In Depth New IFRSs For 2016 - PwC

tive dateAdoption statusEU statusPageIFRS 5, ‘Non-current assets held forsale and discontinued operations’regarding methods of disposalAnnual periods on or after1 January 2016Early adoption ispermittedEndorsed28IFRS 7, ‘Financial instruments:Disclosures’Annual periods on or after1 January 2016.Early adoption ispermittedEndorsed29IAS 19, ‘Employee benefits’Annual periods on or after1 January 2016Early adoption ispermittedEndorsed30IAS 34, ‘Interim financial reporting’Annual periods on or after1 January 2016Early adoption ispermittedEndorsed30IFRS 14, ‘Regulatory deferralaccounts’Annual periods beginningon or after 1 January 2016Early adoption ispermittedWill not be endorsedby EU20Amendment to IFRS 11 ‘Jointarrangements’ on Accounting foracquisitions of interests in jointoperationsAnnual periods beginningon or after 1 January 2016Early adoption ispermittedEndorsed8Amendments to IAS 16, ‘Propertyplant and equipment’ and IAS 41,‘Agriculture’ on Agriculture:Bearer plantsAnnual periods beginningon or after 1 January 2016Early adoption ispermittedEndorsed9Amendments to IAS 16, ‘Propertyplant and equipment’ and IAS 38,‘Intangible assets’ on clarification ofacceptable methods of depreciationand amortisationAnnual periods beginningon or after 1 January 2016Early adoption ispermittedEndorsed10Amendments to IAS 27, ‘Separatefinancial statements’ on equitymethod in separate financialstatementsAnnual periods beginningon or after 1 January 2016Early adoption ispermittedEndorsed11Amendments to IFRS 10,‘Consolidated financial statements’and IAS 28, ‘Investments inassociates’, on Investment entities:Applying the consolidation exceptionAnnual periods beginningon or after 1 January 2016Early adoption ispermittedNot yet endorsed12Amendments to IAS 1, ‘Presentationof financial statements’ Disclosureinitiative.Annual periods beginningon or after 1 January 2016Early adoption ispermittedEndorsed13Amendments to IFRS 10,‘Consolidated financial statements’and IAS 28, ‘Investments inassociates’ on the sale or contributionbetween an investor and its associateor joint ventureDeferred indefinitelyNon applicableNon applicable1 January 2016Annual improvements 2012-20144 In depth – New IFRSs for 2016 PwCNonapplicable

tive dateAdoption statusEU statusPageAmendment to IAS 12, ‘Incometaxes’, ‘Recognition of deferred taxassets for unrealised losses’Annual periods beginningon or after 1 January 2017Early adoption ispermittedNot yet endorsed15Amendment to IAS 7, ‘Cashflowstatements’, Disclosure initiativeAnnual periods beginningon or after 1 January 2017Early adoption ispermittedNot yet endorsed16IFRS 9, ‘Financial instruments’Annual periods beginningon or after 1 January 2018Early adoption ispermittedNot yet endorsed18IFRS 15, ‘Revenue from contractswith customers’Annual periods beginningon or after 1 January 2018Early adoption ispermittedNot yet endorsed22Annual periods beginningon or after 1 January 2019Early adoption ispermitted if IFRS 15 isalso adoptedNot yet endorsed241 January 20171 January 20181 January 2019IFRS 16, ‘Leases’PwC In depth – New IFRSs for 2016 5

Amended standardsDefined benefit plansAmendments to IAS 19,‘Employee contributions’Effective dateAnnual periods beginning on or after 1 July 2014.EU adoption statusEU endorsed for Annual periods beginning on orafter 1 February 2015 but early adoption ispermitted.What is the issue?This amendment clarifies the applicationof IAS 19, ‘Employee benefits’, to plansthat require employees or third parties tocontribute towards the cost of benefits.The amendment does not affect theaccounting for voluntary contributions.Some pension plans require employees orthird parties to contribute to the plan.These contributions reduce the cost to theemployer of providing the benefits.Common practice under the previousversion of IAS 19 was to deduct thecontributions from the cost of the benefitsearned in the year in which thecontributions were paid.they account for these contributions.The 2011 revisions to IAS 19 distinguishedbetween employee contributions related toservice and those not linked to service.The amendment further distinguishesbetween contributions that are linked toservice only in the period in which theyarise and those linked to service in morethan one period. In our view, acontribution that is payable out of currentsalary is linked to service.The amendment allows contributions thatare linked to service, and do not vary withthe length of employee service, to bededucted from the cost of benefits earnedin the period that the service is provided.The amendment will allow (but notrequire) many entities to continueaccounting for employee contributionsusing their existing accounting policy,rather than spreading them over theemployees’ working lives.Contributions that are linked to service,and vary according to the length ofemployee service, must be spread over theservice period using the same attributionmethod that is applied to the benefits; thatmeans either in accordance with theformula in the pension plan, or, where theplan provides a materially higher level ofbenefit for service in later years, on astraight line basis.IAS 19 was intended to clarify thetreatment of contributions from employeesor third parties. However, the revisedguidance is open to a range of potentiallycomplex interpretations, and could requiremost entities to change the way in whichExample 1A plan that requires employees to contribute 4% of salary if they are below age 40,and 7% of salary if they are 40 or above, is an example of a plan in which employeecontributions are not linked to the length of service.The contributions are linked to age and salary, but are not dependent on the lengthof service. So the contributions would be recognised as a reduction of pensionexpense in the year in which the related service is delivered.6 In depth – New IFRSs for 2016 PwC

Amended standardsThe benefit of employee contributionslinked to the length of service isrecognised in profit or loss over theemployee’s working life. It is not clear howthis should be done, and a variety ofapproaches are likely to develop.Contributions that are not linked toservice are reflected in the measurementof the benefit obligation.Example 2A plan that provides a lump sum benefit on retirement of 10% of final salary for thefirst ten years of service, plus 20% of final salary for each subsequent year ofservice, and requires employee contributions equal to 5% of salary for the first tenyears of service and 8% thereafter, is a plan in which contributions are linked tothe length of service.InsightThe amendment to IAS 19 will affect anypost-employment benefit plans whereemployees or third parties are required tomeet some of the cost of the plan.The amendment clarifies the accountingby entities with plans that requirecontributions linked only to service ineach period.Entities with plans that requirecontributions that vary with service willbe required to recognise the benefit ofthose contributions over employees’working lives. Management shouldconsider how it will apply that model.The contributions vary with the length of service, as well as salary, and so theyhave to be recognised over the working life. The benefit earned and the employeecontributions would be recognised on a straight line basis over the employee’sworking life in this example.Example 3A post-employment medical insurance plan, where the employee is required tomeet the first CU20 per month of the insurance premium, is an arrangement inwhich the contributions are not linked to service. The expected futurecontributions from the employee, which would be payable after retirement, wouldbe included in the measurement of the benefit obligation.PwC In depth – New IFRSs for 2016 7

Amended standardsAccounting for acquisitions ofinterests in joint operationsAmendments to IFRS 11,‘Joint arrangements’Effective dateAnnual periods beginning on or after1 January 2016. Early adoption is permitted.EU adoption statusEndorsed.IssueThis amendment provides specificguidance on accounting for the acquisitionof an interest in a joint operation (‘JO’)that is a business.The amendments address diversity inpractice related to the accounting forthese transactions.ImpactApplication of IFRS 3 principlesThe amendments require an investor toapply the principles of business combinationaccounting when it acquires an interest in aJO that constitutes a ‘business’ (as defined inIFRS 3, Business combinations).Specifically, an investor will need to: measure identifiable assets andliabilities at fair value; expense acquisition-related costs; recognise deferred tax; and recognise the residual as goodwill.All other principles of businesscombination accounting applies unlessthey conflict with IFRS 11.8 In depth – New IFRSs for 2016 PwCThe amendments are applicable to boththe acquisition of the initial interest in aJO and the acquisition of additionalinterest in the same JO. However, apreviously held interest is not remeasuredwhen the acquisition of an additionalinterest in the same JO results in retainingjoint control.ScopeThe amendments will apply to theacquisition of an interest in an existing JOthat is a business, or when a JO is formedand an existing business is contributed.However the amendments do not applywhen the formation of the JO coincideswith the formation of a business.Transactions between an investor and a JOunder common control are also excluded.DisclosuresThe amendments require the disclosure ofinformation specified in IFRS 3 and otherIFRSs for business combinations.TransitionThe amendments to IFRS 11 will be appliedprospectively for annual periods beginningon or after 1 January 2016. Earlierapplication is permitted. Transactionsbefore the adoption date are grandfathered.The scope of the business combinationexemption in IFRS 1 has been expanded toinclude the acquisition of an interest inJOs that are businesses.InsightEntities in oil and gas, mining and powersectors will be most affected by theamendments although joint operationsare seen across a broad range ofindustries. Joint arrangements arefrequently used as the most effectivemethod for multi-nationals to accessemerging markets, and those reportingentities may be similarly affected.The change required by the amendmentsis likely to increase the pressure on thedefinition of ‘what is a business’ andclassification of joint arrangementsunder IFRS.

Amended standardsAgriculture: Bearer plantsAmendments to IAS 16,‘Property plant and equipment’and IAS 41, ‘Agriculture’Effective dateAnnual periods beginning on or after 1 January 2016.Early adoption is permitted.EU adoption statusEndorsed.IssuePrior to the 2014 amendments, allbiological assets were in the scope of IAS41 and measured at fair value less costs tosell. Bearer plants will now be accountedfor differently to all other biological assets.The amendments distinguish bearer plantsfrom other biological assets as bearerplants are solely used to grow produceover their productive lives. Bearer plantsare seen as similar to an item of machineryin a manufacturing process and thereforewill be classified as PP&E and accountedfor under IAS 16.ImpactAccounting for bearer plantsBiological assets that meet the definitionof ‘bearer plants’ are measured either atcost or revalued amounts, lessaccumulated depreciation and impairmentlosses. Bearer plants are measured ataccumulated costs until maturity, similarto the accounting for a self-constructeditem of property, plant and equipment.A bearer plant is a living plant that: is used in the production or supply ofagricultural produce; is expected to bear produce for morethan one period; and has a remote likelihood of being sold asagricultural Revenue from contractswith customers.Bearer plants are measured ataccumulated costs until maturity, similarto the accounting for a self-constructeditem of property, plant and equipment.Accounting for produce growingon bearer plantsAgricultural produce growing on bearerplants remain within the scope of IAS 41and are measured at fair value less costs tosell with changes recognised in profit orloss as the produce grows.Effective date and transitionalprovisionThe amendments are to be appliedretrospectively and are effective forannual periods beginning on or after 1January 2016. Early application ispermitted. Existing IFRS preparers whomeasure bearer plants at fair value lesscosts to sell are permitted to use fair valueas deemed cost for these assets uponadoption of the amendments.InsightManagement should assess if theirbiological assets meet the definition ofbearer plants in the amendments. Theclassification as bearer plants or otherbiological assets is critical as it drives thesubsequent measurement model. For thoseassets which meet the definition of bearerplants, management will need to ensurethat their systems are able to capture thecosts incurred and consider their policy fordetermining when these assets are mature.PwC In depth – New IFRSs for 2016 9

Amended standardsClarification of acceptablemethods of depreciation andamortisationAmendments to IAS 16,‘Property plant and equipment’and IAS 38, ‘Intangible assets’Effective dateAnnual periods beginning on or after1 January 2016. Early adoption is permitted.EU adoption statusEndorsed.IssueThis amendment clarifies when a methodof depreciation or amortisation based onrevenue may be appropriate.The amendment to IAS 16 clarifies thatdepreciation of an item of property, plantand equipment based on revenue generatedby using the asset is not appropriate.The amendment to IAS 38 establishes arebuttable presumption that amortisationof an intangible asset based on revenuegenerated by using the asset isinappropriate. The presumption may onlybe rebutted in certain limitedcircumstances. These are: Where the intangible asset is expressedas a measure of revenue; or Where it can be demonstrated thatrevenue and the consumption of theeconomic benefits of the intangibleasset are highly correlated.10 In depth – New IFRSs for 2016 PwCImpactProperty, plant and equipmentIt is unlikely that the amendment to IAS 16will have a significant impact as fewentities use a revenue-based approachto depreciation.Intangible assetsEntities which have intangible assetsunder IFRIC 12, Service concessions maysee a significant impact from theamendment if they have previously used amethod based on revenues to amortise theintangible asset.The entertainment and media industrymay also see a significant impact from theamendment. Intangible assets arising fromprogramme rights are frequentlyamortised using a declining balancemethod as the majority of revenues arisefrom the first showings.InsightThere are many methods of depreciationand amortisation which are permitted byIAS 16 and IAS 38. Some of these mayresult in an amortisation profile not unlikeone based on revenues; for example, thereducing balance method and the units ofproduction method. Preparers for whomthe amendment is significant may find ituseful to explore these options.

Amended standardsEquity method in separatefinancial statementsAmendments to IAS 27,‘Separate financial statements’Effective dateAnnual periods beginning on or after 1 January 2016.Early adoption is permitted.EU adoption statusEndorsed.IssueThis amendment restores the option to usethe equity method to account forinvestments in subsidiaries, joint venturesand associates in an entity’s separatefinancial statements.Key amendmentsAn entity can now account for investmentsin subsidiaries, joint ventures and associatesin its separate financial statements: at cost; or in accordance with IFRS 9; or using the equity method as described inIAS 28.The IASB has also clarified the definitionof separate financial statements as thoseproduced in addition to: consolidated financial statements by anentity with subsidiaries; or financial statements prepared by anentity which has no subsidiaries but hasinvestments in associates or jointventures required to be equityaccounted under IAS 28.IFRS 1 has been amended to permit use of thebusiness combinations exemption forinvestments in subsidiaries accounted forusing equity method in the separate financialstatements of the first-time adopter.Effective date and transitionalprovisionAn entity electing to change to the equitymethod shall apply the amendments forannual periods beginning on or after1 January 2016 in accordance with IAS 8‘Accounting policies, changes inaccounting estimates and errors’.Earlier application is permitted.ImpactThe amendments are expected to reducecompliance costs for entities that arerequired to prepare separate financialstatements in which they account forinvestments in subsidiaries, joint venturesand associates using the equity method.Prior to the amendment these entities hadto prepare two sets of separate financialstatements, one for IFRS reporting andone for local statutory reporting.InsightRetrospective application may be challengingfor those entities who do not already prepareseparate financial statements using the equitymethod as the figures from the previousconsolidated financial statements mayrequire adjustment.PwC In depth – New IFRSs for 2016 11

Amended standardsInvestment entities: Applyingthe consolidation exceptionAmendments to IFRS 10,‘Consolidated financialstatements’ and IAS 28,‘Investments in associates’Effective dateAnnual periods beginning on or after1 January 2016. Early adoption is permitted.EU adoption statusNot adopted at time of going to print.IssueThese amendments clarify the applicationof the consolidation exception forinvestment entities and their subsidiaries.ImpactException from preparingconsolidated financialstatementsThe amendments to IFRS 10 clarify thatthe exception from preparing consolidatedfinancial statements is available tointermediate parent entities which aresubsidiaries of investment entities. Theexception is available when the investmententity parent measures its subsidiaries atfair value.The intermediate parent would also needto meet the other criteria for exceptionlisted in IFRS 10.12 In depth – New IFRSs for 2016 PwCSubsidiaries which act as anextension of an investment entityThe amendments to IFRS 10 clarify that aninvestment entity should consolidate asubsidiary which is not an investmententity and whose main purpose and activityis to provide services in support of theinvestment entity’s investment activities.However, the amendments confirm that ifthe subsidiary is itself an investment entity,the investment entity parent shouldmeasure its investment in the subsidiary atfair value through profit or loss. Thisapproach is required regardless of whetherthe subsidiary provides investment-relatedservices to the parent or to third parties.Equity accounting forinvestments in associates andjoint venturesThe amendments to IAS 28 allow an entitywhich is not an investment entity, but hasan interest in an associate or joint venturewhich is an investment entity, a policychoice when applying the equity method ofaccounting. The entity may choose to retainthe fair value measurement applied by theinvestment entity associate or joint venture,or to unwind the fair value measurementand instead perform a consolidation at thelevel of the investment entity associate orjoint venture.TransitionThe

kerstine.stephenson@us.pwc.com Manual of accounting - IFRS 2016 Global guide to IFRS providing comprehensive practical help on how to prepare financial statements in accordance with IFRS. Includes hundreds of worked examples guidance on financial instruments. Three volume set comprising: IFRS 2015 - Vol 1&2 (Publication date: December 2014)