IFRS 16 Leases is now effective for annual reporting periods starting on or after 1 January 2019. It replaces IAS 17 Leases and related Interpretations.
IFRS INTERPRETATIONS COMMITTEE (IC) LATEST DECISIONS SUMMARY
The following is a summarised update on the main discussions taken by the IC at its meeting on 16 January 2019.
For more detailed and comprehensive information on the IC’s discussions see: https://www.ifrs.org/news-and-events/updates/ifric-updates/january-2019/
The following four tentative agenda decisions are finalized. The Committee concluded that the principles and requirements in IFRS provide an adequate basis for these matters. Consequently, the Committee decided not to add these matters to its standard-setting agenda.
- IAS 37 Provisions, Contingent Liabilities and Contingent Assets: the Committee concluded that a deposit relating to taxes that are outside the scope of IAS 12 Income Taxes, made by an entity to a tax authority in relation to a tax dispute, is an asset as the right arising from the tax deposit meets the definitions of an asset in the Conceptual Framework for Financial Reporting.
- IFRS 15 Revenue from Contracts with Customers: the Committee concluded that non-refundable upfront fees upon initially listing an entity to a stock exchange do not constitute the transfer of a good or service to the customer under IFRS 15. In addition, ongoing listing fees both relate to the service of being listed on the exchange as the activities undertaken at or near contract inception are necessary to fulfil the contract does not result in the transfer a separate service to the customer.
- IAS 27 Separate Financial Statements: the Committee concluded that:
- when an entity loses control of a subsidiary as a result of disposing of part of its investment, the retained interest is eligible for the IFRS 9 election to present subsequent changes in fair value in other comprehensive income. The presentation election would be made at the date that IFRS 9 was first applied to the retained interest, being the date that control was lost. Furthermore, any difference between the cost of the retained interest and its fair value on the date of disposal is presented in profit or loss under IAS 1, regardless of the subsequent fair value recognition model used.
- in a step acquisition from IFRS 9 investment to subsidiary, an entity can determine the cost of its investment in the subsidiary as either the sum of the fair value of the initial interest at the date of obtaining control plus any consideration paid for additional interest (fair value as deemed cost approach) or the sum of the consideration paid the initial interest and the additional interest (accumulated cost approach). Any difference between the fair value of the initial interest and the consideration paid for that interest is recognized in profit or loss at the date of obtaining control regardless of whether the interest was measured at FVTPL or FVOCI under IFRS 9 before obtaining control.
Furthermore, where the accumulated cost approach is applied, any difference between the fair value of and consideration for the initial interest is recognized in profit and loss under IAS 1, at the date of obtaining control.
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB) LATEST DECISIONS SUMMARY
The following is a summarised update of the main discussions and tentative decisions taken by the IASB at its meeting on 23 January 2019.
For more details and comprehensive information on the IASB’s discussion see: https://www.ifrs.org/news-and-events/updates/iasb-updates/january-2019/
IFRS 17 Insurance Contracts
The Board tentatively decided to amend to IFRS 17 relating to the follows topics:
Insurance Acquisition Cash Flows for Renewals outside the Contract Boundary
- Entities are required to:
- allocate to any expected contract renewals their related part of the insurance acquisition cash flows directly attributable to newly issued contracts;
- recognise the insurance acquisition cash flows allocated to expected contract renewals as assets applying paragraph 27 of IFRS 17 until the renewed contracts are recognized;
- assess the recoverability of any asset recognised applying paragraph 27 of IFRS 17 each period before the related contracts are recognised;
- recognise a loss in profit or loss for any unrecoverable carrying amounts of the asset recognised by applying paragraph 27 of IFRS 17; and
- recognise in profit or loss the reversal of some or all of any such loss previously recognised when the impairment conditions no longer exist or have improved.
Reinsurance Contracts Held
- IFRS 17 will be amended to:
- expand the scope of the exception in paragraph 66 (c)(ii) of IFRS 17 to require an entity to recognise a gain in profit or loss when the entity recognises losses on onerous underlying insurance contracts, to the extent that a reinsurance contract held covers the losses of each contract on a proportionate basis; and
- require an entity to apply the expanded exception when the entity measures contracts applying the premium allocation approach (PAA).
- The Board also tentatively decided to expand the scope of the risk mitigation exception for insurance contracts with direct participation features in paragraph B115 of IFRS 17 so that the exception would apply when entities use a derivative or a reinsurance contract held to mitigate financial risk, to the extent that the entity meets the conditions in paragraph B116 of IFRS 17.
Recognition of the Contractual Service Margin in Profit or Loss in the General Model
- IFRS 17 will be amended:
- so that in the general model the contractual service margin is recognised in profit or loss on the basis of coverage units that are determined by considering both insurance coverage and investment return service if any;
- to establish that an investment return service exists only when an insurance contact includes an investment component;
- to require an entity to use judgment applied consistently in deciding whether an investment return service exists when determining coverage units, and not provide an objective or criteria for that determination;
- to establish that the period of investment return services should be regarded as ending when the entity has made all investment component payments to the policyholder and should not include any period of payments to future policyholders;
- to require assessments of the relative weighting of the benefits provided by insurance coverage and investment return services and their pattern of delivery to be made on a systematic and rational basis;
- to confirm that cash flows relating to fulfilling the investment return service are included in the measurement of insurance contract; and
- to establish that the one-year eligibility criterion for the PAA should be assessed by considering insurance coverage and an investment return service if any.
The requirements of IFRS 17 relating to changes in fulfillment cash flows that adjust the contractual service margin in the general model will not be changed.
Proposed Amendment to IAS 12 Income Tax: Deferred Tax Related to Assets and Liabilities Arising from a Single Transaction
The proposed amendments would narrow the scope of the initial recognition exemption in paragraphs 15 and 24 of IAS 12, so that it no longer applied to the extent that, on initial recognition of a transaction, an entity would recognize equal amounts of deferred tax assets and liabilities.
The Board decided to:
- Require entities to apply the proposed amendments retrospectively applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. However, entities would be permitted to assess whether the requirements in IAS 12 to recognise deferred tax assets are met only at the date of transition.
- Provide transition relief to first-time adopters, and
- Permit earlier application.
The Board also decided to proceed with the publication of an Exposure Draft to amend IAS 12 which is planned to be issued in the second quarter of 2019.
IFRS 17 Podcast on January 2019 IASB meeting is available: https://www.ifrs.org/news-and-events/2019/01/ifrs-17-podcast-on-january-2019-iasb-meeting-now-available/