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IFRSUpdates
• Revenue from Contracts with CustomersPFRS 15• Leases PFRS 16• Financial InstrumentsPFRS 9• Insurance ContractsPFRS 17
IPSAS Updates
• Service Concession ArrangementIPSAS 32
• Initial Adoption of Accrual Basis IPSASIPSAS 33
Introduction to PFRS 15An Overview of PFRS 15
When to recognize revenue?
• Entities should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange.
PFRS 15: Revenue from Contracts with Customers
The Revenue Recognition StandardThe Five-Step Model Framework
1 • Identify the contract with the customer
2 • Identify the separate performance obligations
3 • Determine the transaction price
4• Allocate the transaction price to the separate performance
obligations
5• Recognize revenue when a performance obligation is
satisfied
Steps to apply the core principle:
PFRS 15: Revenue from Contracts with Customers
The Revenue Recognition StandardThe Five-Step Model Framework
Step 1: Identify the contract(s)
• A contract should meet the following criteria:– Approval of the parties– Rights and obligations.– Payment terms– Commercial substance– Collectability is reasonably assured
PFRS 15: Revenue from Contracts with Customers
Step 2: Identify the separate performance obligation(s)
Two-step model to identify which goods or services are distinct
Part 1:Focus on whether the good or service is capable of being distinct
Part 2: Focus on whether the good or service is distinct in the context of the contract
Customer can benefit from the individual good or service on its own
In combination with other goods or services available to the customer
OR
The good or service is not highly dependent on, is not highly interrelated with, or does not
significantly modify or customize other promised goods or services in the contract
The Revenue Recognition StandardThe Five-Step Model Framework
Step 3: Determine transaction price
• Estimate variable consideration at expected value or most likely amount
– Use the method that is a better prediction of the amount of consideration to which the entity will be entitled
• Adjust for time value of money only if there is a financing component that is significant to the contract
PFRS 15: Revenue from Contracts with Customers
The Revenue Recognition StandardThe Five-Step Model Framework
Step 4: Allocate the transaction price
• Allocating on a relative standalone selling price basis will generally meet the objective
– Estimate selling prices if they are not observable
– Residual estimation techniques may be appropriate in rare circumstances
PFRS 15: Revenue from Contracts with Customers
The Revenue Recognition StandardThe Five-Step Model Framework
Step 5: Recognize revenue
• Revenue is recognised at the point in time when the customer obtains control of the promised asset.
– Indicators of control include:• a present right to payment• legal title• physical possession• risks and rewards of ownership• customer acceptance
PFRS 15: Revenue from Contracts with Customers
The Revenue Recognition StandardThe Five-Step Model Framework
Recognize revenue over a period of time
• the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs
• the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced; OR
• the entity’s performance does not create an asset with an alternative use to the entity AND the entity has an enforceable right to payment for performance completed to date
PFRS 15: Revenue from Contracts with Customers
The Revenue Recognition StandardThe Five-Step Model Framework
Transition and effective date
• Retrospective application• Effective date: 1 January 2018
PFRS 15: Revenue from Contracts with Customers
What is a lease?
• A lease is a contract that conveys the right to use an identified asset for a period of time in exchange for consideration.
Determining whether an arrangement contains a lease
• An arrangement only contains a lease if there is an identified asset–Explicit
• Supplier does not have substantive right to substitute the asset
– Implicit• The supplier has only one asset.• A capacity portion of an asset is an identified asset if
– it is physically distinct; or – It represents substantially all of the capacity
Determining whether an arrangement contains a lease
• CONVEYS THE RIGHT TO USE THE ASSET–The customer must have the right to obtain substantially all of the economic
benefits from the use of the identified asset; and –The customer must have the right to direct the use of the identified asset.
• The customer has the right to direct how and for what purpose the asset is used; or• The relevant decisions about how and for what purpose an asset is used are
predetermined; and– The customer has the right to operate the asset or direct others to operate the
asset in a manner that it determines without the supplier having the right to change those operating instructions; or
– The customer designed the asset in a way that predetermines how and for what purpose the asset will be used
PFRS 16- LeasesLease vs. Service
•When the customer controls the use of an asset
Lease
•When the supplier controls the use of an asset
Service
Assessment of the Contract
• An assessment of whether an arrangement contains a lease shall be made at the inception of the lease.
• A reassessment is made only if the terms and conditions of the contract are changed.
Separating Lease and Non-Lease Components
• An entity shall account for each lease components within a contract as a lease separately from non-lease components of the contract.
• A lessee may elect not to separate the non-lease components from lease components when the non-lease component is not significant.–Lessee shall account for the lease and non-lease components as a
single lease component.
Determining the Lease Term
• An entity determines the lease term as the–Non-cancellable period of the lease; plus–Period covered by an option to extend (if the lessee is reasonably certain to
exercise the option); and–Periods covered by an option to terminate (if the lessee is reasonably certain
not to exercise the option.)
PFRS 16- New Accounting Model- Lessee
• Recognise lease assets and liabilities on the balance sheet, initially measured at the present value of lease payments
• Recognise depreciation of lease assets and interest on lease liabilities in the income statement over the lease term
• Separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (typically presented within either operating or financing activities) in the cash flow statement
• Exemptions:– leases of 12 months or less– leases of low value assets (laptops, office furniture)
Amendments to PFRS 16Lessee - Transition
Changed to focus on the most relevant information• Existing finance leases: may choose to retain existing accounting • Existing operating leases: choose either full retrospective or modified
retrospective approach (consistently for all leases) • Modified retrospective approach
–Exemption for leases ending within 12 months of transition date –No restatement of comparatives –Choice of measurement of ROU assets (i.e. retrospective basis or equal to
lease liabilities) on a lease-by-lease basis
Amendments to PFRS 16What does PFRS 16 change for lessors?
There is little change for lessors
• Applying PFRS 16, a lessor continues to classify its leases as operating leases or finance leases and to account for those two types of leases differently.
• PFRS 16 also requires lessors to provide enhanced disclosures about their risk exposure arising from leasing activities
Classification and Measurement
Is the financial asset a DEBT instrument or an EQUITY investment?
Meets the ‘CF Characteristic’ test?
Amortized cost
Held to collect CCF only?
Fair Value Option (FVO) used?
Fair value through profit or loss
Fair value through OCI option used?
Held for trading?
NO
NO
YES
YES
YES
NO
NO
YES
YES
NO
Held to collect CCF and sell?
NO
FVOCINO
YES
Impairment- Expected Loss Model
• Objective:–To provide users of financial statements with more useful information about
an entity’s expected credit losses on financial instruments.
• Requirement:–Recognize expected credit losses at all times and– Update the amount of expected credit losses recognized at each reporting
date to reflect changes in the credit risk of financial instruments.
OVERVIEW of Impairment Requirement
Stage 1• Recognize 12-month expected credit loss in P&L• EIR is based on Gross Receivables
Stage 2
• Recognize lifetime expected credit losses if credit risk significantly increases
• EIR is based on Gross Receivables
Stage 3
• There is objective evidence of impairment;• Individual assessment is made;• EIR is based on Net Receivables
Recognition
• A grantor recognizes a service concession asset if the following conditions are met:– The grantor controls or regulates
• The type of services that operator must provide;• To whom it must provide them; and• At what price
– The grantor controls any significant residual interest in the asset at the end of the arrangement term through
• Ownership; or • Beneficial entitlement.
Measurement of Asset
• A grantor shall initially measure a service concession asset at its fair value.• Subsequently, service concession asset shall be accounted for as a separate
class of asset in accordance with PPSAS 17 or PPSAS 31 as appropriate.
Measurement of Liability
• A grantor shall initially measure a service concession liability at fair value of the service concession asset.–The financial liability model
The grantor compensates the operator by paying cash or other financial asset
–The grant of right modelThe grantor compensates the operator by granting the operator to
earn revenue from the users of the service concession asset
Financial Liability Model
Where the grantor has an unconditional obligation to pay cash or anotherfinancial asset to the operator for the construction, development, acquisition,or upgrade of a service concession asset, the grantor shall account for theliability recognized as a financial liability
Grant of Right Model
Where the grantor does not have an unconditional obligation to pay cash andgrants the operator the right to earn revenue from third-party users, the grantorshall account for the liability recognized as the unearned portion of the revenuearising from the exchange of assets.
The grantor shall recognize revenue and reduce the liability recognized accordingto the economic substance of the service concession arrangement.
FIRST-TIME ADOPTER
• An entity is a first-time adopter if it prepares financial statements in accordance with this IPSAS for the first time and the entity– Did not present financial statements in the previous period;– Presented its most recent previous financial statements in conformity with IPSAS;
or– Presented its most recent previous financial statements using other GAAP.
Opening Statement of Financial Position
• At transition date, an entity shall prepare an opening statement of financial position.
Transition Date
• Transition date is the beginning of the period of the earliest financial statement presented.
PROCEDURES AT DATE OF TRANSITION
• Prepare an opening statement of financial position in accordance with IPSAS– Recognize– Derecognize– Reclassify– Remeasure
• Treat the cumulative effect/adjustments resulting from the above transition directly to opening Surplus (or, if appropriate, other equity account)
RECOGNIZE
• Service Concession Assets• Service Concession Liabilities• Provision for terminal leave benefits• Deferred taxes• Allowance for impairment of receivables
REMEASURE
• Property, plant and equipment• Investment property• Provision for terminal benefits• Allowance for impairment
DISCLOSURES
• Explain how the transition has affected its financial statements– Description of the nature of each change in accounting policy– Reconciliation of profit or loss for the most recent financial statements determined
in accordance with its previous financial reporting framework– Reconciliation of its equity for both
• The date of transition; and• End of the latest period presented in the entity’s most recent annual financial
statements determined in accordance with its previous financial reporting framework
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