IFRS News in Brief - December 2011
PUBLICATIONS AND ANNOUNCEMENTS
IFRS 9 amended for its effective date
The amendments published by the IASB on 16 December 2011 defer the effective date of the standard on financial instruments from 1 January 2013 to 1 January 2015 (with earlier application still permitted) and provide relief from the requirement to restate comparatives (not limited anymore to early application of IFRS 9 prior to 2012) with additional transition disclosure requirements (via consequential amendments to IFRS 7).
For more information: http://www.ifrs.org/Alerts/PressRelease/IFRS9+effective+date+Dec+2011.htm
IAS 32 amended for offsetting financial instruments
The amendments published by the IASB on 16 December 2011 (effective for annual periods beginning on or after 1 January 2014, retrospectively) address inconsistencies in current practice when applying the offsetting criteria in IAS 32, mainly by clarifying the meaning of ‘currently has a legally enforceable right of set-off’ and that some gross settlement systems may be considered equivalent to net settlement.
For more information: http://www.ifrs.org/Alerts/PressRelease/IAS+32+Dec+2011.htm
IFRS 7 amended for offsetting disclosure requirements
The amendments published by the IASB (jointly with the FASB) on 16 December 2011 (effective for annual and interim periods beginning on or after 1 January 2013, retrospectively) allow investors to bridge differences in the offsetting reporting requirements of IFRS and US GAAP. Also, the new disclosures provide better information on how companies mitigate credit risk, including on related collateral pledged or received.
For more information: http://www.ifrs.org/Alerts/PressRelease/IFRS+7+Dec+2011.htm
Proposal to clarify the transition guidance in IFRS 10 open for comment until 21 March 2012
On 20 December 2011, the IASB published an exposure draft to clarify the transition guidance in the standard on consolidation by confirming when an entity needs to apply IFRS 10 retrospectively (ie meaning of ‘date of initial application’).
For more information: http://www.ifrs.org/Alerts/PressRelease/IFRS+10+20+Dec+2011.htm
Publication of two Q&As on the IFRS for SMEs
On 7 December 2011, the SME Implementation Group published non-mandatory guidance Q&A 2011/02 Entities that typically have public accountability and Q&A 2011/03 Interpretation of ‘traded in a public market’ in applying the IFRS for SMEs to help entities assess whether they have public accountability, thus whether they are eligible to use the Standard.
For more information: http://www.ifrs.org/Alerts/SME/SMEpublishesfinalQAs.htm
INTERNATIONAL ACCOUNTING STANDARDS BOARD
LATEST DECISIONS SUMMARY
The following is a summarised update on the main provisional decisions taken by the IASB at its recent meeting on 13 – 16 December 2011, sometimes jointly with the FASB.
For more information: http://media.iasb.org/IASBupdateDecember2011.html
Leases (re-exposure due Q2/2012)
- Leases that either are cancellable by both lessee and lessor with minimal termination payments, or include renewal options to be agreed by both lessee and lessor would meet the definition of short-term leases if the initial non-cancellable period (including any notice period) is less than one year.
- For investment property that is outside the scope of the lessor receivable and residual approach, rental income should be recognised on a straight-line basis (or on another systematic basis if more appropriate), only the underlying investment property should be recognised on the lessor’s statement of financial position (plus any accrued/prepaid rental income) and specific disclosures would be required.
Impairment of financial assets (re-exposure due Q2/2012)
- Bucket 1 allowance balance should capture all losses expected in the next 12 months: cash shortfalls over the next 12 months and the lifetime expected losses on the portion of financial assets on which a loss event is expected over the next 12 months, based on all reasonable and supporting information, including forward-looking data (ie updated estimates as expectations change).
- Financial assets should move out of Bucket 1 and lifetime losses recognised when there is a more than insignificant deterioration in credit quality since initial recognition and the likelihood of default is such that it is at least reasonably possible that the contractual cash flows may not be recoverable.
- To evaluate whether transferring out of Bucket 1 is appropriate, financial assets:
- should be grouped on the basis of 'shared risk characteristics'
- cannot be grouped at a more aggregated level if there are shared risk characteristics for a sub-group that would indicate that recognition of lifetime losses is appropriate
- should be evaluated individually if they are individually significant or if the entity does not have a group of similar assets to aggregate them
- could be evaluated either individually or within a group of financial assets with shared risk characteristics.
- Buckets 2 and 3 would be differentiated based on the unit of evaluation for credit deterioration: financial assets evaluated on a group basis in Bucket 2 and those evaluated on an individual basis in Bucket 3.
- No bright-line presumption that would result in recognition of lifetime expected losses would be retained in applying the credit deterioration model to debt securities and to commercial and consumer loans.
Insurance contracts (re-exposure/review draft due Q2/2012)
- Options and guarantees embedded in insurance contracts that are not separately accounted for as derivatives should be measured within the overall insurance contract obligation, using a current, market-consistent, expected value approach.
- Measurement of an obligation created by an insurance contract liability that requires payment depending on the performance of specified assets and liabilities of the insurer should include all such payments, whether paid to current or future policyholders.
- Liability for incurred claims should be discounted when the effects of discounting would be material. A practical expedient would permit insurers not to discount portfolios where the incurred claims are expected to be paid within 12 months of the insured event (unless facts and circumstances indicate that payments will no longer occur within 12 months).
- If, for a given insurance contract, the expected present value of the future cash outflows plus the risk adjustment exceed the expected present value of the future cash inflows (for the pre-coverage period) or the carrying amount of the liability for the remaining coverage (for the premium allocation approach), the contract is onerous.
UPCOMING COMMENT DEADLINES
| 31 January 2012 | Draft Q&A IFRS for SMEs - Fallback to IFRS 9 Financial Instruments |
| 31 January 2012 | Draft Q&A IFRS for SMEs - Recycling of cumulative exchange differences on disposal of a subsidiary |
13 March 2012
| ED/2011/6 - Revenue from Contracts with Customers |
21 March 2012
| ED/2011/7 - Transition Guidance (Proposed amendments to IFRS 10) |
RSM International Comment Letters
On 5 January 2012, RSM International submitted the following letters of comment to the IASB:
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