kpmg audit niif insights an overview

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September 2011

September2011

AN OVERVIEW


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Insights into IFRS: An overview | 1

2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

INSIGHTS INTO IFRS:AN OVERVIEW

Insights into IFRS: An overviewbrings together all of the

individual overview sections from our publication Insights

into IFRS,KPMGs practical guide to International Financial

Reporting Standards, 8thEdition 2011/12.

The overview of the requirements of IFRSs and the

interpretative positions described in Insights into IFRSreflect the work of both current and former members of

the KPMG International Standards Group and were made

possible by the invaluable input of many people working

in KPMG member firms worldwide. This overview should

be read in conjunction with Insights into IFRSin order to

understand more fully the requirements of IFRSs.


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2 | Insights into IFRS: An overview


CONTENTS1. Background 4

1.1 Introduction 4

1.2 The Conceptual Framework 5

2. General issues 9

2.1 Form and components of financial statements 9

2.2 Changes in equity 11

2.3 Statement of cash flows 12

2.4 Basis of accounting 13

2.5 Consolidation 14

2.5A Consolidation: IFRS 10 16

2.6 Business combinations 18

2.7 Foreign currency translation 21

2.8 Accounting policies, errors and estimates 23

2.9 Events after the reporting period 24

3. Specific statement of financial position items 25

3.1 General 25

3.2 Property, plant and equipment 26

3.3 Intangible assets and goodwill 28

3.4 Investment property 30

3.5 Investments in associates and the equity method 32

3.6 Investments in joint ventures and proportionate

consolidation 35

3.6A Investments in joint arrangements 373.7 [Not used]

3.8 Inventories 38

3.9 Biological assets 39

3.10 Impairment of non-financial assets 40

3.11 [Not used]

3.12 Provisions, contingent assets and liabilities 43

3.13 Income taxes 45

4. Specific statement of comprehensive income items 47

4.1 General 47

4.2 Revenue 49

4.3 Government grants 51


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4.4 Employee benefits 52

4.5 Share-based payments 61

4.6 Borrowing costs 63

5. Special topics 64

5.1 Leases 64

5.2 Operating segments 66

5.3 Earnings per share 67

5.4 Non-current assets held for sale and discontinued

operations 69

5.5 Related party disclosures 71

5.6 [Not used]

5.7 Non-monetary transactions 72

5.8 Accompanying financial and other information 73

5.9 Interim financial reporting 74

5.10 Insurance contracts 76

5.11 Extractive activities 78

5.12 Service concession arrangements 79

5.13 Common control transactions and Newco formations 816. First-time adoption of IFRSs 83

6.1 First-time adoption of IFRSs 83

7. Financial instruments 87

7.1 Scope and definitions 87

7.2 Derivatives and embedded derivatives 88

7.3 Equity and financial liabilities 89

7.4 Classification of financial assets and financial

liabilities 91

7.5 Recognition and derecognition 92

7.6 Measurement and gains and losses 94

7.7 Hedge accounting 99

7.8 Presentation and disclosure 100

7A Financial instruments: IFRS 9 103

Appendix I: Currently effective requirements and

forthcoming requirements 106

Appendix II: Future developments 119

About this publication 133


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1. BACKGROUND

1.1 Introduction (IFRS Foundation Constitution, Preface to IFRSs, IAS 1)

OVERVIEWOFCURRENTLYEFFECTIVEREQUIREMENTS

IFRSs is the term used to indicate the whole body of IASB authoritative literature.

IFRSs are designed for use by profit-oriented entities.

Any entity claiming compliance with IFRSs complies with all standards and

interpretations, including disclosure requirements, and makes an explicit and

unreserved statement of compliance with IFRSs.

The bold- and plain-type paragraphs of IFRSs have equal authority.

The overriding requirement of IFRSs is for the financial statements to give a fair

presentation (or true and fair view).


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1.2 The Conceptual Framework (IASB Conceptual Framework)


The IASB uses its Conceptual Framework when developing new or revised IFRSs or

amending existing IFRSs.

The Conceptual Framework is a point of reference for preparers of financial statements

in the absence of specific guidance in IFRSs. Transactions with owners in their capacity as owners are recognised directly in equity.

IFRSs require financial statements to be prepared on a modified historical cost basis

with a growing emphasis on fair value.

Fair valueis the amount for which an asset could be exchanged, or a liability settled,

between knowledgeable, willing parties in an arms length transaction.

FORTHCOMINGREQUIREMENTS

FAIRVALUEMEASUREMENTIFRS 13 provides a single source of guidance on howfair value is measured. This guidance

is applied when fair value is required or permitted by other IFRSs; IFRS 13 does not

establish requirements for whenfair value is required or permitted.

IFRS 13 provides a framework for determining fair value, i.e. it clarifies the factors to be

considered in estimating fair value. While it includes descriptions of certain valuation

approaches and techniques, it does not establish valuation standards on how valuations

should be performed.

Definition

Under IFRS 13, fair valueis the price that would be received to sell an asset or paid

to transfer a liability in an orderly transaction between market participants at the

measurement date, i.e. an exit price. The transfer notion, referred to in the valuation of a

liability, is different from the settlement notion that is included in the current definition of

fair value in IAS 39.


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General requirements

The fair value of a non-financial asset is based on its highest and best use from the

perspective of market participants, which may be on a stand-alone basis or based on its

use in combination with complementary assets or liabilities.

IFRS 13 generally does not specify the unit of account for measurement. This is

established instead under the specific IFRS that requires or permits the fair value

measurement or disclosure. For example, the unit of account in IAS 39 or IFRS 9 generally

is an individual financial instrument whereas the unit of account in IAS 36 often is a group

of assets or a group of assets and liabilities comprising a cash-generating unit.IFRS 13 discusses three valuation approaches: the market, income and cost approaches.

Several valuation techniques are available under each approach. An entity uses a valuation

technique to measure fair value that is appropriate in the circumstances, maximising the

use of relevant observable inputs and minimising the use of unobservable inputs. The best

evidence of fair value is a quoted price in an active market for an identical asset or liability.

For liabilities, when a quoted price for the transfer of an identical or similar liability is not

available and the liability is held by another entity as an asset, the liability is valued from

the perspective of a market participant that holdsthe asset. Failing that, other valuationtechniques are used to value the liability from the perspective of a market participant that

owesthe liability. A similar approach is also used when valuing an entitys own equity

instruments.

Inputs used in measuring fair value reflect the characteristics of the asset or liability that a

market participant would take into account and are not based on the entitys specific use

or plans. Such asset- or liability-specific characteristics include the condition and location

of an asset or restrictions on an assets sale or use that are a characteristic of the asset

rather than of the entitys holding.

Fair value hierarchy

Inputs to valuation techniques used to measure fair value are prioritised in what is referred

to as the fair value hierarchy. The concept of a fair value hierarchy was already included

in IFRS 7 and the definitions of the three levels have not changed from those currently in

IFRS 7.

Level 1.Fair values measured using quoted prices (unadjusted) in active markets for

identical assets or liabilities.


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Level 2.Fair values measured using inputs other than quoted prices included within

Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or

indirectly (i.e. derived from prices).

Level 3. Fair values measured using inputs for the asset or liability that are not based on

observable market data (i.e. unobservable inputs).

Fair value measurements determined using valuation techniques are classified in their

entirety based on the lowest level input that is significant to the measurement. Assessing

significance requires judgement, considering factors specific to the asset or liability.

When multiple unobservable inputs are used, in our view the unobservable inputs shouldbe considered in total for the purposes of determining their significance.

Principal or most advantageous market

An entity values assets, liabilities and its own equity instruments assuming a transaction

in the principal market for the asset or liability, i.e. the market with the highest volume and

level of activity. In the absence of a principal market, it is assumed that the transaction

would occur in the most advantageous market. This is the market that would maximise

the amount that would be received to sell an asset or minimise the amount that wouldbe paid to transfer a liability, taking into account transport and transaction costs. In

either case, the entity must have access to the market on the measurement date. In

the absence of evidence to the contrary, the market in which the entity would normally

sell the asset or transfer the liability is assumed to be the principal market or most

advantageous market.

Transaction costs

Transaction costs are not a component of a fair value measurement although they are

considered in determining the most advantageous market.

Premium or discount

Although a premium or a discount may be an appropriate input to a valuation technique, it

should not be applied if it is inconsistent with the relevant unit of account. For example, a

control premium is not applied if the unit of account is an individual share even if the entity

has a large holding. Blockage factors reflect size as a characteristic of an entitys holding

rather than of the asset and therefore cannot be applied.


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Non-performance risk

Non-performance risk, including own credit risk, is considered in measuring the fair value

of a liability, but separate inputs to reflect restrictions on the transfer of a liability or an

entitys own equity instruments are not applied.


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2. GENERAL ISSUES

2.1 Form and components of financial statements (IAS 1, IAS 27)


The following are presented: a statement of financial position; a statement ofcomprehensive income; a statement of changes in equity; a statement of cash flows;

and notes including accounting policies.

In addition, a statement of financial position as at the beginning of the earliest

comparative period is presented when an entity restates comparative information

following a change in accounting policy, correction of an error or reclassification of items

in the financial statements.

Comparative information is required for the preceding period only, but additional periods

and information may be presented.

An entity with one or more subsidiaries presents consolidated financial statements

unless specific criteria are met.

An entity without subsidiaries but with an associate or jointly controlled entity prepares

individual financial statements unless specific criteria are met.

In its individual financial statements, generally an entity accounts for an investment in

an associate using the equity method, and an investment in a jointly controlled entity

using the equity method or proportionate consolidation. An entity is permitted, but not required, to present separate financial statements in

addition to consolidated or individual financial statements.


PRESENTATIONOFOTHERCOMPREHENSIVEINCOME

Presentation of Other Comprehensive Income Amendments to IAS 1amends IAS 1 to: require an entity to present separately the items of other comprehensive income that

would be reclassified to profit or loss in the future if certain conditions are met from


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those that would never be reclassified to profit or loss. Consequently an entity that

presents items of other comprehensive income before related tax effects would also

have to allocate the aggregated tax amount between these sections; and

change the title of the statement of comprehensive income to the statement of profit

or loss and other comprehensive income. However, an entity is still allowed to use

other titles.


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2.2 Changes in equity (IAS 1)


An entity presents a statement of changes in equity as part of a complete set of

financial statements.

All owner-related changes in equity are presented in the statement of changes in equity,

separately from non-owner changes in equity.


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2.3 Statement of cash flows (IAS 7)


The statement of cash flows presents cash flows during the period classified by

operating, investing and financing activities.

Net cash flows from all three categories are totalled to show the change in cash and

cash equivalents during the period, which then is used to reconcile opening and closingcash and cash equivalents.

Cash and cash equivalents includes certain short-term investments and, in some cases,

bank overdrafts.

Cash flows from operating activities may be presented using either the direct method

or the indirect method.

Foreign currency cash flows are translated at the exchange rates at the dates of the

cash flows (or using averages when appropriate).

Generally all financing and investing cash flows are reported gross. Cash flows are

offset only in limited circumstances.


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2.4 Basis of accounting (IAS 1, IAS 21, IAS 29, IFRIC 7)


Financial statements are prepared on a modified historical cost basis with a growing

emphasis on fair value.

When an entitys functional currency is hyperinflationary, its financial statements should

be adjusted to state all items in the measuring unit current at the reporting date.


FAIRVALUEMEASUREMENT

IFRS 13 replaces most of the fair value measurement guidance currently included in

individual IFRSs; the general valuation principles in IFRS 13 are applied instead. It provides

a single definition of fair value and fair value application guidance, and establishes a

comprehensive disclosure framework for fair value measurements. See 1.2 for furtherdetails.

REVISEDCONSOLIDATIONREQUIREMENTS

Under IFRS 10, the concept of a special purpose entity (SPE) no longer exists and the

consolidation conclusion is no longer based solely on a risks and rewards analysis for such

entities. The consolidation conclusion for entities currently SPEs in the scope of SIC-12

may need to be reconsidered under IFRS 10. See 2.5A for further details.


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2.5 Consolidation (IAS 27, SIC-12)


Consolidation is based on control, which is the power to govern, either directly or

indirectly, the financial and operating policies of an entity so as to obtain benefits from

its activities.

The ability to control is considered separately from the exercise of that control. The assessment of control may be based on either a power-to-govern or a de facto

control model.

Potential voting rights that are currently exercisable are considered in assessing control.

A special purpose entity (SPE) is an entity created to accomplish a narrow and well-

defined objective. SPEs are consolidated based on control. The determination of control

includes an analysis of the risks and benefits associated with an SPE.

All subsidiaries are consolidated, including subsidiaries of venture capital organisationsand unit trusts, and those acquired exclusively with a view to subsequent disposal.

A parent and its subsidiaries generally use the same reporting date when consolidated

financial statements are prepared. If this is impracticable, then the difference between

the reporting date of a parent and its subsidiary cannot be more than three months.

Adjustments are made for the effects of significant transactions and events between

the two dates.

Uniform accounting policies are used throughout the group.

The acquirer in a business combination can elect, on a transaction-by-transaction

basis, to measure ordinary non-controlling interests (NCI) at fair value or at their

proportionate interest in the recognised amount of the identifiable net assets of the

acquiree at the acquisition date. Ordinary NCIare present ownership interests that

entitle their holders to a proportionate share of the entitys net assets in liquidation.

Other NCI generally are measured at fair value.

An entity recognises a liability for the present value of the (estimated) exercise price of

put options held by NCI, but there is no detailed guidance on the accounting for such

put options.


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Losses in a subsidiary may create a deficit balance in NCI.

NCI in the statement of financial position are classified as equity but are presented

separately from the parent shareholders equity.

Profit or loss and comprehensive income for the period are allocated to NCI and owners

of the parent.

Intra-group transactions are eliminated in full.

On the loss of control of a subsidiary, the assets and liabilities of the subsidiary and

the carrying amount of the NCI are derecognised. The consideration received and anyretained interest, measured at fair value, are recognised. Amounts recognised in other

comprehensive income are reclassified as required by other IFRSs. Any resulting gain or

loss is recognised in profit or loss.

Changes in the parents ownership interest in a subsidiary without a loss of control are

accounted for as equity transactions and no gain or loss is recognised in profit or loss.



See 2.5A for an overview of the revised consolidation requirements under IFRS 10.


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2.5A Consolidation: IFRS 10 (IFRS 10)

OVERVIEWOFFORTHCOMINGREQUIREMENTS

Control involves power, exposure to variability in returns and a linkage between the two

and is assessed on a continuous basis.

The investor considers the purpose and design of the investee so as to identify its

relevant activities, how decisions about such activities are made, who has the currentability to direct those activities and who receives returns therefrom.

Control is usually assessed over a legal entity, but also can be assessed over only

specified assets and liabilities of an entity, referred to as a silo, when certain conditions

are met.

There is a gating question in the model, which is to determine whether voting rights

or rights other than voting rights are relevant when assessing whether the investor has

power over the relevant activities of the investee.

Only substantive rights held by the investor and others are considered.

If voting rights are relevant when assessing power, then substantive potential voting

rights are taken into account and the investor assesses whether it holds voting rights

sufficient to unilaterally direct the relevant activities of the investee, which can include

de factopower.

If voting rights are not relevant when assessing power, then the investor considers

the purpose and design of the investee as well as evidence that the investor has the

practical ability to direct the relevant activities unilaterally, indications that the investorhas a special relationship with the investee, and whether the investor has a large

exposure to variability in returns.

Returns are defined broadly and include distributions of economic benefits and changes

in the value of the investment, as well as fees, remuneration, tax benefits, economies

of scale, cost savings and other synergies.

An investor that has decision-making power over an investee and exposure to variability

in returns determines whether it acts as a principal or as an agent to determine whether

there is a linkage between power and returns. When the decision maker is an agent, thelink between power and returns is absent and the decision makers delegated power is

treated as if it were held by its principal(s).


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To determine whether it is an agent, the decision maker considers substantive removal

and other rights held by a single or multiple parties, whether its remuneration is on

arms length terms, its other economic interests and the overall relationship between

itself and other parties.

An entity takes into account the rights of parties acting on its behalf when assessing

whether it controls an investee.


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IFRS 10 supersedes IAS 27 in determining whether one entity controls another, and

introduces a number of changes from the control model in IAS 27. See 2.5A for further

details.


IFRS 13 sets out general principles to be applied when measuring fair value; previously

there was no general guidance in respect of determining the fair value of the identifiableassets acquired and the liabilities assumed as part of a business combination. See 1.2 for

further details.


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2.7 Foreign currency translation (IAS 21, IAS 29)


An entity measures its assets, liabilities, income and expenses in its functional

currency, which is the currency of the primary economic environment in which it

operates.

All transactions that are not denominated in an entitys functional currency are foreigncurrency transactions; exchange differences arising on translation generally are

recognised in profit or loss.

The financial statements of foreign operations are translated for the purpose of

consolidation as follows: assets and liabilities are translated at the closing rate; income

and expenses are translated at actual rates or appropriate averages; and equity

components (excluding the current year movements, which are translated at actual

rates) are translated at historical rates.

Exchange differences arising on the translation of the financial statements of a foreignoperation are recognised in other comprehensive income and accumulated in a

separate component of equity. The amount attributable to any non-controlling interests

(NCI) is allocated to and recognised as part of NCI.

If the functional currency of a foreign operation is the currency of a hyperinflationary

economy, then current purchasing power adjustments are made to its financial

statements prior to translation and the financial statements are translated into a

different presentation currency at the closing rate at the end of the current period.

However, if the presentation currency is not the currency of a hyperinflationaryeconomy, then comparative amounts are not restated.

When an entity disposes of an interest in a foreign operation, which includes losing

control over a foreign subsidiary, the cumulative exchange differences recognised in

other comprehensive income and accumulated in a separate component of equity

are reclassified to profit or loss. A partial disposal of a foreign subsidiary may lead

to a proportionate reclassification to NCI, while other partial disposals result in a

proportionate reclassification to profit or loss.

An entity may present its financial statements in a currency other than its functionalcurrency (presentation currency).


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When financial statements are translated into a presentation currency other than the

entitys functional currency, the entity uses the same method as for translating the

financial statements of a foreign operation.

An entity may present supplementary financial information in a currency other than its

presentation currency if certain disclosures are made.


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2.8 Accounting policies, errors and estimates (IAS 1, IAS 8)


Accounting policiesare the specific principles, bases, conventions, rules and practices

that an entity applies in preparing and presenting financial statements.

A hierarchy of alternative sources is specified when IFRSs do not cover a particular

issue. Unless otherwise permitted specifically by an IFRS, the accounting policies adopted by

an entity are applied consistently to all similar items.

An accounting policy is changed in response to a new or revised IFRS, or on a voluntary

basis if the new policy is more appropriate.

Generally, accounting policy changes and corrections of prior period errors are made by

adjusting opening equity and restating comparatives unless this is impracticable.

Changes in accounting estimates are accounted for prospectively.

When it is difficult to determine whether a change is a change in accounting policy or a

change in estimate, it is treated as a change in estimate.

Comparatives are restated unless impracticable if the classification or presentation of

items in the financial statements is changed.

A statement of financial position as at the beginning of the earliest comparative period

is presented when an entity restates comparative information following a change in

accounting policy, correction of an error, or reclassification of items in the financialstatements.


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2.9 Events after the reporting period (IAS 1, IAS 10)


The financial statements are adjusted to reflect events that occur after the end of the

reporting period, but before the financial statements are authorised for issue, if those

events provide evidence of conditions that existed at the end of the reporting period.

Financial statements are not adjusted for events that are indicative of conditions thatarose after the end of the reporting period, except when the going concern assumption

no longer is appropriate.

Dividends declared after the end of the reporting period are not recognised as a liability

in the financial statements.

Liabilities generally are classified as current or non-current based on circumstances at

the end of the reporting period.


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3. SPECIFIC STATEMENT OF FINANCIALPOSITION ITEMS

3.1 General (IAS 1)


Generally an entity presents its statement of financial position classified between

current and non-current assets and liabilities. An unclassified statement of financial

position based on the order of liquidity is acceptable only when it provides reliable and

more relevant information.

While IFRSs require certain items to be presented in the statement of financial position,

there is no prescribed format.

A liability that is payable on demand because certain conditions are breached is

classified as current even if the lender has agreed, after the end of the reporting periodbut before the financial statements are authorised for issue, not to demand repayment.

Assets and liabilities that are part of working capital are classified as current even if they

are due to be settled more than 12 months after the end of the reporting period.


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3.2 Property, plant and equipment (IAS 16, IFRIC 1, IFRIC 18)


Property, plant and equipment is recognised initially at cost.

Cost includes all expenditure directly attributable to bringing the asset to the location

and working condition for its intended use.

Cost includes the estimated cost of dismantling and removing the asset and restoringthe site.

Changes to an existing decommissioning or restoration obligation generally are added

to or deducted from the cost of the related asset and depreciated prospectively over

the remaining useful life of the asset.

Property, plant and equipment is depreciated over its useful life.

An item of property, plant and equipment is depreciated even if it is idle, but not if it is

held for sale.

Estimates of useful life and residual value, and the method of depreciation, are

reviewed at least at each annual reporting date. Any changes are accounted for

prospectively as a change in estimate.

When an item of property, plant and equipment comprises individual components

for which different depreciation methods or rates are appropriate, each component is

depreciated separately.

Subsequent expenditure is capitalised only when it is probable that it will give rise tofuture economic benefits.

Property, plant and equipment may be revalued to fair value if fair value can be

measured reliably. All items in the same class are revalued at the same time and the

revaluations are kept up to date.

Compensation for the loss or impairment of property, plant and equipment is

recognised in profit or loss when receivable.

The gain or loss on disposal is the difference between the net proceeds received and

the carrying amount of the asset.


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comprehensive disclosure framework for fair value measurements. See 1.2 for further

details.

IFRS 13 also amends IAS 16 as regards its disclosure requirements for assets carried at

revalued amounts, with new additional requirements being included within IFRS 13 forsuch assets. See 1.2 for further details.


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3.3 Intangible assets and goodwill (IFRS 3, IAS 38, SIC-32)


An intangible assetis an identifiable non-monetary asset without physical substance.

An intangible asset is identifiableif it is separable or arises from contractual or legal

rights.

Intangible assets generally are recognised initially at cost.

The initial measurement of an intangible asset depends on whether it has been

acquired separately, as part of a business combination, or was generated internally.

Goodwill is recognised only in a business combination and is measured as a residual.

Acquired goodwill and other intangible assets with indefinite useful lives are not

amortised, but instead are subject to impairment testing at least annually.

Intangible assets with finite useful lives are amortised over their expected useful lives.

Subsequent expenditure on an intangible asset is capitalised only if the definition of an

intangible asset and the recognition criteria are met.

Intangible assets may be revalued to fair value only if there is an active market.

Internal research expenditure is expensed as incurred. Internal development

expenditure is capitalised if specific criteria are met. These capitalisation criteria are

applied to all internally developed intangible assets.

Advertising and promotional expenditure is expensed as incurred. Expenditure on relocation or a re-organisation is expensed as incurred.

The following are not capitalised as intangible assets: internally generated goodwill,

costs to develop customer lists, start-up costs and training costs.


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comprehensive disclosure framework for fair value measurements.

In particular, IFRS 13 deletes the definition of an active market in IAS 38; the definition in

IFRS 13 is applied instead. An active marketis a market in which transactions for the asset

or liability take place with sufficient frequency and volume for pricing information to beprovided on an ongoing basis. See 1.2 for further details.


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In particular, IFRS 13 deletes the guidance in paragraph 51 of IAS 40. As a result, an entity

may include future cash flows arising from planned improvements to the extent that they

reflect the assumptions of market participants.

See 1.2 for further details.


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3.5 Investments in associates and the equity method (IAS 28)


The definition of an associate is based on significant influence, which is the power to

participate in the financial and operating policies of an entity.

There is a rebuttable presumption of significant influence if an entity holds 20 to

50 percent of the voting rights of another entity. Potential voting rights that are currently exercisable are considered in assessing

significant influence.

Generally, associates are accounted for using the equity method in the consolidated

financial statements.

Venture capital organisations, mutual funds, unit trusts and similar entities may elect to

account for investments in associates as financial assets.

Equity accounting is not applied to an investee that is acquired with a view to itssubsequent disposal if the criteria are met for classification as held for sale.

In applying the equity method, an associates accounting policies should be consistent

with those of the investor.

The reporting date of an associate may not differ from the investors by more than three

months, and should be consistent from period to period. Adjustments are made for the

effects of significant events and transactions between the two dates.

When an equity-accounted investee incurs losses, the carrying amount of the investorsinterest is reduced but not to below zero. Further losses are recognised by the investor

only to the extent that the investor has an obligation to fund losses or has made

payments on behalf of the investee.

Unrealised profits and losses on transactions with associates are eliminated to the

extent of the investors interest in the investee.


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In our view, when an entity contributes a controlling interest in a subsidiary in exchange

for an interest in an associate, the entity may choose to either recognise the gain or loss

in full or eliminate the gain or loss to the extent of the investors interest in the investee.

A loss of significant influence or joint control is an economic event that changes

the nature of the investment. The fair value of any retained investment is taken into

account to calculate the gain or loss on the transaction, as if the investment were fully

disposed of. This gain or loss is recognised in profit or loss. Amounts recognised in other

comprehensive income are reclassified or transferred as required by other IFRSs.


VENTURECAPITALORGANISATIONSANDSIMILARENTITIES

IAS 28 (2011) retains the exception for venture capital organisations, and certain

similar entities, although it is now characterised as a measurement rather than a scope

exception. The exception also applies to a portion of an investment in an associate held by

such entities. However, it does not apply to a portion of an investment in an IFRS 11 joint

venture (currently jointly controlled entity).

CLASSIFICATIONASHELDFORSALE

IAS 28 (2011) contains more specific provisions in respect of the application of IFRS 5 to

investments in associates or joint ventures. IFRS 5 applies to an investment, or a portion

of an investment, in an associate or a joint venture that meets the criteria for classification

as held for sale. For any retained portion of the investment that has not been classified as

held for sale, the entity applies the equity method until disposal of the portion classified

as held for sale. After disposal, any retained interest in the investment is accounted for in

accordance with IAS 39 or by using the equity method if the retained interest continues to

be an associate or a joint venture.

MEASUREMENTOFINVESTMENTS

On the adoption of IFRS 9, all equity investments are measured at fair value, including

retrospectively by restatement if the investments were held at cost under paragraph 46(c)

of IAS 39 prior to adoption of IFRS 9. In addition, the cumulative gain or loss in other

comprehensive income may be transferred within equity but will not be reclassified to

profit or loss.


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CHANGEINOWNERSHIPINTEREST

If an entitys ownership interest in an equity-accounted investee is reduced, but the

equity method continues to be applied, then an entity reclassifies to profit or loss any

equity-accounted gain or loss previously recognised in other comprehensive income in

proportion to the reduction in the ownership interest. IAS 28 (2011) makes clear that such

reclassification applies only if that gain or loss would be required to be reclassified to profit

or loss on disposal of the related asset or liability. Cumulative translation adjustments

on foreign operations are an example of such a gain or loss that is now proportionately

reclassified in such circumstances.

Under IAS 28 (2011), if an investment in an associate becomes an investment in a joint

venture, or vice versa, then the equity method continues to be applied and there is no

remeasurement of the retained interest.


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3.6 Investments in joint ventures and proportionateconsolidation (IAS 31, SIC-13)


Ajoint ventureis an entity, asset or operation that is subject to contractually established

joint control.

Jointly controlled entities may be accounted for either by proportionate consolidation orusing the equity method in the consolidated financial statements.

Venture capital organisations, mutual funds, unit trusts and similar entities may elect to

account for investments in jointly controlled entities as financial assets.

Proportionate consolidation is not applied to an investee that is acquired with a view to

its subsequent disposal if the criteria are met for classification as held for sale.

Unrealised profits and losses on transactions with jointly controlled entities are

eliminated to the extent of the investors interest in the investee.

Gains and losses on non-monetary contributions, other than a subsidiary, in return

for an equity interest in a jointly controlled entity generally are eliminated to the

extent of the investors interest in the investee.

In our view, when an entity contributes a controlling interest in a subsidiary in exchange

for an interest in a jointly controlled entity, the entity may choose to either recognise the

gain or loss in full or eliminate the gain or loss to the extent of the investors interest in

the investee.

A loss of joint control is an economic event that changes the nature of the investment.

The fair value of any retained investment is taken into account to calculate the gain or

loss on the transaction, as if the investment were fully disposed of. This gain or loss is

recognised in profit or loss. Amounts recognised in other comprehensive income are

reclassified or transferred as required by other IFRSs.

For jointly controlled assets, the investor accounts for its share of the jointly controlled

assets, the liabilities and expenses it incurs and its share of any income or output.

For jointly controlled operations, the investor accounts for the assets it controls, theliabilities and expenses it incurs and its share of the income from the joint operation.


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VENTURECAPITALORGANISATIONSANDSIMILARENTITIES

IAS 28 (2011) retains the exception for venture capital organisations, and certain

similar entities, although it is now characterised as a measurement rather than a scope

exception. The exception also applies to a portion of an investment in an associate held by

such entities. However, it does not apply to a portion of an investment in an IFRS 11 joint

venture (currently jointly controlled entity).

CLASSIFICATIONASHELDFORSALE

IAS 28 (2011) contains more specific provisions in respect of the application of IFRS 5 to

investments in associates or joint ventures. IFRS 5 applies to an investment, or a portion

of an investment, in an associate or a joint venture that meets the criteria for classification

as held for sale. For any retained portion of the investment that has not been classified as

held for sale, the entity applies the equity method until disposal of the portion classified

as held for sale. After disposal, any retained interest in the investment is accounted for in

accordance with IAS 39 or by using the equity method if the retained interest continues to

be an associate or a joint venture.

NON-MONETARYCONTRIBUTIONSBYVENTURERS

SIC-13 has been substantially incorporated into IAS 28 (2011). However, two of the pre-

conditions for the recognition of a gain or loss were not carried forward as they were not

considered necessary, namely:

the transfer of significant risks and rewards; and

the reliable measurement of the gain or loss.

ACCOUNTINGFORJOINTLYCONTROLLEDENTITIES

Under IFRS 11, all joint ventures are accounted for using the equity method in accordance

with IAS 28 (2011), unless the entity is exempt from applying the equity method. The

option to use proportionate consolidation has been eliminated by IFRS 11. See 3.6A for

further details.

Under IAS 28 (2011), if an investment in an associate becomes an investment in a joint

venture, or vice versa, then the equity method continues to be applied and there is noremeasurement of the retained interest.


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3.6A Investments in joint arrangements (IFRS 11)

OVERVIEWOFFORTHCOMINGREQUIREMENTS

Ajoint arrangementis an arrangement over which two or more parties have joint

control. There are two types of joint arrangements: a joint operation and a joint venture.

In ajoint operation, the parties to the arrangement have rights to the assets and

obligations for the liabilities related to the arrangement. In ajoint venture, the parties to the arrangement have rights to the net assets of the

arrangement.

A joint arrangement not structured through a separate vehicle is a joint operation.

A joint arrangement structured through a separate vehicle may be either a joint

operation or a joint venture, depending on the legal form of the vehicle, contractual

arrangement and other facts and circumstances of the arrangement.

Generally, a joint venturer accounts for its interest in a joint venture using the equitymethod in accordance with IAS 28 (2011).

A joint operator recognises, in relation to its involvement in a joint operation, its assets,

liabilities and transactions, including its share in those arising jointly, and accounts for

them in accordance with the relevant IFRSs.

All parties to a joint arrangement are within the scope of IFRS 11, even if they do not

have joint control.

A party to a joint operation, who does not have joint control, recognises its assets,liabilities and transactions, including its share in those arising jointly if it has rights to the

assets and obligations for the liabilities of the joint operation.

A party to a joint venture, who does not have joint control, accounts for its interest in

accordance with IAS 39, or IAS 28 (2011) if significant influence exists.


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3.8 Inventories (IAS 2)


Generally, inventories are measured at the lower of cost and net realisable value.

Cost includes all direct expenditure to get inventory ready for sale, including attributable

overheads.

The cost of inventory generally is determined using the first-in, first-out (FIFO) orweighted average method. The use of the last-in, first-out (LIFO) method is prohibited.

Other cost formulas, such as the standard cost or retail method, may be used when the

results approximate actual cost.

The cost of inventory is recognised as an expense when the inventory is sold.

Inventory is written down to net realisable value when net realisable value is less

than cost.

If the net realisable value of an item that has been written down subsequently

increases, then the write-down is reversed.



IFRS 13 deletes the fair value measurement guidance currently included in paragraph 7

of IAS 2; the general valuation principles in IFRS 13 are applied instead. It providesa single definition of fair value and fair value application guidance, and establishes

a comprehensive disclosure framework for fair value measurements. See 1.2 for

further details.


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3.9 Biological assets (IAS 41)


Biological assets are measured at fair value less costs to sell unless it is not possible to

measure fair value reliably, in which case they are measured at cost.

All gains and losses from changes in fair value less costs to sell are recognised in profit

or loss. Agricultural produce harvested from a biological asset is measured at fair value less

costs to sell at the point of harvest.



IFRS 13 replaces most of the fair value measurement guidance currently included inindividual IFRSs; the general valuation principles in IFRS 13 are applied instead. It provides

a single definition of fair value and fair value application guidance, and establishes


further details.


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3.10 Impairment of non-financial assets (IAS 36, IFRIC 10)


IAS 36 covers the impairment of a variety of non-financial assets, including property,

plant and equipment; intangible assets and goodwill; investment property; biological

assets carried at cost less accumulated depreciation; and investments in subsidiaries,

joint ventures and associates.

Impairment testing is required when there is an indication of impairment.

Annual impairment testing is required for goodwill and intangible assets that either are

not yet available for use or have an indefinite useful life. This impairment test may be

performed at any time during the year provided that it is performed at the same time

each year.

Goodwill is allocated to cash-generating units (CGUs) or groups of CGUs that are

expected to benefit from the synergies of the business combination from which it

arose. The allocation is based on the level at which goodwill is monitored internally,restricted by the size of the entitys operating segments.

Whenever possible an impairment test is performed for an individual asset. Otherwise,

assets are tested for impairment in CGUs. Goodwill always is tested for impairment at

the level of a CGU or a group of CGUs.

A CGU is the smallest group of assets that generates cash inflows from continuing use

that are largely independent of the cash inflows of other assets or groups thereof.

The carrying amount of goodwill is grossed up for impairment testing if the goodwillarose in a transaction in which non-controlling interests were measured initially based

on their proportionate share of identifiable net assets.

An impairment loss is recognised if an assets or CGUs carrying amount exceeds the

greater of its fair value less costs to sell and value in use, which is based on the net

present value of future cash flows.

Estimates of future cash flows used in the value in use calculation are specific to the

entity and need not be the same as those of market participants.

The discount rate used in the value in use calculation reflects the markets assessment

of the risks specific to the asset or CGU, as well as the time value of money.


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An impairment loss for a CGU is allocated first to any goodwill and then pro ratato other

assets in the CGU that are within the scope of IAS 36.

An impairment loss generally is recognised in profit or loss. However, an impairment

loss on a revalued asset is recognised in other comprehensive income, and presented

in the revaluation reserve within equity, to the extent that it reverses a previous

revaluation surplus related to the same asset. Any excess is recognised in profit or loss.

Reversals of impairment are recognised, other than for impairments of goodwill.

A reversal of an impairment loss generally is recognised in profit or loss. However, a

reversal of an impairment loss on a revalued asset is recognised in profit or loss only tothe extent that it reverses a previous impairment loss recognised in profit or loss related

to the same asset. Any excess is recognised in other comprehensive income and

presented in the revaluation reserve.







further details.

Regarding the use of depreciated replacement cost to determine fair value less costs of

disposal, this method is not ruled out by IFRS 13 assuming that market participants would

value the asset or CGU in this manner.

At this early stage it is not clear whether the fair value less costs of disposal of a

listed subsidiary that constitutes a CGU could be valued taking into account a control

premium. On the one hand, the unit of account in accordance with IAS 36 is the CGU (the

subsidiary) as a whole, which implies that a control premium may be appropriate. But on

the other hand, IFRS 13 states that when a Level 1 input (i.e. fair values measured using

quoted prices (unadjusted) in active markets for identical assets or liabilities) is available

for an asset or liability, it is used without adjustment except in specific circumstances that

do not apply in this case.


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Fair value less costs of disposal of an associate

In determining the fair value less costs of disposal of an associate, IFRS 13 allows a

premium to be added to fair value measurements in certain circumstances. However,

there is uncertainty as to whether this is possible when the shares of an equity-accounted

investee are publicly traded.

INVESTMENTSINJOINTVENTURES

Under IFRS 11, joint ventures (currently jointly controlled entities) are accounted for using

the equity method and the option of using proportionate consolidation is eliminated. Ontransition, the guidance on impairment testing for associates applies to investments in

joint ventures. See 3.6A for further details.


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3.12 Provisions, contingent assets and liabilities (IAS 37, IFRIC 1, IFRIC 5, IFRIC 6)


A provision is recognised for a legal or constructive obligation arising from a past event,

if there is a probable outflow of resources and the amount can be estimated reliably.

Probablein this context means more likely than not.

A constructive obligationarises when an entitys actions create valid expectations ofthird parties that it will accept and discharge certain responsibilities.

A provision is measured at the best estimate of the expenditure to be incurred.

If there is a large population, then the obligation generally is measured at its

expected value.

Provisions are discounted if the effect of discounting is material.

A reimbursement right is recognised as a separate asset when recovery is virtually

certain, capped at the amount of the related provision.

A provision is not recognised for future operating losses.

A provision for restructuring costs is not recognised until there is a formal plan and

details of the restructuring have been communicated to those affected by the plan.

Provisions are not recognised for repairs or maintenance of own assets or for self-

insurance prior to an obligation being incurred.

A provision is recognised for a contract that is onerous, i.e. one in which the

unavoidable costs of meeting the obligations under the contract exceed the benefits tobe derived.

Contingent liabilitiesare present obligations with uncertainties about either the

probability of outflows of resources or the amount of the outflows, and possible

obligations whose existence is uncertain.

Contingent liabilities are not recognised except for contingent liabilities that represent

present obligations in a business combination.


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Income tax related to items recognised outside profit or loss is itself recognised outside

profit or loss.


TAXBASEOFINVESTMENTPROPERTY

Deferred Tax: Recovery of Underlying Assets Amendments to IAS 12introduces a

rebuttable presumption that the carrying amount of investment property measured at

fair value will be recovered through sale. Therefore, deferred taxes arising from suchinvestment property are measured based on the tax consequences resulting from

recovering the carrying amount of the investment property entirely through sale.

The presumption is rebutted if the investment property is depreciable and held in a

business model whose objective is to consume substantially all of the economic benefits

of the investment property through use.


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4. SPECIFIC STATEMENT OF COMPREHENSIVEINCOME ITEMS

4.1 General (IAS 1)


A statement of comprehensive income is presented as either a single statement or an

income statement (displaying components of profit or loss) with a separate statement

of comprehensive income (beginning with profit or loss and displaying components

of other comprehensive income).

While IFRSs require certain items to be presented in the statement of comprehensive

income, there is no prescribed format.

An analysis of expenses is required, either by nature or by function, in the statement of

comprehensive income or in the notes.

Material items of income or expense are presented separately either in the notes or, when

necessary, in the statement of comprehensive income.

The presentation or disclosure of items of income and expense characterised as

extraordinary items is prohibited.

Items of income and expense are not offset unless required or permitted by another

IFRS, or when the amounts relate to similar transactions or events that are not material.

In our view, components of profit or loss should not be presented net of tax unless

required specifically.

Reclassification adjustments from other comprehensive income to profit or loss are

disclosed in the statement of comprehensive income or in the notes to the financial

statements.

Amounts of income tax related to each component of other comprehensive income are

disclosed in the statement of comprehensive income or in the notes.


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PRESENTATIONOFOTHERCOMPREHENSIVEINCOME

Presentation of Other Comprehensive Income Amendments to IAS 1amends IAS 1 to:

require an entity to present separately the items of other comprehensive income that

would be reclassified to profit or loss in the future if certain conditions are met from

those that would never be reclassified to profit or loss. Consequently an entity that

presents items of other comprehensive income before related tax effects would also

have to allocate the aggregated tax amount between these sections; and

change the title of the statement of comprehensive income to the statement of profit

or loss and other comprehensive income. However, an entity is still allowed to use

other titles.

In addition, IFRS 9 impacts whether certain items can be presented in other

comprehensive income and whether items presented in other comprehensive income

can be reclassified to profit or loss.

SEPARATEPRESENTATIONONFACEOFSTATEMENTOFCOMPREHENSIVEINCOME

Under IFRS 9, the following items are separately disclosed on the face of the statement of

comprehensive income:

gains and losses arising from the derecognition of financial assets measured at

amortised cost; and

any gain or loss arising as a result of a difference between a financial assets previous

carrying amount and its fair value at the reclassification date (as defined in IFRS 9) if the

financial asset is reclassified so that it is measured at fair value.


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4.2 Revenue (Conceptual Framework, IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18, SIC-27,SIC-31)


Revenue is recognised only if it is probable that future economic benefits will flow to

the entity and these benefits can be measured reliably.

Revenue includes the gross inflows of economic benefits received by an entity for itsown account. In an agency relationship, amounts collected on behalf of the principal are

not recognised as revenue by the agent.

When an arrangement includes more than one component, it may be necessary to

account for the revenue attributable to each component separately.

Revenue from the sale of goods is recognised when the entity has transferred the

significant risks and rewards of ownership to the buyer and it no longer retains control

or has managerial involvement in the goods.

Revenue from service contracts is recognised in the period during which the service is

rendered, generally using the percentage of completion method.

Construction contracts are accounted for using the percentage of completion method.

The completed contract method is not permitted.

Revenue recognition does not require cash consideration. However, when goods or

services exchanged are similar in nature and value, the transaction does not generate

revenue.








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IFRS 13 also amends IFRIC 13 to specify that non-performance risk also is taken into

account when measuring the value of the award credits.

See 1.2 for further details.


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4.3 Government grants (IAS 20, IAS 41, SIC-10)


Government grants that relate to the acquisition of an asset, other than a biological

asset measured at fair value less costs to sell, may be recognised either as a reduction

in the cost of the asset or as deferred income, and are amortised as the related asset is

depreciated or amortised.

Unconditional government grants related to biological assets measured at fair value

less costs to sell are recognised in profit or loss when they become receivable;

conditional grants for such assets are recognised in profit or loss when the required

conditions are met.

Other government grants are recognised in profit or loss when the entity recognises as

expenses the related costs that the grants are intended to compensate.

When a government grant is in the form of a non-monetary asset, both the asset and

grant are recognised at either the fair value of the non-monetary asset or the nominalamount paid.







further details.


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4.4 Employee benefits (IAS 19, IFRIC 14)


IFRSs specify accounting requirements for all types of employee benefits, and not

just pensions. IAS 19 deals with all employee benefits, except those to which IFRS 2

applies.

Post-employment benefitsare employee benefits that are payable after the completionof employment (before or during retirement).

Short-term employee benefitsare employee benefits that are due to be settled within

one year after the end of the period in which the services have been rendered.

Other long-term employee benefitsare employee benefits that are not due to be settled

within one year after the end of the period in which the services have been rendered.

Liabilities for employee benefits are recognised on the basis of a legal or constructive

obligation.

Liabilities and expenses for employee benefits generally are recognised in the period in

which the services are rendered.

Costs of providing employee benefits generally are expensed unless other IFRSs permit

or require capitalisation, e.g. IAS 2 or IAS 16.

A defined contribution planis a post-employment benefit plan under which the

employer pays fixed contributions into a separate entity and has no further obligations.

All other post-employment plans are defined benefit plans.

Contributions to a defined contribution plan are expensed as the obligation to make the

payments is incurred.

A liability is recognised for an employers obligation under a defined benefit plan. The

liability and expense are measured actuarially using the projected unit credit method.

Assets that meet the definition of plan assets, including qualifying insurance policies,

and the related liabilities are presented on a net basis in the statement of financial

position.


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Actuarial gains and losses of defined benefit plans may be recognised in profit or

loss, or immediately in other comprehensive income. Amounts recognised in other

comprehensive income are not reclassified to profit or loss.

If actuarial gains and losses of a defined benefit plan are recognised in profit or loss,

then as a minimum gains and losses that exceed a corridor are required to be

recognised over the average remaining working lives of employees in the plan. Faster

recognition (including immediate recognition) in profit or loss is permitted.

Liabilities and expenses for vested past service costs under a defined benefit plan are

recognised immediately. Liabilities and expenses for unvested past service costs under a defined benefit plan

are recognised over the vesting period.

If a defined benefit plan has assets in excess of the obligation, then the amount of

any net asset recognised is limited to available economic benefits from the plan in the

form of refunds from the plan or reductions in future contributions to the plan, and

unrecognised actuarial losses and past service costs.

Minimum funding requirements give rise to a liability if a surplus arising from the

additional contributions paid to fund an existing shortfall with respect to services

already received is not fully available as a refund or reduction in future contributions.

If insufficient information is available for a multi-employer defined benefit plan to be

accounted for as a defined benefit plan, then it is treated as a defined contribution plan

and additional disclosures are required.

If an entity applies defined contribution plan accounting to a multi-employer defined

benefit plan and there is an agreement that determines how a surplus in the plan would

be distributed or a deficit in the plan funded, then an asset or liability that arises from thecontractual agreement is recognised.

If there is a contractual agreement or stated policy for allocating a groups net defined

benefit cost, then participating group entities recognise the cost allocated to them. If

there is no agreement or policy in place, then the net defined benefit cost is recognised

by the entity that is the legal sponsor.

The expense for long-term employee benefits is accrued over the service period.

Redundancy costs are not recognised until the redundancy has been communicated to

the group of affected employees.


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REVISEDEMPLOYEEBENEFITSREQUIREMENTS

IAS 19 (2011) changes the definition of both short-term and other long-term employee

benefits so that it is clear that the distinction between the two depends on when the entity

expects the benefit to be settled. Under the amended definitions:

short-term employee benefitsare those employee benefits (other than termination

benefits) that are expected to be settled wholly before 12 months after the end of the

annual reporting period in which the employees render the related service; and

other long-term employee benefitsare defined by default as being all employee benefits

other than short-term benefits, post-employment benefits and termination benefits.

IAS 19 (2011) also provides new guidance about the need or otherwise to reclassify

between short-term and other long-term benefits. Reclassification of a short-term

employee benefit as long-term need not occur if the entitys expectations of the timing

of settlement change temporarily. However, the benefit will have to be reclassified if the

entitys expectations of the timing of settlement change other than temporarily.

In addition, IAS 19 (2011) includes a requirement to consider the classification of a benefitif its characteristics change, giving the example of a change from a non-accumulating to an

accumulating benefit. In this case, the entity will need to consider whether the benefit still

meets the definition of a short-term employee benefit.

Multi-employer plans

IAS 19 (2011) sets out the accounting to be applied when participation in a multi-employer

plan ceases. The new requirement is that an entity should apply IAS 37 when determining

when to recognise and how to measure a liability that arises from the wind-up of a multi-employer defined benefit plan, or the entitys withdrawal from a multi-employer defined

benefit plan.

Expected return on plan assets

IAS 19 (2011) changes the manner in which interest cost is calculated. The expected return

on plan assets will no longer be calculated and recognised as interest income.


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Taxes payable by the plan

IAS 19 (2011) distinguishes between taxes payable by the plan on contributions related to

service before the reporting date or on benefits resulting from that service and all other

taxes payable by the plan. An actuarial assumption is made about the first type of taxes,

which are taken into account in measuring current service cost and the defined benefit

obligation. All other taxes payable by the plan are included in the return on plan assets.

Plan administration costs

Under IAS 19 (2011) the costs of managing plan assets reduce the return on plan assets.No specific requirements regarding the accounting for other administration costs are

provided. However, the Basis for Conclusions notes that the IASB decided that an entity

should recognise administration costs when the administration services are provided.

Therefore, the currently permitted inclusion of such costs within the measurement of the

defined benefit obligation will cease to be allowed under IAS 19 (2011). Instead they will be

treated as an expense within profit or loss.

Risk-sharing features and contributions from employees or third parties

Under IAS 19 (2011) the measurement of the defined benefit obligation takes into

consideration risk-sharing features and contributions from employees or third parties that

are not reimbursement rights.

IAS 19 (2011) distinguishes between discretionary contributions and contributions that are

set out in the formal terms of the plan, and provides guidance on accounting for both.

Discretionary contributions by employees or third parties reduce service costs on

payment of the contributions to the plan, i.e. the increase in plan assets is recognised

as a reduction of service costs.

Contributions that are set out in the formal terms of the plan either:

reduce service costs, if they are linked to service, by being attributed to periods of

service as a negative benefit (i.e. the net benefit is attributed to periods of service); or

reduce remeasurements of the net defined liability (asset), if the contributions are

required to reduce a deficit arising from losses on plan assets or actuarial losses.

Under IAS 19 (2011), actuarial assumptions include the best estimate of the effect of

performance targets or other criteria. For example, the terms of a plan may state that itwill pay reduced benefits or require additional contributions from employees if the plan


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assets are insufficient. These kinds of criteria are reflected in the measurement of the

defined benefit obligation, regardless of whether the changes in benefits resulting from

the criteria either being or not being met are automatic or are subject to a decision by the

entity, by the employee or by a third party such as the trustee or administrators of the plan.

Optionality included in the plan

Under IAS 19 (2011) actuarial assumptions include an assumption about the proportion

of plan members who will select each form of settlement option available under the plan

terms. Therefore, when the employees are able to choose the form of the benefit (e.g.

lump sum payment vs annual pension), the entity would make an actuarial assumptionabout what proportion would make each choice. As a result, an actuarial gain or loss will

arise if the choice of settlement taken by the employee is not the one that the entity has

assumed will be taken.

Other actuarial assumptions

IAS 19 (2011) includes some limited changes to other actuarial assumptions, which are not

expected to change current practice significantly, as follows:

an entity includes current estimates of expected changes in mortality assumptions;

various factors are set out that should be taken into account in estimating future

salary increases, such as inflation, promotion and supply and demand in the

employment market; and

any limits to the contributions that an entity is required to make are included in the

calculation of the ultimate cost of the benefit, over the shorter of the expected life of the

entity and the expected life of the plan.

Defined benefit plans Recognition

Under IAS 19 (2011) the net defined benefit liability (asset) is recognised in the statement

of financial position. This is:

(a) the present value of the defined benefit obligation; less

(b) the fair value of any plan assets (together, the deficit or surplus in a defined benefit

plan); adjusted for

(c) any effect of limiting a net defined benefit asset to the asset ceiling.


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All changes in the value of the defined benefit obligation, in the value of plan assets and in

the effect of the asset ceiling, are recognised immediately. Therefore IAS 19 (2011):

eliminates the corridor method, by requiring immediate recognition of actuarial gains

and losses; and

requires immediate recognition of all past service costs, including unvested amounts,

at the earlier of:

when the related restructuring costs are recognised if a plan amendment arises as

part of a restructuring;

when the related termination benefits are recognised if a plan amendment is linked

to termination benefits; and

when the plan amendment occurs.

Defined benefit plans Presentation

Under IAS 19 (2011) the cost of defined benefit plans includes the following components:

service cost recognised in profit or loss; net interest on net defined benefit liability (asset) recognised in profit or loss; and

remeasurements of the defined benefit liability (asset) recognised in other

comprehensive income.

Net interest on the net defined benefit liability (asset)

Under IAS 19 (2011) net interest on the net defined benefit liability (asset)is the change during

the period in the net defined benefit liability (asset) that arises from the passage of time.

Specifically, under the amended standard, the net interest income or expense on the net

defined benefit liability (asset) is determined by applying the discount rate used to measure

the defined benefit obligation at the start of the annual period to the net defined benefit liability

(asset) at the start of the annual period, taking into account any changes in the net defined

benefit liability (asset) during the period as a result of contribution and benefit payments.

The net interest on the net defined benefit liability (asset) can be disaggregated into:

interest cost on the defined benefit obligation;

interest income on plan assets; and

interest on the effect of the asset ceiling.


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As the approach taken by IAS 19 (2011) is to calculate and recognise the net interest on the

net defined benefit liability (asset) in profit or loss, the net interest income or expense will

be presented in one line item, as opposed to the currently available policy of including the

gross amounts of interest cost and expected return on plan assets with interest and other

financial income respectively.

Remeasurements

Under IAS 19 (2011) remeasurements of a net defined benefit liability (asset) are

recognised in other comprehensive income and comprise:

actuarial gains and losses on the defined benefit obligation;

the return on plan assets, excluding amounts included in the net interest on the net

defined benefit liability (asset); and

any change in the effect of the asset ceiling, excluding amounts included in the net

interest on the net defined benefit liability (asset).

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