IFRS Update for Financial Services
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Transcript of IFRS Update for Financial Services
IFRS Update for Financial Services
3 April 2014
KPMG AG, Zurich
1 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Agenda
Overview IFRS developments
IFRS 13 – Fair value measurement
Offsetting – IFRS 7, IAS 32
Determining cash generating units (CGU)
2 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Timeline – change ahead
Consolidation – Investment
entities
Equity method
Intangibles
Common control
FI - equity Emission trading
Final published:
ED/DP expected in Q2 2014: *
Final expected in Q2 2014: **
IFRS 9 – FI ** (IAS 39
replacement )
To Be Determined 2014
IAS 32 Offsetting
Annual improvements (2011-2013)
Annual improvements (2010-2012)
?
Discount rates
Standard Inter-
pretation Potential projects
IFRIC 21 Levies
IAS 39/IFRS 9 Novation and
hedging IAS 19
Employee contributions
IFRS10/IAS 28 Asset sale or contribution **
IAS 28 Other net assets changes **
IAS 27 Separate FS: equity method
Rate-regulated activities *
IAS 12 DTA recognition for unreal. losses *
Annual improvements (2012-2014)
IFRS 11 Interest in joint operations **
Status as of March 2014 Impact for companies with a
calendar year end
Revenue
recognition **
FI Macro-
hedging *
Insurance
Leases
IAS 32 NCI
put options
Disclosure initiative
IAS 36 Recoverable amount discl.
2018 ...
3 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 9 – Financial Instruments Early adoption - what can you do now?
Early adoption Mandatory effective
Now 2Q2014 ? 2015-2017 2018
IFRS 9 (2010) Classification & Measurement
C&M limited amendments
Mandatory adoption of all requirements
(without Macro Hedging)
Ability to early adopt IFRS 9 (2010) & new hedge accounting
ECL not mandatory
Longer implementation period for ECL
Multiple implementation efforts
All parts of IFRS 9 would be required
Cannot early adopt piecemeal
Liabilities FVtP&L (Credit risk)
IFRS 9 (2013) Hedge Accounting
Expected Credit Losses (ECL)
4 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
ED/2014/1 Disclosure Initiative Proposed amendments to IAS 1
Preparers should be better able to provide more company-specific information Proposals would not require significant change to current practice, but should facilitate
improved reporting
Bottom line
Key clarifications
Immaterial discosures need not be made Notes may be re-ordered and combined Aggregation and disaggregation clarified Additional requirements for presenting subtotals
5 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Agenda
Overview IFRS developments
IFRS 13 – Fair value measurement
Offsetting – IFRS 7, IAS 32
Determining cash generating units (CGU)
6 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Disclosure in half year 2014
Disclosure in interim financial statements
• For financial instruments that are measured at fair value on
a recurring and non-recurring basis: all fair value disclosures in accordance with IFRS 13 and IFRS 7.
No disclosure requirement in interim financial statements
• Non-financial assets and liabilities measures at fair value
(i.e. investment properties) • Financial instruments not measured at fair value (i.e. loans)
7 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Level 3 - look back at 2013
Source: Deutsche Bank, Interim Report 2013
Example disclosure
8 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Issues in practice
Use of disclosure exemption (IFRS 7.29)
Determination if inputs are significant
unobservable
Are markets with price
information active?
9 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Active Markets: Examples for Transfers Between Level 1 and Level 2
Source: Barclays PLC, annual report 2013
Source: HSBC, annual report 2013
10 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Consideration of an “Active Market”
HDAT trading volume (€m)
January February March April May June 3-Jan 6 1-Feb 110 1-Mar 53 1-Apr 25 2-May 51 1-Jun 41 4-Jan 33 2-Feb 75 2-Mar 34 4-Apr 23 3-May 42 2-Jun 13 5-Jan 5 3-Feb 27 3-Mar 36 5-Apr 16 4-May 59 3-Jun 4 7-Jan 6 4-Feb 42 4-Mar 24 6-Apr 49 5-May 24 6-Jun 28 10-Jan 66 7-Feb 17 8-Mar 61 7-Apr 15 6-May 20 7-Jun 12 11-Jan 127 8-Feb 40 9-Mar 50 8-Apr 187 9-May 44 8-Jun 36 12-Jan 76 9-Feb 44 10-Mar 101 11-Apr 34 10-May 35 9-Jun 22 13-Jan 20 10-Feb 60 11-Mar 77 12-Apr 23 11-May 31 10-Jun 22 14-Jan 28 11-Feb 63 14-Mar 94 13-Apr 75 12-May 38 14-Jun 29 17-Jan 12 14-Feb 33 15-Mar 58 14-Apr 231 13-May 40 15-Jun 20 18-Jan 24 15-Feb 87 16-Mar 61 15-Apr 176 16-May 10 16-Jun 6 19-Jan 52 16-Feb 59 17-Mar 36 18-Apr 107 17-May 13 17-Jun 8 20-Jan 34 17-Feb 51 18-Mar 69 19-Apr 40 18-May 33 20-Jun 24 21-Jan 16 18-Feb 8 21-Mar 82 20-Apr 209 19-May 30 21-Jun 18 24-Jan 29 21-Feb 7 22-Mar 52 21-Apr 16 20-May 68 22-Jun 30 25-Jan 20 22-Feb 26 23-Mar 18 26-Apr 77 23-May 41 23-Jun 9 26-Jan 49 23-Feb 17 24-Mar 18 27-Apr 40 24-May 36 24-Jun 9 27-Jan 50 24-Feb 29 28-Mar 6 28-Apr 52 25-May 14 27-Jun 13 28-Jan 25 25-Feb 22 29-Mar 23 29-Apr 9 26-May 13 28-Jun 8 31-Jan 29 28-Feb 30 30-Mar 13 27-May 13 29-Jun 13
31-Mar 8 30-May 9 30-Jun 3 31-May 31
Is this an active market?
Source: HDAT Greek bonds trading volume Jan-June 2011
11 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Consideration of an “Active Market”: Greek Bonds
12 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Significant Unobservable Inputs: Reasons for Transfers
No quoted prices for similar assets
available anymore.
Volume of activity of the observable
input has reduced.
Credit spreads are not anymore observable.
Liquidity adjustments need
to be incorporated.
Entity specific synergies are
incorporated in the fair value
measurement.
13 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Significant Unobservable Inputs: Examples for Transfers in and out of Level 3
Source: Barclays PLC, annual report 2013
14 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Significant Unobservable Inputs: Examples for Transfers in and out of Level 3
Source: HSBC, annual report 2013
15 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 13 – Fair value measurement Disclosure exemption
Source: HSBC, annual report 2013
16 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Agenda
Overview IFRS developments
IFRS 13 – Fair value measurement
Offsetting – IFRS 7, IAS 32
Determining cash generating units (CGU)
17 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 7 Offsetting Disclosures Observed in 2013 (1/3)
Offsetting disclosure, Deutsche Bank 2013
18 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 7 Offsetting Disclosures Observed in 2013 (2/3)
Offsetting disclosure, HSBC 2013
19 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 7 Offsetting Disclosures Observed in 2013 (3/3)
Offsetting disclosure, UBS 2013
20 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 7: Offsetting application issues What’s in Scope?
FV of Derivatives
Reverse repos, Repos
Securities borrowed,
Securities lent
“Set in stone”....
21 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IFRS 7: Offsetting application issues Disclosures in interim financial statements
Clarification is part of the Annual Improvements to IFRS 2012-14 cycle
Are offsetting disclosures required in interim financial reports ?
22 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Amendments to IAS 32: Overview
The amendments clarify: • When entity currently has a legally
enforceable right to set-off, which is when: • the right is not contingent on a future
event; and • it is enforceable both in the normal
course of business and in the event of default , insolvency or bankruptcy of the entity and all counterparties
• When gross settlement is equivalent to net settlement.
Annual periods beginning on or after January 2014.
What?
New!
Enforceable
All parties
Settlement method
23 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IAS 32 – Legal enforceability of the right to set off: LCH rule
The London Clearing House (LCH) rulebook contains Regulation 34 which allows the clearing house to unilaterally vary the rules without consulting members and is effective for existing open contracts, such that the legal right to set off could apparently be withdrawn.
Issue
24 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IAS 32 – Right of all parties to enforce set off
The standard ISDA master agreement states the following about netting: Issue
25 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IAS 32: Gross settlement equivalent to net settlement
Gross settlement systems
Objective of IAS 32 – instruments settled through clearing houses would meet ‘intent to settle net’ criteria
Reality of IAS 32 – offsetting expected to be limited under most clearing houses
26 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
IAS 32: What about “intent”?
27 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Agenda
Overview IFRS developments
IFRS 13 – Fair value measurement
Offsetting – IFRS 7, IAS 32
Determining cash generating units (CGU)
28 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
When may CGUs change?
Changing trend in customers’
demand
Change in the way to manage business (to
save cost, to streamline processes)
Investment in a significant new
subsidiary
Restructuring
Disposal of acquired
businesses
Entrance in new market, new
product
Vertical integration in
the value chain
29 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Changes in CGU - Example
Reorganised reportable business segments I
Identified new CGUs in the business segments III
Transferred certain businesses, assets & liabilities II
In its 2012 annual report, Deutsche Bank announced changes to its business segments and CGUs.
30 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Changes in CGU - Example
CB&S GTB AM PWM PBC CI
AWM Whole-
sale assets
Opera-ting
assets CB&S GTB PBC
2011
2012
NCOU
Reallocation of assets
Reassessment of CGU
31 © 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
Open discussion
Questions ?
Feedback?
Your views?
Publications
For KPMG’s Newsletter: https://www.kpmgnews.ch/en/index.htm For KPMG’s IFRS Publications: http://www.kpmg.com/global/en/topics/global-IFRS-institute
First impressions: IFRS 9 (2013) – Hedge accounting
and transition This edition of First Impressions
considers the requirements of IFRS 9 Financial Instruments (2013),
including the new general hedging model.
New on the Horizon: Financial Instruments- Expected credit losses
The IASB's revised proposals are a step change in accounting for
impairment, with big impacts likely for banks and similar financial
institutions.
Insights into IFRS 2013/14
KPMG’s updated publication explains the requirements of IFRS
and provides extensive interpretative and application guidance.
Save-the-Date IFRS Update for Financial Services Thursday, 30 October 2014 Save this date for our next Update!
Thank you!
Contact details
Patricia Bielmann Partner
IFRS Financial Services
KPMG AG Badenerstrasse 172
8026 Zurich
Phone +41 58 249 41 88 Fax +41 58 249 48 64
Lisa Busedu Director
IFRS Financial Services
KPMG AG Badenerstrasse 172
8026 Zurich
Phone +41 58 249 56 16 Fax +41 58 249 48 64
Disclaimer:
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2014 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.