ifrs -international financial reporting ... · pdf fileifrs -international financial reporting...

IFRS - International financial reporting language for investors

10 January 2011

www.pwc.com/th

Nangnoi Charoenthaveesub

PwC

Agenda

1. IFRS - The global phenomenon

2. Thai Responses to IFRS

3. Potential IFRS impacts

4. Investor relations - Dealing with challenges

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January 2011IFRS for IR

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IFRS - The global phenomenon

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What is IFRS?

IFRS is the name of the international accounting standards set by the

International Accounting Standards Board (IASB) for the purpose of developing a set of accounting standards accepted and complied with on a global basis.

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Key features and benefits of IFRS

IFRS for IR

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January 2011

Key features of IFRS

• Principle - based• Focus on Balance Sheet• Fair Value Accounting

Improved Transparency in the business performance

(accepted by all major markets)

More extensivedisclosures

Improved comparability (peer comparison on a global

basis)

• Comparison of financial performance across boundaries

• More transparency and comparability

• Ability to raise funding at a cheaper cost

• Better information for strategic investment decision making

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IFRS - A global phenomenon

IFRS for IR

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January 2011

Countries that require, permit or are converging

to IFRS

Source: www.pwc.com Update: January 2010

More than 100 countries require, permit or are converging to IFRS

The World's Top 15 Stock Exchanges by Domestic Market Capitalisation

- September 2010

Stock ExchangeEconomic area IFRS adoption plan

NYSE Euronext (US) Americas 2015 or 2016, subject to decision made in 2011

NASDAQ OMX Americas 2015 or 2016, subject to decision made in 2011

London SE Group EAME 2005

Tokyo SE APAC 2015 or 2016, subject decision made in 2012.

NYSE Euronext (Europe) EAME 2015 or 2016, subject to decision made in 2011

Hong Kong Exchanges APAC 2005

Shanghai SE APAC Substantially converged national standards

TSX Group Americas 2015 or 2016, subject to decision made in 2011

Bombay SE APAC 2011

National Stock Exchange India APAC 2011

BM&FBOVESPA Americas 2015 or 2016, subject to decision made in 2011

Australian SE APAC 2005

Deutsche Börse EAME 2005

BME Spanish Exchanges EAME 2008

SIX Swiss Exchange EAME Not yet announced

Source: World Federation of Exchanges

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Thai Responses to IFRS

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IFRS adoption in Thailand

IFRS for IR

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23 revised & 5 new accounting standards - effective 1 Jan 2011

onwards

4 revised & 4 new accounting standards - effective 1 Jan 2013

onwards

Date of IFRS transition 1 Jan 2010

Comparative figures required for 2011 financial statements

Partial IFRS financial statements starting from Q1’2011 Full IFRS financial

statements starting from Q1’2013

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Thai GAAP moves towards IFRS

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Effective for annual periods beginning on or after 1 January 2011

Accounting Framework

TAS 2: Inventories

TAS 8: Accounting policies, changes in

accounting estimates and errors

TAS 10: Events after the reporting period

TAS 11: Construction contract

TAS 17: Leases

TAS 18: Revenue

TAS 34: Interim financial reporting

TAS 37: Provisions, contingent

liabilities and contingent assets

TAS 1: Presentation of FS

TAS 7: Cash flow statements

TAS 16: Property, plant and equipment

TAS 23: Borrowing costs

TAS 24: Related party disclosures

TAS 27: Consolidated and separate FS

TAS 28: Investment in associates

TAS 31: Interests in joint ventures

TAS 33: Earnings per share

TAS 36: Impairment of assets

TAS 38: Intangible assets

TAS 40: Investment property

TFRS 3: Business combinations

TFRS 5: Non-current assets held for sale

and discontinued operations

TAS 19: Employee benefits

TAS 26: Accounting & reporting by

retirement benefit plans

TAS 29: Financial Reporting in

Hyperinflationary Economies

TFRS 2: Share-based payment

TFRS 6: Exploration for and

evaluation of mineral resources

Revisions with no significant changes Revisions with changes in some principle No existing TASs/TFRSs

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Effective for annual periods beginning on or after 1 January 2013

Remark:

* Announced in the Government Gazette

Revision s with changes in some principle No existing TASs/TFRSs

TAS 20: Accounting for government grants &

disclosure of government assistance*

TAS 21: The effects of changes in foreign exchange

rates*

TAS 32: Financial instruments: presentation

TFRS 8: Operating segments

TAS 12: Income taxes*

TAS 39: Financial instruments: recognition &

measurement

TFRS 4: Insurance contracts

TFRS 7: Financial instruments: disclosure

Not yet specify effective date

TFRS 1: First-time adoption of TFRSs

TAS 41: Agriculture

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Interpretation with the effective date during 2011 - 2013IFRIC 1: Changes in existing decommissioning, restoration and similar liabilities

IFRIC 2: Members’ shares in cooperative entities and similar

IFRIC 4: Determining whether an arrangement contains a lease

IFRIC 5: Non-current assets held for sale and discontinued operations

IFRIC 8: Scope of IFRS 2 (Share-based payment)

IFRIC 9: Scope of IFRS 2

IFRIC 10: Interim financial reporting and impairment

IFRIC 11: IFRS 2 – Group and treasury share transactions

IFRIC 12: Service concession arrangements

IFRIC 13: Customer loyalty programmes

IFRIC 14: The limit on a defined-benefit asset, minimum funding requirements and their interaction

IFRIC 15: Arrangements for the construction of real estate (effective 1 January 2011)

IFRIC 16: Hedges of a net investment in a foreign operation

IFRIC 17: Distributions of non-cash assets

SIC 10: Government assistance – No specific relation to operating activities

SIC 12: Consolidation – Special-purpose entities

SIC 13: Jointly controlled entities – Non-monetary contributions by venturers

SIC 15: Operating leases – incentives

SIC 21: Income taxes – recovery of revalued Non-depreciable assets

SIC 25: Income taxes – changes in the tax status of an entity or its shareholders

SIC 27: Evaluating the substance of transactions involving the legal form of lease

SIC 29: Service concession agreements: Disclosure

SIC 31: Revenue – Barter transactions involving advertising services

SIC 32:Intangible assets – Web Site Cost

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Potential IFRS impacts and key challenges

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IFRS business transformation

IFRS for IR

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January 2011

Scope & magnitude of change

• Understand full impact on organisation

• Identify required resources

Governance & compliance

• Set up IFRS project governance structure

• Regular update to management

Stakeholder engagement

•Identify impacted stakeholders (internal & external)

• Develop communication plan

• Education programme

Challenges you will face……

Change management

• Understand impact on people, process and IT

• Minimise lost opportunities to embed change

Sustainability

• Take opportunity of IFRS change

into long-term finance & operational effectiveness

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Potential areas of impact by IFRS

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High

HighFinancial impact

Disclosure

Conceptual illustrationConceptual illustration

Financial Statements Impact

Business/Operational Impact

Remark: For information purposes only, this may vary from client to client

Financial

instruments

IAS39 (IFRS9)

Segment

Income

taxes

(IAS12)

Fixed assets and

investment

property (IAS16, 40)

Revenue

recognition

& points

(IAS18)

Business

combination

(IFRS3)

Employee

benefits

(IAS19)

Impairment

of assets

(IAS36)Assets

disposals and

discontinued

operation

(IFRS5)

Leasing

(IAS17)

Investments,

consolidation

(IAS27/28,

SIC12)

Share based

payment

(IFRS 2)

Functional

currency

(IAS21)

Exploration for and Exploration for and Exploration for and Exploration for and evaluation of evaluation of evaluation of evaluation of

mineral resources mineral resources mineral resources mineral resources (IFRS6)(IFRS6)(IFRS6)(IFRS6)

Financial

statement

presentation and disclosure (IAS1)

Financial

instruments (IAS32,IFRS7)

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Profit and loss impact

IFRS for IR

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January 2011

Consolidated statement of income (I)

Sales 3,982 (A)

Cost of sales (500) (E), (F)

Gross profit 3,482

Selling & adminstrative expenses (1,716)(B),(C),(D),(E),

(F),(G),(H)

Operating income 1,766

Non operating income 46

Non operating expenses (42) (G)

Extraordinary loss 74 Removed

Extraordinary expense (98) Removed

Profit before tax 1,746

Income taxes - deferred (6)

Minority interest (5)

Net income 1,735

(A) Revenue recognition/points:- 1. Gross vs. net 2. Bundle sales arrangement 3. Timing of recognition (shipment→delivery) 4. Calculation of interest income (effective interest method)

(B) Business combination and Intangible assets:- 1. Goodwill valuation and termination of amortisation 2. Timing of adoption

(C) Leases:- 1. Capitalisation of off-balance leases 2. Determination of transactions deemed to be leases 3. Operating leases incentive

(D) Tangible assets:- 1. Component accounting 2. Asset retirement obligations 3. Valuation of investment property 4. Impairment of assets

(E) Provisions: - 1. Liability reserve for insurance companies 2. Adjustment to provision for loss on interest payment 3. Employeebenefit obligation

(F) Stock options:- 1. Application of fair value accounting 2. Treatment of cancelled stock option

(G) Capitalisation of borrowing cost

(H) Financial instruments:- 1. Classification 2. Measurement 3. Hedge accounting 4. Gross/net presentation

(I) Scope of consolidation 1. Consolidation of operating entities 2. Consolidation of SPEs

For illustrative purpose onlyFor illustrative purpose only

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Change in presentation

IFRS for IR

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January 2011

Statement of comprehensive income

Continued operations

Sales

Cost of sales

2,878

599

Gross profit

Selling, general and administrative expenses

Other operating income (expense)

2,279

1,755

(14)

Operating income

Financial income

Financial expense

Equity in earnings of unconsolidated subsidiaries

and affiliates

510

10

35

5

Profit before tax

Income tax expense

Net profit from continued operations

490

(89)

579

Discontinued operations

Loss on discontinued operations ━

Net income

Other comprehensive income

Comprehensive income

579

(1)

578


Consolidated statement of income

Sales 3,982

Cost of sales (500)

Gross profit 3,482

Selling & adminstrative expenses (1,716)

Operating income 1,766

Non operating income 46

Non operating expenses (42)

Extraordinary loss 74

Extraordinary expense (98)

Profit before tax 1,746

Income taxes - deferred (6)

Minority interest (5)

Net income 1,735

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Balance sheet impact

IFRS for IR

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January 2011

Consolidated balance sheet (J)

Assets

Current assets 18,141 (A)

Fixed assets 2,239 (B),(C)

Intangible assets 2,212 (D)

Total assets 22,592

Liabilities

Current liabilities 15,670 (E),(F),(G),(H)

Long term liabilities (including reserve required under the special law) 4,736 (E),(F),(G),(H)

Total liabilities 20,406

Shareholders' equity

Paid-in capital 2,076

Capital surplus 159

Retained earning (214)

Valuation and translation adjustments 12

Share subscription rights 6 (I)

Minority interests 147

Total shareholders' equity 2,186

Total liabilities and shareholders' equity 22,592

(A) Financial instruments:- 1. Classification 2. Measurement 3. Hedge accounting 4. Gross/net presentation

(D) Business combination and Intangible assets:- 1. Goodwill valuation and termination of amortisation 2. Timing of adoption

(C) Leases:- 1. Capitalisation of off-balance leases 2. Determination of transactions deemed to be leases

(B) Tangible:- 1. Component accounting 2. Asset retirement obligations 3. Valuation of investment property 4. Impairment of assets

(E) Corporate income taxes:- 1. Collectability of deferred tax assets 2. Tax effect of deferred income on investments

(F) Reserve for service points:-Measured at fair value and deducted from sales

(G) Provisions:- 1. Liability reserve for insurance companies 2. Adjustment to provision for loss on interest repayment 3. Employee benefits obligation 4. Decommissioning provision

(H) Employee benefits:- 1. Recording of vacation accrual 2. Transfer to tax-qualified pension plan 3. Recording of retirement benefit obligation

(I) Stock options:- 1. Application of fair value accounting 2. Treatment of cancelled stock options

(J) Scope of consolidation 1. Consolidation of operating entities 2. Consolidation of SPEs


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IFRS case study: Volkswagen

IFRS for IR

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January 2011

Reasons for the change from German Commercial Code to

IFRS in 2001:

• International principles

• Easier to access to international capital markets

• Contribute to IFRS development

• Great international opportunities

Key project components

• Detailed project planning

• Knowledge transfer

• Education and training across the group

• Market communications

Source: PwC IFRS transition

PwC

IFRS case study: Volkswagen

IFRS for IR

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January 2011

Key results:

• Opening group capital and reserves @ 1 Jan 2000 was

- under IFRS € 20.9bn vs. under German GAAP € 9.8bn

Reconciliation of the capital and reserves to IFRS € Million

Capital and reserves according to the German Commercial Code as at 1 January 2000 9,811

Capitalisation of development costs 3,982

Amended useful lives and depreciation methods in respect of tangible and intangible assets 3,483

Capitalisation of overheads in inventories 653

Differing treatment of leasing contracts as lessor 1,962

Differing valuation of financial instruments 897

Effect of deferred taxes -1,345

Elimination of special items 262

Amended valuation of pension and similar obligations -633

Amended accounting treatment of provisions 2,022

Classification of minority interests not as part of equity -197

Other changes 21

Capital and reserves according to IFRS as at 1 January 2000 20,918

Source: PwC IFRS transition

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Investor relations - Dealing with challenges

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“One sure sign of good IFRS communication efforts is the lack of

adverse share price reactions when earnings announcements come out”

Peter Elwin, head of accounting and valuation research for London-based Cazenove.

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IFRS for IR

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January 2011

Investor relations - Dealing with challenges

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Case: Royal Dutch/Shell Group Companies

IFRS for IR

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January 2011

Reporting under IFRS both quarter and annual result, starting from the 1st quarter of 2005

Presented to analysts regarding

• IFRS conversion plan and progress

• Key changes in accounting policies

• Rational in accounting policies adoption

• Impacts from individual accounting policies

• Reconciliation of opening balance as at 1/1/2004 from existing GAAP to IFRS

November 2004

Source: www.shell.com

PwC


IFRS for IR

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January 2011

Published 2004 results under IFRS (which will be the comparative data presented in its 2005 quarterly and annual report)

• Reconciliation to 2004 financial statements from existing GAAP to IFRS

• Impacts from IFRS arise from first time adoption choices and differences in accounting policies and in presentation format between US GAAP and IFRS.

• Explanation for key changes in financial statements

• Description of key changes to the financial statements under IFRS

• Main reasons for changes in earnings by industry segment under IFRS

April 2005

Source: www.shell.com

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IFRS for IR

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January 2011Source: www.shell.com

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IFRS for IR

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January 2011Source: www.shell.com

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Illustrative for Thai case

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1. Overall reporting

IFRS for IR

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January 2011

• New version of TAS and TFRS implementation as at 1 January 2011and one year comparative figures

• Q1’2011 will be reported under new version of TAS and TFRS

• The 2011 Financial Statements and Annual Report will be under new version of TAS and TFRS consolidated financial statements


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2. Significant changes

IFRS for IR

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January 2011

• TAS 1: Presentation of FS

• TAS 16: Property, plant and equipment

• TAS 19: Employee benefits

• TAS 21: The effects of changes in foreign exchange rates

• TAS 23: Borrowing costs

• TAS 36: Impairment of assets

• TAS 40: Investment property

• TFRS 3: Business combination


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3. Highlights

IFRS for IR

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January 2011

• Overall impact limited to a few key areas

• No impact on Group cash

• Opening balance sheet as at 1 January 2010

• reduction in net assets of Baht 210 million

• increase in provision for liabilities of Baht 210 million


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4. Accounting policy choices - IAS 19

IFRS for IR

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January 2011

Choices Decisions Financial impact

Four options:

1.Retrospective adjustment

2.Adjust to opening retained earnings

3.Recognise as an

expense in the current period

4.Amortise over 5 years

Option 2 chosen

•Adjust to opening retained earning

• Open time reduction in

opening net assets for Baht 210 million


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5. Key policy implications - IAS 16

IFRS for IR

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January 2011

Policy Key implication

1. Component accounting • Component approach is already in place

and is reviewed to ensure IFRS

compliance - no expected to result in any significant financial impact

2. Decommissioning • Expected no significant financial impact

3. Etc……..


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Summary

IFRS for IR

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January 2011

Develop communication strategy • Think about- When should information be released

- How your stakeholders will respond to your information and competitors

Provide clear, concise communication of the changes at your earliest opportunity

•Minimise individual interpretations and eliminate misunderstanding

Present accurate information • Provide accurate, robust and supportable information• Do sufficient level of due diligence

Demonstrate in depth knowledge of IFRS

• Clearly communicate how and why the adjustments are recorded

• Provide transparency to the decision - making process• Develop and demonstrate deep understanding of IFRS

Explain the impact on KPIs • Discuss impact of IFRS on KPIs

•Reconcile new KPIs to old KPIs to show you are not shifting the goal

From PwC’s experience, we recommend

Thank you

© 2011 PricewaterhouseCoopers ABAS Ltd. All rights reserved. In this

document,"PricewaterhouseCoopers" and/or “PwC” refers to PricewaterhouseCoopers ABAS Ltd.,

which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is

a separate legal entity.

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