter1January2009)wouldotherwiseberequiredtomakethecomparativeperioddisclosures,asrst-timeadoptersdonotusethetransitionprovisionsinotherIFRSs.
TheIASBhasthereforeissuedanamendmenttoIFRS1toproviderst-timeadopterswiththesametransition
provisions(andtherebythesamerelief) asincludedintheamendmenttoIFRS7. Itmadeaconsequentialamendmentto IFRS7toremovethewording,‘Intherstyearofapplication’,andtoreplaceit withdate-specicreliefforcomparativeinformation.Anycomparativeperiods thatendbefore31December2009areexemptfromthedisclosuresrequiredby theamendmentstoIFRS7.Thereliefappliestodisclosuresrelatedtoboththe
statementofcomprehensiveincomeand thestatementofnancialposition.
Who is aected?
Arst-timeadoptermayusethereliefofferedundertheamendmenttotheextentitsrstIFRSnancialstatementspresentcomparativeperiodsthatendbefore31December2009.Thisincludesanycomparativeannualperiodsthatendbefore31December2009andanyyear-endcomparativestatementsofnancial
First-time adoption − IFRS 1 amendments
Effective date
Annual periods beginning on or ater 1 July 2010. Earlier adoption is permitted. Early
adoption is required or a rst-time adopter that has a rst reporting period that begins
earlier than 1 July 2010 in order to benet rom the disclosure relie.
EU adoption status
Adopted by the European Commission on 30 June 2010.
TheIASBhasissuedanamendmentto IFRS1,‘First-timeadoptionofIFRS’,toproviderst-timeadopterswiththesame
transitionreliefthatexistingIFRSpreparersreceivedintheMarch2009amendmenttoIFRS7,‘Financialinstruments:Disclosures’.
Financial instrument disclosures
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positionasatadatebefore31December2009.Thisincludestheopeningstatementofnancialpositionasatthedateoftransition.Anycomparativeinterim periods(fullnancialstatementsandnotIAS34condensed)thatfellwithinthe
rstannualperiodforwhichthe amendedIFRS7disclosureswere effectivearenotexempt.
What action do rst-time adoptersneed to take?
First-timeadoptersshouldconsiderthecomparativeperiodsthatarebeingpresentedintheirrstIFRSnancial
statementsanddeterminewhethertheyshouldtakeadvantageofthedisclosurereliefofferedbythisamendment.
What is the issue?Theamendmentcreatesanadditionalexemptionwhenanentitythathasbeensubjecttoseverehyperinationresumespresenting,orpresentsforthersttime,nancialstatementsinaccordancewithIFRSs.Theexemptionallowsanentitytoelect to measure certain assets andliabilitiesatfairvalue;andtousethatfair valueasthedeemedcostintheopeningIFRSstatementofnancialposition.
AnentitymightbeunabletopreparenancialstatementsinaccordancewithIFRSsforaperiodoftimebecauseitcouldnotcomplywithIAS29,‘Financialreportinginhyperinationaryeconomies’,duetoseverehyperination.Theexemptionapplieswheretheentityisabletobegin
reportinginaccordancewithIFRS.
What are the key provisions?
Theamendmentstatesthatthecurrencyofahyperinationaryeconomyissubjectto
severehyperinationwhen: • areliablegeneralpriceindexis notavailabletoallentitieswith transactionsandbalancesinthe currency;and • exchangeabilitybetweenthe currencyandarelativelystable foreigncurrencydoesnotexist.
Anentity’sfunctionalcurrencyceasestobesubjecttoseverehyperinationonthefunctionalcurrencynormalisationdate, whichoccurs:
• whenoneorbothofthe characteristicsofsevere hyperinationnolongerexist;or • whentherst-timeadopter changesitsfunctionalcurrencytoa currencythatisnotsubjectto severehyperination.
TheexemptionappliestoentitiesthatweresubjecttoseverehyperinationandareadoptingIFRSforthersttimeorhavepreviouslyappliedIFRS.
ExemptionforseverehyperinationandremovalofxeddatesTheIASBmadetwoamendmentsto IFRS1,‘First-timeadoptionofIFRS’, inDecember2010:
• anexemptionforsevere hyperination;and • removalofxeddates.
Effective date
Annual periods beginning on or ater 1 July 2011. Earlier adoption is permitted.
EU adoption status
Not adopted by the European Commission at the time o going to print. Expected to
be adopted Q3 2011.
Severehyperination
First-time adoption
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First-time adoption
Whenanentity’sdateoftransitiontoIFRSisonorafterthefunctionalcurrencynormalisationdate,itmayelecttomeasureassetsandliabilitiesacquiredbeforethatdateatfairvalueandusethatfairvalueasdeemedcostintheopeningIFRSstatement
ofnancialposition.
IFRS1denesthedateoftransitionasthebeginningoftheearliestperiodfor whichanentitypresentscomparativeinformationunderIFRSinitsrstIFRSnancialstatements.Whenthefunctionalcurrencynormalisationdatefallswithinthecomparativeperiod,thatperiodmaybelessthan12months,providedthatacompletesetofnancialstatements(asrequiredbyIAS1)isprovidedforthatshorterperiod.
TheentitycannotcomplywithIFRSduetotheseverehyperinationinperiodsbeforethedateoftransitiontoIFRS,sothecomparativeinformationforthisperiodcannotbepreparedinaccordancewithIFRS.Theentityshouldthereforeconsider whetherdisclosureofnon-IFRS comparativeinformationandhistoricalsummariesinaccordancewithIFRS1 wouldprovideusefulinformationtotheusersofthenancialstatements.
Ifanentityappliesthenew
exemptiontocomplywithIFRS,it shouldexplainthetransitiontoIFRS, andwhyandhowtheentityceasedto haveafunctionalcurrencysubjectto
severehyperination.
Who does the amendment aect?
Theamendmentisexpectedtohavealimitedimpact,asitisonlyavailabletoentitieswhosefunctionalcurrencywassubjecttoseverehyperination.TheZimbabweaneconomyhasbeen identiedasaneconomythatwassubject toseverehyperinationuntilearly2009;theamendmentisunlikelytoapplyin otherterritoriesatthetimeofgoingtoprint.
TheamendmentwouldnotchangeorallowanyadditionalIFRS1exemptionsforareportingentitythathascontrol, jointcontrolorsignicantinuenceoveranentitysubjecttoseverehyperination,excepttotheextentthatthereporting
entityisalsoarst-timeadopter.What do aected entities needto do?
ManagementofentitiesinZimbabweandrst-timeadoptersthathaveinterestsinZimbabweshouldconsider: • theirfunctionalcurrency normalisationdate; • theirproposeddateoftransition toIFRS; • whetherthecomparativeperiod willbepresentedforaperiod shorterthan12months;and • theassetsandliabilitiestheywish tomeasureatfairvalueon
transition to IFRS.
What is the issue?
TheIASBamendedIFRS1toeliminatereferencestoxeddatesforoneexceptionandoneexemption,bothdealingwith
nancialassetsandliabilities.
Therstchangerequiresrst-time adopterstoapplythederecognitionrequirementsofIFRSprospectively fromthedateoftransition,ratherthan from1January2004.
Thesecondamendmentrelatestonancialassetsorliabilitiesatfairvalueoninitialrecognitionwherethefairvalueisestablishedthroughvaluationtechniquesintheabsenceofanactivemarket.Theamendmentallowstheguidancein IAS39AG76andIAS39AG76Atobeappliedprospectivelyfromthedateof
transitiontoIFRSratherthanfrom 25October2002or1January2004.Thismeansthatarst-timeadopterdoesnotneedtodeterminethefairvalueofnancialassetsandliabilitiesforperiodspriortothedateoftransition.IFRS9hasalsobeen
amendedtoreectthesechanges.
Who does the amendment aect?
EntitiesthathadderecognisednancialassetsorliabilitiesbeforethedateoftransitiontoIFRSwillneedtoapplythederecognitionguidancefromthedateoftransition,asitisamandatoryexception.Thesecondchangewillonlyberelevant forentitiesthatelecttousethe exemptionforfairvalueestablishedby
valuationtechniques.
Removalofxeddatesrequirement
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How does the amendment dier rom previous guidance?
Somecompaniesthataresubjecttoaminimumfundingrequirementmayelecttopre-paytheirpensioncontributions.Thepre-paidcontributionsarerecoveredthroughlowerminimumfundingrequirementsinfutureyears.Anunintendedconsequenceoftheinterpretation,priortothisamendment, wasthatIFRIC14couldpreventthe
recognitionofanassetforanysurplusarisingfromsuchvoluntarypre-paymentofminimumfundingcontributionsinrespectoffutureservice.Theinterpretationhasbeenamendedtorequireanassettoberecognisedinthesecircumstances.
Who does the amendment aect?
Itwillhavealimitedimpact,asitappliesonlytocompaniesthatarerequiredtomakeminimumfundingcontributionstoadened
benetpensionplanandchoosetopre-paythosecontributions.
Thoseaffectedarecompaniesthat: • haveadenedbenetpensionplan -thatissubjecttoaminimum fundingrequirement;and • haveprepaid(orexpecttoprepay)the minimumfundingrequirementin respectoffutureemployeeservice,
leading to a pension surplus.
What do aected entities needto do?
Suchentitiesshouldreconsidertheiraccountinginthelightoftherevisedguidancetodeterminewhetheranassetforthepre-paidcontributionsshouldberecognised.Theyshouldassesstheimpactasearlyaspossibletodeterminewhethertheamendmentshouldbeadoptedbeforetheeffectivedate.
Pre-payments o a minimum unding requirement −
IFRIC 14
TheamendmenttoIFRIC14,‘IAS19–Thelimitonadenedbenetasset,minimumfundingrequirementsandtheirinteraction’, waspublishedon26November2009.It
removesanunintendedconsequenceofIFRIC14relatingtovoluntarypensionpre-paymentswhenthereisaminimum fundingrequirement.
Effective date
Annual periods beginning on or ater 1 January 2011; it will apply rom the beginning
o the earliest comparative period presented. Earlier adoption is permitted.
EU adoption status
Adopted by the European Commission on 19 July 2010.
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Why new guidance now?
Manyentitieswerecompelledtorenegotiatetheirdebtasitcamedue,inthecurrentchallengingeconomicclimate.Renegotiationswouldcommonlylead eithertomodicationofdebtorsettlementoftheliabilitybywayofissuingequityinstrumentstothelender.IFRSdidnotaddressaccountingforsuchdebtforequityswapsbeforeIFRIC19,andtherewasdiversityinpractice.Somerecognisedtheequityinstrumentatthecarryingamountofthenancialliabilityanddidnotrecogniseanygainorlossonsettlementinprotorloss.Othersrecognisedtheequityinstrumentsattheirfairvalueandrecordedanydifferencebetweenthatamountandthecarryingamountofthenancialliabilityinprotorloss.Thenancialcrisisexacerbatedtheissue.
What is the scope o new guidance?
IFRIC19addressestheaccountingby anentitythatrenegotiatesthetermsof anancialliabilityandissuessharesto thecreditortoextinguishallorpartof thenancialliability.Itdoesnotaddress theaccountingbythecreditor;anditdoesnotapplytosituationswheretheliabilitymaybeextinguishedwithequityinstrumentsinaccordancewiththe originaltermsoftheinstrument(forexample,convertiblebonds).Theinterpretationisfurtherrestrictedto excludetransactionswherethecreditorisalsoashareholderactinginitscapacityassuch,ortransactionsundercommoncontrolwherethetransactioninsubstancerepresentsanequitydistributionby,orcontributionto,theentity.
Extinguishing nancialliabilities with equity
instruments – IFRIC 19
IFRIC19,‘Extinguishingnancialliabilities withequityinstruments’,waspublishedon26November2009.IFRIC19clariestheaccountingwhenanentityrenegotiatesthe
termsofitsdebtwiththeresultthattheliabilityisextinguishedbythedebtorissuingitsownequityinstrumentstothecreditor(referredtoasa‘debtforequityswap’).
Effective date
Annual periods beginning on or ater 1 July 2010. Early adoption is permitted. The
interpretation should be applied retrospectively rom the beginning o the earliest
comparative period presented, as adoption in earlier periods would result only in a
reclassication o amounts within equity.
EU adoption status
Adopted by the European Commission on 23 July 2010.
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What does the interpretationaddress?
IFRIC19addressesthefollowingissues: • Areequityinstrumentsissuedto extinguishanancialliability
‘considerationpaid’? • Howshouldanentityinitially measureequityinstrumentsissued toextinguishanancialliability? • Howshouldanentityaccountfor anydifferencebetweenthe carryingamountofthenancial liabilityextinguishedandtheinitial measurementamountoftheequity instrumentsissued?
What does the interpretationrequire?
IFRIC19considersthatequityinstrumentsissuedtosettlealiabilityrepresent‘considerationpaid’.Itthereforerequiresagainorlosstoberecognisedinprotorlosswhenaliabilityissettledthrough
theissuanceoftheentity’sownequityinstruments.ThisisconsistentwiththegeneralapproachtoderecognitionofnancialliabilitiesestablishedbyIAS39.Theamountofthegainorlossrecognised inprotorlossisdeterminedasthe
differencebetweenthecarryingvalueofthenancialliabilityandthefairvalueoftheequityinstrumentsissued.Ifthefairvalueoftheequityinstrumentscannotbereliablymeasured,thefairvalueoftheexistingnancialliabilityisusedto measurethegainorlossandtorecordissuedequityinstruments.
How will this change current practice?
Entitieswillnolongerbepermittedto
reclassifythecarryingvalueoftheexistingnancialliabilityintoequity(withnogainorlossbeingrecognisedinprotorloss).Theamountofthegainorlossshouldbeseparatelydisclosedinthestatementofcomprehensiveincomeorinthenotes.
IFRIC 19
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Thetablebelowidentiesthemoresignicantchangestothestandardsarising
fromthe2010annualimprovementsprojectandtheimplicationsformanagement.
Annual improvements project 2010
Standard/
interpretation Amendment Practical implications Effective date
Amendment
to IAS 1,
‘Presentation
o nancialstatements’
The impact o a previous•
amendment to IAS 1 by
IAS 27 was to make
explicit the requirement topresent each item o other
comprehensive income in
the statement o changes in
equity, along with the protor loss and transactions with
owners. The amendment
removes the requirement
or each item o othercomprehensive income to
be presented separately in
the statement o changes inequity.
The amendment claries that, or•
each component o equity, an entity
may present the breakdown o other
comprehensive income either in thestatement o changes in equity or in
the notes to the nancial statements.
Annual periods
beginning on or
ater 1 January
2011. Earlyadoption is
permitted.
Amendment
to IAS 27,‘Consolidated
and separate
nancialstatements’
Additional guidance has•
been included withinIAS 21, which claries the
accounting or disposals or
partial disposals o a oreignoperations.
Guidance in the IAS 28•
and IAS 31 amendment
claries disposal accounting
or associates and jointly
controlled entities inaccordance with IAS 39.
The amendment is based on the•
changes in IAS 27. It states thatloss o control over a subsidary, the
loss o signicant infuence over an
associate and loss o joint controlover a jointly controlled entity are
similar events and should thereore
be accounted or similarily. Such
an event should be recognised andmeasured at air value and any gain
or loss is recognised in the prot or
loss.
Annual periods
beginning onor ater 1 July
2009.
Amendmentto IAS 34,
‘Interim nancial
reporting’
The amendment emphasises•
the existing disclosure
principles in IAS 34 and
adds urther guidance to
illustrate how to apply these
principles.
Greater emphasis has been placed•
on the disclosure principles or
signicant events and transactions.
Additional requirements cover
disclosure o changes to air value
measurements (i signicant), and theneed to update relevant inormation
rom the most recent annual report.
Annual periodsbeginning on or
ater 1 January
2011. Early
adoption is
permitted.
Effective date
See nal column in table below.
EU adoption status
Adopted by the European Commission on 18 February 2011.
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Standard/
interpretation Amendment Practical implications Effective date
IFRS 1, ‘First-
time adoption’– interim
inormation
A rst-time adopter that•
changes its accountingpolicies or its use o IFRS 1
exemptions ater publishing
a set o IAS 34 interimnancial inormation shouldexplain those changes and
include the eects o such
changes in its opening
reconciliations within therst annual IFRS nancial
statements.
IFRS 1 explains that the disclosures•
required when accountingpolicies are changed under IAS 8,
‘Accounting policies, changes in
accounting estimates and errors’, arenot required or a rst-time adopter.
The amendment claries that•
IAS 8 also does not apply to changesmade to accounting policies during
the period o an entity’s rst IFRS
nancial statements. This includes a
change in policy between publicationo an entity’s rst IFRS interim report
and the entity’s rst IFRS nancial
statements. However, managementshould explain the change in its
rst IFRS nancial statements, as
required by o IFRS 1 para 23, and
provide updated reconciliations. Thisdisclosure requirement also applies
where an entity changes its use o
the exemptions in IFRS 1 between
the interim report and its rst IFRSnancial statements.
Annual periods
beginning on orater 1 January
2011. Early
adoption ispermitted.
IFRS 1, ‘First-time adoption’ –
deemed cost
The exemption to use a•
‘deemed cost’ arising rom
a revaluation triggered by an
event such as a privatisation
that occurred at or beorethe date o transition to IFRS
is extended to revaluations
that occur during the period
covered by the rst IFRSnancial statements.
Local regulations might require•
entities to remeasure assets and
liabilities to air value on the event
o a privatisation or an IPO and to
recognise those revalued amountsas deemed cost under local GAAP. I
such an event occurs ater the date
o transition to IFRS, IFRS 1
did not previously permit theserevalued amounts to be recognised
as deemed cost on transition to
IFRS. The amendment to IFRS 1permits entities to use these revalued
amounts as deemed cost at the date
the event occurs provided that this
revluation occurs during the periodcovered by the rst IFRS nancial
statements.
At the date o transition, the assets•
and liabilities are either measured at
deemed cost using either air value
or revaluation as described above, orin accordance with other applicable
IFRSs.
Annual periodsbeginning ater
1 January 2011.
Early adoption is
permitted.
The amendmentis also available
to entities
that applied
IFRS 1 prior tothe eective
date where
such a re-
measurementevent occurred
during their rst
IFRS reporting
period. Theamendment
allows these
entities to applythis amendment
retrospectively
in the rst
annual period
ater theamendment is
eective.
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Standard/
interpretation Amendment Practical implications Effective date
IFRS 1, ‘First-
time adoption’ –rate regulation
Entities subject to rate•
regulation are permitted touse previous GAAP carrying
amounts o property, plant
and equipment or intangibleassets as deemed cost on anitem-by-item basis. Entities
that use this exemption are
required to test each item or
impairment under IAS 36 atthe date o transition.
This amendment provides relie to•
entities that carry items o PPE andintangible assets that are or were
previously used in rate-regulated
activities. The amendment statesthat operations are consideredto be subject to rate regulation i
‘they provide goods or services
to customers at prices (ie rates)
established by an authorised bodyempowered to establish rates that
bind the customers and that are
designed to recover the specic
costs the entity incurs in providingthe regulated goods or services
and to earn a specied return’. The
specied return does not need to beo a xed amount and may be stated
as a minimum amount or a range.
The amendment permits a rst-•
time adopter to use the previousGAAP carrying amount o such
rate-regulated assets as deemed
cost at the date o transition to IFRS
even i those assets do not qualiyor recognition under IFRS. The
amendment also permits entities
to choose the assets to which theexemption is applied. This is similar
to the choice available in the deemed
cost exemption or other types o
assets.
Annual periods
beginning ater1 January 2011.
Early adoption is
permitted.
IFRS 3,
‘Business
combinations’– contingent
consideration
Contingent consideration•
arrangements arising rom
business combinations withacquisition dates preceding
the application o IFRS 3
(2008) are accounted or
in accordance with the
guidance in the previous
version o IFRS 3
(as issued in 2004).
This amendment claries that the•
guidance in IAS 39, IAS 32 and
IFRS 7 will not apply to contingentconsideration arising rom business
combinations with an eective
date prior to the application o the
revised version o IFRS 3.
Annual periods
beginning on
or ater 1 July2010. Early
adoption is
permitted.
IFRS 3,
‘Business
combinations’ –
non-controlling
interests
The choice o measuring•
non-controlling interests
at air value or at the
proportionate share o
the acquiree’s net assets
applies only to instruments
that represent ‘present’
ownership interests and
entitle their holders to
a proportionate share
o the net assets in the
event o liquidation. All
other components o
non-controlling interest
are measured at air value
unless IFRS requires
another measurement
basis. Removal o reerence
to transactions between
segments as being
hedgeable transactions
in individual or separate
nancial statements.
This amendment will reduce diversity•
in practice and provides clearer
guidance on how to measure non-
controlling interests.
Annual periods
beginning ater
1 July 2010.
Early adoption is
permitted.
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Standard/
interpretation Amendment Practical implications Effective date
IFRS 3,
‘Business
combinations’
– share-based
payments
The application guidance in•
IFRS 3 applies to all share-
based payment transactions
that are part o a business
combination, includingunreplaced and voluntarily
replaced share-based
payment awards.
IFRS 3 did not previously provide•
guidance or situations where the
acquirer does not have an obligation
to replace an award but replaces
an existing acquiree award thatwould otherwise have continued
unchanged ater the acquisition.
This amendment addresses this
gap in the previous guidance. The
amendment made to IFRS 3 results
in the accounting or these awards
being the same as or awards that
the acquirer is obliged to replace.
Annual periods
beginning on
or ater 1 July
2010. Early
adoption ispermitted.
IFRS 7,
‘Financial
instruments:
disclosures’
Amendments to IFRS 7,•
‘Financial instruments:
Disclosures – Nature and
extent o risks arising rom
nancial instruments’.
These are minor•
amendments to the
disclosure o nancial assets,
including the nancial eect
o collateral held as security.
No signicant impact.• Annual periods
beginning on or
ater 1 January
2011. Early
adoption is
permitted.
Amendment
to IFRIC 13,
‘Customer
loyalty
programmes’
The amendment claries•
the meaning o the term
‘air value’ in the context o
measuring award credits
under customer loyalty
programmes.
When the air value o award credits•
is measured on the basis o the
value o the awards (that is, goods
or services) or which they could
be redeemed, the air value o the
award credits should take account
o expected oreitures as well as the
discounts or incentives that would
otherwise be oered to customers
who have not earned award credits
rom an initial sale.
Annual periods
beginning on or
ater 1 January
2011. Early
adoption is
permitted.
This publication has been prepared or general guidance on matters o interest only, and does not constitute
proessional advice. It does not take into account any objectives, nancial situation or needs o any recipient; any
recipient should not act upon the inormation contained in this publication without obtaining independent proessional
advice. No representation or warranty (express or implied) is given as to the accuracy or completeness o the
inormation contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its
members, employees and agents do not accept or assume any liability, responsibility or duty o care or anyconsequences o you or anyone else acting, or reraining to act, in reliance on the inormation contained in this
publication or or any decision based on it.
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PwC’s IFRS and corporate governance publications and tools 2011
IFRS for SMEs publications IFRS surveys and market issues
Corporate governance publications
IFRS tools
IFRS for SMEs – pocket guide 2009Provides a summary of the recognition and measurementrequirements in the ‘IFRS for small and medium-sized entities’published by the International Accounting Standards Board inJuly 2009.
P2P IFRS – from principle to practicePwC’s interactive electronic learning tool brings you up to speedon IFRS. Contains 23 hours of learning in 40 interactive modules.Up to date as of March 2009. For more information, visit www.pwc.com/p2pifrs.
Similarities and differences – a comparison of ‘full IFRS’
and IFRS for SMEs A 60-page publication comparing the requirements of the IFRS forsmall and medium-sized entities with ‘full IFRS’ issued up to July 2009. An executive summary outlines some key differences thathave implications beyond the entity’s reporting function.
IFRS for SMEs – Illustrative consolidated nancial
statements 2010Realistic set of nancial statements prepared under IFRS for smalland medium-sized entities, illustrating the required disclosure andpresentation.
Comperio – Your path to knowledgeOnline library of global nancial reporting and assurance literature. Contains fulltext of nancial reporting standards of US GAAP and IFRS, plus materials of specicrelevance to 10 other territories. Register for a free trial at www.pwccomperio.com.
Accounting & corporate reporting• ‘Straight away’ – guidance issued within 48 hours of the release of a draft or nal
IASB standard/interpretation• Technical updates – news items added daily on accounting, auditing and regula-
tory developments• Latest developments – includes nancial reporting diary, summary of recent
EDs, DPs, standards and their EU endorsement status• IFRS newsletters• Full text of standards and interpretations, exposure drafts and
discussion papers* – including a unique set of ‘versioned’ IASB standards andinterpretations showing all consequential amendments made by other standardsand improvements
• Topic summaries – executive guide to accounting issues by topic• IFRS Manual of Accounting* – PwC’s in-depth accounting guidance• Questions and answers* – by topic and by industry • Tools, practice aids and publications – ‘Similarities and differences’ series of
GAAP comparisons, IFRS extracts from accounts*, IFRS disclosure checklists,illustrative nancial statements, pocket guides, ‘Practical guides to IFRS’.
Law and regulations* – applicable companies legislation on accounting, auditingand other areas Auditing* – auditing standards, exposure drafts, discussion papers andother guidance
*Available to subscribers only
PwC inform – IFRS onlinePwC inform is an online resource for nance professionals globally, covering nancial reporting under IFRS. Use PwC inform to access the latest news, PwC guidance,comprehensive research materials and full text of the standards. The search function and intuitive layout enable users to access all they need for reporting under IFRS. Register for
a free trial at www.pwcinform.com. Content available on pwcinform.com includes:
Audit Committees – Good Practices for Meeting
Market ExpectationsProvides PwC views on good practice and summarises auditcommittee requirements in over 40 countries.
World Watch magazineGlobal magazine with news and opinion articles on the latestdevelopments and trends in governance, nancial reporting,narrative reporting, sustainability and assurance. Order hard copiesfrom [email protected].
Corporate reporting: is it what investment professionals expect?Survey looking at the information that companies provide, and whetherinvestors and analysts have the information they need to assesscorporate performance.
IFRS: The European investors’ viewImpact of IFRS reporting on fund managers’ perceptions of value and theirinvestment decisions.
Joining the dots – survey of narrative reporting practicesSurvey of the quality of narrative reporting among FTSE 350 companies,identifying where action is needed in the next reporting cycle forcompanies to gain a competitive edge and help restore trust in this tougheconomic environment.
Measuring assets and liabilitiesSurvey of investment professionals, looking at their use of the balance sheet inanalysing performance and the measurement bases for assets and liabilities thatbest suit their needs.
Performance statement: coming together to shape the future2007 survey of what investment professionals and corporate managementrequire to assess performance.
Presentation of income under IFRSTrends in use and presentation of non-GAAP income measures in IFRSnancial statements.
Recasting the reporting modelSurvey of corporate entities and investors, and PwC insights on how to simplify and enhance communications.
What investment professionals say about nancial instrument reportingPwC survey of investors’ and analysts’ perspectives on accounting for andreporting of nancial instruments.
Hard copies can be ordered from www.ifrspublicationsonline.com (unless indicated otherwise) or via your local
PricewaterhouseCoopers ofce. See the full range of our services at www.pwc.com/ifrs
About PricewaterhouseCoopersPricewaterhouseCoopers provides industry-focused assurance, tax, and advisory services to build public trust and enhance value for its clients and their stakeholders. Morethan 163,000 people in 151 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice.
Contacting PricewaterhouseCoopersPlease contact your local PricewaterhouseCoopers ofce to discuss how we can help you make the change to International Financial Reporting Standards or withtechnical queries.