Doc2-WGIII Guide 2009F
Doc2-WGIII Guide 2009F
CBSO DATABASES
Document nº 2
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III WORKING GROUP ON IFRS IMPACT AND CBSO DATABASES – DRESDEN, 29TH - 30TH OCTOBER 2009
CONTENTS
I. Introduction
II. Alternative accounting treatments in IFRS
III. Recent and foreseeable changes in IFRS
III.1. IASB legislation
III.2. Exposure drafts to become IFRS
IV. Assets valuation under IFRS
Annex 1. Standards, interpretations and exposure drafts from IASB currently in force
Annex 2. IASB projects
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I. INTRODUCTION
The Lisbon Summit of the European Council in 2000 established the necessity of a unique
set of accounting standards in the European Union, for the consolidated groups listed in a stock
market, from year 2005 onwards, with the goal of promoting the creation of a European integrated
capital market. The accounting standards chosen were those issued by the IASB (International
Accounting Standard Board): the International Financial Reporting Standards (IFRS, known until
2002 as International Accounting Standards – IAS) and the interpretations related to them (IFRI –
International Financial Reporting Interpretation - or SIC in their former acronym).
Besides, each Member State was conceded the power for the application of these standards
beyond the consolidated listed groups (that is to say, to consolidated unlisted groups and/or to
individual companies). Afterwards, the deadline was postponed until 2009 for those consolidated
groups which either have only debt securities admitted on a regulated market of any Member State,
or must prepare their financial statements under a foreign set of accounting standards, because their
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shares are listed in non-member State stock markets .
The adoption of IFRS meant a breaking point with the accounting rules and principles of
each Member State, as well as a first step into an effective harmonization throughout the EU.
The III Working Group on IFRS impact and CBSO databases has been monitoring the impact
of the implementation of IFRS in the previous years. To that purpose, the III WG has produced
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several documents, evaluating the impact of the implementation of IFRS in the CBSO databases .
This document aims to provide some basic information concerning some of the points already
mentioned in this introduction, with the target of becoming a quick guidebook to IFRS. On that
purpose, the following point enumerates the alternative accounting treatments allowed by IFRS
(which introduce a certain degree of heterogeneity in them). Section III focuses on the changes and
amendments of IFRS as well as other relevant IASB’s projects. Lastly, the main valuation rules of
assets are disclosed in a table (chapter IV). The document ends up with two annexes: annex 1
contains a list of the standards and interpretations issued by the IASB and their current approval
situation within the EU legal framework; whereas annex 2 discloses a timetable of the projects the
IASB is involved in.
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In year 2006, the exemption included in article 9 of the Regulation (EC) No 1606/2002 of the European Parliament and of
the Council of 19 July 2002 on the application of international accounting standards was extended two additional years.
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Topics covered by the above mentioned documents are, among others, the current situation of the implementation of
IFRS in each country, a description and a comparison of the main characteristics of the databases, the elaboration of IFRS-
compliant standard formats in XBRL and yearly analysis of its changes derived from the issuance of new standards, and,
finally, the use of real cases to test these formats and to tentatively assess the impact of IFRS in European listed groups.
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One of the areas of greatest conflict in the process of adoption of IFRS relates to those
accounting treatments which give the option of choosing between two alternatives. This is perhaps
still the most controversial aspect of IFRS, although the IASB has been working since 2003 in order
to reduce these alternatives, since they provide a significant margin of discretion to preparers of
financial statements, with the danger it entails.
Calculation of the cost of inventory using the FIFO or weighted average cost formulae,
IAS 2.
Accounting for non-monetary government grants received at the fair value of the assets
received or at nominal value, IAS 20.
For a business combination (IFRS 3) where the acquirer achieves control without
acquiring 100% of the voting rights of the equity, the remaining (non-controlling) equity
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In addition to these alternative accounting treatments, IFRS also envisage different options
for the presentation of the financial statements. Income statement can be defined by function or
by nature (IAS 1) and the cash flow statement may be presented using the direct or the indirect
method (IAS 7). These alternatives even exist for the balance sheet, since IAS 1 allows the items to
be presented according to the current – non-current definitions or else according to their liquidity,
though this last criterion should, in theory, be rarely used, only when the current – non-current
criterion is less reliable.
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The equity method remains as the only consolidation method allowed in ED 9, which is expected to replace IAS 31 by the
end of 2009.
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Following the financial turmoil in late 2008, the IASB modified the conditions for the
reclassification of financial assets between the different categories defined by IAS 39. Besides, the
related disclosures in IFRS 7 were enlarged as well. The revised accounting treatment came into
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st
force from 1 July 2008 onwards .
As a consequence of all the amendments to IFRS 1 after its issue, the IASB published a
“clean version” of it in November 2008, which is easier to read and whose structure is ready for future
amendments derived from new IFRS. The content of the standard itself did not change as a
consequence of this.
This interpretation deals with the accounting treatment of dividends payable to the
shareholders of the entity, when they are not paid in cash, but via distribution of other assets. That
dividend payable must be measured at the fair value of the assets to be distributed, recognizing any
difference with the amounts finally paid directly in profit or loss.
The main objective of this interpretation is to clarify the way to account for those items of
property, plant and equipment that an entity receives from its customers, focusing on the initial
recognition of the item, the way to account for the resulting credit once the item is received and the
recognition of the revenue involved in the operation.
The objective of these amendments is to clarify that when a financial asset is reclassified out of the
“at fair value through profit or loss” category, all the embedded derivates attached to it must be
considered and, if needed, separately accounted for.
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Another amendment was subsequently issued clarifying the date when these amendments entered into force.
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Through these amendments, the disclosures in IFRS 7 on liquidity risk and fair value
measurement are enhanced. According to it, fair value measurements are classified in a three-level
hierarchy depending on the way fair value is calculated (generally speaking, directly from the market,
indirectly from the market or through estimations and models).
In April 2009, the IASB issued the whole set of amendments to IFRS arisen from the annual
improvement process, affecting twelve IFRS. These amendments are deemed not significant enough
as to be separately published via an exposure draft.
This paper specifies that the definition of “group” in IAS 27 shall be used when applying IFRS
2 (that is to say, only the parent entity and its subsidiaries shall be considered) and that IFRS 2 must
be applied regardless of the entity of the group which effectively settle the transaction, via equity or
via cash. These amendments implied the withdrawal of IFRIC 8 and IFRIC 11.
After more than five years of work, the IASB published in July 2009 IFRS for SME,
understood as a stand-alone set of accounting standards tailored for small and medium-sized
entities. The main accounting treatments in IFRS are kept, although those transactions rarely found
in SME (such as segment reporting) are not considered in the text. Some simplifications have been
developed regarding, among others, the valuation of property, plant and equipment (only cost is
allowed as valuation method), the valuation of intangible assets (only cost is allowed as valuation
method), the impairment of goodwill (goodwill must be amortized not yearly tested for impairment),
the recognition of income taxes and the accounting for financial instruments.
These amendments to IAS 32 refer to rights, options and warrants (that is to say, those
instruments which give the holder the right to acquire an entity’s own equity instruments at a fixed
price) issued by the entity, which must be classified as equity instruments if some conditions are met.
Two amendments to currently existing interpretations were issued during 2009, regarding
minor corrections to IFRIC 9 (after issue of revised IFRS 3) and IFRIC 16, and prepayments of
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minimum funding requirements (IFRIC 14). In August 2009 the exposure draft D25 Extinguishing
financial liabilities with equity instruments was issued.
IASB is currently involved in a number of parallel projects, which would give rise to a
significant amount of new standards in the following years. One of the most relevant refers to the
revision of IAS 39, which is being developed under strong time constraints in the framework of the
financial turmoil. An exposure draft on derecognition was issued in March 2009, which was followed
by a request for information on the expected loss model (expected to be used in the impairment of
financial assets) in June 2009 and by an exposure draft on classification and measurement of
financial instruments in July 2009. As shown in annex 2, further exposure drafts on this topic will
follow in the remaining months of 2009.
The revision of the conceptual framework of IFRS, one of the joint projects with FASB, started
in 2004. The project was initially divided in 8 phases, with some documents already issued:
Exposure draft on objective and qualitative characteristics of financial statements (phase A),
which are expected to become chapters of the revised framework in late 2009.
Discussion paper on the reporting entity (phase D), with the exposure draft being issued in
the second half of 2009.
Regarding the project on financial statements presentation, the first phase was already
completed in previous years. In its second phase, a discussion paper on presentation of financial
statements was issued in October 2008, to which the III WG submitted a comment letter. The next
step of this project involves the publication of an exposure draft in the first half of 2010.
During 2009, some exposure drafts and discussion paper were issued, within the scope of
different projects currently being carried out by the IASB. They are the following:
Exposure draft on consolidation (December 2008), which will give rise to a new standard
before the end of 2009.
Discussion paper on revenue recognition (December 2008), focused on the theoretical
approach to the recognition of revenue.
Exposure draft on income taxes (March 2009), aiming at simplifying and reordering the
current treatment in IAS 12.
Discussion paper on leases (March 2009), which is the first step towards further
harmonization with US-GAAP in what the accounting for of leases is concerned.
Exposure draft on fair value measurement (May 2009), with the final standard expected for
the first half of 2010.
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III WORKING GROUP ON IFRS IMPACT AND CBSO DATABASES – DRESDEN, 29TH - 30TH OCTOBER 2009
Another exposure draft of lesser importance issued during 2009 covers the amendments to
IFRS 1 regarding its transitional provisions and the annual improvements to IFRS (issued in August
2009).
Besides, the IASB is currently working with the comments received to their exposure drafts
issued in previous years. This is the case of the project on joint ventures (whose exposure draft was
issued in September 2007), on earnings per share (with the exposure draft issued in August 2008)
and on the amendments to IFRS 5 (issued as an exposure draft on September 2008).
In 2009 and in early 2010, some long-term projects will move towards their next phase,
implying the issue of an exposure draft; this is the case of the projects on financial instruments with
characteristics of equity, on post-employment benefits and on insurance contracts.
Lastly, the final standards on non-financial liabilities (revision of IAS 37) and on related parties
disclosures (revision of IAS 24) will be issued before the end of 2009.
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III WORKING GROUP ON IFRS IMPACT AND CBSO DATABASES – DRESDEN, 29TH - 30TH OCTOBER 2009
The table below discloses the valuation methods of the main categories of assets allowed by
IFRS:
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IAS 39 also allows valuation of every financial asset (with some minor restrictions) at fair value, with fair value changes recognized in income statement.
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The following charts list the International Financial Reporting Standards (IFRS), the
International Accounting Standards (IAS) and the related interpretations currently in force and issued
by IASB, as well as the exposure drafts issued in the previous years.
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III WORKING GROUP ON IFRS IMPACT AND CBSO DATABASES – DRESDEN, 29TH - 30TH OCTOBER 2009
Concerning Standards
Concerning interpretations
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ANNEX 2. IASB PROJECTS
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The information in this table is based on http://www.iasb.org/Current+Projects/IASB+Projects/IASB+Work+Plan.htm
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Final
Phase C: Measurement DP ED
chapter
Final
Phase D: Reporting entity ED
chapter
Legend:
ED = Exposure Draft DP = Discussion Paper
RT = Roundtables CG = Completed Guidance
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III WORKING GROUP ON IFRS IMPACT AND CBSO DATABASES – DRESDEN, 29TH - 30TH OCTOBER 2009
Document Management
Doc2 -
24/07/2009 Members of the III WG
WGIII_guide_2009D1
Doc2 -
24/09/2009 Members of the III WG
WGIII_guide_2009D2
Doc2 - Members of the III WG
15/10/2009
WGIII_guide_2009F Members of the ECCBSO
Version management
Key dates: For each final version of the document, key dates for the national revisions or
corrections
Name and date of revised document send by each member
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