NEED TO KNOW
IFRSs and Amendments effective in
periods after 31 December 2015 year ends
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
TABLE OF CONTENTS
Table of contents
3
1.Introduction
5
2.
6
IFRSs and Amendments effective in periods after 31 December 2015 year ends 2.1. Timing of mandatory adoption
3.
Major developments – New Standards
7
11
3.1.IFRS 9 Financial Instruments (2014)11
3.2.IFRS 15 Revenue from Contracts with Customers13
3.3.IFRS 14 Regulatory Deferral Accounts14
3.4.IFRS 16 Leases15
4.
Other developments – Amendments to IFRSs
16
4.1. Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets between an Investor and
its Associate or Joint Venture16
4.2. Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying the Consolidation Exception17
4.3. Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint Operations18
4.4. Amendments to IAS 1 – Disclosure Initiative18
4.5. Amendments to IAS 16 – Clarification of Acceptable Methods of Depreciation and Amortisation19
4.6. Amendments to IAS 38 – Clarification of Acceptable Methods of Depreciation and Amortisation19
4.7. Amendments to IAS 16 and IAS 41 – Agriculture: Bearer Plants20
4.8. Amendments to IAS 27 – Equity Method in Separate Financial Statements20
4.9. Annual Improvements to IFRSs 2012-2014 Cycle21
5.
IASB projects in progress
23
5.1. Insurance Contracts
23
5.2. Conceptual Framework
23
5.3. Disclosure Initiative
24
6.Conclusion
25
3
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
1. INTRODUCTION
The International Accounting Standards Board (IASB) was active in 2015, making a wide range of amendments to existing
standards, dealing with transitional issues related to major standards issued in 2014 and working towards the finalization
of two major standards. Most of these new standards and many of the amendments are complex, may require significant
judgment and estimates, and are likely to have commercial effects for an entity applying the new guidance.
This publication summarises changes to IFRSs that will need to be adopted in future reporting periods, together with a
discussion about major projects the IASB currently has in progress.
5
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
2. IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS
AFTER 31 DECEMBER 2015 YEAR ENDS
The tables below summarise new standards and amendments to standards which are mandatorily effective for year
ends subsequent to 31 December 2015. The first looks at the timing of mandatory adoption for an entity with a
31 December financial year end. This demonstrates the wide range of amendments to IFRSs that will need to be adopted in
the year ending 31 December 2016.
Considerably more wide ranging and significant changes on financial statements are likely in the years ending
31 December 2018 and 2019 with the adoption of major new standards for revenue, financial instruments and leases.
These will require careful planning and communication to investors and other users of financial statements, together with
the need to address commercial considerations such as compliance with bank covenants, performance based remuneration
schemes and business combinations (such as transactions where contingent consideration is to be calculated on the basis of
future revenues or profits).
In common with normal practice, early adoption is permitted and for some entities this will be an attractive option.
The second table has more detail, including links to BDO’s International Financial Reporting Bulletins and, for those entities
that report in accordance with EU-endorsed IFRS, a note of the current endorsement status.
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
2.1. Timing of mandatory adoption
For an entity with a 31 December year end, new standards, amendments to standards and interpretations will need to be
adopted in the following financial years at the latest:
2016
20181
2019
Standards
IFRS 14 Regulatory Deferral Accounts
IFRS 9 (2014) Financial Instruments
IFRS 16 Leases
IFRS 15 Revenue from Contracts with
Customers
Amendments to IFRSs
Annual Improvements to IFRSs 20122014 Cycle
IFRS 10 Consolidated Financial
Statements (Amendments – Sale or
Contribution of Assets)
Amendments to IFRS 10 Consolidated
Financial Statements, IFRS 12 Disclosure
of Interests in Other Entities and
IAS 28 Investments in Associates
and Joint Ventures (Amendment –
Investment Entities: Applying the
Consolidation Exception)
IFRS 11 Joint Arrangements
(Amendments – Acquisitions of
Interests in Joint Operations)
IAS 1 Presentation of Financial
Statements (Amendments – Disclosure
Initiative)
IAS 16 Property, Plant and Equipment
(Amendments – Acceptable Methods of
Depreciation)
IAS 27 Separate Financial Statements
(Amendments – Equity Method in
Separate Financial Statements)
IAS 38 Intangible Assets
(Amendments – Acceptable Methods of
Amortisation)
IAS 41 Agriculture (Amendments –
Bearer Plants)
In addition, amendments to IFRS 10 and IAS 28 related to the sale or contribution of assets between an investor and
associate or joint venture is available for early adoption. However the mandatory effective date of these amendments has
been deferred indefinitely pending the outcome of the IASB’s research project on the equity method of accounting.
There are no new standards, amendments or interpretations with a 2017 mandatory effective date.
1
7
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
The following tables set out a list of forthcoming standards and amendments, including their EU-endorsement status and
links to BDO’s International Financial Reporting Bulletins.
IFRS
IASB Effective Date
(Early Adoption permitted)
EU Endorsement status2
BDO IFR Bulletin
Standards
IFRS 9 Financial Instruments
(2014)
1 January 2018
Expected in first half of 2016
BDO IFRS Bulletin
2014/12 (click here)
1 January 2016
Will not be endorsed
BDO IFRS Bulletin
2014/01 (click here)
1 January 2018
Expected in second quarter
of 2016
BDO IFRS Bulletin
2014/08 (click here),
2014/21 (click here)
and 2015/13 (click here)
1 January 2019
To be determined
BDO IFRS Bulletin
2016/01 (click here)
Issued: July 2014
IFRS 14 Regulatory Deferral
Accounts
Issued: January 2014
IFRS 15 Revenue from
Contracts with Customers
Issued: May 2014
Amendment to change
effective date to
1 January 2018
Issued: September 2015
IFRS 16 Leases
Issued: January 2016
EU-endorsement status report as at 29 December 2015.
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
Amendments
IFRS
Annual Improvements to
IFRSs 2012-2014 Cycle
IASB Effective Date
(Early Adoption permitted)
EU Endorsement status3
(Early Adoption permitted
if endorsed)
1 January 2016
Endorsed in December 2015
BDO IFRS Bulletin
2014/19 (click here)
Mandatory effective
deferred indefinitely
Endorsement postponed
until mandatory
effective date confirmed
BDO IFRS Bulletin
2014/16 (click here)
1 January 2016
Expected in the
second quarter of 2016
BDO IFRS Bulletin
2015/01 (click here)
1 January 2016
Endorsed in November 2015
BDO IFRS Bulletin
2014/06 (click here)
1 January 2016
Endorsed in December 2015
BDO IFRS Bulletin
2015/02 (click here)
1 January 2016
Endorsed in December 2015
BDO IFRS Bulletin
2014/07 (click here)
1 January 2016
Endorsed in December 2015
BDO IFRS Bulletin
2014/14 (click here)
Issued September 2014
IFRS 10 Consolidated Financial
Statements (Amendments –
Sale or Contribution of
Assets)
BDO IFR Bulletin
Issued: September 2014
IFRS 10 Consolidated Financial
Statements, IFRS 12 Disclosure
of Interests in Other Entities
and IAS 28 Investments in
Associates and Joint Ventures
(Amendment – Investment
Entities: Applying the
Consolidation Exception)
Issued: December 2014
IFRS 11 Joint Arrangements
(Amendments – Acquisitions
of Interests in Joint
Operations)
Issued: May 2014
IAS 1 Presentation of Financial
Statements (Amendments –
Disclosure Initiative)
Issued: December 2014
IAS 16 Property, Plant and
Equipment (Amendments –
Acceptable Methods of
Depreciation)
Issued: May 2014
IAS 27 Separate Financial
Statements (Amendments –
Equity Method in Separate
Financial Statements)
Issued: August 2014
EU-endorsement status report as at 29 December 2015.
3
9
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
Amendments
IFRS
IAS 38 Intangible Assets
(Amendments – Acceptable
Methods of Amortisation)
IASB Effective Date
(Early Adoption permitted)
EU Endorsement status3
(Early Adoption permitted
if endorsed)
BDO IFR Bulletin
1 January 2016
Endorsed in December 2015
BDO IFRS Bulletin
2014/07 (click here)
1 January 2016
Endorsed in November 2015
BDO IFRS Bulletin
2014/11 (click here)
Issued: May 2014
IAS 41 Agriculture
(Amendments – Bearer
Plants)
Issued: June 2014
EU-endorsement status report as at 29 December 2015.
3
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
11
3. MAJOR DEVELOPMENTS – NEW STANDARDS
The IASB issued three new standards during 2014 and an additional standard in January 2016. Three of these (IFRS 9 Financial
Instruments (2014)), IFRS 15 Revenue from Contracts with Customers) and IFRS 16 Leases will affect all entities and will often
result in very significant changes to financial statements, while IFRS 14 Regulatory Deferral Accounts has a narrower focus
and applies only to those entities that are adopting IFRS for the first time.
Key changes from existing guidance are discussed below.
3.1. IFRS 9 Financial Instruments (2014)
In July 2014 the IASB published IFRS 9 Financial Instruments (2014) which incorporated the final requirements on all three
phases of the financial instruments projects – classification and measurement, impairment and hedge accounting.
The original version of IFRS 9, issued in 2009, introduced new criteria for the classification and measurement of financial
assets to be measured at amortised cost. In order to qualify for amortised cost measurement, a two stage test is applied.
Firstly, the entity’s business model must be to collect the contractual cash flows from the asset, rather than selling it to
realise its fair value. Secondly, the asset must have contractual cash flows which are comprised solely of the principal
amount due plus interest on the principal amount outstanding (which is only time value plus a margin for credit risk), often
referred to as ‘solely payments of principal and interest’ or ‘SPPI’. Financial assets that pass those two tests are measured
at amortised cost, with all others being measured at fair value. The criteria are applied to the assets as a whole, with the
previous guidance in IAS 39 Financial Instruments: Recognition and Measurement for embedded derivatives no longer applying
to financial assets.
IFRS 9 (2014) introduces amendments to the previously finalised classification and measurement requirements for financial
assets. A third measurement category has also been added for debt instruments – FVTOCI (fair value through other
comprehensive income). This new measurement category applies to debt instruments that meet the SPPI contractual cash
flow characteristics test and where the entity is holding the debt instrument to both collect the contractual cash flows and
to sell the financial assets. Additional application guidance was included to clarify the requirements for contractual cash
flows of a financial asset to be regarded as giving rise to payments that are SPPI. It is noted that although time value and
credit risk are the most significant elements of interest, it can also contain other elements such as liquidity risk, a profit
margin, and servicing/administrative costs. Guidance has also been included to cover circumstances in which the contractual
cash flows do not precisely meet the definitions, such as a loan for which the interest rate is reset every six months to the
three month rate.
The classification and measurement requirements for financial liabilities were first added to IFRS 9 in 2010 and have
been carried forward from IAS 39 largely unchanged, including a continuation of the requirement to separate embedded
derivatives. However a significant change is that, if a financial liability is designated (under the option available in IFRS 9) as
at fair value through profit or loss, changes in the fair value of that financial liability that are attributable to changes in the
entity’s own credit risk will be recorded in Other Comprehensive Income instead of profit or loss. This change has been made
in order to prevent a deterioration in an entity’s financial position (and hence credit status) resulting in gains being reported
in profit or loss.
The existing guidance for derecognition of financial assets and liabilities has been carried forward from IAS 39 unchanged,
with some improvements to disclosure requirements being added to IFRS 7 Financial Instruments: Disclosures.
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
For the impairment of financial assets, a new ‘expected loss’ model in IFRS 9 (2014) replaces the ‘incurred loss’ model in
IAS 39. The new impairment requirements will affect all entities with financial assets that are not measured at fair value
through profit or loss and are likely to bring significant changes. Provisions for trade receivables will need to be determined
using a forward looking approach and, while for some entities the provisions may be relatively straightforward to calculate,
the approach is significantly different and more complex in comparison to the incurred loss model, and new systems and
processes may well be needed. For financial institutions, the changes are likely to be very significant and require major
changes to internal systems and processes in order to capture the required information.
The hedge accounting requirements of IFRS 9 are also significantly different from those set out in IAS 39, and are designed
to align hedge accounting more closely with entities’ risk management processes. In practice, it will be significantly more
straightforward to apply hedge accounting under the new model and we expect that entities that have previously decided
not to hedge account may do so in future.
The effective date of the fully completed version of IFRS 9 (2014) is for periods beginning on or after 1 January 2018 with
retrospective application. Early application is permitted. If the date of initial application is 1 February 2015 or later, there is a
no longer a choice of which version of IFRS 9 to adopt (2009, 2010, 2013 or 2014), and IFRS 9 (2014) must be applied.
In addition, there is an option to early adopt the ‘own credit’ provisions for financial liabilities measured at fair value through
profit or loss (FVTPL) under the fair value option without any of the other requirements of IFRS 9. This option will remain
available until 1 January 2018.
In 2015 the IASB also advanced its project to replace IFRS 4 Insurance Contracts. The new insurance contracts Standard is
expected to have an implementation period of at least three years after the publication of the new Standard. Hence, the
earliest possible mandatory effective date of the new insurance contracts Standard will be after the effective date of IFRS 9.
As a result the IASB issued an Exposure Draft to address concerns raised related to the two standards having different
effective dates. The Exposure Draft propose either the deferral of IFRS 9 for entities whose predominant activity is issuing
insurance contracts or an approach which moves the additional volatility created by having non-aligned effective dates to
other comprehensive income.
For more information on IFRS 9 see:
–– BDO IFR Bulletin 2014/12 (click here);
–– BDO IFR Bulletin 2015/17 (click here);
–– BDO IFRS In Practice 2016 – IFRS 9 Financial Instruments (click here).
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
13
3.2. IFRS 15 Revenue from Contracts with Customers
In May 2014, the IASB published IFRS 15 Revenue from Contracts with Customers. The new Standard, which was fully
converged with equivalent new US GAAP guidance issued at the same time, contains comprehensive guidance for accounting
for revenue and will replace existing requirements which are currently set out in two existing standards (IAS 18 Revenue and
IAS 11 Construction Contracts) and related interpretations (IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for
the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC 31 Revenue – Barter Transactions Involving
Advertising Services).
IFRS 15 contains significantly more prescriptive and precise requirements in comparison with existing IFRS. In future, revenue
will be recognised from the application of the following five steps:
1. Identify the contract
2. Identify the performance obligation(s)
3. Determine the transaction price
4. Allocate the transaction price to each performance obligation
5. Recognise revenue when each performance obligation is satisfied.
The introduction of the new requirements means that for many entities the timing and profile of revenue recognition will
change. In some areas the changes will be very significant and will require careful planning, including for commercial effects
(such as compliance with bank covenants, performance based remuneration and business combinations).
IFRS 15 was originally effective for periods beginning on or after 1 January 2017, with early application permitted.
In September 2015 the IASB issued an amendment to IFRS 15 to defer the effective date of IFRS 15 by one year to
1 January 2018. The reason for deferring the effective date is that additional changes to IFRS 15 were proposed in July of 2015
that stem from the discussions at the IASB and FASB Joint Transition Resource Group for Revenue Recognition (TRG).
Although the effective date remains aligned with the equivalent US GAAP guidance, some of the additional changes to the
standards proposed by the IASB and FASB are not consistent. As a result the standards will cease to be fully converged.
For more information see BDO International’s Revenue Recognition Resource Centre (click here).
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
3.3. IFRS 14 Regulatory Deferral Accounts
In January 2014, the IASB published IFRS 14 Regulatory Deferral Accounts. IFRS 14 is an interim standard, pending the
outcome of the IASB’s more comprehensive Rate-regulated Activities project, which was re-opened in September 2012.
In many countries, industry sectors (including utilities such as gas, electricity and water) are subject to rate regulation where
governments regulate the supply and pricing. This can have a significant effect on the amount and timing of an entity’s
revenue. Some national GAAPs require entities that operate in industry sectors subject to rate regulation, to recognise
associated assets and liabilities.
The scope of IFRS 14 is narrow, with this extending to cover only those entities that:
–– Are first-time adopters of IFRS
–– Conduct rate regulated activities
–– Recognise associated assets and/or liabilities in accordance with their current national GAAP.
Entities within the scope of IFRS 14 have an option to apply their previous local GAAP accounting policies for the recognition,
measurement and impairment of assets and liabilities arising from rate regulation, which would be termed regulatory
deferral account balances.
IFRS 14 has an effective date of 1 January 2016, with early application permitted.
For more information see BDO IFR Bulletin 2014/01 (click here).
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
15
3.4. IFRS 16 Leases
In January 2016 the IASB issued IFRS 16 Leases. IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an
Arrangement contains a Lease, SIC-15 Operating Leases – Incentives and SIC-27 Evaluating the Substance of Transactions
Involving the Legal Form of a Lease. IFRS 16 contains a single lessee accounting model, which eliminates the distinction
between operating and finance leases from the perspective of the lessee. All contracts that meet the definition of a lease,
other than short term leases and leases of low value items for which a lessee has the option not to apply the measurement
and presentation requirements of IFRS 16, will be recorded in the statement of financial position with a “right of use” asset
and a corresponding liability. The asset is subsequently accounted for as property, plant and equipment or investment
property and the liability is unwound using the interest rate inherent in the lease. For many entities the effect of bringing
all leases on the statement of financial position will be very significant and will require careful planning, including for
commercial effects (such as compliance with bank covenants, performance based remuneration and business combinations).
IFRS 16 will be partially converged with guidance covering accounting for leases under US GAAP, which is expected to be
released later in 2016. Convergence has been reached for:
–– Definition of a lease
–– A requirement to include assets and liabilities arising from leases on the balance sheet
–– Measurement of lease liabilities.
However, differences will remain due to the different models. While off balance sheet presentation will be avoided under
both models, differences remain for the presentation of:
–– Lease expenses in the income statement; and
–– The cash flow statement.
In the income statement, the application of IFRS 16 will result in a depreciation charge (within operating expenses) and an
interest expense. Under US GAAP, for leases which meet the existing definition of an operating lease, a single charge will be
included within operating results. Similarly, in the cash flow statement under IFRS the cash flows will be split, while under
US GAAP the cash flows will appear in a single line item.
The accounting requirements from the perspective of the lessor remains largely in line with previous IAS 17 requirements.
IFRS 16 has an effective date of 1 January 2019, with early application permitted only if IFRS 15 has also been adopted.
For more information see BDO IFR Bulletin 2016/01 (click here).
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
4. OTHER DEVELOPMENTS – AMENDMENTS TO IFRSs
The IASB has issued a wide range of amendments to standards that will be effective for 2016 calendar year ends. Key
requirements of the amendments are discussed below.
4.1. Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture
The amendments clarify the accounting for transactions where a parent loses control of a subsidiary, that does not
constitute a business as defined in IFRS 3 Business Combinations, by selling all or part of its interest in that subsidiary to an
associate or a joint venture that is accounted for using the equity method.
For the interest in the former subsidiary that has been sold to the associate or joint venture, the gain recognised is restricted
to the amount that is attributable to the unrelated investors’ interests in the associate or joint venture.
Any directly held retained interest in the former subsidiary is first remeasured to fair value. Gains and losses from the
remeasurement are then recognised as follows:
–– The retained interest is accounted for as an associate or joint venture using the equity method: The parent recognises the
gain or loss in profit or loss only to the extent of the unrelated investors’ interests in the new associate or joint venture.
The remainder is eliminated against the carrying amount of the investment in the associate or joint venture
–– The retained interest is accounted for at fair value in accordance with IFRS 9 Financial Instruments: The parent recognises
the gain or loss in full in profit or loss.
Although available for early adoption in December 2015 the IASB postponed the mandatory effective date of this
amendment indefinitely pending the outcome of its research project on the equity method of accounting.
For more information see BDO IFR Bulletin 2014/16 (click here).
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
17
4.2. Amendments to IFRS 10, IFRS 12 and IAS 28 – Investment Entities: Applying
the Consolidation Exception
The amendments clarify a number of aspects of IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in
Other Entities and IAS 28 Interests in Associates and Joint Ventures in relation to the investment entities exception:
(i) How intermediate parent entities should apply the general scope exemption from preparing consolidated financial
statements provided by paragraph 4 of IFRS 10, when the ultimate parent is an investment entity
The amendments clarify that so long as the entity’s ultimate (or intermediate) parent produces financial statements that
are in compliance with IFRS 10 (including an investment entity that accounts for its interests in all of its subsidiaries at
fair value rather than consolidating them), the exemption is available to the intermediate parent entity from presenting
its own consolidated financial statements (so long as the other criteria of IFRS 10.4(a) have been met).
(ii) How an investment entity parent should account for a subsidiary that provides services related to its investment
activities and is also itself an investment entity
The amendments clarify that an investment entity parent consolidates a subsidiary only when:
–– The subsidiary is not itself an investment entity, and
–– The subsidiary’s main purpose is to provide services that relate to the investment entity’s investment activities.
(iii) How IFRS 12 should be applied to an investment entity
The amendments clarify that an investment entity that prepares financial statements in which all of its subsidiaries are
measured at fair value through profit or loss (FVTPL) is required to present the disclosures relating to investment entities
as required by IFRS 12.
(iv) How a non-investment entity should account for its interests in any associates or joint ventures that are investment
entities
The amendments clarify that for an entity that is not itself an investment entity but has an interest in an associate or
joint venture that is an investment entity, the non-investment entity may, when applying the equity method, retain the
fair value measurement applied by the investment entity associate or joint venture to account for its own interests in its
subsidiaries.
Mandatory adoption for periods beginning on or after 1 January 2016.
For more information see BDO IFR Bulletin 2015/01 (click here).
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
4.3. Amendments to IFRS 11 – Accounting for Acquisitions of Interests in Joint
Operations
The amendments require an entity to apply all of the principles of IFRS 3 Business Combinations when it acquires an interest
in a joint operation that constitutes a business as defined by IFRS 3.
The amendment also includes two new Illustrative Examples:
–– Example 7: Accounting for acquisitions of interests in joint operations in which the activity constitutes a business
–– Example 8: Contributing the right to use know-how to a joint operation in which the activity constitutes a business.
A consequential amendment has also been made to IFRS 1 First-time Adoption of International Financial Reporting Standards,
to clarify that the exemption from applying IFRS 3 to past business combinations upon adoption of IFRS also applies to past
acquisitions of interests in joint operations in which the activity of the joint operation constitutes a business, as defined in
IFRS 3.
Mandatory adoption for periods beginning on or after 1 January 2016.
For more information see BDO IFR Bulletin 2014/06 (click here).
4.4. Amendments to IAS 1 – Disclosure Initiative
The amendments to IAS 1 Presentation of Financial Statements are a part of a major initiative to improve disclosure
requirements in IFRS financial statements.
The amendments being made to IAS 1 include:
–– Materiality: Aggregation or disaggregation should not obscure useful information. Materiality applies to each of the
primary financial statements, the notes and each specific disclosure required by IFRSs.
–– Line items in primary financial statements: Additional guidance for the list of line items required to be presented
in primary statements, in particular that it may be appropriate for these to be disaggregated, and new requirements
regarding the use of subtotals.
–– Notes to the financial statements: Determination of the order of the notes should include consideration of
understandability and comparability of financial statements. It has been clarified that the order listed in IAS 1.114(c) is
illustrative only.
–– Accounting policies: Removal of the examples in IAS 1.120 in respect of income taxes and foreign exchange gains and
losses.
In addition, the following amendments to IAS 1 were made which arose from a submission received by the
IFRS Interpretations Committee:
–– Equity accounted investments: An entity’s share of other comprehensive income will be split between those items that
will and will not be reclassified to profit or loss, and presented in aggregate as single line items within those two groups.
Mandatory adoption for periods beginning on or after 1 January 2016.
For more information see BDO IFR Bulletin 2015/02 (click here).
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
19
4.5. Amendments to IAS 16 – Clarification of Acceptable Methods of
Depreciation and Amortisation
IAS 16 Property, Plant and Equipment has been amended to include guidance that prohibits the use of revenue-based
methods of depreciation for items of property, plant and equipment. This is because the revenue generated by an activity
that includes the use of an item of property, plant and equipment generally reflects factors other than the consumption
of the economic benefits of the item. In addition, guidance for the depreciation amount and depreciation period has been
expanded to state that expected future reductions in the selling price of items produced by an item of property, plant
and equipment could indicate technical or commercial obsolescence (and therefore a reduction in the economic benefits
embodied in the item), rather than a change in the depreciable amount or period of the item.
Mandatory adoption for periods beginning on or after 1 January 2016.
For more information see BDO IFR Bulletin 2014/07 (click here).
4.6. Amendments to IAS 38 – Clarification of Acceptable Methods of
Depreciation and Amortisation
Paragraphs 98A - 98C of IAS 38 Intangible Assets have been added to clarify that there is a rebuttable presumption that
revenue-based amortisation is not appropriate, and that this can only be rebutted in limited circumstances where either:
–– The intangible asset is expressed as a measure of revenue, or
–– Revenue and the consumption of the economic benefits of the intangible asset are highly correlated.
IAS 38.98B clarifies that, as a starting point to determining an appropriate amortisation method, an entity could determine
the ‘predominant limiting factor’ inherent in the intangible asset, for example:
–– A contractual term which specifies the period of time that an entity has the right to use an asset
–– Number of units allowed to be produced; or
–– Fixed total amount of revenue allowed to be received.
IAS 38.98C then clarifies that where an entity has identified that the achievement of a revenue threshold is the predominant
limiting factor of an intangible asset, it may be possible to rebut the presumption that revenue-based amortisation is not
appropriate.
Mandatory adoption for periods beginning on or after 1 January 2016.
For more information see BDO IFR Bulletin 2014/07 (click here).
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
4.7. Amendments to IAS 16 and IAS 41 – Agriculture: Bearer Plants
The amendments extend the scope of IAS 16 Property, Plant and Equipment to include bearer plants and define a bearer plant
as a living plant that:
–– Is used in the production process of agricultural produce,
–– Is expected to bear produce for more than one period; and
–– Has a remote likelihood of being sold (except incidental scrap sales).
The changes made result in bearer plants being accounted for in accordance with IAS 16 using either:
–– The cost model, or
–– The revaluation model.
The agricultural produce of bearer plants remains within the scope of IAS 41 Agriculture.
The amendments include the following transitional reliefs for the purposes of their first time application:
–– Deemed cost exemption – Entities are allowed to use the fair value of the bearer plants at the beginning of the earliest
period presented as the deemed cost.
–– Disclosures – Quantitative information describing the effect of the first time application as required by IAS 8.28(f) is not
required for the current reporting period, but is required for each prior period presented.
Mandatory adoption for periods beginning on or after 1 January 2016.
For more information see BDO IFR Bulletin 2014/11 (click here).
4.8. Amendments to IAS 27 – Equity Method in Separate Financial Statements
The amendments include the introduction of an option for an entity to account for its investments in subsidiaries, joint
ventures, and associates using the equity method in its separate financial statements. The accounting approach that is
selected is required to be applied for each category of investment.
Before the amendments, entities have either accounted for their investments in subsidiaries, joint ventures or associates at
cost or in accordance with IFRS 9 Financial Instruments (or IAS 39 Financial Instruments: Recognition and Measurement for
those entities that have yet to adopted IFRS 9). The option to present investments using the equity method result in the
presentation of a share of profit or loss, and other comprehensive income, of subsidiaries, joint ventures and associates with a
corresponding adjustment to the carrying amount of the equity accounted investment in the statement of financial position.
Any dividends received are deducted from the carrying amount of the equity accounted investment, and are not recorded as
income in profit or loss.
A consequential amendment has also been made to IAS 28 Investments in Associates and Joint Ventures, to avoid a potential
conflict with IFRS 10 Consolidated Financial Statements for partial sales.
Mandatory adoption for periods beginning on or after 1 January 2016.
For more information see BDO IFR Bulletin 2014/14 (click here).
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
21
4.9. Annual Improvements to IFRSs 2012-2014 Cycle
The purpose of Annual Improvements is to clarify guidance or wording in the standards, and to make corrections for
unintended consequences, conflicts or oversights in the standards. Amendments were made to the following standards:
–– IFRS 5 Non-current Assets Held for Sale and Discontinued Operations – Change in methods of disposal
The amendment clarifies that the reclassification of an asset or disposal group from being held for sale to being held
for distribution to owners, or vice versa, is considered to be a continuation of the original plan of disposal. Upon
reclassification, an entity must apply the classification, presentation and measurement requirements of IFRS 5.
If an asset ceases to be classified as held for distribution to owners, the requirements of IFRS 5 for assets that cease to be
classified as held for sale apply.
The amendment to IFRS 5 is required to be applied prospectively.
–– IFRS 7 Financial Instruments: Disclosures – Servicing contracts and the applicability of offsetting amendments in
condensed interim financial statements
Servicing contracts
The IASB clarified the circumstances in which an entity has continuing involvement from the servicing of a transferred
asset.
Continuing involvement exists if the servicer has a future interest in the performance of the transferred financial asset.
Examples of situations where continuing involvement exists are where a transferor’s servicing fee is:
–– A variable fee which is dependent on the amount of the transferred asset that is ultimately recovered; or
–– A fixed fee not paid in full because of non-performance of the transferred financial asset.
The amendment does not need to be applied for any period beginning before the annual period in which the entity first
applies the amendments, as it might be impracticable for the fair values of servicing assets or liabilities to be determined
retrospectively. However, the amendment is characterised in the transitional guidance as being applied retrospectively
in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. This is because there is a
requirement to look back to past transactions to determine whether a servicing asset or liability needs to be disclosed.
A consequential amendment has been made to IFRS 1 First-time Adoption of International Financial Reporting Standards, in
order that the same transitional provision applies to first time adopters.
–– Applicability of the offsetting amendments in condensed interim financial statements
A further amendment to IFRS 7 has clarified that the application of the amendment Offsetting Financial Assets and
Financial Liabilities (Amendments to IFRS 7) issued in December 2011 is not explicitly required for all interim periods.
However, it is noted that in some cases these disclosures may need to be included in condensed interim financial
statements in order to comply with IAS 34 Interim Financial Reporting.
The amendment is required to be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors.
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IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
–– IAS 19 Employee Benefits: Discount rate – regional market issue
The guidance in IAS 19 has been clarified and requires that high quality corporate bonds used to determine the discount
rate for the accounting of employee benefits need to be denominated in the same currency as the related benefits that
will be paid to the employee.
Entities are required to apply the amendment from the earliest comparative period presented in the financial statements,
with initial adjustments being recognised in retained earnings at the beginning of that period.
–– IAS 34 Interim Financial Reporting – Meaning of ‘elsewhere in the interim financial report’
The requirements of IAS 34.16A require additional disclosures to be presented either in the:
–– Notes to the interim financial statements or
–– Elsewhere in the interim financial report.
The amendment clarifies, that a cross-reference is required, if the disclosures are presented ‘elsewhere’ in the interim
financial report, such as in the management commentary or the risk report of an entity. However, to comply with
IAS 34.16A, if the disclosures are contained in a separate document from the interim report, that document needs to be
available to users of the financial statements on the same terms and at the same time as the interim report itself.
The amendment to IAS 34 is required to be applied retrospectively in accordance with IAS 8 Accounting Policies, Changes
in Accounting Estimates and Errors.
Mandatory adoption for periods beginning on or after 1 January 2016.
For more information see BDO IFR Bulletin 2014/19 (click here).
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
23
5. IASB PROJECTS IN PROGRESS
The IASB also has a number of projects in progress, the most significant of which are Insurance Contracts, the Conceptual
Framework and the Disclosure Initiative.
5.1. Insurance Contracts
The IASB continues to move the Insurance Project Forward and is expected to issue a final standard in 2016.
The IASB’s response to the feedback received on the revised Exposure Draft ED/2013/7 was published in October 2014.
In March 2015, the IASB published a project update that summarised the recent status of the project and the next steps for
the finalisation of the project. The IASB has also met a number of industry representatives to discuss certain key aspects of
the proposals.
In December 2015 the IASB issued a Staff Paper outlining where and how the proposals in the 2013 Exposure Draft would
change as a result of the IASB’s tentative decisions to date.
5.2. Conceptual Framework
In July 2013 the IASB released Discussion Paper DP/2013/1 A Review of the Conceptual Framework for Financial Reporting. The
Discussion Paper was designed to obtain initial views and comments to be taken into consideration in preparing a subsequent
Exposure Draft for the revision of the Conceptual Framework.
The IASB substantially completed its redeliberations and in May 2015 the IASB published Exposure Draft ED/2015/3
Conceptual Framework for Financial Reporting which takes into account the feedback received on the Discussion Paper. The
IASB is currently deliberating the comments received on the Exposure Draft.
24
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
5.3. Disclosure Initiative
The Disclosure Initiative was introduced by the IASB in order to explore the potential for the improvement of disclosures in
financial statements. It is comprised of the following separate projects of which the current status and the next steps are
summarised below:
Implementation projects
–– IAS 1 Amendments – The IASB published the final amendments in December 2014 (see above for further detail).
–– Reconciliation of liabilities from financing activities – In December 2014, the IASB issued Exposure Draft 2014/6
Disclosure Initiative (Proposed amendments to IAS 7). The proposed amendments to IAS 7 Statement of Cash Flows include
a requirement to provide a reconciliation of the opening and closing carrying amounts of each item for which cash flows
have been, or would be, classified as financing activities in the statement of cash flows (e.g. borrowing, lease liabilities),
and to require disclosures about restrictions that affect an entity’s decisions to use cash and cash equivalent balances
(including the tax liabilities that would arise when foreign cash and cash equivalents are repatriated).
Research projects
–– Materiality – The IASB issued Exposure Draft ED/2015/8 Application of Materiality to Financial Statements (the ED) on
28 October 2015. The aim of this ED is to provide guidance to assist management in applying the concept of materiality
to general purpose financial statements. A Practice Statement is not a Standard and its application is not required in order
to state compliance with IFRS. However, the IASB has noted that a jurisdiction that permits or requires IFRS could choose
to formally adopt a Practice Statement into its national financial reporting requirements.
–– Principles of Disclosure – Identification and development of a set of principles for disclosures based on a review of IAS 1,
IAS 7 Statement of Cash Flows and IAS 8. A Discussion Paper Principles of Disclosure and an Exposure Draft Changes in
Accounting Policies and Estimates are expected to be published the first half of 2016.
–– Standards-level review of disclosure – Research for conflicts, duplications and overlaps in existing Standards. The project
is being informed by the results of the Principles of Disclosures project.
For more information see BDO IFR Bulletin 2014/24 (click here).
IFRSs AND AMENDMENTS EFFECTIVE IN PERIODS AFTER 31 DECEMBER 2015 YEAR ENDS
25
6. CONCLUSION
The coming years will bring very significant changes to accounting requirements, which will affect the financial statements of
almost every entity that reports in accordance with IFRS. Some of these changes will require careful planning and may take
a considerable amount of time to implement. As we progress through the 2015 year end reporting season, this is the time to
discuss how the changes will affect your organisation with your BDO contact.
CONTACT
For further information about how BDO can assist you and your organisation, please
get in touch with one of our key contacts listed below. Alternatively, please visit
www.bdointernational.com/Services/Audit/IFRS/IFRS Country Leaders where
you can find full lists of regional and country contacts.
EUROPE
Caroline Allouët
Jens Freiberg
Teresa Morahan
Ehud Greenberg
Ruud Vergoossen
Reidar Jensen
Maria Sukonkina
René Krügel
Brian Creighton
France
Germany
Ireland
Israel
Netherlands
Norway
Russia
Switzerland
United Kingdom
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Australia
China
Hong Kong
Malaysia
[email protected]
[email protected]
[email protected]
[email protected]
Argentina
Peru
Uruguay
[email protected]
[email protected]
[email protected]
ASIA PACIFIC
Wayne Basford
Zheng Xian Hong
Fanny Hsiang
Khoon Yeow Tan
LATIN AMERICA
Marcelo Canetti
Luis Pierrend
Ernesto Bartesaghi
NORTH AMERICA & CARIBBEAN
Armand Capisciolto
Wendy Hambleton
Canada
USA
[email protected]
[email protected]
Bahrain
Lebanon
[email protected]
[email protected]
South Africa
[email protected]
MIDDLE EAST
Arshad Gadit
Antoine Gholam
SUB SAHARAN AFRICA
Nigel Griffith
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