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All IFRS - DeloitteTRANSCRIPT
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1/13/2015 InternationalFinancialReportingStandards
http://www.iasplus.com/en/standards/ifrs 1/2
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InternationalFinancialReportingStandards
Title Dateissued
EffectiveDate
IFRS1FirsttimeAdoptionofInternationalFinancialReportingStandards
24Nov2008 01Jul2009
IFRS2SharebasedPayment 19Feb2004 01Jan2005IFRS3BusinessCombinations 10Jan2008 01Jul2009IFRS4InsuranceContracts 31Mar2004 01Jan2005IFRS5NoncurrentAssetsHeldforSaleandDiscontinuedOperations 31Mar2004 01Jan2005IFRS6ExplorationforandEvaluationofMineralResources 09Dec2004 01Jan2006IFRS7FinancialInstruments:Disclosures 18Aug2005 01Jan2007IFRS8OperatingSegments 30Nov2006 01Jan2009IFRS9FinancialInstruments 24Jul2014 01Jan2018IFRS10ConsolidatedFinancialStatements 12May2011 01Jan2013IFRS11JointArrangements 12May2011 01Jan2013IFRS12DisclosureofInterestsinOtherEntities 12May2011 01Jan2013IFRS13FairValueMeasurement 12May2011 01Jan2013IFRS14RegulatoryDeferralAccounts 30Jan2014 01Jan2016IFRS15RevenuefromContractswithCustomers 28May2014 01Jan2017Note:Thetableaboveliststhemostrecentversion(s)ofeachpronouncementandthedateeachversionwasoriginallyissued.Clickthroughtoourpageforeachpronouncementforafullhistory.
Thispagecontainslinkstooursummaries,analysis,historyandresourcesforInternationalFinancialReportingStandards(IFRS)issuedbytheInternationalAccountingStandardsBoard(IASB).
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1/13/2015 InternationalFinancialReportingStandards
http://www.iasplus.com/en/standards/ifrs 2/2
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1/13/2015 IFRS1FirsttimeAdoptionofInternationalFinancialReportingStandards
http://www.iasplus.com/en/standards/ifrs/ifrs1 1/12
IFRS1FirsttimeAdoptionofInternationalFinancialReportingStandards
Overview
IFRS1FirsttimeAdoptionofInternationalFinancialReportingStandardssetsouttheproceduresthatanentitymustfollowwhenitadoptsIFRSsforthefirsttimeasthebasisforpreparingitsgeneralpurposefinancialstatements.TheIFRSgrantslimitedexemptionsfromthegeneralrequirementtocomplywitheachIFRSeffectiveattheendofitsfirstIFRSreportingperiod.
ArestructuredversionofIFRS1wasissuedinNovember2008andappliesifanentity'sfirstIFRSfinancialstatementsareforaperiodbeginningonorafter1July2009.
HistoryofIFRS1
Date Development Comments
September2001 ProjectaddedtoIASBagenda Historyoftheproject
31July2002 ExposureDraftED1FirsttimeApplicationofIFRSspublished
Commentdeadline31October2002
June2003 IFRS1FirsttimeAdoptionofIFRSsissued
EffectiveforthefirstIFRSfinancialstatementsforaperiodbeginningonorafter1January2004
30June2005 AmendedbyAmendmentstoIFRS1FirsttimeAdoptionofInternationalFinancialReportingStandardsandIFRS6ExplorationforandEvaluationofMineralResources(moreinformation)
AminoramendmenttoclarifythattheexemptioninrelationtoIFRS6appliestotherecognitionandmeasurementrequirementsofIFRS6,aswellasthedisclosurerequirements.
22May2008 AmendedbyAmendmentstoIFRS1andIAS27CostofanInvestmentinaSubsidiary,JointlyControlledEntityorAssociate
Effectiveforannualperiodsbeginningonorafter1January2009
24November2008 RestructuredversionofIFRS1issued Effectiveifanentity'sfirstIFRSfinancialstatementsareforaperiodbeginningonorafter1July2009
23July2009 AmendedbyAdditionalExemptionsforFirsttimeAdopters(AmendmentstoIFRS1)(oilandgasassets,leases).Clickformoreinformation.
Effectiveforannualperiodsbeginningonorafter1January2010
QuickArticleLinks
http://www.iasplus.com/en/news/2002/July/news432http://www.iasplus.com/en/news/2005/June/news2140http://www.iasplus.com/en/news/2009/July/news4935http://www.iasplus.com/en/news/2008/November/news4332http://www.iasplus.com/en/news/2003/June/news923http://www.iasplus.com/en/projects/completed/fta/first-time-adoptionhttp://www.iasplus.com/en/news/2008/May/news4275http://www.iasplus.com/en/news/2005/June/news2140
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29January2010 AmendedbyLimitedExemptionfromComparativeIFRS7DisclosuresforFirsttimeAdopters(AmendmenttoIFRS1).Clickformoreinformation
Effectivefororannualperiodsbeginningonorafter1July2010
6May2010 AmendedbyImprovementstoIFRSs(accountingpolicieschanges,revaluationbasisasdeemedcost,rateregulation)
Effectiveforannualperiodsbeginningonorafter1July2011
20December2010 AmendedbySevereHyperinflationandRemovalofFixedDatesforFirsttimeAdopters(AmendmenttoIFRS1).Clickformoreinformation
Effectiveforannualperiodsbeginningonorafter1July2011
13March2012 AmendedbyGovernmentLoans(AmendmentstoIFRS1).Clickformoreinformation
Effectiveforannualperiodsbeginningonorafter1January2013
17May2012 AmendedbyAnnualImprovements20092011Cycle(repeatapplication,borrowingcosts).Clickformoreinformation
Effectiveforannualperiodsbeginningonorafter1January2013
12December2013 AmendedbyAnnualImprovementstoIFRSs20112013Cycle(meaningofeffectiveIFRSs).Clickformoreinformation
Amendmenttobasisforconclusionsonly
Note:Theabovesummarydoesnotincludedetailsofconsequentialamendmentsmadeastheresultofotherprojects.
RelatedInterpretationsIFRS1supersedesSIC8FirsttimeApplicationofIASsasthePrimaryBasisofAccounting
AmendmentsunderconsiderationNonenoted
DeloitteGuidetoIFRS1(November2009)
InNovember2009,Deloitte'sIFRSGlobalOfficepublishedarevisedGuidetoIFRS1FirsttimeAdoptionofInternationalFinancialReportingStandards.Theguidewasfirstpublishedin2004withtheaimofprovidingfirsttimeadopterswithhelpfulinsightsfortheapplicationofIFRS1.Thissecondeditionhasthesameobjective.WehaveupdatedthecontenttoreflectthelessonslearnedfromthefirstmajorwaveofIFRSadoptionin2005,aswellasforthechangestoIFRS1since2004.Wehavestructuredtheguidetoprovideuserswithanaccessiblereferencemanual:
http://www.iasplus.com/en/news/2010/May/news6089http://www.iasplus.com/en/projects/completed/fta/government-loanshttp://www.iasplus.com/en/news/2012/march/iasb-issues-amendment-to-ifrs-1-regarding-government-loanshttp://www.iasplus.com/en/news/2013/12/aip-2011-2013http://www.iasplus.com/en/news/2010/January/news5728http://www.iasplus.com/en/news/2012/may/iasb-concludes-the-2009-2011-annual-improvements-cyclehttp://www.iasplus.com/en/news/2010/December/news5595http://www.iasplus.com/en/projects/completed/aip/annual-improvements-2009-2011http://www.iasplus.com/en/standards/sic/sic-8http://www.iasplus.com/en/projects/completed/aip/annual-improvements-2011-2013http://www.iasplus.com/en/projects/completed/aip/annual-improvements-2008-2010
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AnexecutivesummaryexplainsthemostimportantfeaturesofIFRS1
Section2providesanoverviewoftherequirementsoftheStandard
Sections3and4coverthespecificexceptionsandexemptionsfromIFRS1'sgeneralprincipleofretrospectiveapplicationofIFRSs,focusingonkeyimplementationissues
Section5addressesothercomponentsoffinancialstatementswhereimplementationissuesfrequentlyariseinpractice
Section6setsoutQ&Asdealingwithspecificfactpatternsthatusersmayencounterinpracticeand
Section7discussessomeofthepracticalimplementationdecisionsfacedbyfirsttimeadopters.
ClicktoDownloadDeloitte'sGuidetoIFRS1(PDF435k)
SummaryofIFRS1Objective
IFRS1FirsttimeAdoptionofInternationalFinancialReportingStandardssetsouttheproceduresthatanentitymustfollowwhenitadoptsIFRSsforthefirsttimeasthebasisforpreparingitsgeneralpurposefinancialstatements.
Note:AnentitythatconductsrateregulatedactivitiesandhasrecognisedamountsinitspreviousGAAPfinancialstatementsthatmeetthedefinitionof'regulatorydeferralaccountbalances'(sometimesreferredto'regulatoryassets'and'regulatoryliabilities')canoptionallyapplyIFRS14RegulatoryDeferralAccountsinadditiontoIFRS1.AnentitythatelectstoapplyIFRS14initsfirstIFRSfinancialstatementsmustcontinuetoapplyitinsubsequentfinancialstatements.
Definitionoffirsttimeadoption
Afirsttimeadopterisanentitythat,forthefirsttime,makesanexplicitandunreservedstatementthatitsgeneralpurposefinancialstatementscomplywithIFRSs.[IFRS1.3]
Anentitymaybeafirsttimeadopterif,intheprecedingyear,itpreparedIFRSfinancialstatementsforinternalmanagementuse,aslongasthoseIFRSfinancialstatementswerenotmadeavailabletoownersorexternalpartiessuchasinvestorsorcreditors.IfasetofIFRSfinancialstatementswas,foranyreason,madeavailabletoownersorexternalpartiesintheprecedingyear,thentheentitywillalreadybeconsideredtobeonIFRSs,andIFRS1doesnotapply.[IFRS1.3]
Anentitycanalsobeafirsttimeadopterif,intheprecedingyear,itsfinancialstatements:[IFRS1.3]
assertedcompliancewithsomebutnotallIFRSs,or
includedonlyareconciliationofselectedfiguresfrompreviousGAAPtoIFRSs.(PreviousGAAPmeanstheGAAPthatanentityfollowedimmediatelybeforeadoptingtoIFRSs.)
However,anentityisnotafirsttimeadopterif,intheprecedingyear,itsfinancialstatementsasserted:
CompliancewithIFRSseveniftheauditor'sreportcontainedaqualificationwithrespecttoconformitywithIFRSs.
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CompliancewithbothpreviousGAAPandIFRSs.
AnentitythatappliedIFRSsinapreviousreportingperiod,butwhosemostrecentpreviousannualfinancialstatementsdidnotcontainanexplicitandunreservedstatementofcompliancewithIFRSscanchooseto:
applytherequirementsofIFRS1(includingthevariouspermittedexemptionstofullretrospectiveapplication),or
retrospectivelyapplyIFRSsinaccordancewithIAS8AccountingPolicies,ChangesinAccountingEstimatesandErrors,asifitneverstoppedapplyingIFRSs.[IFRS1.4A]
OverviewforanentitythatadoptsIFRSsforthefirsttimeinitsannualfinancialstatementsfortheyearended31December2014
Accountingpolicies
SelectaccountingpoliciesbasedonIFRSseffectiveat31December2014.
IFRSreportingperiods
Prepareatleast2014and2013financialstatementsandtheopeningbalancesheet(asof1January2012orbeginningofthefirstperiodforwhichfullcomparativefinancialstatementsarepresented,ifearlier)byapplyingtheIFRSseffectiveat31December2014.[IFRS1.7]
SinceIAS1requiresthatatleastoneyearofcomparativepriorperiodfinancialinformationbepresented,theopeningbalancesheetwillbe1January2012ifnotearlier.Thiswouldmeanthatanentity'sfirstfinancialstatementsshouldincludeatleast:[IFRS1.21]
threestatementsoffinancialposition
twostatementsofprofitorlossandothercomprehensiveincome
twoseparatestatementsofprofitorloss(ifpresented)
twostatementsofcashflows
twostatementsofchangesinequity,and
relatednotes,includingcomparativeinformation
Ifa31December2014adopterreportsselectedfinancialdata(butnotfullfinancialstatements)onanIFRSbasisforperiodspriorto2013,inadditiontofullfinancialstatementsfor2014and2013,thatdoesnotchangethefactthatitsopeningIFRSbalancesheetisasof1January2012.
AdjustmentsrequiredtomovefrompreviousGAAPtoIFRSsatthetimeoffirsttimeadoption
DerecognitionofsomepreviousGAAPassetsandliabilities
TheentityshouldeliminatepreviousGAAPassetsandliabilitiesfromtheopeningbalancesheetiftheydonotqualifyforrecognitionunderIFRSs.[IFRS1.10(b)]Forexample:
IAS38doesnotpermitrecognitionofexpenditureonanyofthefollowingasanintangibleasset:research
startup,preoperating,andpreopeningcosts
training
advertisingandpromotion
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movingandrelocation
Iftheentity'spreviousGAAPhadrecognisedtheseasassets,theyareeliminatedintheopeningIFRSbalancesheet
Iftheentity'spreviousGAAPhadallowedaccrualofliabilitiesfor"generalreserves",restructurings,futureoperatinglosses,ormajoroverhaulsthatdonotmeettheconditionsforrecognitionasaprovisionunderIAS37,theseareeliminatedintheopeningIFRSbalancesheet
Iftheentity'spreviousGAAPhadallowedrecognitionofcontingentassetsasdefinedinIAS37.10,theseareeliminatedintheopeningIFRSbalancesheet
RecognitionofsomeassetsandliabilitiesnotrecognisedunderpreviousGAAP
Conversely,theentityshouldrecogniseallassetsandliabilitiesthatarerequiredtoberecognisedbyIFRSeveniftheywereneverrecognisedunderpreviousGAAP.[IFRS1.10(a)]Forexample:
IAS39requiresrecognitionofallderivativefinancialassetsandliabilities,includingembeddedderivatives.ThesewerenotrecognisedundermanylocalGAAPs.
IAS19requiresanemployertorecognisealiabilitywhenanemployeehasprovidedserviceinexchangeforbenefitstobepaidinthefuture.Thesearenotjustpostemploymentbenefits(e.g.,pensionplans)butalsoobligationsformedicalandlifeinsurance,vacations,terminationbenefits,anddeferredcompensation.Inthecaseof'overfunded'definedbenefitplans,thiswouldbeaplanasset.
IAS37requiresrecognitionofprovisionsasliabilities.Examplescouldincludeanentity'sobligationsforrestructurings,onerouscontracts,decommissioning,remediation,siterestoration,warranties,guarantees,andlitigation.
DeferredtaxassetsandliabilitieswouldberecognisedinconformitywithIAS12.
Reclassification
TheentityshouldreclassifypreviousGAAPopeningbalancesheetitemsintotheappropriateIFRSclassification.[IFRS1.10(c)]Examples:
IAS10doesnotpermitclassifyingdividendsdeclaredorproposedafterthebalancesheetdateasaliabilityatthebalancesheetdate.IfsuchliabilitywasrecognisedunderpreviousGAAPitwouldbereversedintheopeningIFRSbalancesheet.
Iftheentity'spreviousGAAPhadallowedtreasurystock(anentity'sownsharesthatithadpurchased)tobereportedasanasset,itwouldbereclassifiedasacomponentofequityunderIFRS.
ItemsclassifiedasidentifiableintangibleassetsinabusinesscombinationaccountedforunderthepreviousGAAPmayberequiredtobereclassifiedasgoodwillunderIFRS3becausetheydonotmeetthedefinitionofanintangibleassetunderIAS38.Theconversemayalsobetrueinsomecases.
IAS32hasprinciplesforclassifyingitemsasfinancialliabilitiesorequity.ThusmandatorilyredeemablepreferredsharesthatmayhavebeenclassifiedasequityunderpreviousGAAPwouldbereclassifiedasliabilitiesintheopeningIFRSbalancesheet.NotethatIFRS1makesanexceptionfromthe"splitaccounting"provisionsofIAS32.Iftheliabilitycomponentofacompoundfinancialinstrumentisnolongeroutstandingatthedateofthe
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openingIFRSbalancesheet,theentityisnotrequiredtoreclassifyoutofretainedearningsandintootherequitytheoriginalequitycomponentofthecompoundinstrument.
ThereclassificationprinciplewouldapplyforthepurposeofdefiningreportablesegmentsunderIFRS8.
Someoffsetting(netting)ofassetsandliabilitiesorofincomeandexpenseitemsthathadbeenacceptableunderpreviousGAAPmaynolongerbeacceptableunderIFRS.
Measurement
ThegeneralmeasurementprinciplethereareseveralsignificantexceptionsnotedbelowistoapplyeffectiveIFRSsinmeasuringallrecognisedassetsandliabilities.[IFRS1.10(d)]
HowtorecogniseadjustmentsrequiredtomovefrompreviousGAAPtoIFRSs
AdjustmentsrequiredtomovefrompreviousGAAPtoIFRSsatthedateoftransitionshouldberecogniseddirectlyinretainedearningsor,ifappropriate,anothercategoryofequityatthedateoftransitiontoIFRSs.[IFRS1.11]
Estimates
InpreparingIFRSestimatesatthedateoftransitiontoIFRSsretrospectively,theentitymustusetheinputsandassumptionsthathadbeenusedtodeterminepreviousGAAPestimatesasofthatdate(afteradjustmentstoreflectanydifferencesinaccountingpolicies).TheentityisnotpermittedtouseinformationthatbecameavailableonlyafterthepreviousGAAPestimatesweremadeexcepttocorrectanerror.[IFRS1.14]
Changestodisclosures
Formanyentities,newareasofdisclosurewillbeaddedthatwerenotrequirementsunderthepreviousGAAP(perhapssegmentinformation,earningspershare,discontinuingoperations,contingenciesandfairvaluesofallfinancialinstruments)anddisclosuresthathadbeenrequiredunderpreviousGAAPwillbebroadened(perhapsrelatedpartydisclosures).
DisclosureofselectedfinancialdataforperiodsbeforethefirstIFRSstatementoffinancialposition(balancesheet)
IfafirsttimeadopterwantstodiscloseselectedfinancialinformationforperiodsbeforethedateoftheopeningIFRSbalancesheet,itisnotrequiredtoconformthatinformationtoIFRS.ConformingthatearlierselectedfinancialinformationtoIFRSsisoptional.[IFRS1.22]
IftheentityelectstopresenttheearlierselectedfinancialinformationbasedonitspreviousGAAPratherthanIFRS,itmustprominentlylabelthatearlierinformationasnotcomplyingwithIFRSand,further,itmustdisclosethenatureofthemainadjustmentsthatwouldmakethatinformationcomplywithIFRS.Thislatterdisclosureisnarrativeandnotnecessarilyquantified.[IFRS1.22]
Disclosuresinthefinancialstatementsofafirsttimeadopter
IFRS1requiresdisclosuresthatexplainhowthetransitionfrompreviousGAAPtoIFRSaffectedtheentity'sreportedfinancialposition,financialperformanceandcashflows.[IFRS1.23]Thisincludes:
1. reconciliationsofequityreportedunderpreviousGAAPtoequityunderIFRSboth(a)atthedateoftransitiontoIFRSsand(b)theendofthelastannualperiodreportedunderthepreviousGAAP.[IFRS1.24(a)](ForanentityadoptingIFRSsforthefirsttimeinits31December2014financialstatements,
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thereconciliationswouldbeasof1January2012and31December2013.)
2. reconciliationsoftotalcomprehensiveincomeforthelastannualperiodreportedunderthepreviousGAAPtototalcomprehensiveincomeunderIFRSsforthesameperiod[IFRS1.24(b)]
3. explanationofmaterialadjustmentsthatweremade,inadoptingIFRSsforthefirsttime,tothestatementoffinancialposition,statementofcomprehensiveincomeandstatementofcashflows(thelatterifpresentedunderpreviousGAAP)[IFRS1.25]
4. iferrorsinpreviousGAAPfinancialstatementswerediscoveredinthecourseoftransitiontoIFRSs,thosemustbeseparatelydisclosed[IFRS1.26]
5. iftheentityrecognisedorreversedanyimpairmentlossesinpreparingitsopeningIFRSbalancesheet,thesemustbedisclosed[IFRS1.24(c)]
6. appropriateexplanationsiftheentityhaselectedtoapplyanyofthespecificrecognitionandmeasurementexemptionspermittedunderIFRS1forinstance,ifitusedfairvaluesasdeemedcost
Disclosuresininterimfinancialreports
IfanentityisgoingtoadoptIFRSsforthefirsttimeinitsannualfinancialstatementsfortheyearended31December2014,certaindisclosurearerequiredinitsinterimfinancialstatementspriortothe31December2014statements,butonlyifthoseinterimfinancialstatementspurporttocomplywithIAS34InterimFinancialReporting.ExplanatoryinformationandareconciliationarerequiredintheinterimreportthatimmediatelyprecedesthefirstsetofIFRSannualfinancialstatements.TheinformationincludesreconciliationsbetweenIFRSandpreviousGAAP.[IFRS1.32]
ExceptionstotheretrospectiveapplicationofotherIFRSs
Priorto1January2010,therewerethreeexceptionstothegeneralprincipleofretrospectiveapplication.On23July2009,IFRS1wasamended,effective1January2010,toaddtwoadditionalexceptionswiththegoaloffurthersimplifyingthetransitiontoIFRSsforfirsttimeadopters.Thefiveexceptionsare:[IFRS1.AppendixB]
IAS39Derecognitionoffinancialinstruments
AfirsttimeadoptershallapplythederecognitionrequirementsinIAS39prospectivelyfortransactionsoccurringonorafter1January2004.However,theentitymayapplythederecognitionrequirementsretrospectivelyprovidedthattheneededinformationwasobtainedatthetimeofinitiallyaccountingforthosetransactions.[IFRS1.B23]
IAS39Hedgeaccounting
ThegeneralruleisthattheentityshallnotreflectinitsopeningIFRSbalancesheet(statementoffinancialposition)ahedgingrelationshipofatypethatdoesnotqualifyforhedgeaccountinginaccordancewithIAS39.However,ifanentitydesignatedanetpositionasahedgediteminaccordancewithpreviousGAAP,itmaydesignateanindividualitemwithinthatnetpositionasahedgediteminaccordancewithIFRS,providedthatitdoessonolaterthanthedateoftransitiontoIFRSs.[IFRS1.B5]
Note:ModifiedrequirementsapplywhenanentityappliesIFRS9FinancialInstruments(2013).
IAS27Noncontrollinginterest
IFRS1.B7listsspecificrequirementsofIFRS10ConsolidatedFinancialStatementsthatshallbeapplied
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prospectively.
Fullcostoilandgasassets
EntitiesusingthefullcostmethodmayelectexemptionfromretrospectiveapplicationofIFRSsforoilandgasassets.EntitieselectingthisexemptionwillusethecarryingamountunderitsoldGAAPasthedeemedcostofitsoilandgasassetsatthedateoffirsttimeadoptionofIFRSs.
Determiningwhetheranarrangementcontainsalease
IfafirsttimeadopterwithaleasingcontractmadethesametypeofdeterminationofwhetheranarrangementcontainedaleaseinaccordancewithpreviousGAAPasthatrequiredbyIFRIC4DeterminingwhetheranArrangementContainsaLease,butatadateotherthanthatrequiredbyIFRIC4,theamendmentsexempttheentityfromhavingtoapplyIFRIC4whenitadoptsIFRSs.
OptionalexemptionsfromthebasicmeasurementprincipleinIFRS1
Therearesomefurtheroptionalexemptionstothegeneralrestatementandmeasurementprinciplessetoutabove.Thefollowingexceptionsareindividuallyoptional.Theyrelateto:
businesscombinations[IFRS1.AppendixC]
andanumberofothers[IFRS1.AppendixD]:sharebasedpaymenttransactions
insurancecontracts
fairvalue,previouscarryingamount,orrevaluationasdeemedcost
leases
cumulativetranslationdifferences
investmentsinsubsidiaries,jointlycontrolledentities,associatesandjointventures
assetsandliabilitiesofsubsidiaries,associatedandjointventures
compoundfinancialinstruments
designationofpreviouslyrecognisedfinancialinstruments
fairvaluemeasurementoffinancialassetsorfinancialliabilitiesatinitialrecognition
decommissioningliabilitiesincludedinthecostofproperty,plantandequipment
financialassetsorintangibleassetsaccountedforinaccordancewithIFRIC12ServiceConcessionArrangements
borrowingcosts
transfersofassetsfromcustomers
extinguishingfinancialliabilitieswithequityinstruments
severehyperinflation
jointarrangements
strippingcostsintheproductionphaseofasurfacemine
Some,butnotall,ofthemaredescribedbelow.
Businesscombinationsthatoccurredbeforeopeningbalancesheetdate
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IFRS1includesAppendixCexplaininghowafirsttimeadoptershouldaccountforbusinesscombinationsthatoccurredpriortotransitiontoIFRS.
AnentitymaykeeptheoriginalpreviousGAAPaccounting,thatis,notrestate:
previousmergersorgoodwillwrittenofffromreserves
thecarryingamountsofassetsandliabilitiesrecognisedatthedateofacquisitionormerger,or
howgoodwillwasinitiallydetermined(donotadjustthepurchasepriceallocationonacquisition)
However,shoulditwishtodoso,anentitycanelecttorestateallbusinesscombinationsstartingfromadateitselectspriortotheopeningbalancesheetdate.
Inallcases,theentitymustmakeaninitialIAS36impairmenttestofanyremaininggoodwillintheopeningIFRSbalancesheet,afterreclassifying,asappropriate,previousGAAPintangiblestogoodwill.
Theexemptionforbusinesscombinationsalsoappliestoacquisitionsofinvestmentsinassociates,interestsinjointventuresandinterestsinajointoperationwhentheoperationconstitutesabusiness.
Deemedcost
Assetscarriedatcost(e.g.property,plantandequipment)maybemeasuredattheirfairvalueatthedateoftransitiontoIFRSs.Fairvaluebecomesthe'deemedcost'goingforwardundertheIFRScostmodel.Deemedcostisanamountusedasasurrogateforcostordepreciatedcostatagivendate.[IFRS1.D6]
If,beforethedateofitsfirstIFRSbalancesheet,theentityhadrevaluedanyoftheseassetsunderitspreviousGAAPeithertofairvalueortoapriceindexadjustedcost,thatpreviousGAAPrevaluedamountatthedateoftherevaluationcanbecomethedeemedcostoftheassetunderIFRS.[IFRS1.D6]
If,beforethedateofitsfirstIFRSbalancesheet,theentityhadmadeaonetimerevaluationofassetsorliabilitiestofairvaluebecauseofaprivatisationorinitialpublicoffering,andtherevaluedamountbecamedeemedcostunderthepreviousGAAP,thatamountwouldcontinuetobedeemedcostaftertheinitialadoptionofIFRS.[IFRS1.D8]
Thisoptionappliestointangibleassetsonlyifanactivemarketexists.[IFRS1.D7]
Ifthecarryingamountofproperty,plantandequipmentorintangibleassetsthatareusedinrateregulatedactivitiesincludesamountsunderpreviousGAAPthatdonotqualifyforcapitalisationinaccordancewithIFRSs,afirsttimeadoptermayelecttousethepreviousGAAPcarryingamountofsuchitemsasdeemedcostontheinitialadoptionofIFRSs.[IFRS1.D8B]
EligibleentitiessubjecttorateregulationmayalsooptionallyapplyIFRS14RegulatoryDeferralAccountsontransitiontoIFRSs,andinsubsequentfinancialstatements.
IAS19Employeebenefits:actuarialgainsandlosses
AnentitymayelecttorecogniseallcumulativeactuarialgainsandlossesforalldefinedbenefitplansattheopeningIFRSbalancesheetdate(thatis,resetanycorridorrecognisedunderpreviousGAAPtozero),evenifitelectstousetheIAS19corridorapproachforactuarialgainsandlossesthatariseafter
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firsttimeadoptionofIFRS.Ifafirsttimeadopterusesthisexemption,itshallapplyittoallplans.[IFRS1.D10]
Note:ThisexemptionisnotavailablewhereIAS19EmployeeBenefits(2011)isapplied.IAS19(2011)iseffectiveforannualreportingperiodsbeginningonorafter1January2013.
IAS21Accumulatedtranslationreserves
AnentitymayelecttorecognisealltranslationadjustmentsarisingonthetranslationofthefinancialstatementsofforeignentitiesinaccumulatedprofitsorlossesattheopeningIFRSbalancesheetdate(thatis,resetthetranslationreserveincludedinequityunderpreviousGAAPtozero).Iftheentityelectsthisexemption,thegainorlossonsubsequentdisposaloftheforeignentitywillbeadjustedonlybythoseaccumulatedtranslationadjustmentsarisingaftertheopeningIFRSbalancesheetdate.[IFRS1.D13]
IAS27Investmentsinseparatefinancialstatements
InMay2008,theIASBamendedthestandardtochangethewaythecostofaninvestmentintheseparatefinancialstatementsismeasuredonfirsttimeadoptionofIFRSs.TheamendmentstoIFRS1:
allowfirsttimeadopterstousea'deemedcost'ofeitherfairvalueorthecarryingamountunderpreviousaccountingpracticetomeasuretheinitialcostofinvestmentsinsubsidiaries,jointlycontrolledentitiesandassociatesintheseparatefinancialstatements
removethedefinitionofthecostmethodfromIAS27andaddarequirementtopresentdividendsasincomeintheseparatefinancialstatementsoftheinvestor
requirethat,whenanewparentisformedinareorganisation,thenewparentmustmeasurethecostofitsinvestmentinthepreviousparentatthecarryingamountofitsshareoftheequityitemsofthepreviousparentatthedateofthereorganisation
Assetsandliabilitiesofsubsidiaries,associatesandjointventures:differentIFRSadoptiondatesofinvestorandinvestee
Ifasubsidiarybecomesafirsttimeadopterlaterthanitsparent,IFRS1permitsachoicebetweentwomeasurementbasesinthesubsidiary'sseparatefinancialstatements.Inthiscase,asubsidiaryshouldmeasureitsassetsandliabilitiesaseither:[IFRS1.D16]
thecarryingamountthatwouldbeincludedintheparent'sconsolidatedfinancialstatements,basedontheparent'sdateoftransitiontoIFRSs,ifnoadjustmentsweremadeforconsolidationproceduresandfortheeffectsofthebusinesscombinationinwhichtheparentacquiredthesubsidiaryor
thecarryingamountsrequiredbyIFRS1basedonthesubsidiary'sdateoftransitiontoIFRSs
Asimilarelectionisavailabletoanassociateorjointventurethatbecomesafirsttimeadopterlaterthananentitythathassignificantinfluenceorjointcontroloverit.[IFRS1.D16]
Ifaparentbecomesafirsttimeadopterlaterthanitssubsidiary,theparentshouldinitsconsolidatedfinancialstatements,measuretheassetsandliabilitiesofthesubsidiaryatthesamecarryingamountasintheseparatefinancialstatementsofthesubsidiary,afteradjustingforconsolidationadjustmentsandfortheeffectsofthebusinesscombinationinwhichtheparentacquiredthesubsidiary.Thesameapproachappliesinthecaseofassociatesandjointventures.[IFRS1.D17]
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ContactusAboutLegalPrivacyFAQsMaterialonthiswebsiteis2015DeloitteGlobalServicesLimited,oramemberfirmofDeloitteTouche
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July2009:TwoAmendmentstoIFRS1
On23July2009,theIASBamendedIFRS1to:
exemptentitiesusingthefullcostmethodfromretrospectiveapplicationofIFRSsforoilandgasassets.
exemptentitieswithexistingleasingcontractsfromreassessingtheclassificationofthosecontractsinaccordancewithIFRIC4DeterminingwhetheranArrangementcontainsaLeasewhentheapplicationoftheirnationalaccountingrequirementsproducedthesameresult.
ClickforIASBPressRelease(PDF104k).
November2009:ProposedLimitedScopeExemptionforIFRS7Disclosures
On26November2009,theIASBissuedanexposuredraft(ED)proposingtoamendIFRS1tostatethatanentityneednotprovidethecomparativepriorperiodinformationrequiredbytheMarch2009amendmentstoIFRS7ImprovingDisclosuresaboutFinancialInstrumentsforfirsttimeadoptersadoptingbefore1January2010.Asaresult,IFRS1,AppendixE,paragraphE1willbeamendedasfollows:
E1Afirsttimeadoptermayapplythetransitionalprovisionsinparagraph44GofIFRS7totheextentthattheentity'sfirstIFRSreportingperiodstartsearlierthan1January2010.
TheproposedlimitedexemptionfromcomparativeIFRS7disclosuresforfirsttimeadoptersisconsistentwiththeexemptionpermittedforearlyadoptersoftheMarch2009amendmentstoIFRS7.DeadlineforcommentsontheEDis29December2009.ClickforIASBPressRelease(PDF101k).
January2010:IASBamendsIFRS1toprovideIFRS7disclosureexemption
On28January2010,theIASBamendedIFRS1toexemptfirsttimeadoptersofIFRSsfromprovidingtheadditionaldisclosuresintroducedinMarch2009byImprovingDisclosuresaboutFinancialInstruments(AmendmentstoIFRS7).TheamendmentgivesfirsttimeadoptersthesametransitionprovisionsthatAmendmentstoIFRS7providestocurrentIFRSpreparers.Theamendmentiseffectiveon1July2010,withearlierapplicationpermitted.ClickforIASBPressRelease(PDF100k).
December2010:TwoAmendmentstoIFRS1
On20December,theIASBamendedIFRS1to:
providereliefforfirsttimeadoptersofIFRSsfromhavingtoreconstructtransactionsthatoccurredbeforetheirdateoftransitiontoIFRSs.
provideguidanceforentitiesemergingfromseverehyperinflationeithertoresumepresentingIFRSfinancialstatementsortopresentIFRSfinancialstatementsforthefirsttime.
ClickforIASBPressRelease(PDF33k).
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1/13/2015 IFRS2SharebasedPayment
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IFRS2SharebasedPayment
Overview
IFRS2SharebasedPaymentrequiresanentitytorecognisesharebasedpaymenttransactions(suchasgrantedshares,shareoptions,orshareappreciationrights)initsfinancialstatements,includingtransactionswithemployeesorotherpartiestobesettledincash,otherassets,orequityinstrumentsoftheentity.Specificrequirementsareincludedforequitysettledandcashsettledsharebasedpaymenttransactions,aswellasthosewheretheentityorsupplierhasachoiceofcashorequityinstruments.
IFRS2wasoriginallyissuedinFebruary2004andfirstappliedtoannualperiodsbeginningonorafter1January2005.
HistoryofIFRS2Date Development CommentsJuly2000 G4+1DiscussionPaperAccountingforShare
BasedPaymentspublishedCommentdeadline31October2000
July2001 ProjectaddedtoIASBagenda Historyoftheproject20September2001IASBinvitescommentsonG4+1DiscussionPaper
AccountingforShareBasedPaymentsCommentdeadline15December2001
7November2002 ExposureDraftED2ShareBasedPaymentpublished
Commentdeadline7March2003
19February2004 IFRS2SharebasedPaymentissued Effectiveforannualperiodsbeginningonorafter1January2005
2February2006 ExposureDraftVestingConditionsandCancellationspublished
Commentdeadline2June2006
17January2008 AmendedbyVestingConditionsandCancellations(AmendmentstoIFRS2)
Effectiveforannualperiodsbeginningonorafter1January2009
16April2009 AmendedbyImprovementstoIFRSs(scopeofIFRS2andrevisedIFRS3)
Effectiveforannualperiodsbeginningonorafter1July2009
18June2009 AmendedbyGroupCashsettledSharebasedPaymentTransactions
Effectiveforannualperiodsbeginningonorafter1January2010
12December2013 AmendedbyAnnualImprovementstoIFRSs20102012Cycle(definitionofvestingcondition)
Effectiveforannualperiodsbeginningonorafter1July2014
RelatedInterpretationsNone
AmendmentsunderconsiderationIFRS2Clarificationsofclassificationandmeasurementofsharebasedpaymenttransactions
QuickArticleLinks
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ResearchprojectSharebasedpayments
SummaryofIFRS2
InJune2007,theDeloitteIFRSGlobalOfficepublishedanupdatedversionofourIASPlusGuidetoIFRS2SharebasedPayment2007(PDF748k,128pages).TheguidenotonlyexplainsthedetailedprovisionsofIFRS2butalsodealswithitsapplicationinmanypracticalsituations.Becauseofthecomplexityandvarietyofsharebasedpaymentawardsinpractice,itisnotalwayspossibletobedefinitiveastowhatisthe'right'answer.However,inthisguideDeloitteshareswithyouourapproachtofindingsolutionsthatwebelieveareinaccordancewiththeobjectiveoftheStandard.
SpecialeditionofourIASPlusnewsletter
YouwillfindafourpagesummaryofIFRS2inaspecialeditionofourIASPlusnewsletter(PDF49k).
Definitionofsharebasedpayment
Asharebasedpaymentisatransactioninwhichtheentityreceivesgoodsorserviceseitherasconsiderationforitsequityinstrumentsorbyincurringliabilitiesforamountsbasedonthepriceoftheentity'ssharesorotherequityinstrumentsoftheentity.Theaccountingrequirementsforthesharebasedpaymentdependonhowthetransactionwillbesettled,thatis,bytheissuanceof(a)equity,(b)cash,or(c)equityorcash.
Scope
Theconceptofsharebasedpaymentsisbroaderthanemployeeshareoptions.IFRS2encompassestheissuanceofshares,orrightstoshares,inreturnforservicesandgoods.ExamplesofitemsincludedinthescopeofIFRS2areshareappreciationrights,employeesharepurchaseplans,employeeshareownershipplans,shareoptionplansandplanswheretheissuanceofshares(orrightstoshares)maydependonmarketornonmarketrelatedconditions.
IFRS2appliestoallentities.Thereisnoexemptionforprivateorsmallerentities.Furthermore,subsidiariesusingtheirparent'sorfellowsubsidiary'sequityasconsiderationforgoodsorservicesarewithinthescopeoftheStandard.
Therearetwoexemptionstothegeneralscopeprinciple:
First,theissuanceofsharesinabusinesscombinationshouldbeaccountedforunderIFRS3BusinessCombinations.However,careshouldbetakentodistinguishsharebasedpaymentsrelatedtotheacquisitionfromthoserelatedtocontinuingemployeeservices
Second,IFRS2doesnotaddresssharebasedpaymentswithinthescopeofparagraphs810ofIAS32FinancialInstruments:Presentation,orparagraphs57ofIAS39FinancialInstruments:RecognitionandMeasurement.Therefore,IAS32andIAS39shouldbeappliedforcommoditybasedderivativecontractsthatmaybesettledinsharesorrightstoshares.
IFRS2doesnotapplytosharebasedpaymenttransactionsotherthanfortheacquisitionofgoodsandservices.Sharedividends,thepurchaseoftreasuryshares,andtheissuanceofadditionalsharesarethereforeoutsideitsscope.
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Recognitionandmeasurement
Theissuanceofsharesorrightstosharesrequiresanincreaseinacomponentofequity.IFRS2requirestheoffsettingdebitentrytobeexpensedwhenthepaymentforgoodsorservicesdoesnotrepresentanasset.Theexpenseshouldberecognisedasthegoodsorservicesareconsumed.Forexample,theissuanceofsharesorrightstosharestopurchaseinventorywouldbepresentedasanincreaseininventoryandwouldbeexpensedonlyoncetheinventoryissoldorimpaired.
Theissuanceoffullyvestedshares,orrightstoshares,ispresumedtorelatetopastservice,requiringthefullamountofthegrantdatefairvaluetobeexpensedimmediately.Theissuanceofsharestoemployeeswith,say,athreeyearvestingperiodisconsideredtorelatetoservicesoverthevestingperiod.Therefore,thefairvalueofthesharebasedpayment,determinedatthegrantdate,shouldbeexpensedoverthevestingperiod.
Asageneralprinciple,thetotalexpenserelatedtoequitysettledsharebasedpaymentswillequalthemultipleofthetotalinstrumentsthatvestandthegrantdatefairvalueofthoseinstruments.Inshort,thereistruinguptoreflectwhathappensduringthevestingperiod.However,iftheequitysettledsharebasedpaymenthasamarketrelatedperformancecondition,theexpensewouldstillberecognisedifallothervestingconditionsaremet.Thefollowingexampleprovidesanillustrationofatypicalequitysettledsharebasedpayment.
IllustrationRecognitionofemployeeshareoptiongrant
Companygrantsatotalof100shareoptionsto10membersofitsexecutivemanagementteam(10optionseach)on1January20X5.Theseoptionsvestattheendofathreeyearperiod.Thecompanyhasdeterminedthateachoptionhasafairvalueatthedateofgrantequalto15.Thecompanyexpectsthatall100optionswillvestandthereforerecordsthefollowingentryat30June20X5theendofitsfirstsixmonthinterimreportingperiod.
Dr.Shareoptionexpense 250Cr.Equity 250[(10015)6periods]=250perperiod
Ifall100sharesvest,theaboveentrywouldbemadeattheendofeach6monthreportingperiod.However,ifonememberoftheexecutivemanagementteamleavesduringthesecondhalfof20X6,thereforeforfeitingtheentireamountof10options,thefollowingentryat31December20X6wouldbemade:
Dr.Shareoptionexpense 150Cr.Equity 150[(9015)6periods=225perperiod.[2254][250+250+250]=150
Measurementguidance
Dependingonthetypeofsharebasedpayment,fairvaluemaybedeterminedbythevalueofthesharesorrightstosharesgivenup,orbythevalueofthegoodsorservicesreceived:
Generalfairvaluemeasurementprinciple.Inprinciple,transactionsinwhichgoodsorservicesarereceivedasconsiderationforequityinstrumentsoftheentityshouldbemeasuredatthefairvalueofthegoodsorservicesreceived.Onlyifthefairvalueofthegoodsorservicescannotbemeasuredreliablywouldthefairvalueoftheequityinstrumentsgrantedbeused.
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Measuringemployeeshareoptions.Fortransactionswithemployeesandothersprovidingsimilarservices,theentityisrequiredtomeasurethefairvalueoftheequityinstrumentsgranted,becauseitistypicallynotpossibletoestimatereliablythefairvalueofemployeeservicesreceived.
Whentomeasurefairvalueoptions.Fortransactionsmeasuredatthefairvalueoftheequityinstrumentsgranted(suchastransactionswithemployees),fairvalueshouldbeestimatedatgrantdate.
Whentomeasurefairvaluegoodsandservices.Fortransactionsmeasuredatthefairvalueofthegoodsorservicesreceived,fairvalueshouldbeestimatedatthedateofreceiptofthosegoodsorservices.
Measurementguidance.Forgoodsorservicesmeasuredbyreferencetothefairvalueoftheequityinstrumentsgranted,IFRS2specifiesthat,ingeneral,vestingconditionsarenottakenintoaccountwhenestimatingthefairvalueofthesharesoroptionsattherelevantmeasurementdate(asspecifiedabove).Instead,vestingconditionsaretakenintoaccountbyadjustingthenumberofequityinstrumentsincludedinthemeasurementofthetransactionamountsothat,ultimately,theamountrecognisedforgoodsorservicesreceivedasconsiderationfortheequityinstrumentsgrantedisbasedonthenumberofequityinstrumentsthateventuallyvest.
Moremeasurementguidance.IFRS2requiresthefairvalueofequityinstrumentsgrantedtobebasedonmarketprices,ifavailable,andtotakeintoaccountthetermsandconditionsuponwhichthoseequityinstrumentsweregranted.Intheabsenceofmarketprices,fairvalueisestimatedusingavaluationtechniquetoestimatewhatthepriceofthoseequityinstrumentswouldhavebeenonthemeasurementdateinanarm'slengthtransactionbetweenknowledgeable,willingparties.Thestandarddoesnotspecifywhichparticularmodelshouldbeused.
Iffairvaluecannotbereliablymeasured.IFRS2requiresthesharebasedpaymenttransactiontobemeasuredatfairvalueforbothlistedandunlistedentities.IFRS2permitstheuseofintrinsicvalue(thatis,fairvalueoftheshareslessexerciseprice)inthose"rarecases"inwhichthefairvalueoftheequityinstrumentscannotbereliablymeasured.Howeverthisisnotsimplymeasuredatthedateofgrant.Anentitywouldhavetoremeasureintrinsicvalueateachreportingdateuntilfinalsettlement.
Performanceconditions.IFRS2makesadistinctionbetweenthehandlingofmarketbasedperformanceconditionsfromnonmarketperformanceconditions.Marketconditionsarethoserelatedtothemarketpriceofanentity'sequity,suchasachievingaspecifiedsharepriceoraspecifiedtargetbasedonacomparisonoftheentity'ssharepricewithanindexofsharepricesofotherentities.Marketbasedperformanceconditionsareincludedinthegrantdatefairvaluemeasurement(similarly,nonvestingconditionsaretakenintoaccountinthemeasurement).However,thefairvalueoftheequityinstrumentsisnotadjustedtotakeintoconsiderationnonmarketbasedperformancefeaturestheseareinsteadtakenintoaccountbyadjustingthenumberofequityinstrumentsincludedinthemeasurementofthesharebasedpaymenttransaction,andareadjustedeachperioduntilsuchtimeastheequityinstrumentsvest.
Note:AnnualImprovementstoIFRSs20102012Cycleamendsthedefinitionsof'vestingcondition'and'marketcondition'andaddsdefinitionsfor'performancecondition'and'servicecondition'(whichwerepreviouslypartofthedefinitionof'vestingcondition').Theamendmentsareeffectiveforannualperiodsbeginningonorafter1July2014.
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Modifications,cancellations,andsettlements
Thedeterminationofwhetherachangeintermsandconditionshasaneffectontheamountrecogniseddependsonwhetherthefairvalueofthenewinstrumentsisgreaterthanthefairvalueoftheoriginalinstruments(bothdeterminedatthemodificationdate).
Modificationofthetermsonwhichequityinstrumentsweregrantedmayhaveaneffectontheexpensethatwillberecorded.IFRS2clarifiesthattheguidanceonmodificationsalsoappliestoinstrumentsmodifiedaftertheirvestingdate.Ifthefairvalueofthenewinstrumentsismorethanthefairvalueoftheoldinstruments(e.g.byreductionoftheexercisepriceorissuanceofadditionalinstruments),theincrementalamountisrecognisedovertheremainingvestingperiodinamannersimilartotheoriginalamount.Ifthemodificationoccursafterthevestingperiod,theincrementalamountisrecognisedimmediately.Ifthefairvalueofthenewinstrumentsislessthanthefairvalueoftheoldinstruments,theoriginalfairvalueoftheequityinstrumentsgrantedshouldbeexpensedasifthemodificationneveroccurred.
Thecancellationorsettlementofequityinstrumentsisaccountedforasanaccelerationofthevestingperiodandthereforeanyamountunrecognisedthatwouldotherwisehavebeenchargedshouldberecognisedimmediately.Anypaymentsmadewiththecancellationorsettlement(uptothefairvalueoftheequityinstruments)shouldbeaccountedforastherepurchaseofanequityinterest.Anypaymentinexcessofthefairvalueoftheequityinstrumentsgrantedisrecognisedasanexpense
Newequityinstrumentsgrantedmaybeidentifiedasareplacementofcancelledequityinstruments.Inthosecases,thereplacementequityinstrumentsareaccountedforasamodification.Thefairvalueofthereplacementequityinstrumentsisdeterminedatgrantdate,whilethefairvalueofthecancelledinstrumentsisdeterminedatthedateofcancellation,lessanycashpaymentsoncancellationthatisaccountedforasadeductionfromequity.
Disclosure
Requireddisclosuresinclude:
thenatureandextentofsharebasedpaymentarrangementsthatexistedduringtheperiod
howthefairvalueofthegoodsorservicesreceived,orthefairvalueoftheequityinstrumentsgranted,duringtheperiodwasdetermined
theeffectofsharebasedpaymenttransactionsontheentity'sprofitorlossfortheperiodandonitsfinancialposition.
Effectivedate
IFRS2iseffectiveforannualperiodsbeginningonorafter1January2005.Earlierapplicationisencouraged.
Transition
Allequitysettledsharebasedpaymentsgrantedafter7November2002,thatarenotyetvestedattheeffectivedateofIFRS2shallbeaccountedforusingtheprovisionsofIFRS2.Entitiesareallowedandencouraged,butnotrequired,toapplythisIFRStoothergrantsofequityinstrumentsif(andonlyif)theentityhaspreviouslydisclosedpubliclythefairvalueofthoseequityinstrumentsdeterminedinaccordancewithIFRS2.
ThecomparativeinformationpresentedinaccordancewithIAS1shallberestatedforallgrantsofequity
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instrumentstowhichtherequirementsofIFRS2areapplied.Theadjustmenttoreflectthischangeispresentedintheopeningbalanceofretainedearningsfortheearliestperiodpresented.
IFRS2amendsparagraph13ofIFRS1FirsttimeAdoptionofInternationalFinancialReportingStandardstoaddanexemptionforsharebasedpaymenttransactions.SimilartoentitiesalreadyapplyingIFRS,firsttimeadopterswillhavetoapplyIFRS2forsharebasedpaymenttransactionsonorafter7November2002.Additionally,afirsttimeadopterisnotrequiredtoapplyIFRS2tosharebasedpaymentsgrantedafter7November2002thatvestedbeforethelaterof(a)thedateoftransitiontoIFRSand(b)1January2005.AfirsttimeadoptermayelecttoapplyIFRS2earlieronlyifithaspubliclydisclosedthefairvalueofthesharebasedpaymentsdeterminedatthemeasurementdateinaccordancewithIFRS2.
DifferenceswithFASBStatement123Revised2004
InDecember2004,theUSFASBpublishedFASBStatement123(revised2004)ShareBasedPayment.Statement123(R)requiresthatthecompensationcostrelatingtosharebasedpaymenttransactionsberecognisedinfinancialstatements.ClickforFASBPressRelease(PDF17k).Deloitte(USA)haspublishedaspecialissueofitsHeadsUpnewslettersummarisingthekeyconceptsofFASBStatementNo.123(R).ClicktodownloadtheHeadsUpNewsletter(PDF292k).WhileStatement123(R)islargelyconsistentwithIFRS2,somedifferencesremain,asdescribedinaQ&AdocumentFASBissuedalongwiththenewStatement:
Q22.IstheStatementconvergentwithInternationalFinancialReportingStandards?
TheStatementislargelyconvergentwithInternationalFinancialReportingStandard(IFRS)2,SharebasedPayment.TheStatementandIFRS2havethepotentialtodifferinonlyafewareas.Themoresignificantareasarebrieflydescribedbelow.
IFRS2requirestheuseofthemodifiedgrantdatemethodforsharebasedpaymentarrangementswithnonemployees.Incontrast,Issue9618requiresthatgrantsofshareoptionsandotherequityinstrumentstononemployeesbemeasuredattheearlierof(1)thedateatwhichacommitmentforperformancebythecounterpartytoearntheequityinstrumentsisreachedor(2)thedateatwhichthecounterparty'sperformanceiscomplete.
IFRS2containsmorestringentcriteriafordeterminingwhetheranemployeesharepurchaseplaniscompensatoryornot.Asaresult,someemployeesharepurchaseplansforwhichIFRS2requiresrecognitionofcompensationcostwillnotbeconsideredtogiverisetocompensationcostundertheStatement.
IFRS2appliesthesamemeasurementrequirementstoemployeeshareoptionsregardlessofwhethertheissuerisapublicoranonpublicentity.TheStatementrequiresthatanonpublicentityaccountforitsoptionsandsimilarequityinstrumentsbasedontheirfairvalueunlessitisnotpracticabletoestimatetheexpectedvolatilityoftheentity'sshareprice.Inthatsituation,theentityisrequiredtomeasureitsequityshareoptionsandsimilarinstrumentsatavalueusingthehistoricalvolatilityofanappropriateindustrysectorindex.
IntaxjurisdictionssuchastheUnitedStates,wherethetimevalueofshareoptionsgenerallyisnotdeductiblefortaxpurposes,IFRS2requiresthatnodeferredtaxassetberecognizedforthecompensationcostrelatedtothetimevaluecomponentofthefairvalueofanaward.Adeferredtaxassetisrecognizedonlyifandwhentheshareoptionshaveintrinsicvaluethatcouldbedeductiblefortaxpurposes.Therefore,anentitythatgrantsanatthemoneyshareoptiontoan
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employeeinexchangeforserviceswillnotrecognizetaxeffectsuntilthatawardisinthemoney.Incontrast,theStatementrequiresrecognitionofadeferredtaxassetbasedonthegrantdatefairvalueoftheaward.Theeffectsofsubsequentdecreasesintheshareprice(orlackofanincrease)arenotreflectedinaccountingforthedeferredtaxassetuntiltherelatedcompensationcostisrecognizedfortaxpurposes.Theeffectsofsubsequentincreasesthatgenerateexcesstaxbenefitsarerecognizedwhentheyaffecttaxespayable.
TheStatementrequiresaportfolioapproachindeterminingexcesstaxbenefitsofequityawardsinpaidincapitalavailabletooffsetwriteoffsofdeferredtaxassets,whereasIFRS2requiresanindividualinstrumentapproach.Thus,somewriteoffsofdeferredtaxassetsthatwillberecognizedinpaidincapitalundertheStatementwillberecognizedindeterminingnetincomeunderIFRS2.
DifferencesbetweentheStatementandIFRS2maybefurtherreducedinthefuturewhentheIASBandFASBconsiderwhethertoundertakeadditionalworktofurtherconvergetheirrespectiveaccountingstandardsonsharebasedpayment.
March2005:SECStaffAccountingBulletin107
On29March2005,thestaffoftheUSSecuritiesandExchangeCommissionissuedStaffAccountingBulletin107dealingwithvaluationsandotheraccountingissuesforsharebasedpaymentarrangementsbypubliccompaniesunderFASBStatement123RShareBasedPayment.Forpubliccompanies,valuationsunderStatement123RaresimilartothoseunderIFRS2SharebasedPayment.SAB107providesguidancerelatedtosharebasedpaymenttransactionswithnonemployees,thetransitionfromnonpublictopublicentitystatus,valuationmethods(includingassumptionssuchasexpectedvolatilityandexpectedterm),theaccountingforcertainredeemablefinancialinstrumentsissuedundersharebasedpaymentarrangements,theclassificationofcompensationexpense,nonGAAPfinancialmeasures,firsttimeadoptionofStatement123Rinaninterimperiod,capitalisationofcompensationcostrelatedtosharebasedpaymentarrangements,accountingfortheincometaxeffectsofsharebasedpaymentarrangementsonadoptionofStatement123R,themodificationofemployeeshareoptionspriortoadoptionofStatement123R,anddisclosuresinManagement'sDiscussionandAnalysis(MD&A)subsequenttoadoptionofStatement123R.OneoftheinterpretationsinSAB107iswhethertherearedifferencesbetweenStatement123RandIFRS2thatwouldresultinareconcilingitem:
Question:DoesthestaffbelievetherearedifferencesinthemeasurementprovisionsforsharebasedpaymentarrangementswithemployeesunderInternationalAccountingStandardsBoardInternationalFinancialReportingStandard2,SharebasedPayment('IFRS2')andStatement123RthatwouldresultinareconcilingitemunderItem17or18ofForm20F?
InterpretiveResponse:ThestaffbelievesthatapplicationoftheguidanceprovidedbyIFRS2regardingthemeasurementofemployeeshareoptionswouldgenerallyresultinafairvaluemeasurementthatisconsistentwiththefairvalueobjectivestatedinStatement123R.Accordingly,thestaffbelievesthatapplicationofStatement123R'smeasurementguidancewouldnotgenerallyresultinareconcilingitemrequiredtobereportedunderItem17or18ofForm20FforaforeignprivateissuerthathascompliedwiththeprovisionsofIFRS2forsharebasedpaymenttransactionswithemployees.However,thestaffremindsforeignprivateissuersthattherearecertaindifferencesbetweentheguidanceinIFRS2andStatement123Rthatmayresultinreconcilingitems.[Footnotesomitted]
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SECPressRelease(PDF30k)
StaffAccountingBulletin107(PDF362k)
March2005:Bear,StearnsStudyonImpactofExpensingStockOptionsintheUnitedStates
IfUSpubliccompanieshadbeenrequiredtoexpenseemployeestockoptionsin2004,aswillberequiredunderFASBStatement123RShareBasedPaymentstartinginthirdquarter2005:
thereported2004posttaxnetincomefromcontinuingoperationsoftheS&P500companieswouldhavebeenreducedby5%,and
2004NASDAQ100posttaxnetincomefromcontinuingoperationswouldhavebeenreducedby22%.
ThosearekeyfindingsofastudyconductedbytheEquityResearchgroupatBear,Stearns&Co.Inc.Thepurposeofthestudyistohelpinvestorsgaugetheimpactthatexpensingemployeestockoptionswillhaveonthe2005earningsofUSpubliccompanies.TheBear,Stearnsanalysiswasbasedonthe2004stockoptiondisclosuresinthemostrecentlyfiled10KsofcompaniesthatwereS&P500andNASDAQ100constituentsasof31December2004.Exhibitstothestudypresenttheresultsbycompany,bysector,andbyindustry.VisitorstoIASPlusarelikelytofindthestudyofinterestbecausetherequirementsofFAS123RforpubliccompaniesareverysimilartothoseofIFRS2.WearegratefultoBear,StearnsforgivinguspermissiontopostthestudyonIASPlus.ThereportremainscopyrightBear,Stears&Co.Inc.,allrightsreserved.Clicktodownload2004EarningsImpactofStockOptionsontheS&P500&NASDAQ100Earnings(PDF486k).
November2005:Standard&Poor'sStudyonImpactofExpensingStockOptions
InNovember2005Standard&Poor'spublishedareportoftheimpactofexpensingstockoptionsontheS&P500companies.FAS123(R)requiresexpensingofstockoptions(mandatoryformostSECregistrantsin2006).IFRS2isnearlyidenticaltoFAS123(R).S&Pfound:
OptionexpensewillreduceS&P500earningsby4.2%.InformationTechnologyisaffectedthemost,reducingearningsby18%....P/Eratiosforallsectorswillbeincreased,butwillremainbelowhistoricalaverages.
TheimpactofoptionexpensingontheStandard&Poor's500willbenoticeable,butinanenvironmentofrecordearnings,highmarginsandhistoricallylowoperatingpricetoearningsratios,theindexisinitsbestpositionindecadestoabsorbtheadditionalexpense.
S&Ptakesissuewiththosecompaniesthattrytoemphasiseearningsbeforedeductingstockoptionexpenseandwiththoseanalystswhoignoreoptionexpensing.Thereportemphasisesthat:
Standard&Poor'swillincludeandreportoptionexpenseinallofitsearningsvalues,acrossallofitsbusinesslines.ThisincludesOperating,AsReportedandCore,andappliestoitsanalyticalworkintheS&PDomesticIndices,StockReports,aswellasitsforwardestimates.Itincludesallofitselectronicproducts....Theinvestmentcommunitybenefitswhenithasclearandconsistentinformationandanalyses.Aconsistentearningsmethodologythatbuildsonacceptedaccountingstandardsandproceduresisavitalcomponentofinvesting.Bysupportingthisdefinition,Standard&Poor'siscontributingtoamorereliableinvestmentenvironment.
Thecurrentdebateastothepresentationbycompaniesofearningsthatexcludeoptionexpense,generallybeingreferredtoasnonGAAPearnings,speakstotheheartofcorporategovernance.Addition
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ally,manyequityanalystsarebeingencouragedtobasetheirestimatesonnonGAAPearnings.WhilewedonotexpectarepeatoftheEBBS(EarningsBeforeBadStuff)proformaearningsof2001,theabilitytocompareissuesandsectorsdependsonanacceptedsetofaccountingrulesobservedbyall.Inordertomakeinformedinvestmentdecisions,theinvestingcommunityrequiresdatathatconformtoacceptedaccountingprocedures.Ofevenmoreconcernistheimpactthatsuchalternativepresentationandcalculationscouldhaveonthereducedleveloffaithandtrustinvestorsputintocompanyreporting.Thecorporategovernanceeventsofthelasttwoyearshaveerodedthetrustofmanyinvestors,trustthatwilltakeyearstoearnback.Inaneraofinstantaccessandcarefullyscriptedinvestorreleases,trustisnowamajorissue.
January2008:AmendmentofIFRS2toclarifyvestingconditionsandcancellations
On17January2008,theIASBpublishedfinalamendmentstoIFRS2SharebasedPaymenttoclarifytheterms'vestingconditions'and'cancellations'asfollows:
Vestingconditionsareserviceconditionsandperformanceconditionsonly.Otherfeaturesofasharebasedpaymentarenotvestingconditions.UnderIFRS2,featuresofasharebasedpaymentthatarenotvestingconditionsshouldbeincludedinthegrantdatefairvalueofthesharebasedpayment.Thefairvaluealsoincludesmarketrelatedvestingconditions.
Allcancellations,whetherbytheentityorbyotherparties,shouldreceivethesameaccountingtreatment.UnderIFRS2,acancellationofequityinstrumentsisaccountedforasanaccelerationofthevestingperiod.Thereforeanyamountunrecognisedthatwouldotherwisehavebeenchargedisrecognisedimmediately.Anypaymentsmadewiththecancellation(uptothefairvalueoftheequityinstruments)isaccountedforastherepurchaseofanequityinterest.Anypaymentinexcessofthefairvalueoftheequityinstrumentsgrantedisrecognisedasanexpense.
TheBoardhadproposedtheamendmentinanexposuredrafton2February2006.Theamendmentiseffectiveforannualperiodsbeginningonorafter1January2009,withearlierapplicationpermitted.
ClickforPressRelease(PDF47k).
DeloittehaspublishedaSpecialEditionofourIASPlusNewsletterexplainingtheamendmentstoIFRS2forvestingconditionsandcancellations(PDF126k).
June2009:IASBamendsIFRS2forgroupcashsettledsharebasedpaymenttransactions,withdrawsIFRICs8and11
On18June2009,theIASBissuedamendmentstoIFRS2SharebasedPaymentthatclarifytheaccountingforgroupcashsettledsharebasedpaymenttransactions.Theamendmentsclarifyhowanindividualsubsidiaryinagroupshouldaccountforsomesharebasedpaymentarrangementsinitsownfinancialstatements.Inthesearrangements,thesubsidiaryreceivesgoodsorservicesfromemployeesorsuppliersbutitsparentoranotherentityinthegroupmustpaythosesuppliers.Theamendmentsmakeclearthat:
Anentitythatreceivesgoodsorservicesinasharebasedpaymentarrangementmustaccountforthosegoodsorservicesnomatterwhichentityinthegroupsettlesthetransaction,andnomatterwhetherthetransactionissettledinsharesorcash.
InIFRS2a'group'hasthesamemeaningasinIAS27ConsolidatedandSeparateFinancialStatements,thatis,itincludesonlyaparentanditssubsidiaries.
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ContactusAboutLegalPrivacyFAQsMaterialonthiswebsiteis2015DeloitteGlobalServicesLimited,oramemberfirmofDeloitteToucheTohmatsuLimited,oroneoftheirrelatedentities.SeeLegalforadditionalcopyrightandotherlegalinformation.DeloittereferstooneormoreofDeloitteToucheTohmatsuLimited,aUKprivatecompanylimitedbyguarantee(DTTL),itsnetworkofmemberfirms,andtheirrelatedentities.DTTLandeachofitsmemberfirmsarelegallyseparateandindependententities.DTTL(alsoreferredtoasDeloitteGlobal)doesnotprovideservicestoclients.Pleaseseewww.deloitte.com/aboutforamoredetaileddescriptionofDTTLanditsmemberfirms.
7
TheamendmentstoIFRS2alsoincorporateguidancepreviouslyincludedinIFRIC8ScopeofIFRS2andIFRIC11IFRS2GroupandTreasuryShareTransactions.Asaresult,theIASBhaswithdrawnIFRIC8andIFRIC11.Theamendmentsareeffectiveforannualperiodsbeginningonorafter1January2010andmustbeappliedretrospectively.Earlierapplicationispermitted.ClickforIASBpressrelease(PDF103k).
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1/13/2015 IFRS3BusinessCombinations
http://www.iasplus.com/en/standards/ifrs/ifrs3 1/12
IFRS3BusinessCombinations
Overview
IFRS3BusinessCombinationsoutlinestheaccountingwhenanacquirerobtainscontrolofabusiness(e.g.anacquisitionormerger).Suchbusinesscombinationsareaccountedforusingthe'acquisitionmethod',whichgenerallyrequiresassetsacquiredandliabilitiesassumedtobemeasuredattheirfairvaluesattheacquisitiondate.
ArevisedversionofIFRS3wasissuedinJanuary2008andappliestobusinesscombinationsoccurringinanentity'sfirstannualperiodbeginningonorafter1July2009.
HistoryofIFRS3Date Development CommentsJuly2001 ProjectaddedtoIASBagenda
(carriedoverfromtheoldIASC)Historyoftheproject
5December2002 ExposureDraftED3BusinessCombinationsandrelatedexposuredraftsproposingamendmentstoIAS36andIAS38published
Commentdeadline4April2003
31March2004 IFRS3BusinessCombinations(2004)andrelatedamendedversionsofIAS36andIAS38issued(IFRS3supersedesIAS22)
Effectiveforbusinesscombinationsforwhichtheagreementdateisonorafter31March2004
29April2004 ExposureDraftCombinationsbyContractAloneorInvolvingMutualEntitiespublished(Theseproposalswerenotfinalised,butinsteadconsideredaspartoftheJune2005exposuredraft)
Commentdeadline31July2004
30June2005 ExposureDraftProposedAmendmentstoIFRS3published
Commentdeadline28October2005
10January2008 IFRS3BusinessCombinations(2008)issued Appliestobusinesscombinationsforwhichtheacquisitiondateisonorafterthebeginningofthefirstannualreportingperiodbeginningonorafter1July2009
6May2010 AmendedbyAnnualImprovementstoIFRSs2010(measurementofnoncontrollinginterests,replacedsharebasedpaymentawards,transitionalarrangementsforcontingentconsideration)
Effectiveforannualperiodsbeginningonorafter1July2010
12December2013AmendedbyAnnualImprovementstoIFRSs20102012Cycle(contingentconsideration)
Applicableforbusinesscombinationsforwhichtheacquisitiondateisonorafter1July2014
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12December2013AmendedbyAnnualImprovementstoIFRSs20112013Cycle(scopeexceptionforjointventures)
Effectiveforannualperiodsbeginningonorafter1July2014
RelatedInterpretationsNone
AmendmentsunderconsiderationbytheIASBCommoncontroltransactions
PostimplementationreviewIFRS3
SummaryofIFRS3Background
IFRS3(2008)seekstoenhancetherelevance,reliabilityandcomparabilityofinformationprovidedaboutbusinesscombinations(e.g.acquisitionsandmergers)andtheireffects.Itsetsouttheprinciplesontherecognitionandmeasurementofacquiredassetsandliabilities,thedeterminationofgoodwillandthenecessarydisclosures.
IFRS3(2008)resultedfromajointprojectwiththeUSFinancialAccountingStandardsBoard(FASB)andreplacedIFRS3(2004).FASBissuedasimilarstandardinDecember2007(SFAS141(R)).TherevisionsresultinahighdegreeofconvergencebetweenIFRSsandUSGAAPintheaccountingforbusinesscombinations,althoughsomepotentiallysignificantdifferencesremain.
Keydefinitions
[IFRS3,AppendixA]
businesscombinationAtransactionorothereventinwhichanacquirerobtainscontrolofoneormorebusinesses.Transactionssometimesreferredtoas'truemergers'or'mergersofequals'arealsobusinesscombinationsasthattermisusedin[IFRS3]businessAnintegratedsetofactivitiesandassetsthatiscapableofbeingconductedandmanagedforthepurposeofprovidingareturnintheformofdividends,lowercostsorothereconomicbenefitsdirectlytoinvestorsorotherowners,membersorparticipantsacquisitiondateThedateonwhichtheacquirerobtainscontroloftheacquireeacquirerTheentitythatobtainscontroloftheacquireeacquireeThebusinessorbusinessesthattheacquirerobtainscontrolofinabusinesscombinationScope
IFRS3mustbeappliedwhenaccountingforbusinesscombinations,butdoesnotapplyto:
Theformationofajointventure*[IFRS3.2(a)]
Theacquisitionofanassetorgroupofassetsthatisnotabusiness,althoughgeneralguidanceisprovidedonhowsuchtransactionsshouldbeaccountedfor[IFRS3.2(b)]
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Combinationsofentitiesorbusinessesundercommoncontrol(theIASBhasaseparateagendaprojectoncommoncontroltransactions)[IFRS3.2(c)]
AcquisitionsbyaninvestmententityofasubsidiarythatisrequiredtobemeasuredatfairvaluethroughprofitorlossunderIFRS10ConsolidatedFinancialStatements.[IFRS3.2A]
*AnnualImprovementstoIFRSs20112013Cycle,effectiveforannualperiodsbeginningonorafter1July2014,amendsthisscopeexclusiontoclarifythatisappliestotheaccountingfortheformationofajointarrangementinthefinancialstatementsofthejointarrangementitself.
Determiningwhetheratransactionisabusinesscombination
IFRS3providesadditionalguidanceondeterminingwhetheratransactionmeetsthedefinitionofabusinesscombination,andsoaccountedforinaccordancewithitsrequirements.Thisguidanceincludes:
Businesscombinationscanoccurinvariousways,suchasbytransferringcash,incurringliabilities,issuingequityinstruments(oranycombinationthereof),orbynotissuingconsiderationatall(i.e.bycontractalone)[IFRS3.B5]
Businesscombinationscanbestructuredinvariouswaystosatisfylegal,taxationorotherobjectives,includingoneentitybecomingasubsidiaryofanother,thetransferofnetassetsfromoneentitytoanotherortoanewentity[IFRS3.B6]
Thebusinesscombinationmustinvolvetheacquisitionofabusiness,whichgenerallyhasthreeelements:[IFRS3.B7]
Inputsaneconomicresource(e.g.noncurrentassets,intellectualproperty)thatcreatesoutputswhenoneormoreprocessesareappliedtoit
Processasystem,standard,protocol,conventionorrulethatwhenappliedtoaninputorinputs,createsoutputs(e.g.strategicmanagement,operationalprocesses,resourcemanagement)
Outputtheresultofinputsandprocessesappliedtothoseinputs.
MethodofaccountingforbusinesscombinationsAcquisitionmethod
Theacquisitionmethod(calledthe'purchasemethod'inthe2004versionofIFRS3)isusedforallbusinesscombinations.[IFRS3.4]
Stepsinapplyingtheacquisitionmethodare:[IFRS3.5]
1. Identificationofthe'acquirer'
2. Determinationofthe'acquisitiondate'
3. Recognitionandmeasurementoftheidentifiableassetsacquired,theliabilitiesassumedandanynoncontrollinginterest(NCI,formerlycalledminorityinterest)intheacquiree
4. Recognitionandmeasurementofgoodwilloragainfromabargainpurchase
Identifyinganacquirer
TheguidanceinIFRS10ConsolidatedFinancialStatementsisusedtoidentifyanacquirerinabusinesscombination,i.e.theentitythatobtains'control'oftheacquiree.[IFRS3.7]
IftheguidanceinIFRS10doesnotclearlyindicatewhichofthecombiningentitiesisanacquirer,IFRS3providesadditionalguidancewhichisthenconsidered:
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Theacquirerisusuallytheentitythattransferscashorotherassetswherethebusinesscombinationiseffectedinthismanner[IFRS3.B14]
Theacquirerisusually,butnotalways,theentityissuingequityinterestswherethetransactioniseffectedinthismanner,howevertheentityalsoconsidersotherpertinentfactsandcircumstancesincluding:[IFRS3.B15]
relativevotingrightsinthecombinedentityafterthebusinesscombination
theexistenceofanylargeminorityinterestifnootherownerorgroupofownershasasignificantvotinginterest
thecompositionofthegoverningbodyandseniormanagementofthecombinedentity
thetermsonwhichequityinterestsareexchanged
Theacquirerisusuallytheentitywiththelargestrelativesize(assets,revenuesorprofit)[IFRS3.B16]
Forbusinesscombinationsinvolvingmultipleentities,considerationisgiventotheentityinitiatingthecombination,andtherelativesizesofthecombiningentities.[IFRS3.B17]
Acquisitiondate
Anacquirerconsidersallpertinentfactsandcircumstanceswhendeterminingtheacquisitiondate,i.e.thedateonwhichitobtainscontroloftheacquiree.Theacquisitiondatemaybeadatethatisearlierorlaterthantheclosingdate.[IFRS3.89]
IFRS3doesnotprovidedetailedguidanceonthedeterminationoftheacquisitiondateandthedateidentifiedshouldreflectallrelevantfactsandcircumstances.Considerationsmightinclude,amongothers,thedateapublicofferbecomesunconditional(withacontrollinginterestacquired),whentheacquirercaneffectchangeintheboardofdirectorsoftheacquiree,thedateofacceptanceofanunconditionaloffer,whentheacquirerstartsdirectingtheacquiree'soperatingandfinancingpolicies,orthedatecompetitionorotherauthoritiesprovidenecessarilyclearances.
Acquiredassetsandliabilities
IFRS3establishesthefollowingprinciplesinrelationtotherecognitionandmeasurementofitemsarisinginabusinesscombination:
Recognitionprinciple.Identifiableassetsacquired,liabilitiesassumed,andnoncontrollinginterestsintheacquiree,arerecognisedseparatelyfromgoodwill[IFRS3.10]
Measurementprinciple.Allassetsacquiredandliabilitiesassumedinabusinesscombinationaremeasuredatacquisitiondatefairvalue.[IFRS3.18]
Exceptionstotherecognitionandmeasurementprinciples
Thefollowingexceptionstotheaboveprinciplesapply:
ContingentliabilitiestherequirementsofIAS37Provisions,ContingentLiabilitiesandContingentAssetsdonotapplytotherecognitionofcontingentliabilitiesarisinginabusinesscombination[IFRS3.2223]
IncometaxestherecognitionandmeasurementofincometaxesisinaccordancewithIAS12IncomeTaxes[IFRS3.2425]
Employeebenefitsassetsandliabilitiesarisingfromanacquiree'semployeebenefitsarrange
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mentsarerecognisedandmeasuredinaccordancewithIAS19EmployeeBenefits(2011)[IFRS2.26]
Indemnificationassetsanacquirerrecognisesindemnificationassetsatthesametimeandonthesamebasisastheindemnifieditem[IFRS3.2728]
Reacquiredrightsthemeasurementofreacquiredrightsisbyreferencetotheremainingcontractualtermwithoutrenewals[IFRS3.29]
SharebasedpaymenttransactionsthesearemeasuredbyreferencetothemethodinIFRS2SharebasedPayment
AssetsheldforsaleIFRS5NoncurrentAssetsHeldforSaleandDiscontinuedOperationsisappliedinmeasuringacquirednoncurrentassetsanddisposalgroupsclassifiedasheldforsaleattheacquisitiondate.
Inapplyingtheprinciples,anacquirerclassifiesanddesignatesassetsacquiredandliabilitiesassumedonthebasisofthecontractualterms,economicconditions,operatingandaccountingpoliciesandotherpertinentconditionsexistingattheacquisitiondate.Forexample,thismightincludetheidentificationofderivativefinancialinstrumentsashedginginstruments,ortheseparationofembeddedderivativesfromhostcontracts.[IFRS3.15]However,exceptionsaremadeforleaseclassification(betweenoperatingandfinanceleases)andtheclassificationofcontractsasinsurancecontracts,whichareclassifiedonthebasisofconditionsinplaceattheinceptionofthecontract.[IFRS3.17]
Acquiredintangibleassetsmustberecognisedandmeasuredatfairvalueinaccordancewiththeprinciplesifitisseparableorarisesfromothercontractualrights,irrespectiveofwhethertheacquireehadrecognisedtheassetpriortothebusinesscombinationoccurring.Thisisbecausethereisalwayssufficientinformationtoreliablymeasurethefairvalueoftheseassets.[IAS38.3337]Thereisno'reliablemeasurement'exceptionforsuchassets,aswaspresentunderIFRS3(2004).
Goodwill
Goodwillismeasuredasthedifferencebetween:
theaggregateof(i)thevalueoftheconsiderationtransferred(generallyatfairvalue),(ii)theamountofanynoncontrollinginterest(NCI,seebelow),and(iii)inabusinesscombinationachievedinstages(seebelow),theacquisitiondatefairvalueoftheacquirer'spreviouslyheldequityinterestintheacquiree,and
thenetoftheacquisitiondateamountsoftheidentifiableassetsacquiredandtheliabilitiesassumed(measuredinaccordancewithIFRS3).[IFRS3.32]
Thiscanbewritteninsimplifiedequationformasfollows:
Goodwill = Considerationtransferred
+ Amountofnoncontrollinginterests
+ Fairvalueofpreviousequity
interests
Netassetsrecognised
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Ifthedifferenceaboveisnegative,theresultinggainisabargainpurchaseinprofitorloss,whichmayariseincircumstancessuchasaforcedselleractingundercompulsion.[IFRS3.3435]However,beforeanybargainpurchasegainisrecognisedinprofitorloss,theacquirerisrequiredtoundertakeareviewtoensuretheidentificationofassetsandliabilitiesiscomplete,andthatmeasurementsappropriatelyreflectconsiderationofallavailableinformation.[IFRS3.36]
Choiceinthemeasurementofnoncontrollinginterests(NCI)
IFRS3allowsanaccountingpolicychoice,availableonatransactionbytransactionbasis,tomeasurenoncontrollinginterests(NCI)eitherat:[IFRS3.19]
fairvalue(sometimescalledthefullgoodwillmethod),or
theNCI'sproportionateshareofnetassetsoftheacquiree.
Thechoiceinaccountingpolicyappliesonlytopresentownershipinterestsintheacquireethatentitleholderstoaproportionateshareoftheentity'snetassetsintheeventofaliquidation(e.g.outsideholdingsofanacquiree'sordinaryshares).OthercomponentsofnoncontrollinginterestsatmustbemeasuredatacquisitiondatefairvaluesorinaccordancewithotherapplicableIFRSs(e.g.sharebasedpaymenttransactionsaccountedforunderIFRS2SharebasedPayment).[IFRS3.19]
Example
Ppays800toacquirean80%interestintheordinarysharesofS.Theaggregatedfairvalueof100%ofS'sidentifiableassetsandliabilities(determinedinaccordancewiththerequirementsofIFRS3)is600,andthefairvalueofthenoncontrollinginterest(theremaining20%holdingofordinaryshares)is185.
Themeasurementofthenoncontrollinginterest,anditsresultantimpactsonthedeterminationofgoodwill,undereachoptionisillustratedbelow:
NCIbasedonfairvalue
NCIbasedonnetassets
Considerationtransferred 800 800Noncontrollinginterest 185 120
985 920Netassets (600) (600)Goodwill 385 320
(1)Thefairvalueofthe20%noncontrollinginterestinSwillnotnecessarilybeproportionatetothepricepaidbyPforits80%interest,primarilyduetoanycontrolpremiumordiscount[IFRS3.B45]
(2)Calculatedas20%ofthefairvalueofthenetassetsof600.
Businesscombinationachievedinstages(stepacquisitions)
Priortocontrolbeingobtained,anacquireraccountsforitsinvestmentintheequityinterestsofanacquireeinaccordancewiththenatureoftheinvestmentbyapplyingtherelevantstandard,e.g.IAS28InvestmentsinAssociatesandJointVentures(2011),IFRS11JointArrangements,IAS39FinancialIn
(1) (2)
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struments:RecognitionandMeasurementorIFRS9FinancialInstruments.Aspartofaccountingforthebusinesscombination,theacquirerremeasuresanypreviouslyheldinterestatfairvalueandtakesthisamountintoaccountinthedeterminationofgoodwillasnotedabove[IFRS3.32]Anyresultantgainorlossisrecognisedinprofitorlossorothercomprehensiveincomeasappropriate.[IFRS3.42]
Theaccountingtreatmentofanentity'sprecombinationinterestinanacquireeisconsistentwiththeviewthattheobtainingofcontrolisasignificanteconomiceventthattriggersaremeasurement.Consistentwiththisview,alloftheassetsandliabilitiesoftheacquireearefullyremeasuredinaccordancewiththerequirementsofIFRS3(generallyatfairvalue).Accordingly,thedeterminationofgoodwilloccursonlyattheacquisitiondate.ThisisdifferenttotheaccountingforstepacquisitionsunderIFRS3(2004).
Measurementperiod
Iftheinitialaccountingforabusinesscombinationcanbedeterminedonlyprovisionallybytheendofthefirstreportingperiod,thebusinesscombinationisaccountedforusingprovisionalamounts.Adjustmentstoprovisionalamounts,andtherecognitionofnewlyidentifiedassetandliabilities,mustbemadewithinthe'measurementperiod'wheretheyreflectnewinformationobtainedaboutfactsandcircumstancesthatwereinexistenceattheacquisitiondate.[IFRS3.45]ThemeasurementperiodcannotexceedoneyearfromtheacquisitiondateandnoadjustmentsarepermittedafteroneyearexcepttocorrectanerrorinaccordancewithIAS8.[IFRS3.50]
RelatedtransactionsandsubsequentaccountingGeneralprinciples
Ingeneral:
transactionsthatarenotpartofwhattheacquirerandacquiree(oritsformerowners)exchangedinthebusinesscombinationareidentifiedandaccountedforseparatelyfrombusinesscombination
therecognitionandmeasurementofassetsandliabilitiesarisinginabusinesscombinationaftertheinitialaccountingforthebusinesscombinationisdealtwithunderotherrelevantstandards,e.g.acquiredinventoryissubsequentlyaccountedunderIAS2Inventories.[IFRS3.54]
Whendeterminingwhetheraparticularitemispartoftheexchangefortheacquireeorwhetheritisseparatefromthebusinesscombination,anacquirerconsidersthereasonforthetransaction,whoinitiatedthetransactionandthetimingofthetransaction.[IFRS3.B50]
Contingentconsideration
Contingentconsiderationmustbemeasuredatfairvalueatthetimeofthebusinesscombinationandistakenintoaccountinthedeterminationofgoodwill.Iftheamountofcontingentconsiderationchangesasaresultofapostacquisitionevent(suchasmeetinganearningstarget),accountingforthechangeinconsiderationdependsonwhethertheadditionalconsiderationisclassifiedasanequityinstrumentoranassetorliability:[IFRS3.58]
Ifthecontingentconsiderationisclassifiedasanequityinstrument,theoriginalamountisnotremeasured
Iftheadditionalconsiderationisclassifiedasanassetorliabilitythatisafinancialinstrument,thecontingentconsiderationismeasuredatfairvalueandgainsandlossesarerecognisedineither
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profitorlossorothercomprehensiveincomeinaccordancewithIFRS9FinancialInstrumentsorIAS39FinancialInstruments:RecognitionandMeasurement
IftheadditionalconsiderationisnotwithinthescopeofIFRS9(orIAS39),itisaccountedforinaccordancewithIAS37Provisions,ContingentLiabilitiesandContingentAssetsorotherIFRSsasappropriate.
Note:AnnualImprovementstoIFRSs20102012Cyclechangestheserequirementsforbusinesscombinationsforwhichtheacquisitiondateisonorafter1July2014.Undertheamendedrequirements,contingentconsiderationthatisclassifiedasanassetorliabilityismeasuredatfairvalueateachreportingdateandchangesinfairvaluearerecognisedinprofitorloss,bothforcontingentconsiderationthatiswithinthescopeofIFRS9/IAS39orotherwise.
Whereachangeinthefairvalueofcontingentconsiderationistheresultofadditionalinformationaboutfactsandcircumstancesthatexistedattheacquisitiondate,thesechangesareaccountedforasmeasurementperiodadjustmentsiftheyariseduringthemeasurementperiod(seeabove).[IFRS3.58]
Acquisitioncosts
CostsofissuingdebtorequityinstrumentsareaccountedforunderIAS32FinancialInstruments:PresentationandIAS39FinancialInstruments:RecognitionandMeasurement/IFRS9FinancialInstruments.Allothercostsassociatedwithanacquisitionmustbeexpensed,includingreimbursementstotheacquireeforbearingsomeoftheacquisitioncosts.Examplesofcoststobeexpensedincludefinder'sfeesadvisory,legal,accounting,valuationandotherprofessionalorconsultingfeesandgeneraladministrativecosts,includingthecostsofmaintaininganinternalacquisitionsdepartment.[IFRS3.53]
Preexistingrelationshipsandreacquiredrights
Iftheacquirerandacquireewerepartiestoapreexistingrelationship(forinstance,theacquirerhadgrantedtheacquireearighttouseitsintellectualproperty),thismustmustbeaccountedforseparatelyfromthebusinesscombination.Inmostcases,thiswillleadtotherecognitionofagainorlossfortheamountoftheconsiderationtransferredtothevendorwhicheffectivelyrepresentsa'settlement'ofthepreexistingrelationship.Theamountofthegainorlossismeasuredasfollows:
forpreexistingnoncontractualrelationships(forexample,alawsuit):byreferencetofairvalue
forpreexistingcontractualrelationships:atthelesserof(a)thefavourable/unfavourablecontractpositionand(b)anystatedsettlementprovisionsinthecontractavailabletothecounterpartytowhomthecontractisunfavourable.[IFRS3.B5153]
However,wherethetransactioneffectivelyrepresentsareacquiredright,anintangibleassetisrecognisedandmeasuredonthebasisoftheremainingcontractualtermoftherelatedcontractexcludinganyrenewals.Theassetisthensubsequentlyamortisedovertheremainingcontractualterm,againexcludinganyrenewals.[IFRS3.55]
Contingentliabilities
Untilacontingentliabilityissettled,cancelledorexpired,acontingentliabilitythatwasrecognisedintheinitialaccountingforabusinesscombinationismeasuredatthehigheroftheamounttheliabilitywouldberecognisedunderIAS37Provisions,ContingentLiabilitiesandContingentAssets,andtheamountlessaccumulatedamortisationunderIAS18Revenue.[IFRS3.56]
Contingentpaymentstoemployeesandshareholders
http://www.iasplus.com/en/standards/ias/ias37http://www.iasplus.com/en/standards/ias/ias32http://www.iasplus.com/en/standards/ias/ias37http://www.iasplus.com/en/standards/ifrs/ifrs9http://www.iasplus.com/en/standards/ifrs/ifrs9http://www.iasplus.com/en/standards/ias/ias39http://www.iasplus.com/en/standards/ias/ias39http://www.iasplus.com/en/standards/ias/ias18
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Aspartofabusinesscombination,anacquirermayenterintoarrangementswithsellingshareholdersoremployees.Indeterminingwhethersucharrangementsarepartofthebusinesscombinationoraccountedforseparately,theacquirerconsidersanumberoffactors,includingwhetherthearrangementrequirescontinuingemployment(andifso,itsterm),thelevelorremunerationcomparedtootheremployees,whetherpaymentstoshareholderemployeesareincrementaltononemployeeshareholders,therelativenumberofsharesowns,linkagestovaluationoftheacquiree,howtheconsiderationiscalculated,andotheragreementsandissues.[IFRS3.B55]
Wheresharebasedpaymentarrangementsoftheacquireeexistandarereplaced,thevalueofsuchawardsmustbeapportionedbetweenprecombinationandpostcombinationserviceandaccountedforaccordingly.[IFRS3.B56B62B]
Indemnificationassets
Indemnificationassetsrecognisedattheacquisitiondate(undertheexceptionstothegeneralrecognitionandmeasurementprinciplesnotedabove)aresubsequentlymeasuredonthesamebasisoftheindemnifiedliabilityorasset,subjecttocontractualimpactsandcollectibility.Indemnificationassetsareonlyderecognisedwhencollected,soldorwhenrightstoitarelost.[IFRS3.57]
Otherissues
Inaddition,IFRS3providesguidanceonsomespecificaspectsofbusinesscombinationsincluding:
businesscombinationsachievedwithoutthetransferofconsideration,e.g.'duallisted'and'stapled'arrangements[IFRS3.4344]
reverseacquisitions[IFRS3.B19]
identifyingintangibleassetsacquired[IFRS3.B3134]
DisclosureDisclosureofinformationaboutcurrentbusinesscombinations
Anacquirerisrequiredtodiscloseinformationthatenablesusersofitsfinancialstatementstoevaluatethenatureandfinancialeffectofabusinesscombinationthatoccurseitherduringthecurrentreportingperiodoraftertheendoftheperiodbutbeforethefinancialstatementsareauthorisedforissue.[IFRS3.59]
Amongthedisclosuresrequiredtomeettheforegoingobjectivearethefollowing:[IFRS3.B64B66]
nameandadescriptionoftheacquiree
acquisitiondate
percentageofvotingequityinterestsacquired
primaryreasonsforthebusinesscombinationandadescriptionofhowtheacquirerobtainedcontroloftheacquiree
descriptionofthefactorsthatmakeupthegoodwillrecognised
qualitativedescriptionofthefactorsthatmakeupthegoodwillrecognised,suchasexpectedsynergiesfromcombiningoperations,intangibleassetsthatdonotqualifyforseparaterecognition
acquisitiondatefairvalueofthetotalconsiderationtransferredandtheacquisitiondatefairvalueofeachmajorclassofconsideration
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detailsofcontingentconsiderationarrangementsandindemnificationassets
detailsofacquiredreceivables
theamountsrecognisedasoftheacquisitiondateforeachmajorclassofassetsacquiredandliabilitiesassumed
detailsofcontingentliabilitiesrecognised
totalamountofgoodwillthatisexpectedtobedeductiblefortaxpurposes
detailsaboutanytransactionsthatarerecognisedseparatelyfromtheacquisitionofassetsandassumptionofliabilitiesinthebusinesscombination
informationaboutabargainpurchase
informationaboutthemeasurementofnoncontrollinginterests
detailsaboutabusinesscombinationachievedinstages
informationabouttheacquiree'srevenueandprofitorloss
informationaboutabusinesscombinationwhoseacquisitiondateisaftertheendofthereportingperiodbutbeforethefinancialstatementsareauthorisedforissue
Disclosureofinformationaboutadjustmentsofpastbusinesscombinations
Anacquirerisrequiredtodiscloseinformationthatenablesusersofitsfinancialstatementstoevaluatethefinancialeffectsofadjustmentsrecognisedinthecurrentreportingperiodthatrelatetobusinesscombinationsthatoccurredintheperiodorpreviousreportingperiods.[IFRS3.61]
Amongthedisclosuresrequiredtomeettheforegoingobjectivearethefollowing:[IFRS3.B67]
detailswhentheinitialaccountingforabusinesscombinationisincompleteforparticularassets,liabilities,noncontrollinginterestsoritemsofconsiderat