Going global. Trouble ahead. Ongoing major projects. Where next?

Transcription

1 Where now for IFRS? Gavin Aspden FCA ICAEW Director, Qualifications Going global Trouble ahead Ongoing major projects Where next? 1

2 Going global Trouble ahead Ongoing major projects Where next? IFRS jurisdictions

3 IFRS jurisdictions 2006 IFRS jurisdictions

4 Going global Trouble ahead Ongoing major projects Where next? United States The SEC has yet to make a decision on whether or not to approve the use of IFRS May 2011 workplan proposes condorsement approach Decision expected by the end of the year 4

5 Japan It had been expected that transition to IFRS would start in 2015 or 2016 However, in June 2011 the minister for financial services stated that mandatory adoption would not be required for the fiscal year ending March 31, 2015 if mandatory adoption is decided, a preparation period of five to seven years will be provided A final decision on mandatory adoption of IFRS is to be made around 2012 India India had planned a multiphase transition to the newly converged Ind AS beginning 1 April 2011 This has now been delayed The revised date of implementation of Ind AS has not been announced but it is likely to be 2012 or 2013 However concerns have been raised about the number of modifications and carve outs that have been made to IFRS as issued by the IASB 5

6 Going global Trouble ahead Ongoing major projects Where next? Leases Objective The aim of the project is to develop a new single approach to lease accounting that would ensure that all assets and liabilities arising under lease contracts are recognised on balance sheet Eliminate the distinction between operating leases and finance leases Project milestones In August 2010 the IASB, jointly with the FASB, published an exposure draft The comment period closed on 15 December 2010 Re-exposure expected Q Final standard now expected in

7 Lessees Balance sheet Right of use asset Liability to make lease payments Initially measured at present value of lease payments Subsequently measured at amortised cost Income statement Amortisation expense Interest expense Lessees Original proposals Recognise assets and liabilities on balance sheet for all leases Estimates of contingent rentals included in the measurement of the lease assets and liabilities using expected outcome approach Rentals during renewal periods included in the measurement of the lease assets and liabilities on basis of the longest possible period that is more likely than not to occur Tentative decisions Overall approach confirmed Include lease payments that depend on an index or rate and lease payments for which the variability lacks commercial substance Rentals during renewal periods should only be considered when there is a significant economic incentive to exercise the option 7

8 Lessors Derecognition model Lessor does not retain significant risks or benefits of the underlying asset Balance sheet residual asset, right to receive lease payments Income statement revenue, cost of sales, interest income Performance obligation approach Lessor retains significant risks or benefits of the underlying asset Balance sheet underlying asset, right to receive lease payments, lease liability Income statement lease income, interest income, depreciation expense, Lessors Original proposals A hybrid model for lessors, with leases either being accounted for under the derecognition model or the performance obligation model depending on the circumstances Tentative decisions The Board has now decided that they will propose only one form of accounting for lessors, which will be an evolution of the derecognition model 8

9 Revenue recognition Objective The aim of the project is to clarify the principles for recognising revenue from contracts with customers It applies to all contracts with customers except leases, financial instruments and insurance contracts Project milestones In June 2010 the IASB, jointly with the FASB, published an exposure draft The comment period closed on 22 October 2010 Re-exposure expected Q Final standard now expected in 2012 Revenue recognition Core principle Recognise revenue to depict the transfer of goods and/or services in an amount that reflects the consideration expected to be received in exchange for those goods and services Steps in applying the core principle 1. Identify the contract(s) with customer 2. Identify the separate performance obligations 3. Determine the transaction price 4. Allocate the transaction price 5. Recognise revenue when a performance obligation is satisfied 9

10 Revenue recognition Step Original proposals Tentative decisions Identifying the contract(s) with the customer Identifying separate performance obligations Combine two or more contracts together if the prices of those contracts are interdependent. Account for a contract as two or more contracts if some goods & services are priced independently of others. Identify separate performance obligations if goods and services are distinct. A good or service is distinct if it is sold separately or has a distinct function & a distinct profit margin. Provide further guidance on when contracts should be combined. Segmentation within contracts removed. A bundle of highly inter-related goods and services can be a single performance obligation if the contract includes significant integration of those goods and services into the product for which the customer has contracted. Revenue recognition Step Original proposals Tentative decisions Determining the transaction price: uncertain consideration Determining the transaction price: time value of money Determining the transaction price: collectability The transaction price is the total amount of consideration that the entity estimates it will be entitled to under the contract based on probability weighted-average. Transaction price includes the effects of the time value of money. Transaction price includes the effects of collectability ie, it is reduced by any expected bad debts. This can be based on either probability weighted-average or most likely amounts. The time value of money should only be reflected where there is a significant financing component to the contract. The transaction price should not reflect customer s credit risk; recognise an allowance for expected losses instead. This should be on a separate line adjacent to revenue. 10

11 Revenue recognition Step Original proposals Tentative decisions Allocating the transaction price Recognising revenue Allocate transaction price between performance obligations based on relative standalone selling prices. Recognise revenue when a performance obligation is satisfied by transferring a good or service to the customer. Revenue recognised continuously only if service is transferred continuously ie, where the customer controls WIP. Stick with the proposed approach but where standalone selling prices are highly variable the residual method may be used. For goods transfer will continue to be based on control albeit with some adjustments to the original proposals eg, add risks and rewards as indicator of control. For services transfer can be continuous in more circumstances. Revenue recognition other issues Issue Original proposals Tentative decisions Onerous test Licences Warranties Performed at the level of each performance obligation. Account for licences based on exclusivity. Distinguishes between two types of warranty - latent and insurance. Revenue deferred in both instances. Performed at the level of the remaining performance obligations. In granting a licence an entity gives a promised right to a customer. That right gives rise to a performance obligation that is satisfied at the point in time when the customer obtains control of the right. Warranties should be accounted for as a separate performance obligation if the customer has the option to purchase it separately otherwise treat as a cost accrual. 11

12 Financial instruments Objective The aim of the project is to simplify the requirements for financial instruments The project to replace IAS 39 is made up of three phases: recognition & measurement, impairment methodology & hedge accounting The IASB also has a separate project looking at offsetting financial assets and financial liabilities Project milestones IFRS 9 issued in November 2009 & expanded in October 2010 Various exposure drafts and supplementary proposals published but finding a consensus is proving challenging Date of final standard to be confirmed Financial instruments latest position Recognition & measurement ED proposes delaying effective date from 2013 to 2015 Impairment Expected loss model favoured Re-exposure or review draft expected soon Hedging General hedge accounting standard due soon Macro hedge accounting ED due soon Offsetting Will not proceed with proposals in recent ED Will enhance disclosures & tackle diversity in practice 12

13 Going global Trouble ahead Ongoing major projects Where next? Agenda consultation Published in July 2011 Major public consultation on the strategic direction and overall balance of the IASB s future work programme Seeks to answer one simple question: where next? The consultation is open until 30 November

14 Agenda consultation strategic direction Developing financial reporting Conceptual framework Presentation & disclosure framework Investing in research Addressing strategic issues Developing new IFRSs and making major amendments Maintaining existing IFRSs Postimplementation reviews Targeted narrow scope improvements to IFRSs Agenda consultation specific projects Agriculture NEW Common control Country-by-country reporting NEW Discount rate NEW EPS Emissions trading schemes Equity method NEW Extractive activities NEW Financial instruments with characteristics of equity Financial statement presentation Foreign currency translation NEW Government grants Income taxes Inflation accounting NEW Intangibles NEW Interim reporting NEW Islamic finance NEW Liabilities OCI Post-employment benefits Presentation & disclosures NEW Rate-regulated activities NEW Share-based payments NEW 14

15 Any questions A world leader of the accountancy and finance profession 15