Global IFRS External September Year-end Accounting .
www.inform.pwc.comGlobal IFRS externalSeptember year-endaccounting reminders– IFRSIntroductionSeptember 2020Topical issues1Climate change1Coronavirus – impacton the annual report2Brexit2IFRS 16 amendmentin light of COVID-192Phase 2 amendments to IFRS 9, 3IAS 39, IFRS 7, IFRS 4and IFRS 16 AmendmentsIBOR reformSupplier finance arrangements 5Debt and derivativerestructurings6Regulatory non financial assetinterest and key remindersfor impairment reviews7Standards and IFRICsnewly applicablefor companies with30 September 2020year ends9New IFRS standardseffective after1 October 202011This information is extractedfrom Inform. More information,is available under theAccounting topic home pageswhich are updated in real-time.This publication relates to reporting requirements as at 30 September 2020.The first section on Topical issues includes items that you might want to considerfor this year end but you should note that these items are updated real time onPwC’s Inform (see www.inform.pwc.com).The second part of the document includes the standards and interpretations thatare newly applicable for 30 September year ends.The final part of the document includes the standards and interpretations thatare effective in the future but as per paragraph 30 of IAS 8 need to be disclosed.Topical issuesClimate changeThere continues to be an unprecedentedlevel of attention on the work ofcompanies around climate-relatedreporting. UK Government, investors andregulators have all contributed with theUK Financial Reporting Council (‘FRC’)labelling climate change as “one of thedefining issues of our time”.Key areas of focus that companies needto ensure they consider: Quality of their compliance withreporting requirements in relation toclimate change; and Quality of disclosures regarding risk,emerging risk and long-term factorsaffecting their viability.Consideration of the accountingimpact in financial statementsCompanies should also consider theaccounting implications of climate change,not limited to the following areas: expected credit losses under IFRS 9,‘Financial instruments’; the impairment of tangible andintangible assets under IAS 36,‘Impairment of non-financial assets’; the net realisable value of inventoryunder IAS 2, ‘Inventories’; deferred tax assets in accordance withIAS 12, ‘Income taxes’; any asset or liability measured at fairvalue; provisions and contingent liabilitiesunder IAS 37; and banking covenants.Front half reporting and considerationsAreas of front half reporting which mayrequire reporting on climate change,include: Principal and emerging risks; and Non-financial reporting.1
Coronavirus – impact on theannual reportThe COVID-19 pandemic has developedrapidly throughout 2020. Measures takento contain the virus have affected economicactivity across many sectors, which in turnhas implications for financial reporting.As the pandemic continues companiesshould remain aware of the accountingimplications of these developments, notlimited to the following areas: expected credit losses under IFRS 9,‘Financial instruments’; the impairment of tangible andintangible assets under IAS 36,‘Impairment of non-financial assets’; the net realisable value of inventoryunder IAS 2, ‘Inventories’; deferred tax assets in accordance withIAS 12, ‘Income taxes’; any asset or liability measured at fairvalue; and provisions and contingent liabilitiesunder IAS 37, including onerouscontracts.Detailed disclosures on the impact ofdevelopments on the carrying amountof assets and liabilities (for example, theneed to impair assets or remeasure fairvalues), or the impact on revenue or onborrowing covenants may be required.Furthermore, disclosures of significantestimates required by IAS1, Presentationof Financial Statements, might needexpanding where there is a significantrisk of a material adjustment in estimateswithin the next financial year.Ensuring that the wider effects of theCoronavirus outbreak have been fullyconsidered is critical – regulators will expectto see evidence of those considerationsof the impact on the entity, its business,the numbers, disclosures in the financialstatements and other information.In reporting the impact of the virus andin presenting any exceptional items orAdjusted Performance Measures (‘APM’s’),Companies should ensure that they haveconsidered the latest guidance issued byregulators.Year-end accounting reminders – IFRSFor considerations relating to front halfreporting refer to our publication whichsets out information, based around Q&As,about how the COVID-19 crisis affectsareas including going concern and viability,governance, risk and internal control andbalancing the interests of shareholders andother stakeholders. The document takesinto account external guidance as well asour own comments and recommendations.We are continuing to update the COVID-19home page on Inform with links to all ofthe latest resources we have publishedto help entities navigate COVID-19related financial reporting. This includesstandards, drafts, PwC interpretations,tools and practice aids and spotlights onspecific industry considerations.BrexitConsiderations for now:risk to financial performanceFor some entities, the implementationperiod (IP) completion date on31 December might introduce additionalrisks that should be factored intoreporting. The reporting areas to considerare much the same as for COVID-19 andClimate Change, refer to sections abovewith both accounting and front halfreporting implications.IFRS 16 amendment in lightof COVID-19As a result of the coronavirus (COVID-19)pandemic, rent concessions have beengranted to lessees. Such concessionsmight take a variety of forms, includingpayment holidays and deferral of leasepayments. On 28 May 2020, the IASBpublished an amendment to IFRS 16 thatprovides an optional practical expedientfor lessees from assessing whether a rentconcession related to COVID-19 is a leasemodification. Lessees can elect to accountfor such rent concessions in the sameway as they would if they were not leasemodifications. In many cases, this willresult in accounting for the concession asvariable lease payments in the period(s) inwhich the event or condition that triggersthe reduced payment occurs.September 2020 2
The practical expedient only appliesto rent concessions for lessees (but notlessors) occurring as a direct consequenceof the COVID-19 pandemic and only if allof the following conditions are met: the change in lease payments resultsin revised consideration for the leasethat is substantially the same as, or lessthan, the consideration for the leaseimmediately preceding the change; any reduction in lease payments affectsonly payments due on or before 30 June2021; and there is no substantive change to otherterms and conditions of the lease.The amendments are mandatory forannual reporting periods beginning on orafter 1 June 2020. Earlier application ispermitted, including in interim or year endfinancial statements not yet authorised forissue at 28 May 2020 to permit applicationof the relief as soon as possible subject toany endorsement process.Please refer to PwC In brief INT2020-09for further guidance.Phase 2 amendments to IFRS 9,IAS 39, IFRS 7, IFRS 4 and IFRS 16Amendments IBOR reformFollowing the financial crisis, thereplacement of benchmark interest ratessuch as LIBOR and other interbank offeredrates (‘IBORs’) has become a priority forglobal regulators. Many uncertaintiesremain but the roadmap to replacement isbecoming clearer. The IASB has embarkedon a two-phase project to consider what,if any, reliefs to give from the effects of IBORreform. The Phase 1 amendments, issuedin September 2019, provided temporaryreliefs from applying specific hedgeaccounting requirements to relationshipsaffected by uncertainties arising as a resultof IBOR reform (‘the Phase 1 reliefs’). ThePhase 2 amendments that were issuedon 27 August 2020 address issues thatarise from the implementation of thereforms, including the replacement of onebenchmark with an alternative one.Year-end accounting reminders – IFRSThe Phase 1 amendments providetemporary relief from applying specifichedge accounting requirements tohedging relationships directly affected byIBOR reform. The key reliefs provided bythe amendments relate to:1. Risk components.2. ‘Highly probable’ requirement.3. Prospective assessments (economicrelationship or expected to be‘highly effective’).4. IAS 39 retrospective effectiveness test.5. Recycling of the cash flow hedgingreserve.The amendments prescribe when eachof the reliefs will prospectively cease.In general, the reliefs end at the earlierof (a) when there is no longer uncertaintyarising from IBOR reform over the timingor amount of the IBOR-based cash flowsof the relevant item, and (b) when thehedging relationship to which the relief isapplied is discontinued. More specificallythe reliefs cease as follows: There is no end date for the relief onrisk components. The ‘highly probable’ requirement –at the earlier of (a) when there is nolonger uncertainty arising from IBORreform over the timing or amountof the IBOR-based cash flows of thehedged item, and (b) when the hedgingrelationship of which that the hedgeditem is part is discontinued. Prospective assessments (expectedto be highly effective or economicrelationship) – for each of the hedginginstrument and the hedged item: whenthere is no longer uncertainty arisingfrom IBOR reform over the timing oramount of the IBOR-based cash flowsor hedged risk of the hedged item orhedging instrument. This means thatthe relief could end at different timesfor the hedging instrument and thehedged item. However, if the hedgingrelationship is discontinued earlier thanthis date, this relief ceases to apply atthe date of hedge discontinuation. Retrospective effectiveness test (IAS 39only) – at the earlier of (a) when there isno longer uncertainty arising from IBORreform over the hedged risk and thetiming and amount of the IBOR-basedcash flows, of both the hedged item andthe hedging instrument, and (b) whenthe hedging relationship to which therelief is applied is discontinued.September 2020 3
Recycling of the cash flow hedge reserve– at the earlier of (a) when there is nolonger uncertainty arising from IBORreform over the timing or amount of theIBOR-based cash flows of the hedgeditem, and (b) when the entire amountin the cash flow hedge reserve for adiscontinued hedging relationship hasbeen recycled to profit or loss.The amendments require disclosure of: the significant interest rate benchmarksto which the entity’s hedgingrelationships are exposed; the extent of the risk exposure that theentity manages that is directly affectedby the interest rate benchmark reform; how the entity is managing the processof transition to alternative benchmarkrates; a description of significant assumptionsor judgements that the entity madein applying the reliefs (for example,assumptions or judgements about whenthe uncertainty arising from interestrate benchmark reform is no longerpresent with respect to the timingand the amount of the interest ratebenchmark-based cash flows); and the nominal amount of the hedginginstruments in those hedgingrelationships.The amendments are mandatory andshould be applied for annual periodsbeginning on or after 1 January 2020.Earlier application is permitted.The Phase 2 amendments provideadditional temporary reliefs from applyingspecific IAS 39 and IFRS 9 hedge accountingrequirements to hedging relationshipsdirectly affected by IBOR reform:Year-end accounting reminders – IFRS1. Accounting for changes in the basisfor determining contractual cashflows as a result of IBOR reform.For instruments to which theamortised cost measurement applies,the amendments require entities, asa practical expedient, to account fora change in the basis for determiningthe contractual cash flows as a result ofIBOR reform by updating the effectiveinterest rate using the guidance inparagraph B5.4.5 of IFRS 9. As a result,no immediate gain or loss is recognised.This practical expedient applies onlyto such a change and only to the extentit is necessary as a direct consequenceof IBOR reform, and the new basis iseconomically equivalent to the previousbasis. Insurers applying the temporaryexemption from IFRS 9 are alsorequired to apply the same practicalexpedient. IFRS 16 was also amendedto require lessees to use a similarpractical expedient when accountingfor lease modifications that changethe basis for determining future leasepayments as a result of IBOR reform(for example, where lease payments areindexed to an IBOR rate).2. End date for Phase 1 relief fornon contractually specified riskcomponents in hedging relationshipsThe Phase 2 amendments requirean entity to prospectively cease toapply the Phase 1 reliefs to a noncontractually specified risk componentat the earlier of when changes aremade to the non contractually specifiedrisk component, or when the hedgingrelationship is discontinued. No enddate was provided in the Phase 1amendments for risk components.September 2020 4
3. Additional temporary exceptions from applying specific hedgeaccounting requirementsChanges todesignationsand hedgedocumentationWhen the Phase 1 reliefs cease to apply, entities are required to amend the hedgedocumentation to reflect changes that are required by IBOR reform by the end of thereporting period during which the changes are made. Such amendments do notconstitute a discontinuation.Amountsaccumulated inthe cash flowhedge reserveWhen amending the description of a hedged item in the hedge documentation,the amounts accumulated in the cash flow hedge reserve are deemed to be based onthe alternative benchmark rate on which the hedged future cash flows are determined.RetrospectiveFor the purposes of assessing the retrospective effectiveness of a hedge relationshipeffectiveness test on a cumulative basis, an entity may, on an individual hedge basis, reset to zero(IAS 39 only)the cumulative fair value changes of the hedged item and hedging instrument whenceasing to apply the retrospective effectiveness assessment relief provided by thePhase 1 amendments.Groups of itemsWhen amending the hedge relationships for groups of items, hedged items areallocated to sub-groups based on the benchmark rate being hedged, and thebenchmark rate for each sub-group is designated as the hedged risk.Risk components– separatelyidentifiablerequirementAn alternative benchmark rate designated as a non-contractually specified riskcomponent, that is not separately identifiable at the date when it is designated,is deemed to have met the requirements at that date if the entity reasonably expectsthat it will meet the requirements within a period of 24-months from the date of firstdesignation. The 24-month period will apply to each alternative benchmark rateseparately. The risk component will, however, be required to be reliably measurable.4. Additional IFRS 7 disclosures relatedto IBOR reformThe amendments require disclosureof: (i) how the entity is managing thetransition to alternative benchmarkrates, its progress and the risks arisingfrom the transition; (ii) quantitativeinformation about derivatives and nonderivatives that have yet to transition,disaggregated by significant interestrate benchmark; and (iii) a descriptionof any changes to the risk managementstrategy as a result of IBOR reform.The amendments are mandatory andshould be applied for annual periodsbeginning on or after 1 January 2021.Earlier application is permitted.The amendments are subject toendorsement in the EU/EEA, and the EUis following an accelerated process witha view to endorsement in time for usevia early adoption for December 2019year ends. We understand the FRC hasplans in place for UK endorsement if EUendorsement does not occur prior to theUK exiting the EU.Year-end accounting reminders – IFRSThis IFRS Talks podcast explains thelatest and what clients can do now inresponse to Phase 1 of IBOR reform.For further details refer to PwC In depthINT2019-04: Practical guide to Phase1 amendments IFRS 9, IAS 39 and IFRS7 for IBOR reform, and PwC In briefINT202012: Phase 2 amendments to IFRS9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 –interest rate benchmark (IBOR) reform.Supplier finance arrangementsWe continue to see a large number ofquestions around the accounting forsupplier financing arrangements, and evermore complicated arrangements involvingspecial purpose vehicles, charitable trustswith companies having both payables andinvestments tied up in the arrangements.Such arrangements raise the question ofwhether the trade payables that are thesubject of the supplier financing shouldbe derecognised and replaced by a bankborrowing and whether any investmentvehicles should be consolidated bythe entity. Given the incidences ofhigh profile corporate failures such asCarillion in the UK, accounting correctlyfor supplier financing arrangements hasattracted significant attention from theregulators, with focus, amongst otherareas, on a company’s source of finances.This includes whether a company hasmade material use of supplier finance,if this is transparent from the annualSeptember 2020 5
report, whether related balances areappropriately presented as bank debt ortrade creditors and whether subsequentcash flows are appropriately presented inthe statement of cash flows.In September 2019, the UK FRC’s FinancialReporting Lab published a report ondisclosures of sources and uses of cash.This includes an appendix on the subjectof supplier finance which provides, amongother things, an illustrative example ofgood disclosure. The FRC note that IFRS 7‘Financial Instruments: Disclosures’requires companies’ accounts to discloseinformation that allows readers tounderstand the nature of and risks aroundfinancial instruments, including liquidityrisk and that IAS 1 requires companies toconsider whether balances are financing orworking capital in nature and present themaccordingly. It is clear that they expectthese requirements to lead companiesto disclose the nature of any materialsupplier financing arrangements, theimplications for the company’s liquidityand the relevant amounts, along with anysignificant accounting judgements.In February 2020, the IFRS IC has alsobeen asked to consider both the accountingand disclosure of supply chain finance incorporate entities. Their initial discussionsare expected to take place shortly.The level of disclosure that the FRChas indicated it expects with regards tosupplier finance arrangements may begreater than the disclosures currentlyprovided by many companies. Companiesand engagement teams may wish to revisitexisting disclosures and consider if theywish to include any additional disclosuresin light of regulator communication andstakeholder attention to this area.Further guidance on supplier financearrangements and indicators ofextinguishment are available in chapter 44of the IFRS Manual of Accounting andPwC’s practice aid.The accounting for supplier financearrangements will depend on the exactfacts and circumstances relating to them.In addition entities should considerhow the accounting for supplier financearrangements is impacted by COVID-19.Further guidance is available in PwC Indepth INT 2020-02.Year-end accounting reminders – IFRSDebt and derivative restructuringsWe continue to see a large numberof questions on the restructuring ofissued debt instruments, for exampleloan facilities or bond financing andmodification of derivatives to takeadvantage of low interest rates. This isa complex area of accounting which canrequire significant judgement. To assistengagement teams in understandingthe potential issues, some of the keyaccounting considerations (under IAS 39and IFRS 9) are summarised below.Relevant guidance (under IAS 39 andIFRS 9) is provided in IFRS MoA paras44.106 – 44.110. Determining whether the new andold debt have substantially differentterms – Under IFRS 9, where a financialliability is exchanged or its terms aremodified but the liabi
Phase 2 amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 Amendments IBOR reform Following the financial crisis, the replacement of benchmark interest rates such as LIBOR and other interbank offered rates (‘IBORs’) has become a priority for global regulators. Many uncertainties remain but the roadmap to replacement is becoming clearer.
(a) IFRS 9 Financial Instruments (Part A); and (b) IFRS 15 Revenue from Contracts with Customers (Part B). Introduction 2 IFRS 17 is effective from 1 January 2021. An insurer can choose to apply IFRS 17 before that date but only if it also applies IFRS 9. 3 The paper considers components of IFRS 9 and IFRS 15 that are relevant to the
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New IFRS Standards—IFRS 16 Leases Page 1 of 26 . Agenda ref 30E STAFF PAPER June 2019 IASB Meeting Project Comprehensive review of the IFRS for SMEs Standard Paper topic New IFRS Standards—IFRS 16 Leases CONTACT(S) Yousouf Hansye ykhansye@ifrs.org 44 (0) 20 7246 6470
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