IFRS & Financial Reporting Update - Smythe LLP€¦ · & IFRS 7 Financial Instruments Disclosures re Offsetting rules 2. Amendment to IFRS 9 to delay effective date 3. Amendments

IFRS & Financial Reporting Update

Presented by: Diane McDonald, CPA, CA

© 2012 Smythe Ratcliffe LLP is a member firm of the PKF International Limited and PKF North America networks of legally independent member firms and does not accept any responsibility or liability for the actions or inactions on the part of any other individual member firm or firms. All rights reserved.

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IFRS: What’s New

• Issues in adoption so far

o What the Regulators have to say

o IFRS Discussion Group

o Industry Viewpoints

• New and revised standards

o Effective dates

o For 2012, 2013 and 2014 financial statements

o Projects in the pipeline



• Word is….

IFRS - Where Are We At?

“IFRS transition went well”



OSC Staff Notice 52-720

• Office of the Chief Accountant, Financial Reporting Bulletin, released February 2012

• Addresses following IFRS accounting issues: 1. Business combinations

• Method of acquisition accounting

• Step acquisitions

• Transactions outside business combinations

• Disclosures



OSC Staff Notice 52-720

• Issues Continued:

2. Common control business combinations

3. Impairment

4. Critical Judgements and Sources of Estimation Uncertainty

5. Going concern

6. Non-GAAP Measures and Additional GAAP Measures



• Released July 2012 in connection with continuous disclosure reviews through March 31, 2012

• Addresses the following additional IFRS accounting issues:

• Asset retirement obligations

• Classification of liabilities as current

• Business combination disclosures

• Flow through shares

CSA Staff Notice 51-337

7


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Regulator Focus 2013

Disclosure of critical judgements and sources of estimation uncertainty

Business acquisitions

Impairment of assets

Additional GAAP measures

Accounting policy disclosures

Going concern disclosures

Provisions

Fair value measurements

Debt classification as current liabilities

Statement of comprehensive income supplementary disclosures



Emerging Markets

• OSC Staff Notice 51-719, March 20, 2012

• Regulator definition based on characteristics:

• Mind and management largely outside of Canada and

• Principal operations outside of Canada; often located in Asia, Africa, South America and Eastern Europe



Emerging Markets

• 4 principle concerns:

• Level of issuer governance and disclosure

• Adequacy of audit function

• Adequacy of due diligence processes conducted by underwriters in offerings

• Nature of the exchange listing process



• OSC Staff Notice 51-720 released October 2012 to provide more guidance entitled:

Issuer Guide for Companies Operating in Emerging Markets

To access, go to:

http://www.osc.gov.on.ca/en/SecuritiesLaw_sn_20121109_51-720_issuer-guide.htm

Emerging Markets



IFRS Discussion Group

• Purpose

o Identify issues in IFRSs

o Discuss different views

o Recommend to AcSB whether to refer to IASB or IFRS Interpretations Committee

• 19 members meet 4 times per year

• Live audio webcasts archived & minutes of meetings available

To access, go to: http://www.frascanada.ca/international-financial-reporting-

standards/ifrs-discussion-group/item70347.aspx



• Wide range of topics discussed. Current topics

include:

• Share purchase warrants

• Denominated in other than functional currency

• Modifications

• Meaning of significant or prolonged decline in fair

value

• Impairment of Exploration & Evaluation (E&E)

assets if market capitalization is below their carrying

value

• Transitions issues on adoption of IFRS 10 and 11

IFRS Discussion Group



Industry Viewpoints - Mining

• CICA and Prospectors and Developer Association of Canada (PDAC) released non-authoritative guidance:

1)Functional currency

2)Flow-through shares

3)Phases of activities

4)Farm-out arrangements in the exploration and evaluation phase

5)Exploration and evaluation expenditures

6)Impairment of Exploration and Evaluation Assets

7)Commencement of commercial production

8)Depletion of a mine in the production phase

9)Asset acquisition versus Business Combination

To access, go to: http://www.cica.ca/applying-the-standards/financial-reporting/international-financial-reporting-standards/item71142.aspx



Asset Acquisition versus Business Combination

• Nothing to do with the legal form of the acquisition, i.e. share purchase vs. net assets

• A business combination is the acquisition of an integrated set of activities and assets capable of being conducted and managed for the purpose of providing a return

• So is the acquisition of a mining project a ‘business’?




Asset Acquisition versus Business Combination

• Consider:

o What inputs are you acquiring?

o What processes does the operation have?

o To what extent does the acquired mineral project have resources or reserves?

o At what stage is the project at in the life of mine?

o How significant are costs to move to next phase?

o Do you have permits for production?

o Can you access customers?




• Minimal new standards and few revisions

• Changes impacting 2012 reporting minimal

• But....2013 will be a significant year

IFRS – New and Revised



New & Revised IFRS

• Rate regulated entities adoption date deferred to January 1, 2014, but reporting issuers must obtain exemptive relief from Canadian Securities Regulators

• New Standard:

1. New IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine



New & Revised IFRS

• Revised Standards:

1. Amendments to IAS 32 Financial Instruments Presentation & IFRS 7 Financial Instruments Disclosures re Offsetting rules

2. Amendment to IFRS 9 to delay effective date

3. Amendments to IFRS 10, 11 and 12: Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transitional Guidance

4. Amendment to IFRS 10 with respect to Investment Companies

5. 2011 Annual Improvements to Various IFRS/IAS



Standard Title Effective Date

IFRS 7 (Rev’d) Financial Instrument: Disclosures – re transfers of assets

July 2011

IAS 12 (Rev’d)

Deferred Taxes – Investment Properties

January 2012

IAS 1 (Rev’d)

Presentation of Comprehensive Income

July 2012

IAS 19 (Rev’d) Employee Benefits January 2013

IFRS 10 Consolidated Financial Statements January 2013

IFRS 11 Joint Arrangements January 2013

IFRS 12 Disclosure of Interests in Other Entities

January 2013

IFRS: Effective Dates



Standard Title Effective Date

IFRS 13 Fair Value Measurement January 2013

IFRIC 20 Stripping Costs in the Production Phase of Surface Mine

January 2013

IFRS 7 (Rev’d)

Financial Instrument: Disclosures – re Offsetting

January 2013

IAS 32 (Rev’d)

Financial Instrument: Presentation re Offsetting

January 2014

IFRS 10 (Rev’d)

Consolidation – re Investment Entities

January 2014

IFRS 9 Financial Instruments January 2015

IFRS: Effective Dates



When are IFRS standards effective in Canada?

Effective Dates

Only when adopted by CICA Accounting Standards Board (AcSB)



• Revision to IFRS 7 Financial Instrument: Disclosures

oSupplemental disclosures if financial assets are transferred but not derecognized

oFor example: A/R are factored or securitized

• Revision to IAS 12 Deferred Taxes

oPresumption that temporary differences on investment properties and P/P&E recorded at fair value should be measured at a tax rate applicable upon sale

Effective for Calendar 2012






Amendment to IAS 1 – Presentation of Comprehensive Income

• Effective date: financial years beginning on or after July 1, 2012

• Transition: Prospective

• Impact:

• Require components of OCI to be grouped between • Items that will be recycled to P&L

• Those that will never go to P&L

• One or two statement presentation still allowed



Amendment to IAS 1 – Presentation of Comprehensive Income

Recycled OCI

• Gains/losses on cash flow hedges

• Foreign currency translation

• Fair value gains/losses on available-for-sale financial assets

Permanent OCI

• Revaluation gains on P/P&E

• Fair value gain or loss on equity instruments under IFRS 9 (if elected)

• Actuarial gains/losses on defined benefit pension plans



For the three months ended March 31, 2013 2012

Continuation of statement

Net loss for the period XXX XXX

Other comprehensive income:

Items that will not be reclassified to profit or loss:

Actuarial gain (loss) on defined benefit plans XXX XXX

Income tax relating to times that will not be reclassified XXX XXX

XXX XXX

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translating foreign operations XXX XXX

Income tax relating to times that may be reclassified XXX XXX

XXX XXX

Other comprehensive income for the period XXX XXX

Total comprehensive income for the period XXX XXX

Amendment to IAS 1 – Sample Presentation on a Statement of Comprehensive Income



Amendments to IAS 19 – Employee Benefits

• Effective date: financial years beginning January 1, 2013, with early adoption permitted

• Transition: Retrospective with minor exceptions

• Impact:

o Eliminates ‘corridor method’

o Deficits or surpluses in plans are ON balance sheet

o Streamlines presentation of assets and liabilities

o Re-measurements go to OCI

o Changes to termination benefits

o Enhanced disclosures



IFRS 10 - Consolidated Financial Statements

• Effective date: annual periods beginning January 1, 2013 o Earlier adoption permitted providing IFRS 11, 12 and revisions to IAS 27 and

28 adopted at same time

• Transition: Retrospective with new detailed guidance

• Impact:

o Replaces IAS 27 regarding consolidation and SIC-12

o Consolidation based on control instead of ‘risks and rewards’

o New definition of control: 1. Power over the investee 2. Exposure or rights to variable returns of the investee, AND 3. Ability to use power over the investee to affect the investors’

returns



December 31, 2012

December 31, 2013

IFRS 10 Initial Application Date

January 1, 2013 Initial

Application

Date

January 1, 2012

Apply IFRS

from date

control

obtained, if

practicable



Consider the following facts:

• Co. A holds 35% of the common shares of Co. B

• Co. A also holds convertible preference shares; if exercised Co. A would hold 45% of Co. B in aggregate

• Co. A has convertible warrants which if exercised would bring aggregate holding to 52%. However, cash required to exercise the warrants is not available.

Is Company A in control?

IFRS 10: Example 1

Co. A

Co. B

35% of

common

shares



Consider the following facts:

• Co. A and Co. B each hold 50% of the common shares of Co. C

• Co. A and Co. B are unrelated

• Co. C is not a joint arrangement because Co. A is unilaterally responsible for certain of Co. C’s operations and Co. B is unilaterally responsible for other operations.

Who is in control of Co. C?

IFRS 10: Example 2

Co. A

Co. C

50%

Co. B

50%



IFRS 11 Joint Arrangements

• Effective date: annual periods beginning January 1, 2013 o Earlier adoption permitted providing IFRS 10, 12 and revisions to IAS 27 and

28 adopted at same time

• Transition: Apply to beginning of earliest period presented, with new detailed guidance

• Impact:

o Classify as joint operation or joint venture

o Joint operation – recognize share of assets, liabilities, revenues and expenses

o Joint venture – account for as an equity investment under IAS 28



IFRS 11 Joint Arrangements

Joint Arrangements

Structured through a separate

entity

Joint Venture

Equity Account

Joint Operation

Proportionate Consolidation No separate

entity



• Consider the following facts:

• Co. A and Co. B form a limited partnership C LP to pursue an exploration project

• Each invest $10 million in the limited partnership (LP) in exchange for a 49.99% interest, and are entitled to 99.98% of distributions and 99.98 % of the net assets on liquidation

• Each invest a nominal amount of $1,000 to establish holding corporations holding the general partner (GP) interests which hold their common shares and have control of the exploration project

IFRS 11 Example



IFRS 11 Example Continued

GP A

Co. A (LP)

Co. B (LP)

GP B

C LP

.01% GP

interest .01% GP

interest

49.99%

LP

interest

49.99%

LP

interest

100% 100%

Is C LP a joint operation or a joint venture under IFRS 11?



IFRS 12 Disclosures of Interests in Other Entities

• Effective date: annual periods beginning January 1, 2013

o Early inclusion of disclosures encouraged

• Transition: Disclose for current year

• Impact:

o Applies to interests in subsidiaries, joint arrangements, associates or unconsolidated structured entities

o Specifies minimum disclosures – MANY MORE

o Focus – aid users in understanding the nature of and risks associated with interests in other entities



IFRS 13 Fair Value Measurements

• Effective date: annual periods beginning January 1, 2013 o Earlier adoption permitted

• Transition: Prospective

• Impact:

oAddresses how to measure fair value not when

oApplies to financial and non-financial items

oFV redefined as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants” • i.e. Exit price



• Adoption of IFRS 13 causes additional IAS 34 Interim Financial Reporting disclosures for each class of financial asset and financial liability, including

o Description of valuation techniques and inputs used to measure fair value

o Gains and losses recognized in profit and loss on level 3 recurring fair value measures

o Tabular format that allows comparison of fair value to carrying value

IFRS 13 Fair Value Measurements



• Effective date: annual periods beginning on or after January 1, 2013, early adoption permitted

• Transition: Apply to production costs incurred on or after beginning of earliest period presented

• Impact: • Applicable to stripping costs incurred in surface mining during

production

• Capitalize if a) Probable future economic benefit b) Costs can be measured reliably c) Component of ore body for which access has been

improved

IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine



• Effective date: annual periods beginning on or after January 1, 2013, early adoption permitted

• Impact:

o IFRS 1, First-time Adoption of International Financial Reporting Standards • Repeated application of IFRS 1

• Borrowing costs

o IAS 1, Presentation of Financial Statements • Note disclosure required only for comparatives

2011 Annual Improvements



• Impact Continued:

o IAS 16, Property, Plant and Equipment; classification of servicing equipment

o IAS 32, Financial Instruments: Presentation • Tax effect of equity instrument distributions

o IAS 34, Interim Financial Reporting • Reporting segment information for total assets and total liabilities

2011 Annual Improvements



• Annual and interim financial statements must include an opening statement of financial position whenever there has been a:

o Retrospective change in an accounting policy (including changes caused by adoption IFRS 10, 11, 13 and revisions to IAS 19 etc.)

o Retrospective restatement of items (i.e. correction of an error)

o Reclassification of items

Don’t forget….






• Effective date: annual periods beginning January 1, 2014

o Early adoption permitted

• Transition: Retrospective

• Impact: If you qualify as an investment company

oDo not consolidate investees

o Record all investees at FV

o FV changes recorded through P&L

Investment Companies



• IASB Work Plan:

• Continuing deliberations on IFRS 9

• Leases

• Revenue recognition

• Annual improvement projects

• Acceptable methods of depreciation

• Equity method – Share of other net assets

• Sale or contribution of assets between an investor and its associate or joint venture

• And more….

Future Changes Continue

Questions

Documents

IFRS & Financial Reporting Update - Smythe LLP€¦ · & IFRS 7 Financial Instruments Disclosures re Offsetting rules 2. Amendment to IFRS 9 to delay effective date 3. Amendments