Accounting Standards Update March 2012 Grant Thornton, Dublin Presenter Robert J Kirk Professor of Financial Reporting
The Future of Financial Reporting in the United Kingdom and Republic of Ireland FRS 100 (FRED 46) The Application of Financial Reporting Requirements (January 2012)
FRED 46 (FRS 100) • Objective • Scope • Abbreviations and Definitions • Basis of Preparation • Application of SORPs • Statement of Compliance • Date of Effectance and transitional arrangements • Withdrawal of FRSs/SSAPs
The Future of Financial Reporting in the United Kingdom and Republic of Ireland FRS 101 (FRED 47) Reduced Disclosure Framework
FRS 101 (FRED 47) Reduced Disclosure Framework • Objective • Scope • Reduced Disclosures for Subsidiaries and Ultimate Parents • The Disclosure Exemptions • Date of Effectance and Transitional Arrangements
The Future of Financial Reporting in the United Kingdom and Republic of Ireland FRED 48 (FRS 102) The FRS for application in the UK and Republic of Ireland (January 2012)
FRS 102 (FRED 48) Scope EU endorsed IFRS – listed cos Small entities – may apply FRSSE Insurance contracts – IFRS 4 Reduced disclosures – subsidiaries/parent Date of Effectance
Content of the FRSME • 1 Scope of the FRSME • 2 Concepts and Pervasive Principles • 3 Financial Statement Presentation • 4 Statement of Financial Position • 5 Statement of Comprehensive Income and Income Statement • Statement of Changes in Equity and Statement of Income and • Retained Earnings • 7 Statement of Cash Flows • 8 Notes to the Financial Statements • 9 Consolidated and Separate Financial Statements • 10 Accounting Policies, Estimates and Errors • 11 Basic Financial Instruments • 12 Other Financial Instruments Issues • 13 Inventories • 14 Investments in Associates • 15 Investments in Joint Ventures • 16 Investment Property • 17 Property, Plant and Equipment • 18 Intangible Assets other than Goodwill
Content of the FRSME 19 Business Combinations and Goodwill 20 Leases 21 Provisions and Contingencies 22 Liabilities and Equity 23 Revenue 24 Government Grants 25 Borrowing Costs 26 Share-Based Payment 27 Impairment of Assets 28 Employee Benefits 29 Income Tax 30 Foreign Currency Translation 31 Hyperinflation 32 Events after the End of the Reporting Period 33 Related Party Disclosures 34 Specialised Activities 35 Transition to the FRSME
Main Changes from FRED 44 (Oct 2010) • Effective date – now 1st January 2015 • Death of publicly accountable – now only listed companies publish under full EU IFRS • Name change – no longer FRSME but The FRS applicable in the UK and Republic of Ireland • Reduced disclosure framework for qualifying entities
Main Changes from FRED 44 (Oct 2010) • Capitalisation of development costs – NOW option • Revaluation Model for PP&E – NOW an option • Merger accounting – permitted for group reconstructions • Removal of Section 29 Income Tax and replaced by FRS 16 and 19 + • Introduction of accruals option as well as performance option for grants • Retirement benefit plans in specialised section
Statement of Financial Position (Section 4) Minimum information on statement Additional line items, sub headings, subtotals are permitted No prescribed sequence or format in IFRSSME but Co Law dictates strict format Current/non current distinction - FRS Creditors: amounts falling due within one year – Co Law
Statement of Comprehensive Income and Income Statement (Section 5) • Changes in accounting policies • Minimum set of headings • Three items in OCI • Split profit and OCI between NCI and owners • Discontinued operations
Statement of Changes in Equity and Statement of Income and Retained Earnings (Section 6) Statement of Changes in Equity Total CI, changes in policy, reconciliation of each component Statement of Income and Retained Earnings Purpose Information to be included
Statement of Income and Retained Earnings Information to be presented on the face of the statement (a) retained earnings at the beginning of the reporting period; (b) dividends declared and paid or payable during the period; (c) restatements of retained earnings for corrections of prior period errors; (d) restatements of retained earnings for changes in accounting policy; and (e) retained earnings at the end of the reporting period.
Statement of Cash Flows (Section 7) Purpose Specific exclusions Cash Equivalents Content Operating Activities Investing Activities Financing Activities
Intangible Assets other than Goodwill (Section 18) Development Expenditure If meets criteria below may be capitalised or expensed: • technical feasibility of completing the asset so available for use/sale. • its intention to complete the intangible asset and use or sell it. • its ability to use or sell the intangible asset. • how the asset will generate probable future economic benefits. • the availability of adequate technical, financial and other resourcesto complete the development and to use or sell the intangible asset. • its ability to measure reliably the expenditure attributable to the intangible asset during its development.
Intangible Assets other than Goodwill (Section 18) Measurement after recognition Must adopt either the cost or revaluation model Cost model Measure at cost less any accumulated amortisation and impairment losses. The requirements for impairment are set out in Section 27 Revaluation model Fair value is option
Investment Property (Section 16) Definition Social Benefits Property Measurement at initial recognition Measured at cost at initial recognition. Measurement after recognition—accounting policy election Should measure all investment properties after initial recognition using either: (a) the fair value model, if fair value reliably measured; or (b) the cost model (default).
Financial Assets and Financial Liabilities (Section 11) Scope Includes concessionary loans Accounting Policy Choice Choose either (a) FRS for MEs or (b) IAS 39 in full but also Sections 11 and 12 Introduction to Section 11 Definition Examples included and not included in Section 11
Income Taxes (Section 29) Entire Section in the IFRSSME removed and replaced by FRS 16 and FRS 19 Plus tax on revaluations and business combinations
Grants (Section 24) Definition Recognition and measurement Grants must not be recognised until there is reasonable assurance that: (a) the entity will comply with the conditions attaching to them; and (b) the grants will be received. Recognise using the performance model or the accrual model. Grants are measured at the fair value of the asset received/receivable. Grant repayable must be recognised as a liability
Grants (Section 24) Performance model Grants are recognised as follows: • If no specified future performance conditions - income when the grant proceeds are receivable. • A grant imposing specified future performance conditions - in income only when the performance conditions are met. • Grants received before the revenue recognition criteria are satisfied are recognised as a liability.
Grants (Section 24) Accrual model Grants must be classified either as revenue or capital. Revenue grants in income on a systematic basis over the periods in which the entity recognises the related costs for which the grant is intended to compensate. Grant receivable for expenses or losses already incurred or for the purpose of giving immediate financial support with no future related costs - in income in the period in which it becomes receivable. Capital grants in income on a systematic basis over the expected useful life of the asset. Where part of a grant relating to an asset is deferred it shall be recognised as deferred income and not deducted from the carrying value of the asset.
Grants (Section 24) Disclosure Nature and amounts of grants recognised Unfulfilled conditions and contingencies Other forms of government assistance
Borrowing Costs (Section 25) • Definition • Borrowing costs are interest and other costs arising on an entity’s • financial liabilities. Borrowing costs include: • interest expense calculated using the effective interest method • per Section 11. • (b) finance charges re finance leases per Section 20; • exchange differences from foreign currency borrowings to extent • regarded as adjustment to interest costs.
Borrowing Costs (Section 25) • Recognition May capitalise directly attributable costs Use specific if available or general funds Commencement, suspension and cessation • Disclosure Total interest expensed Capitalisation rate
IFRS developments Group Reporting • IFRS 10 Consolidated Financial Statements • IAS 27 Separate Financial Statements (Revised) • IFRS 11 Joint Arrangements • IAS 28 Associates and Joint Ventures (Revised) • IFRS 12 Disclosure of interests in other entities
IFRS 10 Consolidated Financial Statements (May 2011) Objective Key Definitions Control of an investee Parent Power
IFRS 10 Consolidated Financial Statements (May 2011) Control (ALL must exist) Power over the investee Exposure or rights to variable returns Ability to use its power to affect returns
IFRS 10 Consolidated Financial Statements (May 2011) • Accounting Requirements Uniform accounting policies Exemptions from consolidation Consolidation procedures Date control gained until it ceases Uniform accounting dates
IFRS 10 Consolidated Financial Statements (May 2011) • Non Controlling Interests • Changes in Ownership Interests No loss of control Loss of control • Disclosure (IFRS 12) • Date of Effectance
International Accounting Standards IAS 27 Separate Financial Statements (Revised May 2011)
IAS 27 Separate Financial Statements • Objective • Definitions Consolidated Financial Statements Separate Financial Statements • Preparation of separate financial statements Non mandatory • Choice of Accounting Method Cost IFRS 9
IAS 27 Separate Financial Statements • Recognition of dividends • Group reorganisations • Disclosure • Date of Effectance
International Financial Reporting Standards IFRS 11 Joint Arrangements (May 2011)
IFRS 11 • Introduction • Rationale • Weaknesses • in IAS 31
IFRS 11 Core Principle - assess rights and obligations
IFRS 11 Key Definitions Joint Arrangement Joint Control Joint Operation Joint Venture Types of Joint Arrangements (TWO not Three) Joint Operation Joint Venture Classification of joint arrangements
IFRS 11 Financial Statements of Parties to Joint Arrangement Joint Operations – proportionate consolidation Joint Ventures – equity method under IAS 28 Disclosure – see IFRS 12 Date of Effectance – 1 Jan 2013
International Accounting Standards IAS 28Investments in Associates and Joint Ventures (Revised May 2011)