International Financial Reporting Standards Ian P.N. Hague Principal, Accounting Standards...

International Financial Reporting Standards

Ian P.N. Hague Principal, Accounting Standards

Presentation to FMI (Halifax Chapter) January 15, 2009

Own views – not those of AcSB or other staff

2

Agenda

•What is changing and when?

•The IASB

•First-time Adoption

•Some similarities and differences

•Planning for the change

•Resources

3

The Plan

•February 13, 2008: “The Canadian Accounting Standards Board (AcSB) has confirmed that use of International Financial Reporting Standards (IFRS) will be required in 2011 for publicly accountable profit-oriented enterprises.

•IFRS will replace Canada’s current Generally Accepted Accounting Principles (GAAP) for those enterprises.

•The official changeover date is for interim and annual financial statements relating to fiscal

years beginning on or after January 1, 2011.”

4

Who does this apply to?

•Publicly Accountable Enterprise:• Issued, or is in the process of issuing,

debt or equity instruments that are or will be outstanding in a public market (i.e. all public companies are PAE’s); or

• Holds assets in a fiduciary capacity for a broad group of outsiders as its primary business, (i.e. others with large or diverse groups of users, such as a bank, insurance entity, securities broker/dealer, credit union, mutual fund or investment banking entity).

•Also, Public Sector: GBE/GBTO•NOT required for NFPOs•Others may choose to adopt IFRSs

5

Public Sector

•November 2007, PSAB approved

amendments to Introduction to PSAB

standards:

•GBEs and GBTOs follow for-profit

GAAP – i.e., IFRSs

•December 2008, decided to

reconsider whether ALL such entities

should follow IFRSs – ITC, early 2009

6

When is adoption required?

Jan 1/Apr 12010

Dec 312011/

Mar 31 2012

IFRSReporting

date

Openingbalancesheet

Preparatory period

Jan 1/Apr 12011

Jan. 1,2008

< 12 months

Cdn. GAAP & IFRS

7

Agenda


•The IASB




•Resources

8

What are IFRSs?

•A single set of globally converged,

high quality accounting standards

•Regulatory backing – IOSCO, EU, etc.

•Globally accepted (100+ countries)

•SEC – 2011 to decide if IFRS

mandatory for 2014

9

What are IFRSs?

•“Principles-based” standards

•Developed by International

Accounting Standards Board (based in

London, England)

•Broad international representation

•Independent

•Extensive due process

10

IASB (14)(sets accounting

standards)

Int’l Finc’l Reporting

Interpretations Committee (IFRIC) (14)

Standards Advisory

Council (SAC)(advises Board)

Trustees (22)(appoint Board, IFRIC and SAC)

National standard setters

IASB structure

11

The standards

IFRSs:

•IFRS

•IAS

•IFRIC

•SIC

Developed in accordance with Conceptual Framework

Set out recognition, measurement, presentation & disclosure requirements for general purpose F/S

Standards

EICs

Financial Reporting Standards

Financial Reporting Interpretations

12

What does it mean to adopt IFRSs?

•PAEs adopt IFRSs without

modification as Canadian GAAP – all

Canadian GAAP falls away (for PAEs)

•Interpretations by IFRIC only

•Focus of attention becomes on IASB

in London

13

Benefits to Canada

•Access to foreign markets

•Lower cost of capital – familiar standards

•Continued principles-based standards –

less complexity

•Efficiencies for international companies

•BUT: It will take work to get there

14

Challenges

•Financial information will differ

•Recognition

•Measurement

•Disclosure

•Significant education required

•IFRSs are, themselves, changing

15

Agenda


•The IASB




•Resources

16

First-time adoption of IFRSs

•Basic Principle: Retrospective treatment of IFRSs in effect at the reporting date

•Cost benefit to retrospective treatment

•Optional exemptions – e.g., fair value on transition

•Exceptions to the principle – e.g., estimates and hedging

17

IFRS 1: Timeline(calendar year entity)

Jan. 1,2010

Dec. 31,2011

IFRSReporting

date

Date of Transition

Jan. 1,2011

First IFRS Financial Statement

Openingbalancesheet

Same accounting policies

18

First IFRS financial statements

•Reconciliations of the effect of the change from ‘local’ GAAP to IFRS •Equity as at

•Date of transition, and•End of latest period presented by the entity in most recent annual financial statements prepared in accordance with its local GAAP

•Net income for period last presented in most recent annual financial statements

•Accounting policy disclosures•Other disclosures if significant

19

Agenda


•The IASB




•Resources

20

What will IFRS F/S look like? Similarities

•Cash•Accounts Receivable – except transfers•Inventories - except for Agriculture and Construction Contracts

•Property, Plant and Equipment – revaluation optional

•Leases – finance lease = capital lease•Goodwill and Intangibles – some revaluation

•Accounts payable•Long term debt – presentation: must refinance by balance sheet date

21

IFRS Adoption at changeover

•Many similarities between IFRSs &

Cdn GAAP

•BUT: Also some major differences

•Impairment

•Fair value / Revaluations

•Securitization

•Devil is in the details!

22

Impairment

Identify impairmentindicators (B/S date)

If impairment indicators exist, determine

recoverable amount (discounted cash flows)

Write-down to recoverable amount

Monitor for impairment indicators

Write-down to fair value

Identify cash generating unit

If impairment indicators exist, determine

recoverable amount (undiscounted cash flows)

Identify asset group

23

Looking for impairment

Impairment Indicators

• Proactive review at each reporting date to assess whether there is any indication that an asset might be impaired

• External information

• Internal information

24

Reversal of impairment loss•All impaired assets other than goodwill

•Look for indicators of reversal (B/S date)•Mirror of external and internal indicators of

impairment

•Calculate new recoverable amount and perform impairment test

•Recognize reversal if appropriate

•Only if change in estimates since last impairment loss

25

Fair value in existing IFRSscompared to Canadian• IAS 16: Property, Plant and Equipment – optional FV

• IAS 17: Leases - similar• IAS 18: Revenue - similar• IAS 19: Employee Benefits - similar• IAS 20: Government Grants - similar• IAS 21: Foreign Exchange - similar• IAS 32: Financial Instruments: Presentation - similar• IAS 33: Earnings per Share - similar• IAS 38: Intangible Assets – optional FV• IAS 39: Financial Instruments: Recgn. & Meas. -

similar• IAS 40: Investment Property – optional FV• IAS 41: Agriculture - additional• IFRS 2: Share-based Payments - similar• IFRS 3: Business Combinations - same• IFRS 4: Insurance Contracts – additional• IFRS 7 – Financial Instruments: Disclosure - same

26

Fair value guidance in IFRSs

•Limited guidance today in IAS 32, 39 &

41

•Recent guidance issued on fair value in

inactive markets

•Active project to develop consistent fair

value guidance

27

Property, plant & equipment

Property plant and equipment (IAS 16)

•Options for measurement

•Cost

•Revaluation Model

•Both less accumulated depreciation and

accumulated impairment losses

28


When to revalue?

•As frequently as necessary to ensure

that the carrying value of the revalued

assets and the current values are not

materially different

•Therefore, frequency depends on

volatility of asset value

•Revalue all assets of same class at

same time

29


Changes in value

•Increase = credit to revaluation surplus

(in equity)

•Decrease = charge to income statement

30

Property, plant & equipmentRevaluation after initial recognition

Asset RevaluedPrevious

Downw

ard Previo

us

Upward

Increase toEquity as

‘revaluation surplus”

Decrease to Income

Increase to income = previousdownward. Excess

to equity in re-valuation surplus.

Decrease to revaluation surplus.

Excess to incomeStatement.

Upwards Downwards

YesYesNo No

31


Depreciation

•Charge for depreciation against income

even in revaluation model

•Portion of revaluation reserve also

transferred to retained earnings

•When asset disposed of, any remaining

balance in revaluation reserve moved to

retained earnings

32

Investment property

•Options for measurement

•Cost (but must disclose FV)

•Fair value method (not revaluation

method)

•Gains and losses directly to income

statement

•No depreciation

33

Property, plant & equipment / Investment property

•28% of EU companies with

investment property used FV method

[ICAEW, 2007]

•4% of EU companies used revaluation

for buildings – none for P&E [ICAEW,

2007]

34

Agenda


•The IASB




•Resources

35

Majority of IFRSs remain unchanged through 2011•Inventories

•Accounting Policies & Accounting Changes

•Events after the Balance Sheet Date

•Property Plant & Equipment

•Government Grants

•Foreign Currency

•Borrowing Costs

•Associates

•Hyperinflation

•Interim Reporting

•Impairment ??

•Intangible Assets

•Investment Property

•Agriculture

•Business Combinations

•Extractive Activities

•Segments

36

How do we get there?

Convergence before changeover

• Business combinations [IFRS 3/IAS

27] – 2011

• Earnings per share [IAS 33] – 2010?

• Joint ventures [IAS 31] – 2011

• Credit Environment? – 2010/11?

37

IASB changes expected

IASB changes before 2011•Financial instruments disclosures – 2009

•Fair value measurement (how not when) – 2010

•Liabilities – 2010

•Income taxes – 2010

•Emissions trading – 20102009 probably effective 2011

2010 probably effective 2012

38

IASB isolated changes

Isolated changes

•Related Party Disclosures

•Discontinued Operations

•Group Cash-settled Shared-based

Payment


39

Changes expected in 2011•Financial statement presentation

•Insurance contracts

•Liabilities & equity

•Leases

•Employee benefits

•Revenue recognition

Likely to be effective in 2013. Might not be available for early adoption?

40

IASB Projects in longer term

•Reducing complexity in financial

instruments

•Extractive activities

•Common control transactions

•Government grants

•Intangible assets

•Conceptual framework

41

Planning

Evaluate the effects for your organization

•More than a technical exercise – creates opportunities and challenges

•Need to thoroughly assess accounting policies

•Start thinking in terms of IFRSs

•More than just accounting

•User relations

•Performance measures

•Covenants, etc.

42

Agenda


•The IASB




•Resources

43

Find out more: IFRS resources

•IASB web site – www.iasb.org

•IFRSs on AcSB website –

www.acsbcanada.org

•What’s changing when?

•Canada/IFRS GAAP Comparisons – 2 levels of

detail

•Bulletins, Implementation Plan, etc.

•Major firms – Newsletters, webcasts,

publications, illustrative financial statements

44

Find out more: Training

•CICA/PICAs

•Three-day in-depth course

•One-day overview of differences

•Web-based learning

•Major Accounting Firms – self-study

(e.g., www.iasplus.com)

45

Conclusions

•Biggest changes to financial reporting

in recent years

•Creates challenges and opportunities

•Be prepared for both

46

Questions/comments?

[email protected]

International Financial Reporting Standards Ian P.N. Hague Principal, Accounting Standards...

Documents

Transcript of International Financial Reporting Standards Ian P.N. Hague Principal, Accounting Standards...