Area Standard AIFRS impact Management action First time Adoption of Australian Equivalents to IFRS

Transcription

1 First time Adoption of Australian Equivalents to IFRS AASB 1 An entity s first Australian-equivalents-to-IFRS (AIFRS) financial report applies for reporting periods beginning on or after 1 January 2005 (para AUS 1.2) An entity shall prepare an opening Australian-equivalents-to-IFRS balance sheet at the date of transition to Australian equivalents to IFRS as a starting point (para 6) At the date of transition, adjustments should be recognised directly in retained earnings (para 11). Entities are exempted from the requirements to restate comparative information for AASB 132 and AASB 139 relating to financial instruments (para 36). Refer also to the sections below concerning AASB 132 and AASB 139. Management need to prepare their first AIFRS financial report for the year-end 31 December 2005 (assuming a 31 December year end). This report will include IFRS comparative information for the year ended 31 December The date of transition for 31 December 2005 year-ends will be 1 January Transition adjustments should be recognised directly in retained earnings, as at the date of transition Management can, however, choose not to restate the comparative information for AASB 132 and AASB 139. If they adopt this approach, the AASB 132 and AASB 139 transition adjustments are determined as at 1 January Investment properties AASB 140 Investment properties are defined as properties held to earn rentals or for capital appreciation or both, rather than as an integral part of a profit generating business, ie properties held for use in the production or supply of goods or services or for administrative purposes (para 5) In respect of not-for-profit entities, property may be held to meet service delivery objectives (eg Diocese central office) rather than as part of a profit generating business or to earn rental or for capital appreciation. In such situations the property will not meet the definition of investment property and will be accounted for under AASB 116 Property, Plant and Equipment (para 9.1). See below. Management should consider whether properties meet the definition of investment properties per AASB 140. For identified investment properties, management should consider whether to state these properties at fair value or cost. Changes to the fair value should be recognised in the profit and loss (note that there is no revaluation reserve). IFRS-application-Dioceses_pwc doc Page 1

2 Investment properties should be initially measured at cost (including transaction costs); and subsequently measured at either fair value or cost. This policy shall apply to all of the entity s investment property (para 30) The measurement method can be changed from one to the other. However, AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors states that a voluntary change in accounting policy shall be made only if the change will result in a more appropriate presentation of transactions, other events or conditions in the entity's financial report. It is highly unlikely that a change from the fair value model to the cost model will result in a more appropriate presentation. (para 31) An unrealised gain or loss arising from a change in the fair value of investment property shall be recognised in profit or loss for the period in which it arises (para 35) Fair value is the amount for which an asset could be exchanged between knowledgeable, willing parties in an arm s length transaction (para 5). Note : this definition applies equally to all further references to fair value in sections below. The fair value of investment property shall reflect market conditions at the reporting date (para 38) An entity determines fair value without any deduction for transaction costs it may incur on sale or other disposal (para 37) Reviews of the fair value of investment properties are required at every reporting date. When calculating the fair value, future potential disposal costs should not be deducted. Properties that are used to meet service delivery objectives (for example, a minister s residence) should be accounted for under AASB 116. An entity that chooses the cost model shall measure all of its investment property in accordance with the requirements of AASB IFRS-application-Dioceses_pwc doc Page 2

3 116 (para 56). See section below. This includes the need to disclose the fair value of the investment property. Property, plant and equipment AASB 116 Property, plant and equipment (PPE) should be initially recognised at cost; and subsequently at cost less accumulated depreciation or fair value ( revaluation ) less subsequent accumulated depreciation. (para 29-31). At transition date only, an entity may elect to measure an item of PPE at deemed cost, being the fair value at transition date. (AASB 1, para 16) Fair value requirements are the same as for AASB 140 above. If fair value option is selected, per the revaluation model: Revaluation increases shall be credited directly to equity (revaluation reserve) except to the extent that they reverse decreases in the same class of asset previously charged to profit or loss (para 39) Revaluation decreases are debited to profit or loss, except to the extent that they reverse increases in the same class of assets previously charged to equity (para 40) Note that for normal (for-profit) entities, the revaluation increases and decreases need to be determined in relation to individual assets. They can only be offset within a class of PPE for not-for-profit entities (para 40.2) Management should consider whether to measure PPE at transition date at: Cost Deemed cost, or Fair value Diocese should consider subsequent measurement post-transition date at: Cost, or Fair value Subsequent fair value increases/decreases should be evaluated to ensure that they are correctly adjusted against equity (revaluation reserve) or recognised in profit or loss. An entity assesses at each reporting date whether there is any indication that a revalued asset's carrying amount may differ materially from that which would be determined if the asset were revalued at the reporting date. If any such indication exists, the entity determines the IFRS-application-Dioceses_pwc doc Page 3

4 asset's fair value and revalues the asset to that amount. (para G6) For revalued PPE, not-for-profit entities are not required to disclose the carrying amount that would have been recognised had the assets been carried under the cost model (para 77.1) Non-current assets held for sale AASB 5 An entity shall measure non-current assets classified as held for sale at the lower of (a) its carrying amount and (b) fair value less costs to sell (para 15) These assets should be presented separately from other assets on the balance sheet. (para 38) If these assets are expected to be realised within twelve months after the reporting date, they should be presented as a current asset Management should consider whether it has assets held for sale. Assets held for sale should be measured at the lower of their carrying amount and fair value less costs to sell. This Standard does not apply to non-current assets that are accounted for in accordance with the fair value model in AASB 140 Investment Property or financial assets within the scope of AASB 139 Financial Instruments: Recognition and Measurement Impairment testing AASB 136 For an asset to be classified as held for sale, its sale must be highly probable (for example, the asset must be actively marketed) (para 7&8) An entity shall assess at each reporting date whether there is any indication that an asset may be impaired. (para 9) Management should assess whether there are any indications of impairment. AASB 136 is not applicable to investment property that is measured at fair value (para 2(f)) non-current assets held for sale (para 2(i)) financial assets that are within the scope of AASB 139 (para 2 (e)). See below For assets that are impaired, the recoverable amount should be calculated and the resulting impairment loss should be booked in the P&L (unless the asset is carried at fair value eg under AASB 116) If the recoverable amount of an asset is less than its carrying amount, Management should also consider whether there is any indication that previously IFRS-application-Dioceses_pwc doc Page 4

5 the carrying amount of the asset shall be reduced to its recoverable amount. This impairment loss shall be recognised immediately in P&L ; unless the asset is carried at revalued amount in accordance with another Standard (e.g. in accordance with the revaluation model in AASB 116 see above). (para 59 & 60). recognised impairment losses no longer exist. If so, the impairment loss should be reversed in the profit and loss (if the impairment does not relate to a revalued asset) Recoverable amount is the higher of an asset s : (a) fair value less costs to sell ; and (b) its value in use (para 18). For not-for-profit entities, value in use shall be determined as the depreciated replacement cost of the asset (para 32.1) An entity shall assess at each reporting date whether there is any indication that an impairment loss recognised in prior periods for an asset (other than goodwill) may no longer exist or may have decreased. If any such indication exists, the entity shall estimate the recoverable amount of that asset (para 110) Government Grants AASB 1004 A reversal of an impairment loss for an asset (other than goodwill) shall be recognised immediately in profit or loss unless the asset is carried at revalued amount in accordance with another Standard (eg the revaluation model in AASB 116). Grants should be recognised as revenue when: The entity obtains control or right to receive the contribution There will be probable future economic benefit and It can be reliably measured (para 6) Grants, including Government grants, to be recognised as income when revenue conditions have been met (usually when grants declared) Note AASB 120 Government Grants is only applicable to normal (for-profit) entities, hence AASB 1004 is used as reference for not-forprofit entities Management should not defer grant income to match against related costs (as is required by AASB 120 for normal (for-profit) entities). IFRS-application-Dioceses_pwc doc Page 5

6 Presentation of financial statements AASB 101 Transactions that generate revenue incidental to the main revenuegenerating activities should be netted off, for example gains and losses on the disposal of non-current assets (para 34) Gains and losses on the disposal of non-current assets should be reported by deducting from the proceeds on disposal the carrying amount of the asset and related selling expenses (Para 34 (a)) Diocese should identify transactions generating revenue incidental to main revenue activities. In future under AIFRS, the results of such transactions should be disclosed on a net basis. Refer also to the pro-forma Tasmanian accounts. Financial Instruments Recognition and measurement AASB 139 Financial assets are classified between four categories: Loans and receivable (see section below) Held-to-maturity financial assets Available-for-sale financial assets Financial assets at fair value through profit or loss (includes trading assets) Management should classify financial assets and liabilities between the categories described in the AIFRS impact column and account for them accordingly (again as described in the AIFRS impact column) There are two categories of financial liabilities: Financial liabilities at fair value through profit or loss (includes trading liabilities) Other financial liabilities Where management has decided that an instrument should be classified as held at fair value through profit or loss (for example trading investments), these assets should be valued at their current bid prices Held-to-maturity financial assets are non-derivative financial assets with fixed or determinable payments and fixed maturity that an entity has the positive intention and ability to hold to maturity (excluding loans and receivables) (para 9) An entity can elect to designate any financial assets at fair value through profit or loss (FVTPL) on initial recognition. Financial assets held for trading must be fair value through profit or loss (para 9) Available-for-sale financial assets are those non-derivative financial Where it is determined that an investment held by a Diocese meets the available-forsale classification, a new component of equity (reserve) will be required to record unrealised gains and losses on those investments. Management should identify any derivatives (for example interest rate swaps). All derivatives must be carried at IFRS-application-Dioceses_pwc doc Page 6

7 assets that are designated as available for sale or that are not classified as (a) loans and receivables, (b) held-to-maturity investments or (c) financial assets at fair value through profit or loss (para 9) Loans and receivables, held-to-maturity financial assets and other (non-fvtpl) financial liabilities are carried at amortised cost using the effective interest method (see loans and receivables section below for more detail with regards to effective interest method) Available-for-sale financial assets, and financial assets/liabilities at fair value through profit and loss, are recorded in the balance sheet at fair value. Movements in the fair value of financial assets/liabilities at fair value through profit and loss are recorded immediately in profit or loss. Movements in the fair value of Available-for-sale financial assets are recorded in a separate component of shareholders equity. When the asset is sold the cumulative gain or loss previously recognised in equity is recognised in profit or loss. For fair value measurement considerations, the appropriate quoted market price for an asset held or liability to be issued is usually the current bid price and, for an asset to be acquired or liability held, the asking price (para AG72) All derivatives must be recognised at fair value through profit or loss, except for a derivative that is a designated as, and is effective as, a hedging instrument (para 9 and 46) Hedge accounting is difficult to summarise. There can be fair value hedges or cash flow hedges, and the accounting treatments are fair value on the balance sheet. Management should consider whether the criteria for hedge accounting are met (note that hedge accounting has onerous conditions to be met, including formal designation and documentation of the hedging relationship and measurement of the effectiveness of the hedge). Refer also to the appendix 1. IFRS-application-Dioceses_pwc doc Page 7

8 different. Refer to attached appendix 1 for more information if required. Loans and receivables AASB 139 Loans and receivables are initially recorded at fair values plus transaction costs that are directly attributable to the acquisition or issue of the financial asset (para 43) with subsequent measurement at amortised cost using the effective interest method (para 46(a)). Financial liabilities that are not held for trading shall also be measured at amortised cost using the effective interest method (para 47) Management should decide what costs and fees should be capitalised into the carrying value of the loan, and then included in the effective interest rate calculation. Only fees and costs that are incremental and directly attributable to the origination or acquisition should be included. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument to its net carrying amount. The estimated cash flows shall consider all contractual terms of the financial instrument but shall not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts. (para 9) Management should determine the effective interest rate for all loans and receivables (and for financial liabilities held at amortised cost). Management should then calculate the amortised cost (carrying value) using the effective interest method. Transaction costs that should be capitalised (ie included in the carrying value of the loan) are those that are incremental and directly attributable to the loan origination or acquisition. They include fees and commissions paid to agents, advisers, brokers, and dealers, levies by regulatory agencies and securities exchanges, and transfer taxed and duties. Transaction costs do not include debt premiums or discounts, financing costs or internal administrative or holding costs. An entity generally amortises any fees, transaction costs and other premiums or discounts in the calculation of the effective interest rate over the expected life of the instrument (para AG6) The provision for doubtful debts cannot be held to cover expected future losses. It should relate only to loans where there is objective evidence of impairment. Hence management should expect that provisions for doubtful debts will decrease. In future, the provision is either held against : (a) individual doubtful debts where it is more likely than not that a bad debt has been incurred [not much different to current specific provisions] ; or IFRS-application-Dioceses_pwc doc Page 8

9 If there is objective evidence that an impairment loss on loans and receivables has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred). A doubtful debt provision is raised for this amount and the loss is recognised in profit or loss. (para 63) (b) a percentage of certain groups of assets where there is some evidence of impairment eg as a percentage of loans in arrears (aged brackets) when the loss calculation can be supported by historical trends. An entity first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and then collectively for financial assets that are not individually significant. If an entity determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. (para 64) Cash Flow Statements AASB 107 An entity shall prepare a cash flow statement in accordance with the requirements of this Standard (para 1) Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value (para 6) Management should identify cash equivalents and consider whether investments qualify as a cash equivalent. An investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents (para 7) Leases AASB 117 Lease income from operating leases shall be recognised in income on a straight-line basis over the lease term, unless another systematic basis is more representative of the time pattern in which benefits derived from the leased asset are diminished (para 50) Management should consider whether lease contracts are operating or finance leases. IFRS-application-Dioceses_pwc doc Page 9

10 AASB 117 does not provide a numerical test to determine the classification of a lease (finance lease or operating lease) A finance lease is classified as a lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred (para 4) Operating lease is a lease other than a finance lease (para 4) Examples of a lease being classified as a finance lease include: The lease term is for the major part of the economic life of the asset even if title is not transferred At the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset (para 10) Management should then account for the lease appropriately according to AASB 117. These methods for accounting, as described below, have mostly not changed under AIFRS : For finance leases, lessees shall recognise finance leases as assets and liabilities in their balance sheets at amounts equal to the fair value of the lease property or, if lower, the present value of the minimum lease payments. For finance leases, lessors shall recognise assets in their balance sheets and present them as a receivable at an amount equal to the net investment in the lease. For operating leases, management should recognise lease income/expense on a straight-line basis over the lease term (this is a change). Lease Incentives UIG 15 Lessee shall recognise the aggregate benefit of incentives as a reduction of rental expenses over the lease term (para 5) Management should identify lease incentives and recognise the benefit on a straight line basis IFRS-application-Dioceses_pwc doc Page 10