IFRS News in Brief - November 2011
PUBLICATIONS AND ANNOUNCEMENTS
Revised proposals for revenue recognition open for comment until 13 March 2012
On 14 November 2011, the IASB (jointly with the FASB) published a revised exposure draft on revenue from contracts with customers. The core principle remains largely unchanged from the June 2010 ED, however with further refinements of the steps to apply it (some revisions, guidance, clarifications and simplifications).
For more information:http://www.ifrs.org/News/Press+Releases/rev+rec+reexpose+14+Nov+2011.htm
Two draft Q&As on the IFRS for SMEs open for comment until 31 January 2012
On 21 November 2011, the SME Implementation Group published for public comment two question and answer documents (Q&As) addressing whether an entity may choose to apply the recognition and measurement provisions of IFRS 9 and whether the recycling of cumulative exchange differences on disposal of a subsidiary is prohibited.
For more information:http://www.ifrs.org/News/Announcements+and+Speeches/CommentsQAsSMEs.htm
IFRS INTERPRETATIONS COMMITTEE
LATEST DECISIONS SUMMARY
The following is a summarised update on the main issues discussed and provisional decisions taken by the Committee at its meeting on 3 - 4 November 2011.
For more information: http://media.ifrs.org/IFRICUpdateNov11.html
Levies charged for participation in a market on a specified date (IAS 37)
In view of further staff analysis, the Committee noted the following:
- A liability should be recognised when the last of the necessary events to create the present obligation has occurred. Thus, the obligating event for a levy that is charged if the entity undertakes discrete activities both in the current and in the previous period is the activity in the latter period as identified by the legislation.
- The obligating event arises progressively if the activity that creates the present obligation occurs over a period of time. Thus, a liability is recognised progressively if the obligating event as identified by the legislation is the generation of revenues over a period of time.
Issues recommended for inclusion in the IASB’s Annual improvements to IFRSs project
- Statement of Cash Flows – Clarifying that all of the cash inflows and outflows relating to construction or upgrade services in a service concession arrangement should be presented by the operator as operating cash flows (IAS 7.14).
- Interrelation between IFRS 3 and IAS 40 - Determining whether the acquisition of investment property is the acquisition of a single asset (or a group of assets) or a business combination is a matter of judgement, based on the guidance in IFRS 3 (IAS 40.7-15 provide guidance only to distinguish an investment property from an owner-occupied property).
- Scope exclusion in IFRS 3 for joint ventures – Clarifying that IFRS 3.2(a) should apply to all types of joint arrangements (as defined in IFRS 11) and only to the accounting in the financial statements of the joint arrangement itself (not to the accounting for the joint venturer’s/joint operator’s interest in the joint arrangement).
INTERNATIONAL ACCOUNTING STANDARDS BOARD
LATEST DECISIONS SUMMARY
The following is a summarised update on the main issues discussed and provisional decisions taken by the IASB at its recent meetings, sometimes jointly with the FASB:
Leases (re-exposure due H1/2012)
- Under the ‘receivable and residual’ approach, lessors would be subject to specific disclosure requirements (maturity analysis of undiscounted cash flows included in the lease receivable, management of risk exposure to the underlying asset, information on variable lease payments and on existing options for renewal or termination, etc.).
- For sale and leaseback transactions entered into prior to the effective date of the new IFRS, a seller/lessee could choose to apply the new requirements either fully retrospectively or with the benefit of specific reliefs.
- For all its lease contracts, a first-time adopter may apply the transitional provisions that are available to existing IFRS preparers (see IFRS News in Brief October 2011). Also, the fair value of the right-of-use asset on transition date could be used as its deemed cost.
- In a business combination where the acquiree is a lessee, an acquirer should recognise:
- a liability to make lease payments, measured at the present value of future lease payments in accordance with the leases standard, as if the associated lease contract is a new lease at the acquisition date; and
- a right-of-use asset, equal to the liability to make lease payments (adjusted for any off-market terms in the lease contract).
- In a business combination where the acquiree is a lessor applying the ‘receivable and residual’ approach, an acquirer should recognise:
- a right to receive lease payments, measured at the present value of future lease payments in accordance with the leases standard, as if the associated lease contract is a new lease at the acquisition date; and
- a residual asset, equal to the difference between the fair value of the underlying asset at the acquisition date and the carrying amount of the right to receive lease payments.
- In a business combination where the acquiree is a lessor of investment property, the acquirer should apply the guidance in IFRS 3 relating to acquired operating leases.
- In a business combination where the acquiree has short-term leases (ie remaining term of the lease contract of maximum twelve months), the acquirer should not recognise separate lease assets / liabilities at the acquisition date.
- Upon transition by a lessee, previously recognised assets / liabilities for favourable / unfavourable terms in acquired operating leases should be derecognised and the carrying amount of the right-of-use asset adjusted by those amounts.
- If appropriate, interest expense incurred under a lease could be capitalised under IAS 23 (thus, ED proposed removal of finance lease charges from the scope of IAS 23 not retained).
Mandatory effective date of IFRS 9 Financial Instruments
IFRS 9 should become effective for annual periods beginning on or after 1 January 2015, instead of 1 January 2013, still with early application permitted. Also, an entity could choose not to restate its comparatives for the effect of applying IFRS 9. However, modified disclosures on transition from the classification and measurement requirements of IAS 39 to those of IFRS 9 would be required from entities adopting IFRS 9 for reporting periods beginning on 1 January 2013 or thereafter, whether comparatives are restated or not. Entities adopting IFRS 9 before 1 January 2012 are exempt from the modified disclosures and those adopting between 1 January 2012 and 31 December 2012 are required to provide them only if they elect not to restate comparatives.
Annual improvements 2010-2012 (exposure draft due Q4/2011)
- IFRS 8 Operating Segments – A description of the operating segments that have been aggregated and of the economic indicators that have been assessed in order to conclude that the operating segments have 'similar economic characteristics' (IFRS 8.12) should be disclosed.
- IAS 24 Related Party Disclosures - The definition of a related party should be extended to include entities that provide KMP services (ie management entities). Separate disclosure of fees paid to related parties in respect of KMP services would be required, while compensation provided to the management entity for such services would not need to be disclosed under IAS 24.17 (as it does not meet the definition of ‘compensation’ under IAS 24.9).
IFRS 10 Consolidated Financial Statements
The transitional provisions would be clarified as follows:
- Date of initial application would be defined as 'the beginning of the reporting period in which IFRS 10 is applied for the first time'.
- Adjustments to the accounting for an involvement with an entity that was disposed of, or whose control was lost, in the comparative period(s) should not be required.
UPCOMING COMMENT DEADLINES
5 January 2012
| ED/2011/4 - Investment Entities |
| 5 January 2012 | ED/2011/5 - Government Loans (proposed amendments to IFRS 1) |
| 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 |
RSM International Comment Letters
On 30 November 2011, RSM International submitted the following letters of comment to the IASB:
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