IFRS overview and key points
International Financial Reporting Standards (IFRS) are continually changing. This technical update is designed to help ensure that finance teams are aware of those changes, allowing them to consider the impact that they may have on their company.
The summary section provides an overview of the key action points to be aware of and the following sections provide an overview of the coming changes.
Crowe view and summary
Changes to accounting standards in the next couple of years are relatively minor, however this is very much the 'calm before the storm' with the introduction of IFRS 9, IFRS 15 for the years commencing on or after 1 January 2018 and IFRS 16 for years commencing on or after 1 January 2019.
Key action points
- Consider the new standards and interpretations coming into effect for the years commencing 1 January 2016. Particular actions are:
- Review the impact of the disclosure initiative changes to IAS 1 and whether this results in immaterial information being removed from the financial statements.
- For entities in the agriculture industry assess whether the changing requirements for bearer plants require you to reassess the carrying value of these assets.
- Review IFRS 9 Financial Instruments and consider whether the standard will impact the measurement of financial instruments.
- Assess the impact of IFRS 15 Revenue from Contracts with Customers. The requirement to identify separate performance obligations within contracts and allocate the overall contract price to those obligations may require changes to information systems and businesses may wish to review their contractual terms in light of the requirements of the standard.
- IFRS 16 Leases will impact the balance sheets of all entities with operating leases. For entities with a large number of leases information will need to be captured to enable the leases to be valued and recognised on balance sheet. Boards may also wish to consider the impact of the standard when making decisions about whether to lease or buy assets.
- IFRS requires entities to disclose any material impact of standards issued but not yet adopted. Boards should consider whether any disclosures need to be made in the next set of financial statements.
New standards and interpretations effective for years commencing on or after
1 January 2016
Confirms that when an entity acquires an interest in a joint operation which constitutes a business (as defined by IFRS 3) the entity shall apply the principles on business combinations accounting in IFRS 3.
Enhanced guidance on the application of materiality, stating that materiality considerations apply to all parts of the financial statements and that even when a standard requires a disclosure materiality considerations apply. The amendment also states that material information should not be obscured by aggregating or by providing immaterial information.An entity's share of Other Comprehensive Income of equity accounted associates and joint ventures should be presented in aggregate as a single line item based on whether or not it will subsequently be reclassified to profit or loss.
The amendment also stresses that understandability and comparability should be considered when determining the order of the notes and that these need not be presented in the order listed in the standard.
Separates the accounting of bearer plants (measured at cost or revaluation in accordance with IAS 16) from the accounting for the agricultural produce (measured at fair value in accordance with IAS 41).
Allows the use of the equity method in separate financial statements to account for investments in subsidiaries, associates and joint ventures.
- IFRS 5 – provides guidance on the reclassification of an asset, or disposal group, from being held for sale to being held for distribution to owners
- IFRS 7 – greater guidance given on servicing contracts and clarification that amendments do not create disclosure requirements for interim financial statements except as otherwise required by IAS 34
- IAS 19 – for determining discount rates the reference to countries when determining whether there is a deep market in high quality corporate bonds is replaced with a reference to currency. If government bond rates are used these should be denominated in the same currency as the defined benefit obligation
- IAS 34 – clarifies the meaning of disclosure of information ‘elsewhere in the interim financial report’ as being when information is available to users on the same terms and at the same time.
- the exemption is also available to intermediate parent entities
- an investment entity parent should consolidate a subsidiary whose main purpose is to provide investment services to the parent (unless the subsidiary is itself an investment entity)
- when applying the equity method to an associate or joint venture a non-investment entity investor in an investment entity may retain the fair value measurement applied by the associate or joint venture to its interests in subsidiaries.
Standards endorsed effective for future periods
- IFRS 9 Financial Instruments
Effective date: years commencing on or after 1 January 2018.
Replacing IAS 39 this standard introduces a more principles based approach to determining the classification of financial instruments. The standard also introduces an expected loss model for impairments of financial assets and simplifies hedge accounting. All entities will need to assess the impact of the standard carefully and may well need to recognise bad debt provisions earlier than at present.
- IFRS 15 Revenue from Contracts with Customers
Effective date: years commencing on or after 1 January 2018.
A comprehensive revenue recognition standard that introduces a five step approach for the recognition of revenue, under IFRS 15 revenue will be recognised when identifiable performance obligations have been met. The standard is likely to change revenue recognition for many entities, especially those engaged in long term contracts with customers.
