Eye on Reporting
Welcome to our latest edition of Eye on Reporting.
In this month’s edition, we summarise the four new standards issued by the International Accounting Standards Board (IASB) and provide our perspective on these new standards. These new standards are:
- IFRS 10 Consolidated Financial Statement, which includes a new definition of control, used to determine which entities are consolidated, and describes consolidation procedures;
- IFRS 11 Joint Arrangements, which describes the accounting for joint arrangements with joint control; proportionate consolidation is not permitted for joint ventures (as newly defined);
- IFRS 12 Disclosures of Interests in Other Entities. which includes all of the disclosure requirements for subsidiaries, joint ventures, associates, and “structured entities”; and
- IFRS 13 Fair Value Measurement, which provides guidance on how to measure fair value, but does not change when fair value is required or permitted under IFRS.
The new standards are effective for annual periods beginning on or after 1 January 2013.
We also highlight recent developments made by the IASB and FASB on the revenue recognition and leases’ standards.
In advance of the upcoming 30 June year ends, we are pleased to announce the recent release of our updated IFRS Core Tools package, which provide a comprehensive basis for keeping up with the changing landscape of IFRS.
Recently, the Australian Accounting Standards Board (AASB) and the New Zealand Financial Reporting Standards Board (FRSB) issued some amendments to Australian and New Zealand accounting standards, to harmonise the requirements that apply to for-profit entities in Australia and New Zealand. The amended standards are effective for reporting periods beginning on or after 1 July 2011. Further details will follow in next month’s edition of EYe on Reporting.
Financial Accounting Advisory Services
- IFRS Developments, Issue 1, IASB issues three new standards: Consolidated Financial Statements, Joint Arrangements, and Disclosure of Interests Other Entities
The recent financial crisis highlighted the need for better accounting to reflect the substance of relationships between entities. It also highlighted the need for consistency, transparency and comparability in the accounting for and disclosure of such relationships. In May 2011, the IASB issued three new standards, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, with the aim of increasing the consistency, transparency and comparability across these areas. This publication summarises the key points of the three new accounting standards issued by the IASB and includes our perspectives on the new standards.
- IFRS practical matters: What do the new consolidation, joint arrangements and disclosures accounting standards mean to you? (pdf, 5mb)
Following on from the IFRS Developments Issue 1: IASB issues three new standards: Consolidated Financial Statements, Joint Arrangements, and Disclosure of Interests in Other Entities, (above), the primary focus of this publication is to highlight the significant judgements that will be required by management to implement these new standards and the more pervasive effects these new standards may have on entities. In addition to considering the data that will need to be accumulated, management should also consider the effects on financial metrics, regulatory compliance, tax, and the structuring of transactions and arrangements. This publication also discusses ways Ernst & Young can help entities approach the new standards.
- IFRS Developments, Issue 2, Fair value measurement guidance converges
IFRS 13 establishes a single framework for all fair value measurements when fair value is required or permitted by IFRS. IFRS 13 does not change when an entity is required to use fair value, but rather, describes how to measure fair value under IFRS. This publication provides a summary of IFRS 13 including our perspectives on the new standard. IFRS 13 is effective for annual periods beginning on or after 1 January 2013.
- Supplement to IFRS Outlook Issue 101: Another step towards a final revenue standard
The IASB and US Financial Accounting Standards Board (FASB) are currently in the process of addressing concerns raised by respondents about their June 2010 proposal for the new revenue recognition standard.
At their April 2011 meeting, the IASB and the US FASB redeliberated the remaining significant aspects of the revenue recognition exposure draft. This included estimating the transaction price when variable consideration exists, allocation of the transaction price, the accounting for licenses and the rights to use intellectual property, put options on sale and repurchase agreements, and fulfilment costs.
This publication summarises these developments and is a continuation of our supplement to IFRS Outlook issue 99: New revenue recognition model is taking shape.
- IFRS Developments - Issue 3: A U-turn on straight-line lease expense (pdf, 508.4kb)
This week, the IASB and the FASB reversed course on their tentative decision to introduce lease classification and straight-line rent expense into their new accounting model for lessees. The Boards have decided to go back to their exposure draft approach of requiring lessees to recognise interest expense using the effective interest method and separately amortise the right-of-use asset (generally on a straight-line basis). This approach accelerates lease expense for today’s operating leases.
This publication updates our discussion of the Boards’ earlier decisions included in our Supplement to IFRS Outlook Issue 100: Straightening out lease expense and other issues.
- IFRS accounting considerations: Accounting for the effects of natural disasters under IFRS
The Christchurch earthquakes and the March 2011 natural disasters in Japan continues to have ongoing direct and indirect effects. These devastating events, together with the political and civil unrest in the Middle East and North African countries, raise a number of questions about accounting and related financial reporting.
The IFRS special edition paper provides a reminder of existing accounting requirements that should be considered when accounting for the effects of natural disasters. Many of the accounting issues discussed in the publication are relevant to New Zealand. One of the more difficult issues is determining when to recognise the insurance claim receivable. This involves considering (a) whether the damage and other loss events are covered by the insurance policy, to determine whether it’s ‘virtually certain’ that an asset exists for the claim receivable and (b) whether a reliable estimate of the claim receivable can be made. We recommend contacting your Ernst & Young advisor for further assistance on this and other issues arising from the earthquakes.
- Effective dates — when will proposed new IFRS standards apply?
The IASB and the US FASB continue to focus on a number of projects, including revenue recognition, financial instruments, leases and insurance contracts. With the new standards on the horizon, the Boards requested feedback on when and how the new standards should be applied. Read about our views on the effective dates of the new standards and the feedback the IASB received from other stakeholders.
- Joint Project Watch
Keeping up to date with the standard-setting activities of the IASB and FASB (collectively, the Boards) on their many joint projects can be challenging. The Boards are actively redeliberating many of their projects and, as a result, they are making tentative decisions that may be different from earlier decisions and those in the exposure drafts. The March 2011 edition of Joint Project Watch gives you a snapshot of the key developments through March 2011 from an IFRS perspective, together with our observations on the potential implications for companies.
IFRS news and updates
- IFRS Core Tools
The IFRS core tools provide a starting point to help preparers identify changes to IFRS, understand those changes, and to apply the changes in a comprehensive way. The suite of tools includes the following:
- IFRS update for financial year ending 30 June 2011
This publication provides an overview of the effective and upcoming changes in IFRS and related interpretations, highlighting key aspects of these changes. It focuses on the 30 June 2011 year-end reporting period, but also considers the effect on subsequent periods.
- Good Group (International) Limited – Illustrative interim condensed financial statements (30 June 2011)
This edition contains illustrative interim condensed consolidated financial statements of Good Group (International) Limited and subsidiaries for the interim period ending 30 June 2011. It is prepared in accordance with IFRS issued as at 31 March 2011 and effective for annual periods beginning on 1 January 2011. This publication does not include NZ-specific additional disclosure requirements.
- IFRS update for financial year ending 30 June 2011
- International GAAP® Disclosure Checklist (IFRS in issue at 31 March 2011)
This checklist includes the disclosures required and encouraged by IFRS for entities with a year-end of 30 June 2011 or thereafter, and covers all IFRS issued before 31 March 2011. The online checklist will be available in coming weeks and you can sign up for the checklist at www.ey.com/checklist. The checklist covers IFRS and does not include NZ-specific additional disclosures.
- Our views on the hedge accounting proposals
The IASB recently issued an exposure draft that proposed a fundamental shift away from the way entities have conventionally applied hedge accounting under IFRS. Learn about our views on the proposals.
- What we think of the new proposed approach for impairment of financial assets
The IASB and the US FASB jointly proposed a new common approach for determining when credit losses should be recognised on certain financial assets. Find out what our views are on this proposed approach in the latest issue of IFRS outlook.
Industry in focus
Real Estate and Construction
- IFRS 13 Fair Value Measurement: 21st century real estate values
IFRS 13 Fair Value Measurement has been recently released by the IASB. IFRS 13 establishes a single framework for all fair value measurements when fair value is required or permitted by IFRS. IFRS 13 does not change when an entity is required to use fair value, but rather, describes how to measure fair value under IFRS. As a result of consequential amendments, much of the specific requirements for determining fair value in IAS 40 Investment Property will be deleted, and instead, fair value measurements will be made based on the requirements of the new standard. IFRS 13 is effective for annual periods beginning on or after 1 January 2013.
In this publication, we concentrate on the implications of IFRS 13 for the real estate and construction industries. Refer to IFRS Developments, Issue 2, Fair value measurement guidance converges, for a more complete summary of this new standard.
- IFRS 10, 11 and 12 on consolidation and joint arrangements: A changing balance sheet
Three new standards have recently been released by the IASB: IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities. These IFRS are effective for annual periods beginning on or after 1 January 2013. IFRS 11 is part of the convergence project with the US Financial Accounting Standards Board (FASB). However, the FASB is still considering convergence with respect to certain aspects of IFRS 10, and differences are likely to remain to US GAAP even after any further changes are made.
In this publication, we concentrate on the implications of these new IFRS for the real estate and construction industries. Refer to IFRS Developments — IASB issues three new standards: Consolidated Financial Statements, Joint Arrangements, and Disclosure of Interests Other Entities, Issue 1 for a more complete summary of these new standards. IFRS Developments are available at www.ey.com/IFRS.
- Insurance accounting alert: IASB and FASB make further progress
On 12 April 2011, the IASB and FASB (the Boards) continued their discussions on a uniform, global insurance contracts standard. At this meeting, they focused on how to determine the discount rate for insurance liabilities using an asset-based top-down approach. In addition, the Boards' staff published a document that summarises the decisions reached by the Boards, describes outstanding topics and the timing for when they will be discussed. That summary also provides an updated project timetable that indicates publication of an IFRS (by the IASB) and an Exposure Draft (by the FASB) in the second half of 2011.The April 2011 issues of Insurance Accounting Alert and Insurance Accounting Alert supplement summarise the latest activities.
- Insurance accounting alert: Boards seek an approach to unbundling that is consistent with revenue recognition
On 4 May, the IASB and the FASB (the Boards) continued their discussions on a uniform global insurance contracts standard. In particular, they discussed the principles for unbundling; i.e., when non-insurance components should be separated from the host insurance contract. The Boards had intended to discuss measurement of participating contracts, but have postponed this topic to a later date to concentrate on unbundling. The Boards are continuing to work towards completing their discussions of the major issues by June 2011.
On the horizon
Below are recent Exposure Drafts issued by the New Zealand Financial Reporting Standards Board (FRSB) and other developments being considered in financial reporting. Please refer to the NZICA website for more details.
Comments due to FRSB by
Comments due to IASB or IPSASB by
IPSASB ED - Key Characteristics of the Public Sector with Potential Implications for Financial Reporting
31 August 2011
IPSASB ED 45, Improvements to IPSASs 2011
30 June, 2011
IPSASB CF-ED1: Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities: Role, Authority, and Scope; Objectives and Users; Qualitative Characteristics; and Reporting Entity;
IPSASB Consultation Paper: Elements and Recognition in Financial Statements; and
IPSASB Consultation Paper: Measurement of Assets and Liabilities in Financial Statements
15 June, 2011
Events and webcast
- No Events or Webcasts Scheduled for May
For more information on any of the points raised in this newsletter, please contact a member of Ernst & Young’s Financial Accounting Advisory Services Team:
Kimberley Crook – Partner, Auckland: +64 9 300 7094
David Pacey – Executive Director, Auckland +64 274 899 049
Lara Truman – Executive Director, Wellington: +64 274 899 896
Andrew Moorby – Executive Director, Christchurch: +64 274 899 949
The information contained in this newsletter does not constitute advice and should not be relied upon as such. Professional advice should be sought prior to action being taken on any of the information.
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This communication provides general information which is current at the time of production. The information contained in this communication does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Ernst & Young disclaims all responsibility and liability (including, without limitation, for any direct or indirect or consequential costs, loss or damage or loss of profits) arising from anything done or omitted to be done by any party in reliance, whether wholly or partially, on any of the information. Any party that relies on the information does so at its own risk.