accounting standards update 2013
TRANSCRIPT
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 1/48
Accounting Standards Update
Lyceum of the Philippines UniversityGeneral Trias Cavite
6 December 2013
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 2/48
New pronouncements effective reporting periods
beginning 1 January 2013
Pronouncements
Effective for the annual periods
beginning on or after
Amendments to PAS 1, Presentation of Items of
Other Comprehensive Income
1 July 2012
Amendments to PFRS 1, Government Loans 1 January 2013
Amendments to PFRS 7, Disclosures - Offsetting
Financial Assets and Financial Liabilities
1 January 2013
PFRS 10, Consolidated Financial Statements and
PAS 27, Separate Financial Statements
1 January 2013
PFRS 11, Joint Arrangements and
PAS 28, Investments in Associates and Joint
Ventures
1 January 2013
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 3/48
New pronouncements effective reporting periods
beginning 1 January 2013
Pronouncements
Effective for the annual periods
beginning on or after
PFRS 12, Disclosure of Interests in Other Entities 1 January 2013
PFRS 13, Fair Value Measurement 1 January 2013
PAS 19, Employee Benefits (Revised) 1 January 2013
Philippine Interpretation IFRIC –20, Stripping Costsin the Production Phase of a Surface Mine
1 January 2013
Annual improvements to PFRSs
2009-2011 cycle
1 January 2013
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 4/48
Amendments to PAS 1,
Presentation of Items of OtherComprehensive Income
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 5/48
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 6/48
Amendments to PAS 1,
Government Loans
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 7/48
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 8/48
Amendments to PFRS 7,
Disclosures - Offsetting
Financial Assets and
Financial Liabilities
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 9/48
Amendments to PFRS 7, Disclosures - Offsetting
Financial Assets and Financial Liabilities
Objective: To enable financial statement users to evaluate the effect or
potential effect of netting arrangements on an entity’s financial
position
► New disclosure requirements:
► Amendments effective for annual periods beginning on or after 1
January 2013 and interim periods within those annual periods
► Retrospective application
Gross
amounts
Amounts
offset in
accordance
with PAS 32
Net amounts
presented in
SFP
Other
amounts in
scope but not
offset in SFP
Net amounts
A
B
C = A - B
D
E = C - D
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 10/48
PFRS 10, Consolidated
Financial Statements and
PAS 27, Separate Financial
Statements
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 11/48
PFRS 10, Consolidated Financial Statements and
PAS 27, Separate Financial Statements
Overview:
► Contains a single model for consolidation for all entities
► Core principle:
► New definition (PFRS 10): An investor controls an investee when it isexposed, or has rights, to variable returns from its involvement with theinvestee and has the ability to affect those returns through its power overthe investee.
► Old definition (PAS 27): Control is the power to govern the financial andoperating policies of an entity so as to obtain benefits from its activities.
►
SIC-12: An extension of PAS 27 that retained the power concept but placedgreater emphasis on exposure to risks and rewards.
► Consolidate all controlled entities
► No ‘bright lines’ – consider all facts and circumstances
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 12/48
Key differences between PFRS 10
and PAS 27/SIC-12
► Broader definition of power that applies to all
entities
► Considers ‘relevant activities’ rather than
‘financial and operating policies’
► Focuses on ‘returns’ rather than ‘benefits’
► Established a linkage between power and returns
► Introduces principal or agent considerations
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 13/48
Assessing Control
I d e n t i f y i n g r e l e v a n t a c t i v i t i e s
E v a l u a t i n g p o w
e r
A
s s e s s i n g r e t u r n s
Activities
Activities that
significantly
affect returns
Examples:
► Operating and
financing policies
► Capital decisions
► Appointing and
remunerating keymanagement
Power
Current ability
to direct those
activities
Examples:
► Voting rights
► Potential voting
rights
► Right to appoint ,
re-assign orremove key
management
► Decision making
rights
Returns
Exposure or
rights to variable
(positive and/or
negative) returns
Examples:
► Dividends
► Remuneration
► Returns that are
not available toother interest
holders
Understand purpose and design
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 14/48
Control Assessment Example
► Enterprise A and B form aventure, C Ventures
► The purpose and design of CVentures is to manufacture,distribute and sell ice cream
► Each enterprise contributescash and receives 50% equityinterest
► Enterprise A and B are
unrelated► How should the enterprises
determine which partycontrols C Ventures?
C Ventures
Ent. A Ent. B
50% 50%
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 15/48
Control Assessment Example
1. Consider the purpose and design and the risks C Ventures
was designed to distribute
2. Identify relevant activities
3. Identify party or parties with the current ability to directthe relevant activities
4. Assess whether the investor is exposed to returns
Relevant Activity Responsible PartyManufacturing Enterprise A
Distributing Enterprise B
Selling Enterprise B
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 16/48
Transition (June 2012)
► Effective for annual periods beginning on or after1 January 2013
► “Date of initial application” – the beginning of the
annual reporting period in which PFRS 10 isapplied for the first time.
► Retrospective application and transition relief:► As if it was always consolidated (since the date of gaining control)
► If not practicable to apply retrospectively, consolidate as of earliestdate when practicable, which may be the current period
► An investor would not required to apply PFRS 10 to an investeewhen the previously unconsolidated investee would be consolidatein prior periods as a result of adopting PFRS 10, but the interest isdisposed of before the date of initial application of PFRS 10
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 17/48
Transition (2012) Cont’d…
► Other amendments/clarifications:► Difference between previously recognized (IAS 27/SIC-13) amounts
and revised amounts recognized on initial application of IFRS 10must be recorded as adjustment to equity.
►
Presentation of the adjusted comparative information for IFRS 10(also applies to IFRS 11 and IFRS 12) are required for the precedingyear only. However, an entity would not be prohibited fromadjusting comparatives for earlier periods
► Control obtained and changes in NCI before effectivity date of IFRS3(2008) and IAS 27(2008), respectively:
► Investee is a business – There is flexibility in determining whichversion of IFRS to use, based on which version of IFRS 3 is suitablefor a particular investee.
► Investee is not a business – measure the assets, liabilities and NCIapplying acquisition method as described by IFRS 3 (at fair value)
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 18/48
Business Impact
► Gather information
► Changes to the entities being consolidated
►
Additional procedures required to assess controlon a continuous basis
► Compliance with bank covenants and regulatory
requirements
► Structuring mergers and acquisitions or
transactions and arrangements
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 19/48
PAS 27, Separate Financial Statements
► Consolidated financial statements will be covered
by PFRS 10.
► Requirements in PAS 28, Investments in
Associates and PAS 31, Interests in Joint Ventures
regarding separate financial statements were
relocated to PAS 27 (Amended in 2011).
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 20/48
PFRS 11, Joint Arrangements and
PAS 28, Investments in Associates and Joint
Ventures
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 21/48
PFRS 11, Joint Arrangements andPAS 28, Investments in Associates and Joint Ventures
P A S 3 1
P F R S 1 1
Jointly controlled
entities
Jointly controlled
assets
Jointly controlled
operations
Joint venturesThe parties with joint control have
rights to the net assets of the
arrangement.
Joint operationsThe parties with joint control have
rights to the assets and obligations for
the liabilities of the arrangement.
Recognize its assets,
liabilities, expenses, and its
share of income.
Recognize its assets, liabilities,
revenue, and expenses, and/or
its relative shares thereof.
Equity method or
proportionate consolidation
Recognize its assets, liabilities,
revenue, and expenses, and/or its
relative shares thereof
Equity method
J o i n t a r r a n g e m e n t s
J o i n t v e n t u r e s
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 22/48
Joint Arrangement Assessment
Joint Arrangement
Does the contractual arrangement give all
the parties (or a group of parties) control of
the arrangement collectively?
Does the decision about the relevant
activities require the unanimous consent of
all parties that collectively control the
arrangement?
Yes
Yes
Outside scope of
PFRS 11 (not a joint
arrangement)
No
No
Joint Operation
Joint Venture
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 23/48
Classifying Joint Arrangement
Joint Venture
Is the arrangement set up as a separatevehicle?
Yes
No
Joint Operation
No
YesDo the contractual terms of the
arrangement specify rights to assets and
obligations for liabilities?
Do other facts and circumstances specify
rights to the assets/obligations for the
liabilities?
No
Yes
The economic substance of an arrangement overrides the formal structure of the
arrangement
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 24/48
Transition and Business Impact
Transition
► PFRS 11 must be applied using a modified retrospective
approach with earlier application permitted.
Business Impact
► Gather information
► Estimates and valuation
► Impact on key financial metrics
► Income taxes
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 25/48
PFRS 12, Disclosure of
Interests inOther Entities
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 26/48
PFRS 12, Disclosure of Interests inOther Entities
Overview
► Integrates disclosures for subsidiaries, joint arrangements,
associates and unconsolidated structured entities into a
single standard► Disclosures should enable users to understand:
► Nature of, and risks associated with, interests in other
entities
► Effects of those interests on financial position, financial
performance, and cash flows
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 27/48
PFRS 13, Fair Value
Measurement
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 28/48
PFRS 13, Fair Value Measurement
Overview
► Clarifies definition of fair value
► Single framework for how to measure fair value
► Does not change when fair value is used
► Converges with US GAAP
► Increases disclosures about fair value measurements
► Applies to financial and non-financial assets and liabilities
► Applies to recurring and non-recurring measurements
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 29/48
Fair Value Measurement Approach
Definition: price that would be received to sell anasset or paid to transfer a liability in an orderlytransaction between market participants at themeasurement date (an exit price)
► Determine:
► Particular asset or liability that is being measured
► For a non-financial asset, the valuation premise
► Principal (or most advantageous) market► Appropriate valuation technique(s)
► Inputs to valuation technique(s) based on market participantassumptions
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 30/48
Transition and Business Impact
Transition
► Applied prospectively as of the beginning of the annual period in which PFRS 13 isinitially adopted
► Early application is permitted.
► Disclosures are not required for comparative periods.
Business Impact
► Consider whether entity has appropriate expertise, processes, and systems
► Significant increase in required disclosures for non-financial instruments thatare measured at fair value (e.g., investment property measured using fairvalue, some biological assets)
► If PFRS 13 will change amount recognized, consider:► Covenant compliance
► Remuneration plans
► Shareholder communications
► Analyst expectations
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 31/48
PAS 19, Retirement Benefits
(Revised)
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 32/48
PAS 19, Employee Benefits (Revised)
►Higher balance sheet
volatility for those following
corridor approach or having
unvested past service cost
►Remeasurements, including
actuarial movements,
permanently bypass earnings
Key requirements Financial statement impact
Defined benefit plans
► Corridor approach removed, requires immediate
recognition of changes to plan assets/obligations
► Concept of expected returns removed, interest must
be recognized on net plan obligation/asset► Service cost and net interest charged to P&L
► Remaining changes in plans recognized in OCI
► Past service cost recognized immediately
► New disclosures, including sensitivity analyses of defined
benefit plans
Other changes► Short-term vs. long-term employee benefits classification
based on expected timing of settlement rather than
employee entitlements
► Timing of recognition of termination benefits
Effective for annual periods beginning on or after 1 January 2013
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 33/48
Post-employment benefits: disclosuresplan types and risks
Plan types and risks (PAS 19.139)
An entity shall disclose:
a) Information about the characteristics of the defined
benefit plan
i. The nature of the benefits
ii. A description of the regulatory framework
iii. A description of any other entity’s responsibilities for
the governance of the plan
More detailed information
required
PAS19.139 requires disclosure of information about the nature of the plan and the
related risks.
b) Information about the risks to which the plan exposes
the entity, focused on any unusual, entity-specific or
plan-specific risk
New requirement
c) A description of any plan amendments, curtailments and
settlementsNew requirement
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 34/48
Financial statements (PAS 19.140 –144)
PAS 19.140 –144 require more disclosures
The entity shall disclose the significant actuarial assumptions
used to determine the present value of the defined benefit
obligation.
More judgement required to
identify the key actuarial
assumptions
The entity shall disclose the fair value of the entity’s own
transferable financial instruments held as plan assets and the fairvalue of plan assets that are property occupied by the entity.
No change
The entity shall disaggregate the fair value of the plan assetsinto classes that distinguish the nature and risk of those assets,
subdividing each class of plan asset into those that have a
quoted market price in an active market and those that do not
have an active market.
New, especially the information
about assets with a ‘quoted market
price’
An entity shall provide a reconciliation from the opening
balance to the closing balance of the net defined benefit
liability (asset) and any reimbursement rights; this
reconciliation shall include detailed information on each item.
Not explicitly required in the past,
but the information could be
deducted from all other disclosures
Post-employment benefits: disclosuresfinancial impact
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 35/48
Post-employment benefits: disclosurescash flow impact
Cash flow impact (PAS 19.145 –147)
Sensitivity analysis required for the key assumptions
An entity shall disclose:
i. A sensitivity analysis for each significant actuarial assumption
ii. The methods and assumptions used
iii. Changes in the methods and assumptions
New, especially the sensitivity
analysis of the defined benefit
liability
The entity shall disclosure a description of any asset
liability matching strategies used by the plan or the
equity
New requirement
An entity shall disclose:
i. A description of any funding arrangements and policy that
affect future contributions
ii. The expected contributions to the plan for the next period
New requirement
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 36/48
Transition and Business Impact
Transition► Retrospective application with limited exceptions
Business Impact► Entities should consider impact to key performance measures
and potentially on debt covenants.
► Increased disclosures and changes in accounting for definedbenefit plans will require early communications with actuaries.
► Some of the seemingly minor adjustments, such as the changesin definition for short-term employee benefits and changes inrecognition for termination benefits may require further analysisof existing arrangements.
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 37/48
Philippine InterpretationIFRIC-20, Stripping Costs in
the Production Phase
of a Surface Mine
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 38/48
Scope
► Applies to waste removal (stripping) costs
incurred in production phase of a surface mine
(production stripping costs)
► Does not apply to:
► Underground mining activities
► Stripping costs incurred prior to production
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 39/48
Recognition Requirements
► Production of inventory – shall be accounted in accordance withPAS 2, Inventory
► Improved access to ore – shall be accounted as non-current assetcalled “stripping activity asset”(SAA). Production stripping costs are tobe recognized as SAA if, and only if, all of the following are met:
a) It is probable that the future economic benefits (improved access to an orebody) associated with the stripping activity will flow to the entity;
b) The entity can identify the component of an ore body for which access hasbeen improved; and
c) The costs relating to the improved access to that component can bemeasured reliably.
► The stripping activity asset shall be accounted for as an addition to, oras an enhancement of, an existing asset. In other words, the strippingactivity asset will be accounted for as part of an existing asset.
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 40/48
Measurements
The SAA:
► must be carried at cost less depreciation or amortization, andany impairment losses.
► must be depreciated or amortized on a systematic basis, over
the expected useful life of the identified component of an orebody that becomes more accessible as a result of thestripping activities. The units of production method is to beused, unless another method is more appropriate.
Where stripping costs cannot be specifically allocated between
the inventory produced during the period and the SAA, theInterpretation requires an entity to use an allocation basis that isbased on a relevant production measure.
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 41/48
Transition
► An entity shall apply this Interpretation to production stripping costsincurred on or after the beginning of the earliest period presented.
► For any production phase stripping costs incurred and capitalized up tothe start of the earliest period presented, the “predecessor strippingasset”, an entity is required to reclassify such a balance as part of an
existing asset to which the stripping activity related, to the extentthere remains an identifiable component of the ore body with whichthe stripping activity asset can be associated.
► These balances are to then be depreciated or amortized over theremaining expected useful life of the identified component of the orebody to which each existing asset balance relates.
► If there is no identifiable component of the ore body to which thatpredecessor stripping asset relates, it is required to write off this assetvia opening retained earnings at the beginning of the earliest periodpresented.
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 42/48
Annual Improvements to
PFRSs 2009-2011 cycle
A l I t t PFRS
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 43/48
PFRS and subject of amendment Change(s) Implication(s)
PFRS 1, First-time Adoption of
Philippine Financial Reporting
Standards
Repeated application of
PFRS 1
Clarifies that an entity that has
stopped applying PFRSs may
choose to either to:
► Re-apply PFRS 1, even if the
entity applied PFRS 1 in a
previous reporting period
Or
► Apply PFRSs retrospectively in
accordance with PAS 8 (i.e., as
if it had never stopped
applying PFRSs)
in order to resume reporting
under PFRSs
Prior to this amendment, it was
not clear whether an entity was
permitted or required to apply
PFRS 1 more than once. This
amendment clarifies that an
entity that stopped applying
PFRSs in the past and chooses,
or is required, to apply PFRSs
again, has the option to re-apply
PFRS 1. If PFRS 1 is not re-
applied, an entity must
retrospectively restate its
financial statements as if it had
never stopped applying PFRSs. If
an entity re-applies PFRS 1 or
applies PAS 8, additional
disclosures are required.
Annual Improvements to PFRSs2009-2011 cycle
A l I t t PFRS
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 44/48
PFRS and subject of amendment Change(s) Implication(s)
PFRS 1
Borrowing costs
First-time adopters may carry
forward borrowing costs
capitalized in accordance with
previous GAAP in the opening
statement of financial position at
the date of transition to PFRSs.
After transition, borrowing costs,
including those incurred for
assets under construction, are
recognized in accordance with
PAS 23.
PAS 1, Presentation of Financial
Statements
Clarification of the requirements
for
comparative information
Voluntary additional
comparative information
- Present related notes for
those additional statements
When voluntary
comparative information is
presented, it does not need to
be a complete set of
financial statements. The
information may consist of one
or more statements.
Third balance sheet
- No need to present the
supporting notes related to
the third balance sheet
This additional balance sheet
provides users of the financial
statements with a starting point
to understand the impact of the
change.
Annual Improvements to PFRSs2009-2011 cycle
A l I t t PFRS
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 45/48
PFRS and subject of amendment Change(s) Implication(s)
PAS 16, Property, Plant and
Equipment
Classification of servicing
equipment
Spare parts, and
stand-by equipment and
servicing equipment are
recognized as PPE when they
meet the definition of PPE.
This amendment clarifies when
certain assets are PPE or
inventory. This will help ensure
that entities consistently record
and present these assets.
PAS 32, Financial Instruments:
Presentation
Tax effect of distribution to
holders of equity instruments
Clarifies that income taxes
arising from distributions to
equity holders and totransaction costs of an equity
transaction are accounted for in
accordance with
PAS 12.
This amendment is unlikely to
change the current tax
treatment of distributions.
Annual Improvements to PFRSs2009-2011 cycle
A l I t t PFRS
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 46/48
PFRS and subject ofamendment
Change(s) Implication(s)
PAS 34, Interim Financial
Reporting
Interim financial reporting and
segment information for total
assets and liabilities
Total assets and liabilities for a
particular reportable segment
need to be disclosed only when
such amounts are regularly
provided to the chief operating
decision maker and if there has
been a material change from the
amount disclosed in the last
annual financial statements for
that reportable segment
This amendment aligns the
disclosure requirements for total
segment assets with total
segment liabilities in the interim
financial statements. This
clarification also ensures that
interim disclosures are aligned
with annual disclosures.
Annual Improvements to PFRSs2009-2011 cycle
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 47/48
Questions???
8/11/2019 Accounting Standards Update 2013
http://slidepdf.com/reader/full/accounting-standards-update-2013 48/48