Revised IFRS 1
Severe Hyperinflation
ICAZ CPD
22 February 2011
Agenda
The journey that was
Revised IFRS 1: Summary of amendments
Important paragraphs
Illustrative examples
Summary: Presentation and disclosure requirements
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Agenda
The journey that was
Revised IFRS 1: Summary of amendments
Important paragraphs
Illustrative examples
Summary: Presentation and disclosure requirements
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Finally, our destination!
20 December 2010:
June 2010:
IFRIC proposed to the
IASB amendments to
IAS 29
May 2009:
SAICA & ICAZ joint
proposal paper to
IFRIC
ICAZ published Guidance:
Change in Functional Currency
2009
Further clarifications and
guidance issued
Not IFRS compliant
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Severe Hyperinflation
(amendment to IFRS 1)
Effective 1 July 2011
Early adoption
permitted
30 September 2010:
ED/2010/12 Severe
Hyperinflation
No effective date specified
Early adoption permitted
Comments invited by 30
November 2010
3
Agenda
The journey that was
Revised IFRS 1: Summary of amendments
Important paragraphs
Illustrative examples
Summary: Presentation and disclosure requirements
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Severe Hyperinflation – summary of amendments
Define:
• Severe hyperinflation
• Functional currency normalisation date
Currency of hyperinflationary economy is subject to severe
hyperinflation if:
• a reliable general price index is not available to all entities
with transactions and balances in the currency; and
• exchangeability between the currency and a relatively
stable foreign currency does not exist.
The date when the functional currency no longer has either, or
both, of the characteristics above, or when there is a change in
the entity’s functional currency to a currency that is not subject
to severe hyperinflation.
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
5
Severe Hyperinflation – summary of amendments
Define:
• Severe hyperinflation
• Functional currency normalisation date
Add a deemed cost exemption to IFRS 1 to be applied at the date of transition to
IFRSs after being subject to severe hyperinflation
• Option to measure assets and liabilities held before functional currency
normalisation date at fair value
• Recognise difference directly in retained earnings (or other appropriate
component of equity)
• When the functional currency normalisation date falls within the comparative
period, the comparative period may be less than 12 months
• Require explanatory disclosures if exemption taken
Effective date is annual periods beginning on or after 1 July 2011. Early adoption
is permitted.
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
6
Agenda
The journey that was
Revised IFRS 1: Summary of amendments
Important paragraphs
Illustrative examples
Summary: Presentation and disclosure requirements
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Important paragraphs from IFRS 1
Paragraph 3 (a)
An entity’s first IFRS financial statements are the first annual financial statements in
which the entity adopts IFRSs, by an explicit and unreserved statement in those financial
statements of compliance with IFRSs. Financial statements in accordance with IFRSs
are an entity’s first IFRS financial statements if, for example, the entity:
a) presented its most recent previous financial statements:
i. in accordance with national requirements that are not consistent with IFRSs in
all respects;
ii. in conformity with IFRSs in all respects, except that the financial statements
did not contain an explicit and unreserved statement that they complied with
IFRSs;
iii. containing an explicit statement of compliance with some, but not all, IFRSs;
iv. in accordance with national requirements inconsistent with IFRSs, using some
individual IFRSs to account for items for which national requirements did not
exist; or
v. in accordance with national requirements, with a reconciliation of some
amounts to the amounts determined in accordance with IFRSs;
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Important paragraphs from IFRS 1 (continued)
Paragraph 6
An entity shall prepare and present an opening IFRS statement of financial
position at the date of transition to IFRSs. This is the starting point for its
accounting in accordance with IFRSs.
Paragraph 21
To comply with IAS 1, an entity’s first IFRS financial statements shall include at
least three statements of financial position, two statements of
comprehensive income, two separate income statements (if presented), two
statements of cash flows and two statements of changes in equity and related
notes, including comparative information.
Paragraph 23
An entity shall explain how the transition from previous GAAP to IFRSs
affected its reported financial position, financial performance and cash
flows.
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Important paragraphs from IFRS 1 (continued)
Paragraph 24
To comply with paragraph 23, an entity’s first IFRS financial statements shall include:
a)
reconciliations of its equity reported in accordance with previous GAAP to its equity
in accordance with IFRSs for both of the following dates:
i.
The date of transition to IFRSs; and
ii.
The end of the latest period presented in the entity’s most recent annual
financial statements in accordance with previous GAAP.
b) A reconciliation to its total comprehensive income in accordance with IFRSs or the
latest period in the entity’s most recent annual financial statements. The starting point
for that reconciliation shall be total comprehensive income in accordance with
previous GAAP for the same period or, if an entity did not report such a total, profit or
loss under previous GAAP.
c) the entity recognised or reversed any impairment losses for the first-time in preparing
its opening IFRS statement of financial position, the disclosures that IAS 36
Impairment of Assets would have required if the entity had recognised those
impairment losses or reversals in the period beginning with the date of transition to
IFRSs.
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Important paragraphs from IFRS 1 (continued)
Paragraph 25
The reconciliations required by paragraph 24(a) and (b) shall give sufficient
detail to enable users to understand the material adjustments to the statement
of financial position and statement of comprehensive income. If an entity
presented a statement of cash flows under its previous GAAP, it shall also
explain the material adjustments to the statement of cash flows.
Paragraph 26
If an entity becomes aware of errors made under previous GAAP, the
reconciliations required by paragraph 24(a) and (b) shall distinguish the
correction of those errors from changes in accounting policies.
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Agenda
The journey that was
Revised IFRS 1: Summary of amendments
Important paragraphs
Illustrative examples
Summary: Presentation and disclosure requirements
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Illustrative example
KPMG Publication
IFRS Illustrative Financial Statements for
First-time Adopoters (February 2010)
Available to download for free at www.kpmg.com
http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPu
blications/IFRS-illustrative-financial-statements/
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Extract – Statement of financial position
have not changed
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
YES
We complied with the Guidance
Example – Basis of preparation
Statement of compliance
The Group’s financial statements have been prepared in accordance with
International Financial Reporting Standards, (IFRS) and the International
Financial Reporting Interpretations Committee, (IFRIC) interpretations.
The financial statements are based on statutory records that are
maintained under the historical cost convention as modified by the
revaluation of property, plant and equipment and investment property.
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Example – Basis of preparation (cont’d)
Transition to IFRS
The Group is resuming presentation of IFRS financial statements after early
adoption of Revised IFRS 1 First-time Adoption of International Financial Reporting
Standards issued on 20 December 2010. The Group failed to present IFRS
financial statements for the financial year ended 31 December 2009 due to the
effects of severe hyperinflation as defined in Revised IFRS 1.
The first amendment replaces reference to a fixed date of '1 January 2004' with
'the date of transition to IFRS', which eliminates the requirement to reconstruct
transactions that occurred before the date of transition to IFRS. The second
amendment provides guidance for entities emerging from severe hyperinflation to
resume presenting IFRS financial statements. An entity can elect to measure
assets and liabilities at fair value and to use the fair value as the deemed cost in its
opening IFRS statement of financial position. The Group elected to use the severe
hyperinflation exemption.
.
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Example – Basis of preparation (cont’d)
Transition to IFRS (continued)
The effect of the application of this amendment is to render the opening statement
of financial position, prepared on 1 January 2009 (date of transition to IFRS) IFRS
compliant. The opening statement of financial position was reported in the prior
year as not being compliant with International Accounting Standard (IAS) 21 The
Effects of Changes in Foreign Exchange Rates and IAS 29 Financial Reporting in
Hyperinflationary Economies.
The Group's previous functional currency, the Zimbabwe dollar (ZW$), was
subjected to severe hyperinflation before the date of transition to IFRS because it
had both of the following characteristics:
(a) a reliable general price index was not available to all entities with transactions
and balances in the ZW$; and
(b) exchangeability between the ZW$ and a relatively stable foreign currency did not
exist.
The Group changed its functional and presentation currency from the ZW$ to the
United States dollar (US$) with effect from 1 January 2009.
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Example – Basis of preparation (cont’d)
Deemed cost exemption
The Group elected to measure certain items of property, plant and equipment, trade
and other receivables, inventories and trade and other payables at fair value and to use
the fair value as the deemed cost of those assets and liabilities in the opening IFRS
statement of financial position.
Comparative financial information
The financial statements
comprise three statements of financial position, two
statements of comprehensive income, changes in equity and cash flows as a result of
the retrospective application of the Amendments to IFRS 1. The comparative
statements of comprehensive income; changes in equity and cash flows are for eight
months.
Reconciliation of previously prepared to IFRS compliant financial statements
In preparing its opening IFRS statement of financial position, the Group has not
adjusted amounts previously determined in accordance with the Guidance on Change
in Functional Currency 2009. As amounts have not changed, reconciliations have not
been presented.
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
NO
We did not comply with the Guidance
Extract – Notes to the financial statements
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KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Extract – Notes to the financial statements (cont’d)
Explanation of transition to IFRSs1
As stated in note 2(a), these are the Group’s first consolidated financial statements
prepared in
accordance with IFRSs.
The accounting policies set out in note 3 have been applied in preparing the financial
statements for the year ended 31 December 2010, the comparative information
presented in
these financial statements for the year ended 31 December 2009 and in the
preparation of an
opening IFRS statement of financial position at 1 January 2009 (the Group’s date of
transition).
In preparing its opening IFRS statement of financial position, the Group has adjusted
amounts
reported previously in financial statements prepared in accordance with [country]
GAAP
(previous GAAP). An explanation of how the transition from previous GAAP to IFRSs
has
affected the Group’s financial position, financial performance and cash flows is set
out in the
following tables and the notes that accompany the tables.
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Agenda
The journey that was
Revised IFRS 1: Summary of amendments
Important paragraphs
Illustrative examples
Summary: Presentation and`` disclosure requirements
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Summary : Presentation and disclosure
• Preparers
•
•
•
•
must have complied with the
Guidance on Change in Functional
Currency for the amendment to IFRS 1 to
apply
Present three statements of financial
position (including opening SoFP) to
comply with IFRS for the first time
Present reconciliations only if errors were
made in the opening SoFP
Disclose the fact that the entity opted for
early adoption in relation to the
amendment IFRS on Severe hyperinflation
Disclose how transition to IFRS was
achieved
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Questions
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member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.
26
Agenda
The journey that was
Revised IFRS 1: Summary of amendments
Important paragraphs
Illustrative examples
Summary: Presentation and disclosure requirements
© 2011 KPMG, a Zimbabwe partnership and a member firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Zimbabwe.
Thank you
Presentation by :
Valerie Muyambo
Senior Manager, Audit
(04) 302600 / 303700
[email protected]