New IFRS Standards and when they are going to become effective

20. February 2018

Dynamics in IFRS: You find the most important information concerning new IFRS Standards and the latest interpretations here.

In 2016 and the following years once more new or amended IFRS standards and interpretations became or are going to become effective. The endorsement process of the European Union often leads to significant delays after the publication by the IASB. Therefore the effective dates for new IFRS Standards of the European Union and the IASB may differ.

The following overview shows the effective dates of the new IFRS Standards for the ISAB and in the EU for 2016 and the following years (as at February 6, 2018). The endorsement status is available on the EFRAG (European Financial Reporting Advisory Group) website: http://www.efrag.org/Endorsement

Overview for new and revised IFRS Standards

The following overview shows the content of the new IFRS Standards. The Standards are structured according to the effective date in the EU and of the IASB. Furthermore we differ between new and revised standards:

1. IASB effective date for financial years beginning on or after 1.1.2016, EU effective date open

IFRS 14 Regulatory Deferral Accounts: IFRS 14 permits an entity which is a first-time adopter IFRS to continue to account for ‚regulatory deferral account balances‘ in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements. Regulatory deferral account balances, and movements in them, are presented separately in the statement of financial position and statement of profit or loss and other comprehensive income, and specific disclosures are required. The European Commission has decided not to launch the endorsement process for the interim standard IFRS 14 and to wait for the new standard “Rate-regulated Activities”.

2. EU effective date for financial years beginning on or after 1.1.2017

IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses: Unrealised losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument‘s holder expects to recover the carrying amount of the debt instrument by sale or by use. Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences.

IAS 7 Disclosure Initiative: The IASB requires that the following changes in liabilities arising from financing activities are disclosed:

  • changes from financing cash flows;
  • changes arising from obtaining or losing control of subsidiaries or other businesses;
  • the effect of changes in foreign exchange rates;
  • changes in fair values;
  • other changes.

One way to fulfil the disclosure requirement is by providing reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities.

3. IASB effective date for financial years beginning on or after 1.1.2017, no EU effective date

IFRS for SME: In May 2015 the IASB published a completely revised version of the IFRS for SMEs (predominantly additional clarifications and supporting guidelines). IFRS for SMEs is a stand-alone standard, which is designed for the accounting of entities without public accountability. Compared to full IFRSs the IFRS for SMEs is less complex and significantly fewer disclosures are required. IFRS for SMEs does not come under the regulation of IAS directive 1606/2002 and furthermore does not go in line with compulsory requirements of the new EU accounting directive 2013/34. Therefore IFRS for SMEs do not have legal consequences in the EU. The application possibilities are limited to voluntary IFRS consolidated/separate financial statements at the moment.

4. IASB effective date for financial years beginning on or after 1.1.2017, EU effective date open

Annual Improvements (2014-2016): IFRS 12 (Clarification of the scope of the disclosure of interests in other entities).

5. EU effective date for financial years beginning at or after 1.1.2018

IFRS 9 Financial Instruments: The Standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting of financial instruments. Under IFRS 9 financial assets will be classified in three groups: A financial asset shall be measured at “amortised cost” if it is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and according to the contractual terms on specified dates solely payments of principal and interest on the principal amount outstanding. If the objective is achieved by both collecting contractual cash flows and selling the financial assets financial asset shall be measured at “fair value through other comprehensive income”. All other financial assets shall be measured at “fair value through profit or loss”. Impairment losses must be based on expected losses for the first two categories.

Financial liabilities which meets the definition of “held for trading” have to be measured at “fair value through profit or loss”. All other financial liabilities normally shall be measured at “amortised cost”. The new model for hedge accounting focuses more on risk management.

IFRS 15 Revenues from Contracts with Customers: The new standard defines in a five-step model whether, at what amount and at which time revenues shall be recognised. IFRS 15 replaces IAS 11, IAS 18, IFRIC 13, 15 and 18 as well as SIC 31. IFRS 15 is applicable to the contracts with customers of all industries except for lease contracts, insurance contracts and financial instruments. In September 2015 IASB postponed the effective date of IFRS by one year (before 1.1.2017).

IFRS 15 Clarification to IFRS 15 Revenues from Contracts with Customers: The Transition Resource Group for Revenue Recognition (TRG) identified five topics for improvements and clarifications. Three identified topics (identifying performance obligations, principal versus agent considerations and licensing) have been clarified by the amendments and should facilitate the transition process.

IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts: The amendment addresses the temporary accounting consequences of the different effective dates of IFRS 9 (Financial Instruments) and the forthcoming new version of the insurance contracts standard. Entities have the option to defer the application of IFRS 9 until 2021 as temporary exemption (deferral approach) or to reclassify some of the income or expenses from designated financial assets from profit or loss to other comprehensive income (overlay approach).

The European Commission has decided to allow the insurance sector of a financial conglomerate to defer the application of IFRS 9 until 1.1.2021 under certain conditions.

6. IASB effective date for financial years beginning on or after 1.1.2018, EU effective date open

IFRIC 22 Foreign Currency Transactions and Advance Consideration: The interpretation provides requirements about which exchange rates to use in reporting foreign currency transactions when payment is made or received in advance.

Annual Improvements (2014-2016): IFRS 1 (Deletion of short-term exemptions for first-time adopters), IAS 28 (Fair value measurement of investments in associates and joint ventures).

IFRS 2 Classification and Measurement of Share-based Payment Transactions: The amendments clarify the following requests: accounting for cash-settled share-based payment transactions that include a performance condition; classification of share-based payment transactions with net settlement features; accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

IAS 40 Transfers of Investment Property: Clarification that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management’s intentions for the use of a property by itself does not constitute evidence of a change in use.

7. IASB effective date for financial years beginning on or after 1.1.2019, EU effective date open

IFRIC 23 Uncertainty over Income Tax Treatments: IFRIC 23 provides requirements that add to the requirements in IAS 12 by clarifying how to reflect the effects of uncertainty in accounting for income taxes. If the entity concludes that it is not probable that a particular tax treatment is accepted, the entity has to use the most likely amount or the expected value of the tax treatment when determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates.

Annual Improvements (2015-2017): IFRS 3 (business combinations) and IFRS 11 (accounting of interests in joint operations when joint control is obtained, in case of previously held interests), IAS 12 (tax consequences of dividends should be recognised in profit or loss, regardless of how the tax arises), IAS 23 (Clarifies which borrowings should (not) be used for calculation of the capitalisation rate)

IFRS 9 Prepayment Features with Negative Compensation: The amendment clarifies that all financial instruments with prepayment options – be it the party that chooses early termination receives or pays a reasonable compensation – be accounted for identically.

IAS 28 Long-term Interests in Associates and Joint Ventures: The amendment clarifies that IFRS 9 is applicable for long-term interests.

8. IASB effective date for financial years beginning on or after 1.1.2021, EU effective date open

IFRS 17 Insurance Contracts: IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure of insurance contracts. IFRS 17 represents the first global standard for the accounting for insurance contracts. The predecessor standard, which was issued in 2004 and always deemed an interim solution, allowed insurers to see previous accounting policies developed under national GAAP largely being grandfathered when transitioning to IFRS. With IFRS 17, coming into effect according to the IASB for financial years beginning on or after 1.1.2021, will mandate a current value measurement for insurance obligations and prohibit using legacy historical cost. An entity shall apply the standard retrospectively unless impracticable, in case entities have the option of using either the modified retrospective approach or the fair value approach.

 

TPA Newsletter February 2018_EN
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