IFRS News in Brief - June 2011

PUBLICATIONS AND ANNOUNCEMENTS

IAS 1 amended for presentation of items of Other Comprehensive Income (OCI)

The amendments to IAS 1 published by the IASB on 16 June 2011 require entities to group items presented in OCI on the basis of whether they are potentially recycled to profit or loss (ie reclassification adjustments). The amendments (effective for annual periods beginning on or after 1 July 2012, or earlier) do not address which items are presented in OCI or which and when items are recycled through profit or loss, but reaffirm that items in OCI and profit or loss should be presented as either a single statement or two consecutive statements. The simultaneous publication by the FASB of an Update to Topic 220 brings US GAAP into alignment with IFRSs for the presentation of OCI.

For more information: http://www.ifrs.org/News/Press+Releases/OCI+16+June+2011.htm


IAS 19 amended for accounting for post-employment benefits

The amendments to IAS 19 published by the IASB on 16 June 2011 (effective for annual periods beginning on or after 1 January 2013, or earlier) eliminate the option to defer recognition of gains and losses (the ‘corridor method’), streamline the presentation of changes in assets and liabilities arising from defined benefit plans (eg mandatory presentation of remeasurements in OCI) and enhance the disclosure requirements for defined benefit plans (eg their characteristics and related risks).

For more information: http://www.ifrs.org/News/Press+Releases/IAS+19+June+2011.htm


Proposal for amendments of five standards open for comment until 21 October 2011

On 22 June 2011, the IASB published an exposure draft on the 2011 annual improvements project, with amendments affecting five standards: IFRS 1 First-time Adoption of International Financial Reporting Standards, IAS 1 Presentation of Financial Statements, IAS 16 Property, Plant and Equipment, IAS 32 Financial Instruments: Presentation and IAS 34 Interim Financial Reporting.

The amendments would be effective for annual periods beginning on or after 1 January 2013 (or earlier).

For more information: http://www.ifrs.org/News/Press+Releases/API+ED+22+June+2011.htm


Re-exposure of revenue recognition proposals

Due to a large number of changes made since the June 2010 ED, the IASB and FASB decided to re-expose their revised proposals for a common revenue recognition standard in the third quarter of 2011 for a 120-days comment period, thus pushing the expected timeline for issuing a final standard into 2012.

For more information: http://www.ifrs.org/News/Press+Releases/re-expose+rev+rec+June+2011.htm


Publication of Q&A 2011/01 Use of the IFRS for SMEs in a Parent’s Separate Financial Statements

On 23 June 2011, the SME Implementation Group published its first Q&A guidance (non-mandatory) concluding that a parent entity assesses its eligibility to use the IFRS for SMEs in its separate financial statements on the basis of its own public accountability without considering whether other group entities have, or the group as a whole has, public accountability.

For more information:http://www.ifrs.org/NR/rdonlyres/D9C51FF5-2A0A-4027-8B0F-FFD9D7F397BF/0/IFRSforSMEsQA2011_01.pdf

INTERNATIONAL ACCOUNTING STANDARDS BOARD 
LATEST DECISIONS SUMMARY

Leases (Re-exposure probable Q3/2011)

• Changes in the liability to make lease payments as a result of foreign exchange differences should be recognised by the lessee in profit or loss.
• The lessee’s right-of-use asset could be revalued under IAS 38 and should be evaluated for impairment in accordance with IAS 36 (confirmation of ED proposals).
• For subsequent measurement of amounts expected to be payable under residual value guarantees included in the lease payments, a lessee should:
  • Amortise amounts included in the right-of-use asset on a systematic basis from the date of commencement of the lease to the end of the lease term, or over the useful life of the underlying asset if shorter (ie consistently with the other lease payments)
  • Reassess amounts included in the liability to make lease payments when events or circumstances indicate that there has been a significant change in the estimate
  • Recognise in net income the changes in estimates of residual value guarantees relating to current/prior periods and adjust the right-of-use asset for changes relating to future periods. If the pattern of consumption of the right-of-use asset’s economic benefits cannot be determined reliably, changes should be all allocated to future periods.
• A head lease and a sublease should be accounted for as separate transactions where an intermediate lessor is both the lessee in the head lease arrangement and the lessor in the sublease arrangement.
• For short-term leases (ie with a maximum possible term at date of commencement of 12 months or less including renewal options), instead of recognising lease assets and liabilities, a lessee could recognise lease payments in profit or loss on a straight-line basis over the lease term (or another systematic and rational basis more representative of the use pattern of the underlying asset).

Revenue recognition (Re-exposure announced Q3/2011)

While application of the final standard on a retrospective basis is confirmed, transitional provisions would relieve entities from specific requirements (eg not restate contracts that begin and end within the same reporting period, use hindsight in estimating variable consideration, etc.).


Financial instruments: impairment (Re-exposure probable H2/2011)

The Board is now developing a 'three-bucket' expected loss approach for the impairment of financial assets. Distinction between the buckets would be based on credit risk deterioration, with clear and well-defined indicators and guidance on timing of transfer of assets between the three buckets.


Financial instruments: hedge accounting

• The ED proposals related to the accounting for time value component of options used as hedging instruments in a hedging relationship would be retained, with additional guidance, however without introducing an accounting policy choice (as suggested by some constituents).
  The ED introduces an 'insurance premium' view for the time value of options (ie time value is the cost of hedging) where the time value component would be recognised in other comprehensive income and then either expensed (for time period related hedges) or basis adjusted (for transaction related hedges). Thus, accounting for time value of options would depend on the nature of the hedged item.
• A combination of written and purchased options could be jointly designated as the hedging instrument provided that the combination is not a net written option (considering the same aspects as for a collar).
• Rebalancing a hedging relationship should cover only adjustments to the quantities of the hedged item or the hedging instrument for the purpose of maintaining a hedge ratio that complies with the requirements of the hedge effectiveness assessment.
• Voluntary discontinuation of hedge accounting would be prohibited when the risk management objective remains the same and all the other qualifying criteria are still met. Relation between risk management objective and risk management strategy should be explained in the final guidance.

Insurance contracts (Re-exposure probable Q4/2011)

• Reinsurance contracts (ie insurance contracts that an insurer purchases to transfer insurance risk to another insurance company) topics discussed mainly for definition of significant risk transfer, interdependent contracts, recognition of reinsurance contract, ceded risk adjustment, treatment of gains and losses, cession of residual/composite margin on underlying insurance contracts and credit risk of reinsurer.
• Instead of being locked in at inception, the residual margin should be adjusted prospectively for favourable and unfavourable changes in the estimates of future cash flows used to measure the insurance liability, without limiting its increase. Experience adjustments and changes in the risk adjustment would be recognised in profit or loss.
• The residual margin should not be negative and should be allocated over the coverage period on a systematic basis that is consistent with the pattern of transfer of services provided under the contract.
• With no distinction between successful and unsuccessful acquisition efforts, initial measurement of a portfolio of insurance contracts should include acquisition costs (ie all the direct costs to be incurred by the insurer in acquiring the contracts in the portfolio) and should exclude indirect costs (eg software dedicated to contract acquisition, equipment maintenance and depreciation, agent and sales staff recruiting and training, administration, rent and occupancy utilities, other general overhead, advertising).

UPCOMING COMMENT DEADLINES

 Click here to download a PDF of IFRS News in Brief for June 2011