ifrs outlook january 2009 - ey japan · 2014. 4. 7. · ifrs outlook issue 24 summarised the dp and...

Insights on International GAAP®

January 2009

IFRS outlook

What is next for the IASB’s extractive activities project? 2

Revenue recognition 5

Financial reporting developments 8

Resources 12

We welcome your feedback on IFRS outlook. Please contact us at [email protected]. The next issue will be published in February 2009.

Will Rainey Global Director of IFRS Services

In this issue...

What is next for the IASB’s extractive activities project?With the Discussion Paper on accounting for extractive activities expected to be published in early 2009 and the United States Securities and Exchange Commission concurrently reviewing its guidance for the industry, we talked to IASB board member, Robert Garnett about the standard setting process and the challenges ahead. Find out about their plans and how their plans may impact your business.

Revenue recognition — a new approachIn late December, the IASB and the Financial Accounting Standards Board issued their eagerly awaited Discussion Paper, Preliminary Views on Revenue Recognition in Contracts with Customers. Learn more about the model, and how it could make what you consider to be simple revenue arrangements more complex.

Financial reporting developmentsFind out about the Board’s discussions that could apply to your business: annual improvements, tentative decisions about derecognition, financial instruments, fair value measurement, liabilities and IFRS for Private Entities.

2 IFRS outlook January 2009

What is next for the IASB’s extractive activities project?We recently talked to Robert Garnett, IASB board member and IFRIC chairman, about the Board’s research project on extractive activities. The views expressed in this article are his own and not necessarily those of the IASB or the IFRIC.

The IASB’s project has a long history and Robert was a member of the steering committee on the IASC’s project on extractive industries from 1998 to 2000. The current research project, which has been on the IASB’s agenda since 2004, is expected to result in the publication of a Discussion Paper in early 2009.

The United States Securities and Exchange Commission (SEC) is currently reconsidering its guidance for the extractive industries, while separately, the IASB is working on a Discussion Paper. What is the IASB doing to prevent differences from arising?

There are currently three streams of standard-setting activity. On the one hand, the SEC is updating its disclosure requirements for oil and gas reserves, while at the same time amending its definition of reserves to take account of technological developments. On the other hand, the IASB is working to develop an International Financial Reporting Standard on accounting for extractive activities.

The SEC and IASB projects have more in common than is often realised. Both projects draw on the reserve definitions developed by the Society of Petroleum Engineers (SPE). The SEC is a member of the IASB’s advisory panel for the extractive activities project and the panel holds frequent face-to-face meetings with the staff of the SEC. The public due process that these projects are subject to will help ensure that the outcomes are similar. Finally, while the SEC has set standards over and above those of the Financial Accounting Standards Board (FASB), accounting standard-setting is not the primary role of the SEC. Therefore, I am hopeful that the SEC will accept the IASB as an accounting standard-setter and that we will engage in discussions with the SEC should differences in standards arise.

One area where a difference may arise is in the approach to reserves. Historically, the SEC rules have taken proven reserves as their starting point and disclosure of probable reserves has been prohibited. Personally, I believe that this results in a divorce of financial reporting from business decision-making. It is important that a future IFRS is based on proven and probable reserves. The SEC already accepts that Canadian companies can report proven and probable reserves, so, ultimately, this may not be very contentious.

Robert Garnett

3IFRS outlook January 2009

‘The SEC and IASB projects have more in common than is often realised.’

What other challenges need to be overcome?

I believe continued consultation is crucial to ensure that we avoid surprises in the standard-setting process and to maintain the support of the SEC. Although, in my view, the SEC would probably prefer not to be the accounting standard-setter for the extractive industries.

Given the time line and hurdles discussed earlier, what have been, in your view, the most important achievements over the past decade?

Keeping the extractive activities project on the research agenda of the IASB was an achievement in its own right that has provided a number of benefits. The work of our project team with the Committee for Mineral Reserves International Reporting Standards (CRIRSCO) and the SPE has really contributed to harmonisation of reserves measurement standards between the mining and petroleum industries. Our project has positively influenced non-accountants, particularly in the mining industry where regulations were largely set at a national level. Another achievement is that market participants – users of financial statements, audit firms and above all preparers – have been willing to contribute to and participate in the research project. In a way, the Discussion Paper may be an anti-climax for them because they already know what is coming.

What is still needed to produce an accounting standard for extractive industries?

Once the project moves onto the Board’s active agenda, the main thing we need is time. The Discussion Paper, which we expect in early 2009, will focus on reserves. Given our workload there will be limited opportunity to discuss the comment letters on the Discussion Paper in 2009 and early 2010. I would expect the IASB to issue an Exposure Draft towards the end of 2011, which is past the end of my Board term.

Would you therefore expect a final standard to be issued by early 2013?

That may well be right.

What were the most important points you took away from the “Publish What You Pay” (PWYP) meeting on 15 September 2008?

The IASB has had discussions with the PWYP coalition since 2001. They are focused on disclosure by companies in the extractive industries and the petroleum industry, in particular. Therefore, we did not think that it would have been appropriate to include in IFRS 8 Operating Segments a general requirement to disclose information on a country-by-country basis.

The PWYP coalition is well organised and has been able to obtain support from high profile companies, investors and users of financial statements. The Discussion Paper will include a separate section that deals with the PWYP disclosures.1 Ultimately, it is important to realise that transparency is important for companies in deciding on inward investments in countries.

Disclosures of reserve quantities in audited financial statements is helpful for users. How does the IASB plan to balance the resultant costs for preparers with the benefits to users?

The easy answer is, of course, that the IASB does not prescribe what information should be audited. If reserves are to be measured at fair value then reserve quantities might need to be audited in some way. I accept, though, that it may not be possible to get full audit assurance about reserve quantities. On the other hand, it may make sense to attach, rather than include, information about reserve quantities to the financial statements. There is a link here with the approach in the upcoming Exposure Draft on management commentary.

1 The PWYP proposal is that the following data should be required to be disclosed in summary comparative tables on a country-specific basis: benefit streams to government, reserves, production volumes, production revenues, costs and key subsidies and properties.


What is next for the IASB’s extractive activities project? continued

Currently analysts need to deal with information on reserves that is not consistent across companies. Clearly, this is an area where the IASB can improve comparability and consistency. The Discussion Paper will include a question that addresses the disclosure of reserve quantities and the trade-off between the benefits and the added costs and possible time delay in reporting.

A key indicator for evaluating the performance of entities in the extractive industry is their existing reserves and future production, and the cash flows expected from them. Reserve estimation is a complex process and standards have been developed by the Society of Petroleum Engineers (SPE) and the Committee for Mineral Reserves International Reporting Standards (CRIRSCO). How do you think the IASB’s constituency will receive a standard that requires measurement of reserves and resources at fair value?

Preparers raised the concern that gathering the required information will be very costly and time-consuming, especially when they report on a quarterly basis. Users do not trust reserve valuations prepared by management; they would much prefer to be given the information underlying such a calculation and use that as input for their own valuation model. This is a disappointing reality that the Board will need to deal with in a balanced manner. It is clear that sensitivity disclosures are going to be important because models are highly sensitive to minor changes in certain assumptions.

To what extent will the IASB continue to monitor SPE/CRIRSCO standard-setting?

The IASB will continue to build on its good working relationship with the SPE and CRIRSCO and we are open to their thoughts. The Discussion Paper will contain a question as to whether the current definitions developed by the two bodies should be used in developing a standard for the extractive industries. I believe that the definitions for reserves should be based on the SPE and CRIRSCO definitions as they have already been accepted by the industry. Both bodies realise that the quality of their due process is important in achieving acceptance and have worked and are working on improvements. CRIRSCO members from South Africa, Canada and Australia are working together to share their thoughts and I am satisfied with the openness of how they operate.

Why is the extractive industries project not part of the FASB / IASB Memorandum of Understanding?

Extractive activities were not on the Board’s active agenda when we agreed the Memorandum of Understanding. Although a review by the SEC on the application of IFRS did highlight that extractive industries and insurance required attention, the FASB was not inclined to make short-term improvements to its standards at that time. For now, the first objective is to get the extractive activities project onto the IASB’s active agenda.

5IFRS outlook January 2009 5

In late December, the IASB and the Financial Accounting Standards Board (collectively “the Boards”) issued a Discussion Paper (DP), Preliminary Views on Revenue Recognition in Contracts with Customers, as part of their joint project to develop a single model for revenue recognition. Supplement to IFRS outlook Issue 24 summarised the DP and highlighted changes from current IFRS as well as the significant issues left to be addressed by the Boards. This article explores some aspects of the proposed model in more detail, in particular, how the definition of a performance obligation could affect your business.

While a final standard is not expected until 2011, it will replace the existing IFRS on revenue recognition, as well as the myriad of US GAAP sources that deal with the subject (often on an industry basis). The aim is to create a consistent basis of recognition, eliminating existing weaknesses in both frameworks.

The model - an overview

The proposed model views a contract with a customer as a series of rights and performance obligations. The rights represent the entity’s entitlement to receive consideration, and the obligations represent the entity’s requirement to perform services or transfer assets to the customer. A performance obligation is defined in the DP as “a promise in a contract with a customer to transfer an asset (such as a good or service) to that customer.” Such obligations may be explicit in the contract. Others may be implicit based on the company’s customary business practices or the jurisdiction in which the contract exists. Revenue is recognised by entities as and when performance obligations are extinguished through the transfer of control of an asset to the customer.

Performance obligations

The concept of performance obligations is new to revenue recognition in both IFRS and US GAAP. The DP states that the concept is generally similar to the existing concepts of ‘deliverables’, ‘components’ and ‘elements’ in existing standards. However, a closer look at the definition reveals that it has the potential to turn what are currently considered simple transactions into more complex, multiple-element arrangements. As we discuss below, items such as warranty provisions, rights of return, future discounts and volume discounts may be considered “a promise in a contract with a customer to transfer an asset (such as a good or service) to that customer.” As the proposed model requires contracts with customers to be split into separate performance obligations, multiple-element arrangements will become commonplace.

Under current IFRS standards, little guidance exists in respect of how to deal with multiple-element contracts other than a need to separate such components and possibly consider them separately. A typical example, amongst many, would be in the telecommunication industry, where a sale may consist of a handset, airtime and other services. In that respect, the DP is a welcome change as it not only gives guidance on how to recognise revenue in multiple-element arrangements, but also on how to measure them.

Revenue recognition — a new approach


The key issue companies will face is identifying how many performance obligations exist in a single contract. In an example given in the DP, when selling a computer, does the manufacturer sell components and an assembly service or does the manufacturer sell a computer as a single unit of account? The DP provides some relief by aggregating performance obligations that are transferred simultaneously to the customer.

However when considering implicit and explicit terms in a contract, the same manufacturer may find that post-delivery services currently accounted for as provisions are now performance obligations. The DP considers a warranty to be such an obligation. As the warranty service is provided in a different period than the product, a portion of the consideration received in the sale in the example above will be allocated to that service and recognised as revenue in different periods. More complex, post-delivery service issues are also raised in the DP (but not fully concluded), such as whether sales incentive promises and rights of return contained within a contract constitute performance obligations. The impact: sales transactions that include sales incentives, warranty and/or rights of return may now have to be accounted for as multiple element transactions.

Having identified the performance obligations, the next hurdle is to consider when the performance obligation has been satisfied in order to recognise revenue. In this regard, the DP appears to be relatively simple in that a performance obligation is considered satisfied when control of the asset or service has transferred. This is a new concept for recognising revenue under IFRS replacing the current risk and reward model.

Assets consumed when providing services further complicates the determination of when control is transferred. This has led to the DP proposing a rebuttable presumption that such assets are transferred with the services to which they relate. The DP puts forwards a simple example of a company that is providing painting services, inclusive of the paint. As the paint is delivered in advance of the painting service, contract terms will have to be carefully reviewed to determine if the rebuttable presumption is overcome and the paint revenue should be recognised upfront.

The terms of the contract and laws in the jurisdiction in which the transaction occurs will be critical in determining when control has transferred and, in turn, the recognition of revenue. The impact: companies with identical transactions in different jurisdictions could recognise revenue in different periods.

The DP also discusses other factors that could impact revenue recognition, such as customer acceptance, intent and payment.

Measurement of performance obligations

For transactions involving multiple elements, a pro-rata allocation of the customer consideration is required to all identified performance obligations. This is based on the standalone selling price of the promised goods or services underlying the performance obligations. If such goods or services are not sold separately by the company or others, the price can be estimated. The DP discusses two methods for estimating the stand-alone selling price when products are not sold separately - the ‘adjusted market price’ approach and the ‘expected cost plus a margin approach’. However, the DP is clear that these are examples, and companies would not be limited to these methods for estimating the stand-alone selling prices. As IAS 18 has little measurement guidance for multiple-element arrangements, the DP will assist IFRS reporters in this regard.

Revenue recognition continued


Figure 1 illustrates how such estimates would be expected to be applied in initially measuring the performance obligations.

Figure 1

Example1

SellerCo enters into a contract with a customer in which it promises to transfer products A, B and C to the customer at different times. The customer pays £100 at contract inception. SellerCO regularly sells product A on a stand-alone basis for £60. Products B and C are not sold on a stand-alone basis. However, SellerCo’s competitor sells a product similar to product B for £28.

In order to determine the estimated selling price of Product B, SellerCo uses the observed competitor’s selling price of £28 as a starting point. Based on the nature of its own product, cost structure and historical pricing relative to the competitor’s, SellerCo estimates a stand-alone selling price of £30. Because of its unique nature, no competitor of SellerCo sells product C. Therefore, SellerCo forecasts its costs of providing the product to the customer, and based on a reasonable margin for similar products, estimates a stand-along selling price of £20.

On the basis of the above information, SellerCo allocates the £100 transaction price to the performance obligations (products A, B and C) as follows:

Performance obligation

Stand-alone selling price

% Allocation of customer

consideration

Product A 60.0 54.5 54.5

Product B 30.0 27.3 27.3

Product C 20.0 18.2 18.2

Total 110.0 100.0 100.0

A significant issue discussed in the DP is when a contract is considered to be onerous, and when should the initial allocation of the customer consideration to the performance obligations be updated. The DP refers to onerous performance obligations as obligations where the “carrying amount does not depict faithfully the entity’s obligation to provide goods and services to the customer.” The DP discusses two triggers for determining when this has occurred:

1. When the cost of the performance obligation exceeds its carrying amount

2. When the current exit price (measured in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets) of the performance obligation exceeds its carrying amount.

The DP expresses a preliminary view in favour of option 1, but outlines several concerns with its application, as well as another approach for re-measurment at each financial statement date (rather than when the contract becomes onerous). We plan to explore these models and other measurement issues in future publications.

ConclusionThe DP states that “for many contracts (particularly for commonplace retail transactions), the proposed model would cause little, if any, change.” While the full impact of the model is yet to be determined, we believe the focus on performance obligations and the transfer of control will have a significant impact on most companies. Directors should fully consider the model and its impact, and provide comments to the Boards.

Ernst & Young will continue to explore the potential impact of this DP on various industries. Visit our IFRS website (www.ey.com/ifrs) for details of our planned webcast in February and future publications.

1 Adapted from paragraphs 5.49 - 5.54 of the DP.


Financial reporting developments

The IASB (the Board) met in London on 15 – 19 December 2008. The table below summarises the main issues discussed. In the following pages, you will find more detailed information and insights about the shaded items in the table.

Projects Key discussion points Status

Derecognition The Board made several tentative decisions relating to the derecognition model for assets and a derecognition principle for financial liabilities.

ED expected in Q1 2009

Financial instruments The Board discussed its responses to suggestions from public round-tables it held in 2008 on the global financial crisis.

Fair value measurement

The Board made new and reaffirmed past tentative decisions regarding defensive intangible assets, reference markets, valuation premise, day 1 gains or losses, restrictions on assets and liabilities, credit standing and fair value of liabilities.

ED expected in Q1 2009

Annual improvements 2007

Three issues outstanding from the ED of proposed improvements to IFRS, published in October 2007, were discussed: treating loan prepayment penalties as closely related embedded derivatives; current/non-current classification of convertible instruments; and classification of land leases.

Amendments expected in April 2009


IAS 40 Investment Property – Change from fair value model to cost modelThe Board tentatively decided to remove the requirement to transfer investment property to inventory when development commences with a view to sell. Instead, investment properties held for sale would be categorised separately in the statement of financial position and would include disclosures consistent with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations.

IFRS 7 Financial instruments: DisclosuresThe Board tentatively proposed a number of minor amendments to clarify certain disclosures required by IFRS 7 and to remove a number which are less useful.

ED expected in August 2009

First-time adoption of IFRS

The Board tentatively decided to amend the effective date of the revised IFRS 1 First-time Adoption of International Financial Reporting Standards from 1 January 2009 to 1 July 2009 in order to correct an issue with the interaction between IFRS 3R and the amended IAS 27 Consolidated and Separated Financial Statements. This will not impact the application of IFRS 1 for first-time adopters. Refer to our Supplement to IFRS outlook (Issue 22) Restructuring IFRS 1 – First-time adoption of IFRS.

IFRS for private entities

The Board made tentative decisions on financial statement presentation. IFRS expected Q1 2009

Liabilities - Amendments to IAS 37

The Board tentatively decided that the revised IAS 37 should require disclosure of information about, and the estimated impact of, possible obligations as the exposure draft proposed to remove this requirement.

IFRS expected H2 2009

Rate-regulated activities

The Board agreed to add a project to its agenda to address the issue of whether regulated entities should recognise an asset or liability as a consequence of regulatory body or government imposed regulation.

ED expected Q2 2009

Share-based payment The Board tentatively agreed with the measurement proposed by IFRIC in its ED on Group cash-settled share-based payment transactions that the share-based payment expense in separate financial statements should be measured as equity-settled when the entity has no obligation to settle the award and cash-settled in all other circumstances.

Amendment expected Q1 2009

ED = Exposure Draft, DP = Discussion Paper, FI = Final Interpretation, Q1 2009 = First quarter of 2009, Q2 2009 = Second quarter of 2009. H1 2009 = First half of 2009, H2 2009 = Second half of 2009


Derecognition

Asset derecognition modelThe Board continued its discussions on its two approaches to derecognition (see the December 2008 edition of IFRS Outlook). For Approach 1, the Board tentatively decided to focus on whether, after the transfer, the transferor has access to all or some of the cash flows of the transferred asset (rather than the transferee).

For Approach 2, the Board tentatively decided that economic constraints should be included when assessing whether a transferee has the practical ability to transfer a financial asset to a third party. For example, a put option that enables the transferee to put the transferred asset back to the transferor could fail the “practical ability to transfer” test.

Liability derecognitionThe Board tentatively decided that a financial liability (or component) is derecognised when “it no longer qualifies as a liability of the entity (i.e., when the present obligation is eliminated and the entity is no longer required to transfer economic resources in respect of that obligation).” The Board is yet to discuss substantial modification of the terms of an existing financial liability.

The Board also tentatively decided:

Secured borrowings with recourse and securing assets should •be accounted for in the same way as unsecured borrowings and unpledged assets

If a debtor accepts restrictions on the securing assets that •limit the debtor’s ability to benefit from the securing asset, disclosures should be made

Security lending arrangements and repos involving readily •obtainable financial assets where the lender is permitted to lend or sell the assets during the term of the liability, qualify for derecognition.

Financial InstrumentsThe Board held public round-tables in November and December to identify reporting issues arising from the global financial crisis requiring urgent attention. The Board discussed some of the suggestions made by the round-table participants and issued two EDs in December 2008 (See Supplements to IFRS outlook, issues 27 and 28 for details).

The Board also tentatively agreed to discuss impairment of financial assets and re-classification of assets designated using the fair value option.

Fair value measurement

Defensive intangible assets ‘Defensive intangible assets’ are acquired in some business combinations, where the acquirer does not intend to use these directly or in the same manner as other market participants. The Board tentatively decided not to provide explicit fair value measurement guidance. However, the ED will explain how they are identified and the relevant impact of ‘highest and best use’, ‘valuation premise’ and ‘market participant’.

Reference marketsThe Board made tentative decisions relating to the reference market for fair value measurement as follows:

A fair value measurement assumes that the transaction occurs •in the most advantageous market for that asset or liability, i.e., the market in which the maximum sale price for an asset would be received or the minimum purchase price paid to transfer a liability. Transaction and transportation costs would need to be reflected in these prices.

An entity need not undergo an exhaustive search of all possible •markets when identifying the most advantageous market. The principal market for the asset or liability (i.e., the market with the greatest volume of activity) is presumed to be the most advantageous market, as long as the entity would normally transact in that market.

Where there is no observable market in which an entity could •transact, an entity should consider the characteristics of market participants with whom it would transact in the most advantageous market.


Financial reporting developments continued

Valuation premiseThe Board made the following tentative decisions:

When determining the fair value of an individual asset, consider •whether market participants would maximise its value by using it with other assets in a group (in-use) or on a stand-alone basis (in-exchange)

Neither the ‘valuation premise’ nor the ‘highest and best use’ •concepts are relevant for liabilities or financial assets

A market participant’s ability to generate economic benefits by •using an asset or selling it to a third party should be considered when determining its exit price. However, the definition of fair value will not explicitly refer to this.

Day 1 gains or lossesThe Board will discuss each IFRS that requires or permits a fair value measurement on initial recognition to determine if a day 1 gain or loss can be recognised. At this meeting the Board tentatively decided the following:

A transaction price is the best evidence of fair value on initial •recognition unless the transaction:

Is between related parties•

Is a forced transaction; or•

Did not happen in the most advantageous market; or•

The unit of account represented by the transaction •price is different from the unit of account for the asset or liability at fair value (e.g., the transaction price includes transaction costs)

A day 1 gain or loss can be recognised where the transaction •price does not represent fair value, even if the measurement is based on unobservable inputs. This would be a significant change to current requirements. However, additional disclosures would be required.

Restrictions on assets and liabilitiesThe Board tentatively decided that a restriction on the sale or use of an asset that would transfer to market participants when the asset is sold, is a characteristic of the asset and affects its fair value. However, a restriction that would not transfer to market participants does not affect its fair value. In contrast, the Board tentatively decided that a restriction on the transfer of a liability does not affect the fair value of the liability since its fair value is not a function of marketability, but of performance.

Liabilities The Board tentatively reaffirmed its proposals that the fair value of a liability is ‘the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date’.

It also tentatively reaffirmed its preliminary view that the fair value of a liability incorporates non-performance risk (including credit standing). To address constituent concerns about how useful this is, staff will prepare a separate paper for public comment.


IAS 39 Financial instruments: Recognition and Measurement - Treating loan prepayment penalties as closely related embedded derivativesThe Board decided to amend IAS 39 to clarify that where the exercise price of a prepayment option in a debt contract compensates the lender for lost interest for the remaining term of the contract, the option is closely related to the host contract.

IAS 1 Presentation of Financial Statements – Current/non-current classification of convertible instrumentsIAS 1 states that when an entity does not have an unconditional right to defer settlement of a liability for at least 12 months after the reporting period, the liability should be classified as current. Conversion of a liability into equity is a form of settlement according to the Framework. Therefore, the liability component of a convertible instrument, where the conversion option can be exercised at any time, would be classified as current even where the liability might be settled more than 12 months after the reporting period.

The Board decided to amend IAS 1 to clarify that potential settlement of a liability by issuing equity instruments is irrelevant when classifying the liability as current or non-current.


IAS 17 Leases Classification of land leases

The Board agreed to amend a perceived inconsistency between the general classification guidance for leases and the specific guidance for classifying land and buildings. It agreed to remove the specific guidance on classifying land as a lease so that only the general classification guidance remains. It also agreed to a modified retrospective transition to require assessment of any unexpired land leases existing at the date of adoption. If a lease of land is to be recognised as a finance lease, it is recognised at its fair value either:

At the date of adoption of the amendment; or•

As reported in previously published financial statements, if •available.

IFRS for private entities

Financial statement presentationThe Board tentatively decided that the requirements of IAS 1 Presentation of Financial Statements, as revised in 2007, would be incorporated as follows:

To include the option to present either a single statement of •comprehensive income or two separate statements: one statement presenting profit or loss components and one presenting comprehensive income, commencing with profit or loss and components of other comprehensive income (OCI)

If there are no OCI items: •

The bottom line can be ‘profit and comprehensive income for •the period’, rather than a subtotal for ‘profit for the period’

The name of the statement need not be ‘statement of •comprehensive income’

Not to require a statement of financial position as at the •beginning of the earliest comparative period, when an accounting policy is applied retrospectively, financial statement items are restated retrospectively, or financial statement items are reclassified.

New documents issued

Project Status/effective date

ED of proposed amendments to IFRS 7 Investments in Debt Instruments

Open for comment until 15 January 2009.

ED of proposed amendments to IFRIC 9 and IAS 39 Embedded Derivatives

Open for comment until 21 January 2009.

ED of proposed amendments to IAS 24 Relationships with the State

Open for comment until 13 March 2009.

ED 10 Consolidated Financial Statements

Open for comment until 20 March 2009.

Discussion Paper Preliminary Views on Revenue Recognition in Contracts with Customers

Open for comment until 19 June 2009.


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Supplement to IFRS outlook - Issues 24- 28

Issue 24: Revenue recognition project preliminary viewThe IASB and the FASB issued a discussion paper entitled Preliminary Views on Revenue Recognition in Contracts with Customers relating to their ongoing joint revenue recognition project. This project has the potential to significantly change how and when revenue is recognised for many companies. And, in turn, it may affect how a company communicates with its key stakeholders.

Issue 25: ED Related Party Disclosures - Proposed amendments to IAS 24 - Relationships with the stateUnder the current requirements of IAS 24 Related Party Disclosures, state-controlled entities may find it difficult and costly to provide all required disclosures of transactions with other state-controlled entities. The IASB recently proposed a modification to the exemption to IAS 24, which would no longer require full disclosure of transactions with the state or state-controlled entities. Rather, it proposes general disclosure about significant transactions.

Issue 26: Consolidated financial statementsThe IASB recently issued an Exposure Draft (ED) on consolidated financial statements that would replace IAS 27 and SIC-12. The proposals contained in the ED will require entities holding investments to exercise greater judgement imposed by a new definition of control of an entity and to introduce additional procedures to make the necessary assessments, respond to changes in circumstances and to make the additional disclosures - particularly for involvement with ‘Structured Entities’.

Resources


Issue 27: ED embedded derivatives proposed amendments to IFRIC 9 and IAS 39The IASB has issued an ED proposing changes to IFRIC 9 and IAS 39 to clarify some aspects of the previous set of amendments that it issued in October entitled Reclassification of financial assets (Amendments to IAS 39 and IFRS 7). The proposed changes would impact businesses that have already reclassified hybrid financial instruments, or will do so, in accordance with IAS 39. It is proposed that these amendments will be effective for 2008 year ends, hence companies need to consider the impact now.

Issue 28: ED Investments in debt instruments - proposed amendments to IFRS 7The IASB has published an ED proposing amendments to IFRS 7 Financial Instruments: Disclosures that would require further disclosures for investments in debt instruments that are not accounted for as at fair value through profit or loss. As the proposal requires adoption for 2008 year-ends, entities will face the challenge of having only a very short period of time to gather the necessary additional information.

How are global power and utilities companies applying IFRS? An overview of financial statements 2007This publication provides an overview of the disclosures in the latest set of IFRS financial statements of 41 power and utilities entities in 18 European countries and two outside Europe (Australia and South Africa). It contains selected examples of disclosures of particular relevance to power and utilities entities, including a discussion about upcoming changes to IFRS that we expect to have the greatest impact on the industry. This will enable a comparison of industry practice between companies and insight into the impact of future changes to IFRS.

Illustrative financial statementsThe following illustrative financial statements have been issued to supplement our suite of illustrative financial statements. Each is cross-referenced to source literature and includes explanatory notes.

Good Investment Fund Limited (Equities)This publication contains the financial statements for a fictitious open-ended investment fund, whose puttable shares are classified as equity instruments for the year ended 31 December 2008.

Good Investment Fund Limited (Liabilities)This publication contains the financial statements for a fictitious open-ended investment fund, whose puttable shares are classified as financial liabilities for the year ended 31 December 2008 (as a result of early adoption of IAS 32 Financial Instruments: Presentation).

Archived webcast

Fair values and financial instrumentsRecently, the IASB published the findings of its Expert Advisory Panel on measuring and disclosing fair values in inactive markets, as well as amendments to IAS 39 permitting the reclassification of financial instruments from the held-for-trading category to other categories. In addition, the IASB established a Senior Credit Crisis Advisory Group and is organizing a series of public roundtables to consider the next steps in the reform of accounting for financial instruments. Our panelists explored these developments and their implications, primarily for banks and financial institutions.


Resources continued

Coming soon

Great expectations for IFRS: considerations for conversion

This publication discusses the key points that media and entertainment companies in the US should consider in preparing to convert to IFRS. It includes a summary of the key phases management should consider in building a project plan, and a discussion of the financial statement areas that were most affected in Media and Entertainment companies that converted in 2005.

IFRS for Real Estate: current issues and financial statements survey - January 2009This survey of real estate investors preparing IFRS financial statements follows on from the 2007 survey. It expands the number of companies surveyed, provides an analysis of financial reporting issues pertinent to real estate investors, including selected examples of disclosures, and discusses the upcoming changes to IFRS that are likely to impact the industry.

Good Bank (International) LimitedThis publication contains the financial statements for a fictitious bank, Good Bank (International) Limited, for the year ended 31 December 2008 based on IFRS in issue at 31 December 2008. The financial statements are cross-referenced to the source literature and include explanatory notes.

IFRS webcast series

Mergers and acquisitions and the effect of the new business combinations standard20 January 2009 [4am New York, 9am London, 10am Central European Time, 5pm Hong Kong, 8pm Sydney]

From 1 July 2009, the new standard on accounting for business combinations (IFRS 3R) will become effective for financial years beginning after this date. The new requirements affect not only the accounting – they are likely to have a significant impact on how arrangements are negotiated. Therefore, an entity cannot afford to think about the new requirements after an acquisition has been completed.

In this webcast, we look at those aspects of the new requirements that should be considered during the negotiation of an acquisition. In particular, we look at the impact of:

Contingent consideration arrangements — management •remuneration structures

Step acquisitions•

Options available for measuring non-controlling interests when •less than 100% is acquired and factors to consider when determining which method to use, such as impairment.

Join us on 20 January to explore these changes and their implications. Go to ey.com/ifrs to register.


Proposed changes to revenue recognition requirements17 February 2009 [Broadcast 1: 9am London, 10am Central European Time, 5pm Hong Kong, 8pm Sydney] [Broadcast 2: 9am Los Angeles, 12pm New York, 5pm London]

On 19 December 2008, the IASB and FASB released their joint Discussion Paper proposing a new model for the recognition of revenue, thereby changing the landscape for both IFRS and US GAAP. Revenue is a significant item for all reporting companies and any changes in the revenue recognition model can have a fundamental impact on a company’s results.

The changes proposed in the Discussion Paper include a shift from an income statement approach to that of a balance-sheet driven model for revenue recognition. Furthermore, the Discussion Paper proposes a change in the recognition of revenue from a risks-and-rewards basis to a model based on the transfer of control to the customer. This model is likely to have a significant impact on transactions that contain multiple elements and contracts where revenue is recognised on the percentage completion methodology.

In this webcast, we will discuss aspects of the new proposed model for revenue recognition, with particular emphasis on:

Project scope •

Identifying performance obligations within a customer contract•

Satisfying performance obligations and, hence, the timing of •revenue recognition

Measuring performance obligations within a contract•

Issues around the practical application of the model•

Join us on 17 February as a panel of experienced professionals discuss the potential impact of the Discussion Paper on the recognition of revenue in the future.

Consolidations and the effect of the new business combinations standard31 March 2009 [9am London, 10am Central European Time, 5pm Hong Kong, 8pm Sydney]

A webcast for companies currently using IFRS

When the IASB amended the accounting for a business combination, they also revised how a parent of a group accounts for certain transactions involving their subsidiaries.

These changes have a direct impact on the reported results of a group and the amount of equity that is attributed between the parent and subsidiaries. Areas of change include:

Accounting losses incurred by loss-making subsidiaries•

Accounting for changes in ownership interests•

Accounting for loss of control of a subsidiary•

The IASB also intends amending their consolidation standard to change the definition of control and introduce additional disclosures for structured entities.

Join us as we discuss the changes in IAS 27 – Accounting for consolidations – and explores their implications with our panel of specialists. We will also discuss the proposed changes and their expected impact with the panel.

IFRS outlook January 2009

Ernst & Young

Assurance | Tax | Transactions | Advisory

www.ey.com/ifrs

© 2009 EYGM Limited. All Rights Reserved.

EYG no. AU0213

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About Ernst & Young’s International Financial Reporting Standards GroupThe move to International Financial Reporting Standards (IFRS) is the single most important initiative in the financial reporting world, the impact of which stretches far beyond accounting to affect every key decision you make, not just how you report it. We have developed the global resources — people and knowledge — to support our client teams. And we work to give you the benefit of our broad sector experience, our deep subject matter knowledge and the latest insights from our work worldwide. It’s how Ernst & Young makes a difference.

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