IFRS NEWS JANUARY 2019 - PWC
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
www.inform.pwc.com
IFRS news
January 2019
The FRC has made it clear that it
Accounting expects entities to disclose
implications of the information about the specific and
direct challenges to their business
UK’s Brexit decision model and operations, as distinct
for December 2018 from information about broader
This month's issues:
period ends economic uncertainties. Where
there are particular threats, for
• Accounting implications of the
The UK is due to leave the example the possible effect of
UK’s Brexit decision for
European Union on 29 March changes in import/export taxes or
December 2018 period ends
2019. As the UK continues to delays to their supply chain, the
• Hyper-inflationary economies
negotiate its exit, UK businesses FRC expects entities to identify
at 31 December 2018 - PwC In
should be considering how this these clearly and for management
brief
new political landscape will impact to describe any actions they are
• No let-up: Why insurers can’t
their organisations. Irrespective of taking, or have taken, to manage
afford to lose sight of IFRS 9
the outcome of the negotiations, the potential impact. The broad
• Word on the Wharf?
whether that be with or without a uncertainties that may still attach
deal, there will likely be significant to Brexit when companies report
changes for many UK businesses. will require disclosure of sufficient
But this is not just a concern for information to help users
For more information or to UK businesses, Brexit might also understand the degree of
subscribe, contact us at impact overseas entities doing sensitivity of assets and liabilities
pwc.ifrsnews@uk.pwc.com business with the UK, as well as to changes in management’s
groups with substantial UK assumptions.
operations.
Subsequent events
For some businesses, the shape of
the UK’s future relationship with Careful analysis is required to
the EU remains too uncertain to identify whether the impact of
take action. events that occur between the year
end and the date of signing the
However, in our view, by now financial statements would require
management should have either an adjustment to the
identified and assessed the Brexit- amounts recognised at period end
related risks that apply to their or disclosure only, or whether the
business and should be considering ability of the entity to continue as a
the impact on accounting and going concern is called into
reporting. In particular, we believe question.
this would include:
Impairments and valuations
Disclosures
Valuations, measurements and
Detailed and entity specific recoverable amount calculations
disclosure of the Brexit-related that use market inputs should
risks should be made in the reflect market data at the balance
accounts to explain the judgements sheet date. If valuation techniques
taken, assumptions made and the and estimates are applied, cash
impact on the entity’s operations. flow models for impairment testing
will likely require a wider range of
outcomes than usual to reflect a
broad spectrum of possible Brexit
scenarios.
PwC | IFRS news | 1Restructuring Directors duties and Some of the main areas that could
dividends be impacted by Brexit include tax
Some entities have already or are on rolled-over gains from certain
considering reorganising their Directors need to consider, apart previous reorganisations,
business in preparation for a from statutory duties, their withholding taxes on certain
potential Brexit. It is unlikely fiduciary duties to safeguard the dividends and measurement of
that contemplated restructuring company’s assets and ensure that deferred tax assets.
will have an immediate impact the company is able to pay its
on the financial statements at, debts as they fall due. This would Interim reporting
say, 31 December 2018. be relevant when deciding on
However, plans over time could dividend payments during 2019 as Entities need to consider the
result in an Brexit might affect the company’s extent to which additional
impairment/disposals of assets, financial position. disclosures are necessary in any
recognition of provisions or interim report, to explain changes
changes to segments and Tax since the last annual report.
disclosure.
The withdrawal agreement and See our detailed In depth for
In addition, the accounting for any new trade agreement, when further information.
group restructurings in separate finalised, could result in
accounts can be complex, in significant changes to the tax law We will continue to update our
particular, for the individual that applies to UK and EU financial reporting guidance as the
entity receiving a business in a companies. full impact of Brexit develops.
common control transaction.
Hyper-inflationary economies at 31 December 2018 - PwC In brief
Issue
• Angola; Local inflation data is consistent
• Argentina; with the IMF projections for
IAS 29, ‘Financial reporting in
• South Sudan; 2018. The qualitative indicators
hyper-inflationary economies’
• Sudan; are mixed, but they also suggest
requires entities to apply the
• Syrian Arab Republic; and that Angola is hyper-inflationary.
standard from the beginning of
• Venezuela. Entities with the currency of
the period in which the existence
Angola as their functional
of hyper-inflation is identified.
The following economies are not currency should continue to
This document presents the
hyper-inflationary in 2018, but apply IAS 29 in 2018.
countries that are hyper-
should be kept under review in
inflationary at 31 December
2019: Argentina
2018, and those that are not
expected to be hyper-inflationary
• Democratic Republic of the Inflation in Argentina has been
at that date but that should be
Congo; high for several years, and local
kept under review in 2019. The
• Iran; inflation data has not been
quantitative data referred to in
• Libya; and reported consistently. Inflation
this document is based on
• Suriname. increased significantly in 2018.
International Monetary Fund
The three-year cumulative
data (World Economic Outlook
Other potentially hyper- inflation rate, using different
database– October 2018).
inflationary combinations of retail price
economies: indices, exceeded 100% during
Impact
the first half of 2018. Local
• Yemen. forecasts also suggest that three-
IAS 29 should be applied in 2018
year cumulative retail price
to entities with a functional
Insight inflation at the end of 2018 will
currency of the countries listed
be above 100%. Three-year
below:
Hyper-inflationary economies cumulative inflation using the
wholesale price index has also
Angola exceeded 100%, and it is unlikely
to fall significantly below 100%
Angola was classified as a hyper- in 2019.
inflationary economy at the end
of 2017. IMF data shows that the
three-year cumulative inflation
PwC | IFRS news | 2
rate is expected to remain above
100% in 2018.The qualitative indicators are which requires the financial Syrian Arab Republic
still mixed; however, taking into statements of a subsidiary entity
account the developments in the that has the functional currency of There is no reliable inflation data
country, including the a hyper-inflationary economy to for the Syrian economy. However,
devaluation of the currency, they be restated in accordance with IAS the situation in this country has
do not contradict the conclusion 29 before being included in the not changed from last year.
that Argentina is now a hyper- consolidated financial statements. European Union and United
inflationary economy for Comparative amounts presented Nations trade sanctions remain in
accounting purposes. previously in a stable currency are force. The information that is
not restated. available suggests that Syria
Argentina should be considered a For further details about the initial remains a hyper-inflationary
hyper-inflationary economy for application of IAS 29, please refer economy in 2018. Entities with the
accounting periods ending after 1 to 'PwC In depth INT2018-12 – currency of Syria as their
July 2018. Therefore, IAS 29 IAS 29 becomes applicable in functional currency should
should be applied by all entities Argentina’. continue to apply IAS 29 in 2018.
with a functional currency of the
Argentine peso from that date, South Sudan Venezuela
and it should be applied as if the
economy had always been hyper- IMF data shows that the three- Venezuela became hyper-
inflationary. year cumulative inflation rate is inflationary in 2009. IMF data
expected to significantly exceed shows that the three-year
IAS 29 requires financial 100% at 31 December 2018 and is cumulative inflation rate is
statements of an entity whose expected to remain significantly expected to significantly exceed
functional currency is the above that threshold in future 100% at 31 December 2018 and is
currency of a hyper-inflationary years. South Sudan continues to also expected to increase in future
country to be restated into the be a hyper-inflationary economy years. Venezuela remains a hyper-
current purchasing power at the in 2018. Entities with the currency inflationary economy in 2018.
end of the reporting period. of South Sudan as their functional Entities with the currency of
Therefore, transactions in 2018 currency should continue to apply Venezuela as their functional
and non-monetary balances at IAS 29 in 2018. currency should continue to apply
the end of the period should be IAS 29 in 2018.
restated to reflect a price index Sudan
that is current at the balance Watch list for 2019
sheet date. Sudan became a hyper-
inflationary economy in 2013. In Democratic Republic of the Congo
The comparatives and the 2016, it ceased to be hyper-
opening statement of financial inflationary, because the three- IMF data shows that there was a
position at the beginning of the year cumulative inflation rate at significant increase in the
earliest period presented should the end of that year was below expected three-year cumulative
also be restated to reflect a price 100% and was forecast to remain inflation rate for 2018, and that
index that is current at the below 100%. Based on IMF data cumulative inflation might exceed
balance sheet date. Entities are for 2018, the three-year 100% by the end of 2018.
not required to present an cumulative inflation rate has However, recent local data from
additional balance sheet as at the increased significantly and is the Central Bank and the National
beginning of the preceding expected to be above 100% in Statistics Institute indicates an
period. 2018, and to remain above that expected cumulative inflation rate
threshold in 2019. Therefore, IAS below 100% at 31 December 2018.
Multinational companies that 29 should be applied by all entities The inconsistent data suggests
have subsidiaries with a hyper- with the currency of Sudan as their that entities with the currency of
inflationary currency as their functional currency in 2018, and it Democratic Republic of the Congo
functional currency should should be applied as if the as their functional currency
consider paragraph 43 of IAS 21, economy had always been hyper- should not apply IAS 29 in 2018.
inflationary. For further details Such entities should monitor
about the initial application of IAS inflation during 2019.
29, please refer to the section
about Argentina above.
PwC | IFRS news | 3Iran Suriname Other potentially hyper-
inflationary economies
IMF data shows that the three- IMF data shows that the three-
year cumulative inflation rate for year cumulative inflation rate is Yemen
2018 is below 100%, but there below 100% at 31 December 2018.
was a significant increase when Local inflation data does not show IMF data shows that the three-
compared to the same index for recent high levels of inflation. year cumulative inflation rate is
2017. Entities with the currency Entities with the currency of close to 100%. Local data also
of Iran as their functional Suriname as their functional shows a cumulative inflation rate
currency should not apply IAS 29 currency should cease to apply IAS below 100%. There is currently
in 2018. Such entities should 29 in 2018. Such entities should not enough information to
monitor inflation during 2019. monitor inflation during 2019. determine whether Yemen has
become a hyper-inflationary
Libya Paragraph 38 of IAS 29 states that economy. Entities with the
the amounts in the financial currency of Yemen as their
IMF data shows that the three- statements as at the end of the functional currency should
year cumulative inflation rate is previous reporting period are monitor developments in inflation
slightly above 100%, but it is considered as the carrying at the end of 2018 and during
expected to decrease in 2019. amounts for the subsequent 2019.
Local data suggests that financial statements. That is, the
cumulative inflation is lower restated amounts are the cost
than the IMF estimates. The bases of the non-monetary items
inconsistent data suggests that in subsequent financial
entities with the currency of statements.
Libya as their functional
currency should not apply IAS 29
in 2018. Such entities should
monitor inflation during 2019.
No let-up: Why insurers can’t afford to lose sight of IFRS 9
The new accounting rules for Imminent disclosure You can’t assume that
insurers who have already requirements classification and measurement
elected to defer changes to will be the same as IAS 39 - the
their financial instruments The immediate challenge is the new business model criteria can
accounting by 3 years, may IFRS 9 deferral disclosures that produce some surprising results. If
have been delayed by an need to be incorporated within you currently hold available-for-
additional year, but they’ve not your upcoming 2018 financial sale or held to maturity
gone away. With so much to do statements. investments, you also face the
and so many complex hurdles challenge of testing a large number
to overcome, to stand still is to Whilst relatively brief, the of financial instruments to check
fall behind. disclosures may require a whether they’re SPPI-compliant or
Most market attention has considerable amount of not – how can you make that
focused on the extension of the background work, depending on process more manageable?
deadline for the IFRS 17 your existing financial asset mix.
Insurance Contracts standard, This includes your justification for Balancing volatility and
however the parallel deferral of applying the temporary exemption operational complexity
IFRS 9 Financial Instruments to IFRS 9.
for insurers also comes with Other tricky elements include As you gear up for going live in
significant pitfalls but also reporting fair value information 2022, key hurdles include
opportunities. separately for financial assets that determining the most appropriate
meet the Solely Payments of classification of financial
So why is it vital not to lose Principal and Interest (SPPI) instruments and calculating the
sight of IFRS 9? Given the contractual cash flow test and new expected credit loss
importance of matching assets those that will be measured at fair impairment requirements.
and liabilities, preparations for value through profit or loss
IFRS 17 and IFRS 9 should be (FVTPL).
as closely aligned as possible –
the IASB’s decision to put both
accounting standards back to
2022 recognises this.
PwC | IFRS news | 4The desire to minimise accounting For example, the Other Bringing implementation together
mismatches may require you to go Comprehensive Income (OCI) option could also provide an important
through all your financial assets to under IFRS 17 can reduce volatility in foundation for any finance
gauge the business model the profit or loss where financial assets transformation. The potential
financial instrument is held in, the are measured at fair value through benefits include a faster period end
cash flow criteria of the instrument OCI under IFRS 9. However, this close process, real-time performance
and how this tallies with the option can greatly increase the data and differentiating insights into
corresponding insurance liabilities. operational complexity of preparing commercial threats and
Specifically, it should be noted that financial statements, due to the need opportunities.
debt instruments that fail the SPPI to calculate impairment on the
criteria and most equity instruments investment portfolio and complete So how much alignment in the
are now expected to be measured at SPPI testing on purchases. implementation of IFRS 9 and IFRS
FVTPL, including puttable 17 are we seeing? Surprisingly little
instruments on mutual funds. Making the most of the benefits given both the matching challenges
and potential advantages. It would
Key considerations don’t just include The good news is that close appear that the original deadlines
the asset-liability management alignment between IFRS 9 and IFRS may have led to a siloed ‘needs-must’
(ALM) and the income statement 17 can help to improve the quality approach. Therefore, one of the key
implications of the accounting and efficiency of financial reporting. benefits of the extra year to prepare
option, but also how much work is This includes opportunities to is bringing the two accounting
required. streamline the chart of accounts and challenges together and moving
data collection, data storage and data forward on one front.
dictionary solutions.
Look out for PwC’s report on what
IFRS 9 means for insurers of the
future, which we’ll be launching early
in 2019.
PwC | IFRS news | 5Word on the Wharf?
The December 2018 IASB update has been published and the work plan updated.
The topics, in order of discussion, were:
• Insurance Contracts
• Updating a Reference to the Conceptual Framework (Amendments to IFRS 3)
• Provisions
• Dynamic Risk Management
• Business Combinations under Common Control
• Primary Financial Statements
• Research Programme
• Pension Benefits
• IBOR Reform and its Effects on Financial Reporting
• Rate-regulated Activities
• Disclosure Initiative: Accounting Policies
• Implementation matters—Accounting Policy Changes
Pre-order now:
Manual of accounting - IFRS 2019
(Two-volume set)
Key updates includes:
• Amendments to IAS 19, ‘Employee benefits’
- Plan amendments , curtailment or settlement
• Annual improvements 2015 – 2017
• Amendments to IFRS 9, ‘Financial instruments’
- Prepayment features with negative compensation
• Amendments to IAS 28, 'Investments in associates'
-Long term interests in associates and joint ventures
• Revised conceptual framework issued in March 2018
For more information visit www.pwc.com/manual
PwC | IFRS news | 6Contacts Revenue recognition, liabilities and other areas E: Tony.m.debell@pwc.com E: katie.woods@pwc.com T: +44 (0) 20 7213 5336 T: + 44 (0) 20 7804 6238 Financial instruments and financial services E: sandra.j.thompson@pwc.com T: +44 (0) 20 7212 5697 Business combinations and adoption of IFRS E: lawrence.dodyk@pwc.com E: joshua.l.contant@pwc.com T: +1 973 236 7213 T: +1 973 236 7261 IFRS news editor E: sarah.troughton@pwc.com T: +44 (0) 20 78042746 This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. © 2018 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the UK member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.com/structure for further details. 180126-165332-KR-OS
You can also read
