108 OG No. 34, 4296 (August 20, 2012)
WHEREAS, after a study and review of the provisions of the above-stated pronouncements as adopted by the FRSC, the Board finds them to be well-taken and instructive for compliance by practicing Certified Public Accountants:
- Philippine Interpretation IFRIC 20, Stripping Costs in the Production Phase of a Surface Mine;
- PIC Q and A 2011-01 Requirements for a Third Statement of Financial Position;
- PIC Q and A 2011-02 Common Control Business Combinations;
- PIC Q and A 2011-03 Accounting for Inter-company Loans;
- Mandatory Effective Date of PFRS 9 and Transition Disclosures (Amendments to PFRS 9 and PFRS 7);
- Offsetting Financial Assets and Financial Liabilities (Amendments to PAS 32); and
- Disclosures - Offsetting Financial Assets and Financial Liabilities (Amendments to PFRS 7)
CONTENTS | ||
REFERENCES | ||
BACKGROUND 1-5 | ||
SCOPE | 6 | |
ISSUES | 7 | |
CONSENSUS | 8-16 |
THE DOCUMENT LISTED BELOW IS NOT INCLUDED HEREIN. THIS MAY BE REFERRED TO IN THE IFRS HANDBOOK PUBLISHED BY THE IASB. |
(a) | It is probable that the future economic benefit (improved access to the ore body) associated with the stripping activity will flow to the entity; |
(b) | the entity can identify the component of the ore body for which access has been improved; and |
(c) | the costs relating to the stripping activity associated with that component can be measured reliably. |
(a) | cost of inventory produced compared with expected cost; |
(b) | volume of waste extracted compared with expected volume, for a given volume of ore production; and |
(c) | mineral content of the ore extracted compared with expected mineral content to be extracted, for a given quantity of ore produced. |
A1 | An entity shall apply this Interpretation for annual periods beginning on or after 1 January 2013. Earlier application is permitted. If any entity applies this Interpretation for an earlier period, it shall disclose that fact. |
A2 | An entity shall apply this Interpretation to production stripping costs incurred on or after the beginning of the earliest period presented. |
A3 | As at the beginning of the earliest period presented, any previously recognised asset balance that resulted from stripping activity undertaken during the production phase ('predecessor stripping asset') shall be reclassified as a part of an existing assest to which the stripping activity related, to the extent that there remains an identifiable component of the ore body with which the predecessor stripping asset can be associated. Such balances shall be depreciated or amortised over the remaining expected useful life of the identified component of the ore body to which each predecessor stripping asset balance relates. |
A4 | If there is no identifiable component of the ore body to which that predecessor stripping asset relates, it shall recognised in opening retained earnings at the beginning of the earliest period presented. |
B1 | In Appendix D, paragraph D1 is amended as follows (new text is underlined and deleted text is struck through); | ||
D1 | An entity may elect to use one or more of the following exemptions: | ||
(a) | share-based payment transactions (paragraphs D2 and D3); | ||
(m) | financial assets or intangible assets accounted for in accordance with IFRIC 12 Service Concession Arrangements (paragraph D22); | ||
(n) | borrowing costs (paragraph D23); | ||
(o) | transfers of assets from customers (paragraph D24); | ||
(p) | extinguishing financial liabilities with equity instruments (paragraph D25); | ||
(q) | severe hyperinflation (paragraph D26-D30); and | ||
(r) | joint arrangements (paragraph D31); and | ||
(s) | stripping costs in the production phase of a surface mine (paragraph D32). | ||
B2 | After paragraph D31 a heading and paragraph D32 are added: | ||
Stripping costs in the production phase of a surface mine | |||
D32 | A first-time adopter may apply the transitional provisions set out in paragraphs A1 to A4 of IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine. In that paragraph, reference to the effective date shall be interpreted as 1 January 2013 or the beginning of the first IFRS reporting period, whichever is later. | ||
B3 | After paragraph 39L paragraph 39M is added: | ||
39M IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine added paragraph D32 and amended paragraph D1. An entity shall apply that amendment when it applies IFRIC 20. |
"A financial liability is any liability that is: | |||
a) a contractual obligation: | |||
(i) to deliver cash or another financial asset to another entity; or | |||
(ii) to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the entity; or ..." | |||
"An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities." |
a. | Loans by a parent to a subsidiary which is payable on demand | |||
Accounting treatment by parent/lender. | ||||
Initial Recognition | The parent shall record the loan on initial recognition at the amount to be repaid by the subsidiary. | |||
Current/Non-Current Classification | Generally, the loan shall be classified as current asset. If, however, the parent has no intention in demanding repayment in the near term, it would classify the receivable as non-current in accordance with PAS 1, Presentation of Financial Statements (paragraph 66(c)). | |||
Subsequent Measurement | The parent shall record the loan at the amount repayable by the subsidiary. | |||
Accounting treatment by the subsidiary/ borrower: | ||||
Initial Recognition | The subsidiary shall record the loan liability on initial recognition at the amount repayable. | |||
Current/Non-Current | The loan liability shall be classified as current. | |||
Classification | ||||
Subsequent Measurement | The subsidiary shall record the loan liability at the amount repayable. | |||
b. | Fixed term loan made by a parent to a subsidiary | |||
Accounting treatment by parent/lender: | ||||
Initial Recognition | Fixed term loans (e.g., 3-year loan) shall be recognized initially at fair value. The "difference" between the loan amount and its fair value shall be recorded as an investment, i.e., as a component of the overall investment in subsidiary. The fair value of the loan is estimated by discounting the future loan repayments using a rate based on the rate that the subsidiary would pay to an unrelated lender for a loan with similar conditions (amount term security, etc.). | |||
Current/Non-Current Classification | Loans which meet the current classification under PAS 1.66, e.g., those that are expected to be collected within 12 months after the balance sheet date shall be classified as current, otherwise, as non-current. | |||
Subsequent Measurement | Subsequently, the loan shall be measured at amortized cost, using the effective interest method. This involves the unwinding of the "difference" (i.e., discount) such that, at repayment date, the carrying value of the loan equals the amount to be repaid by the subsidiary. The unwinding of the "difference" shall be reported as interest income. | |||
Estimates of repayments should be evaluated in future periods and revised if necessary. The effect of change in estimate is accounted for in accordance with PAS 39, AG8, i.e., the adjustment is recognized in profit and loss as income or expense, except when the financial asset is reclassified in accordance with paragraphs 50B, 50D or 50E of PAS 39, in which case the change in estimates shall be recognized as an adjustment to the effective interest rate from the date of the change in estimate rather than as an adjustment to the carrying amount of the asset. | ||||
Accounting treatment by subsidiary/ borrower: | ||||
Initial Recognition | On initial recognition, the loans payable shall be recognized at fair value. The "difference" between the loan amount and the fair value shall be recorded as a component of equity of the subsidiary (i.e., equity contribution by the parent) if it meets the definition of an equity under PAS 32. | |||
Current/Non-Current Classification | Loans which meet the criteria for current classification under PAS 1.69, e.g., those repayable within 12 months after the balance sheet date shall be classified as current, otherwise, as non-current. | |||
Subsequent Measurement | Subsequently, the loan shall be measured at amortized cost, using the effective interest method. This involves the unwinding of the "difference" (i.e., discount) such that, at repayment date, the carrying value of the loan equals the amount to be repaid. The unwinding of the "difference" shall be reported as interest expense. | |||
Estimates of repayments should be evaluated in future periods and revised if necessary. The effect of change in estimate is treated as an adjustment to the carrying amount of the loan with a corresponding credit/ charged to profit or loss (PAS39.AG8.) | ||||
c. | Loans from parent to subsidiary with no stated date for repayment | |||
Accounting treatment by parent/ lender: | ||||
Initial Recognition | • | If the loan is expected to be payable on demand by the parent, item 1.a shall apply. | ||
• | If the loan is expected to be repaid within a certain period of time (e.g., 3 years), the accounting shall be based on management's best estimate of future cash flows and initial recognition shall follow the same approach for fixed term loans as provided in Item 1.b. | |||
Current/Non-Classification | • | If the loan is expected to be payable on demand by the parent, Item 1.a shall apply. | ||
• | If the loan is expected to be repaid with in a certain period of time, the classification of the loan would be the same as provided in Item 1.b. | |||
Subsequent Measurement | • | If the loan is expected to be payable on demand by the parent, the parent shall subsequently measure the loan at the amount repayable by the subsidiary. | ||
• | If the loan expected to be repaid within a certain period of time, the subsequent measurement of the loan would be the same as provided in item 1.b. | |||
Accounting treatment by subsidiary/ borrower: | ||||
Initial Recognition | • | If the loan expected to be payable on demand by the parent, the guidance in item 1.a shall apply. | ||
• | If the loan is expected to be repaid within a certain period of time (e.g., 3 years), the accounting shall be based on management's best estimate of future cash flows and initial recognition shall follow the same approach for fixed term loans as provided in item 1.b. | |||
Classification | • | If the loan is expected to be payable on demand by the parent, the classification under Item 1.a shall apply. | ||
• | If the loan is expected to be repaid within a certain a certain period of time, the classification of the loan would be the same as provided in item 1.b. | |||
Subsequent Measurement | • | If the loan is expected to be payable on demand by the parent, the subsidiary shall subsequently measure the loan at the amount to be repaid. | ||
• | If the loan is expected to be repaid within a certain period of time, the subsequent measurement of the loan would be the same as provided in item 1.b. | |||
d. | Loans between fellow subsidaires | |||
Accounting treatment by the lendina subsidiary: | ||||
Initial Recognition | The loan shall be recorded at fair value on initial recognition. The initial "difference" between the loan amount and its fair value should usually be recorded in profit or loss (i.e., loss). In some circumstances, however, when it is clear that the transfer of value from the lending subsidiary to the borrowing subsidiary has been made under the instruction from the parent, the acceptable alternative treatment is for the initial "difference" to be treated as a distribution, hence, is recorded as a debit to equity (e.g., Retained Earnings). | |||
Current/Non-Current Classification | Loans which meet the current classification under PAS 1.66, e.g., those that are expected to be collected within 12 months after the balance sheet date shall be classified as current, otherwise, as non-current. | |||
Subsequent Measurement | Subsequently, the loan shall be measured at amortized cost using the effective interest method. This involves the unwinding of the "difference" (i.e., discount) such that, at repayment date, the carrying value of the loan equals the amount to be repaid by the borrower. The unwinding of the "difference" shall be reported as interest income. | |||
Accounting treatment by the borrowing subsidiary: | ||||
Initial Recognition | The loan shall be recorded at fair value on initial recognition. Any initial difference between loan amount and its fair value should usually be recorded in profit or loss (i.e., gain). | |||
In some circumstances, however, when it is clear that the transfer of value from the lending subsidiary to the borrowing subsidiary has been made under the instruction from the parent, the acceptable alternative treatment is for any gain to be recorded as a credit to equity (i.e., treated as a capital contribution). | ||||
Current/Non-Current Classification | Loans which meet the criteria for current classification under PAS 1.69, e.g., those repayable within 12 months after the balance sheet date shall be classified as current, otherwise, as non-current. | |||
Subsequent Measurement | Subsequently, the loan shall be measured at amortized cost, using the effective interest method. This involves the unwinding of the "difference" (i.e., discount) such that, at repayment date, the carrying value of the loan equals the amount to be repaid by the borrower. The unwinding of the "difference" shall be reported as interest expense. | |||
e. | Loans from subsidiary to parent | |||
Accounting treatment by the subsidiary/lender | ||||
Initial Recognition | The loan shall be recorded at fair value on initial recognition. Any initial difference between the loan amount and its fair value shall be treated as a distribution by the subsidiary to the parent, hence, shall be recorded as a debit to equity (e.g., Retained Earnings). | |||
Current/Non-Current Classification | Loans which meet the criteria for current classification under PAS 1.66, e.g., those repayable within 12 months after the balance sheet date shall be classified as current, otherwise, as non-current. | |||
Subsequent Measurement | Subsequently, the loan shall be measured at amortized cost, using the effective interest method. This involves the unwinding of the "difference" (i.e., discount) such that, at repayment date, thrt carrying value of the loan equals the amount to be repaid by the parent. The unwinding of the "difference" shall be reported as interest income. | |||
Accounting treatment by parent/ borrower | ||||
Initial Recognition | The loan shall be recorded at fair value on initial recognition. Any initial "difference" between loan amount and its fair value shall be recorded as income. | |||
Current/Non-Current Classification | Loans which meet the criteria for current classification under PAS 1.69, e.g., those repayable within 12 months after the balance sheet date shall be classified as current, otherwise, as non-current. | |||
Subsequent Measurement | Subsequently, the loan shall be measured at amortized cost, using the effective interest method. This involves the unwinding of the "difference" (i.e., discount) such that, at repayment date, the carrying value of the loan equals the amount to be repaid by the parent. The unwinding of the "difference" shall be reported as interest expense. |
APPROVAL BY THE BOARD OF MANDATORY EFFECTIVE DATE OF IFRS 9 AND TRANSITION DISCLOSURES (AMENDMENTS TO IFRS 9 (2009), IFRS 9 (2010) AND IFRS 7) AS ISSUED IN DECEMBER 2011
THE DOCUMENTS LISTED BELOW ARE NOT INCLUDED HEREIN. THESE MAY BE REFERRED TO IN THE IFRS HANDBOOK PUBLISHED BY THE IASB.
Effective date and transition
In the introduction, paragraph IN11 of IFRS 9 (2010) [IN16 of IFRS 9 (2009)] is added.
IN11 | Mandatory Effective Date of IFRS 9 and Transition Disclosures (Amendments to IFRS 9 (2009), IFRS 9 (2010) and IFRS 7), issued in December 2011, amended the effective date of IFRS 9 (2009) and IFRS 9 (2010) so that IFRS 9 is required to be applied for annual periods beginning on or after 1 January 2015. Early application is permitted. The amendments also modified the relief from restating prior periods. The Board has published amendments to IFRS 7 to require additional disclosures on transition from IAS 39 to IFRS 9. Entities that initially apply IFRS 9 in periods: | |
(a) | beginning before 1 January 2012 need not restate prior periods and are not required to provide the disclosures set out in paragraphs 44S-44W of IFRS 7; | |
(b) | beginning on or after 1 January 2012 and before 1 January 2013 must elect either to provide the disclosures set out in paragraphs 44S-44W of IFRS 7 or to restate prior periods; and | |
(c) | beginning on or after 1 January 2013 shall provide the disclosures set out in paragraphs 44S-44Wof IFRS 7. The entity need not restate prior periods. |
Paragraphs 8.1.1 and 8.2.12 of IFRS 9 (2009) are amended (deleted text is struck through and new text is underlined).
8.1 | Effective date | ||
8.1.1 | An entity shall apply this IFRS for annual periods beginning on or after 1 January 2015. Earlier application is permitted. If an entity applies this IFRS in its financial statements for a period beginning before 1 January 2015, it shall disclose that fact and at the same time apply the amendments in Appendix C. | ||
8.2 | Transition | ||
8.2.12 | Despite the requirement in paragraph 8.2.1, an entity that adopts this IFRS for reporting periods; | ||
(a) | beginning before 1 January 2012 need not restate prior periods-and is not required to provide the disclosures set out in paragraphs 44S-44W of IFRS 7: | ||
(b) | beginning on or after 1 January 2012 and before1 January 2013 shall elect either to provide the disclosures set out in paragraphs 44S-44W of IFRS 7 or to restate prior periods: and | ||
(c) | beginning on or after 1 January 2013 shall provide the disclosures set out in paragraphs 44S-44W of IFRS 7. The entity need not restate prior periods. | ||
If an entity does not restate prior periods, the entity shall recognise any difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application in the opening retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application. |
Paragraphs 7.1.1, 7.2.10, 7.2.14 and 7.3.2 of IFRS 9 (2010) are amended (deleted text is struck through and new text is underlined).
7.1 | Effective date | ||
7.1.1 | An entity shall apply this IFRS for annual periods beginning on or after 1 January 2015. Earlier application is permitted. However, if an entity elects to apply this IFRS early and has not already applied IFRS 9 issued in 2009, it must apply all of the requirements in this IFRS at the same time (but see also paragraphs 7.3.2). If an entity applies this IFRS in its financial statements for a period beginning before 1 January 20135, it shall disclose that fact and at the same time apply the amendments in Appendix C. | ||
7.2 | Transition | ||
7.2.10 | If it is impracticable (as defined in IAS 8) for an entity to apply retrospectively the effective interest method or the impairment requirements in paragraphs 58-65 and AG84-AG93 of IAS 39, the entity shall treat the fair value of the financial asset or financial liability at the end of each comparative period presented as its amortised cost if the entity restates prior periods. In those circumstances. If it is impracticable (as defined in IAS 8) for an entity to apply restrospectivelv the effective interest method or the impairment requirements in paragraphs 58-65 and AG84-AG93 of IAS 39. the fair value of the financial asset or financial liability at the date of initial application shall be treated as the new amortised cost of that financial asset or financial liability at the date of initial application of this IFRS. | ||
7.2.14 | Despite the requirements in paragraph 7.2.1, an entity that adopts the classification and measurement requirements of this IFRS for reporting periods; | ||
(a) | beginning before 1 January 2012 need not restate prior periods-and is not required to provide the disclosures set out in paragraphs 44S-44W of IFRS 7: | ||
(b) | beginning on or after 1 January 2012 and before 1 January 2013 shall elect either to provide the disclosures set out in paragraphs 44S-44W of IFRS 7 or to restate prior periods: and | ||
(c) | beginning on or after 1 January 2013 shall provide the disclosures set out in paragraphs 44S-44W of IFRS 7. The entity need not restate prior periods. | ||
If an entity does not restate prior periods, the entity shall recognise any difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period that includes the date of initial application in the opening retained earnings (or other component of equity, as appropriate) of the annual reporting period that includes the date of initial application. | |||
7.3 | Withdrawal of IFRIC 9 and IFRS 9 (2009) | ||
7.3.2 | This IFRS supersedes IFRS 9 issued in 2009. However, for annual periods beginning before 1 January 20165, an entity may elect to apply IFRS 9 issued in 2009 instead of applying this IFRS. |
Paragraph 441 of IFRS 7 is amended.
44I | When an entity first applies IFRS 9, it shall disclose for each class of financial assets and financial liabilities at the date of initial application: | |
(a) | the original measurement category and carrying amount determined in accordance with IAS 39; | |
(b) | the new measurement category and carrying amount determined in accordance with IFRS 9; | |
(c) | the amount of any financial assets and financial liabilities in the statement of financial position that were previously designated as measured at fair value through profit or loss but are no longer so designated, distinguishing between those that IFRS 9 requires an entity to reclassify and those that an entity elects to reclassify. | |
An entity, shall present these quantitative disclosures in tabular format unless another format is more appropriate. | ||
Paragraph 44S-44W of IFRS 7 are added. | ||
44S | When an entity first applies the classification and measurement requirements of IFRS 9, it shall present the disclosures set out in paragraphs 44T-44W of this IFRS if it elects to, or is required to, provide these disclosures in accordance with IFRS 9 (see paragraph 8.2.12 of IFRS 9 (2009) and paragraph 7.2.14 of IFRS 9 (2010)). | |
44T | If required by paragraph 44S, at the date of initial application of IFRS 9 an entity shall disclose the changes in the classifications of financial assets and financial liabilities, showing separately: | |
(a) | the changes in the carrying amounts on the basis of their measurement categories in accordance with IAS 39 (ie not resulting from a change in measurement attribute on transition to IFRS 9); and | |
(b) | the changes in the carrying amounts arising from a change in measurement attribute on transition to IFRS 9. | |
The disclosures in this paragraph need not be made after the annual period in which IFRS 9 is initially applied. | ||
44U | In the reporting period in which IFRS 9 is initially applied, an entity shall disclose the following for financial assets and financial liabilities that have been reclassified so that they are measured at amortised cost as a result of the transition to IFRS 9; | |
(a) | the fair value of the financial assets or financial liabilities at the end of the reporting period; | |
(b) | the fair value gain or loss that would have been recognised in profit or loss or other comprehensive income during the reporting period if the financial assets or financial liabilities had not been reclassified; | |
(c) | the effective interest rate determined on the date of reclassification; and | |
(d) | the interest income or expense recognised. | |
If an entity treats the fair value of a financial asset or a financial liability as its amortised cost at the date of initial application (see paragraph 8.2.10 of IFRS 9 (2009) and paragraph 7.2.10 of IFRS 9 (2010)), the disclosures in (c) and (d) of this paragraph shall be made for each reporting period following reclassification until derecognition. Otherwise, the disclosures in this paragraph need not be made after the reporting period containing the date of initial application. | ||
44V | If an entity presents the disclosures set out in paragraphs 44S-44U at the date of initial application of IFRS 9, those disclosures, and the disclosures in paragraph 28 of IAS 8 during the reporting period containing the date of initial application, must permit reconciliation between: | |
(a) | the measurement categories in accordance with IAS 39 and IFRS 9; and | |
(b) | the line items presented in the statements of financial position. | |
44W | If an entity presents the disclosures set out in paragraphs 44S-44U at the date of initial application of IFRS 9, those disclosures, and the disclosures in paragraph 25 of this IFRS at the date of initial application, must permit reconciliation between: | |
(a) | of the measurement categories presented in accordance with IAS 39 and IFRS 9; and | |
(b) | the class of financial instrument at the date of initial application. |
APPROVAL BY THE BOARD OF OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES (AMENDMENTS TO IAS 32) ISSUED IN DECEMBER 2011
THE DOCUMENTS LISTED BELOW ARE NOT INCLUDED HEREIN. THESE MAY BE REFERRED TO IN THE IFRS HANDBOOK PUBLISHED BY THE IASB
Paragraph 97L is added. |
97L | Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32), issued in December 2011, deleted paragraph AQ38 and added paragraphs AG38A-AG38F. An entity shall apply those amendments for annual periods beginning on after 1 January 2014. An entity shall apply those amendments retrospectively. Earlier application is permitted. If an entity applies those amendments from an earlier date, it shall disclose that fact and shall also make the disclosures required by Disclosures-Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) issued in December 2011. |
Immediately after the heading 'Offsetting a financial assets and a financial liability (paragraphs 42-50)', paragraph AG38 is deleted. Headings and paragraphs AG38A-AG38F are added. |
AG38A | A right of set-off may be currently available or it may be contingent on a future event (for example, the right may be triggered or exercisable only on the occurrence of some future event, such as the default, insolvency or bankruptcy of one of the counterparties). Even if the right of set-off is not contingent on a future event, it may only be legally enforceable in the normal course of business, or in the event of default, or in the event of insolvency or bankruptcy, of one or all of the counterparties. | ||
AG38B | To meet the criterion in paragraph 42(a), an entity must currently have a legally enforceable right of set-off. This means that the right of set-off: | ||
(a) | must not be contingent on a future event; and | ||
(b) | must be legally enforceable in all of the following circumstances: | ||
(i) | the norma course of business; | ||
(ii) | the event of default; and | ||
(iii) | the event of insolvency or bankruptcy of the entity and all of the counterparties. | ||
AG38C | The nature and extent of the right of set-off, including any conditions attached to its exercise and whether it would remain in the event of default or insolvency or bankruptcy, may vary from one legal jurisdiction to another. Consequently, it cannot be assumed that the right of set-off is automatically available outside of the normal course of business. For example, the bankruptcy or insolvency laws of a jurisdiction may prohibit, or restrict, the right of set-off in the event of bankruptcy or insolvency in some circumstances. | ||
AG38D | The laws applicable to the relationships between the parties (for example, contractual provisions, the laws governing the contract, or the default, insolvency or bankruptcy laws applicable to the parties) need to be considered to ascertain whether the right of set-off enforceable in the normal course of business, in an event of default, and in the event of insolvency or bankruptcy, of the entity and all of the counterparties (as specified in paragraph AG38B(b)). | ||
Criterion that an entity 'intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously' (paragraph 42(b)) | |||
AG38E | To meet the criterion in paragraph 42(b) an entity must intend either to settle on a net basis or to realize the asset and settle the liability simultaneously. Although the entity may have a right to settle net, it may still realize the asset and settle the liability separately. | ||
AG38F | If an entity can settle amounts in a manner such that the outcome is, in effect, equivalent to net settlement, the entity will meet the net settlement criterion in paragraph 42(b). This will occur if, and only if, the gross settlement mechanism has features that eliminate or result in insignificant credit and liquidity risk, and that will process receivables and payables in a single settlement process or cycle. For example, a gross settlement system that has all of the following characteristics would meet the net settlement criterion in paragraph 42(b): | ||
(a) | financial assets and financial liabilities eligible for set-off are submitted at the same point in time for processing; | ||
(b) | once the financial assets and financial liabilities are submitted for processing, the parties are committed to fulfil the settlement obligation; | ||
(c) | there is no potential for the cash flows arising from the assets and liabilities to change once they have been submitted for processing (unless the processing fails—see (d) below); | ||
(d) | assets and liabilities that are collateralized with securities will be settled on a securities transfer or similar system (for example, delivery versus payment), so that if the transfer of securities fails, the processing of the related receivable or payable for which the securities are collateral will also fail (and vice versa); | ||
(e) | any transactions that fail, as outlined in (d), will be re-entered for processing until they are settled; | ||
(f) | settlement is carried out through the same settlement institution (for example, a settlement bank, a central bank or a central securities depository); and | ||
(g) | an intraday credit facility is in place that will provide sufficient overdraft amounts to enable the processing of payments at the settlement date for each of the parties, and it is virtually certain that the intraday credit facility will be honoured if called upon. |
THE DOCUMENTS LISTED BELOW ARE NOT INCLUDED HEREIN. THESE MAY BE REFERRED TO IN THE IFRS HANDBOOK PUBLISHED BY THE IASB. |
In the Introduction, paragraph IN9 is added. |
IN9 | Disclosures—Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7), issued in December 2011, amended the required disclosures to include information that will enable users of an entity's financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity's recognized financial assets and recognized financial liabilities, on the entity financial position. |
After paragraph 13, a heading and paragraphs 13A—13F are added. |
13A | The disclosures in paragraphs 13B-13E supplement the other disclosure requirements of this IFRS and are required for all recognized financial instruments that are set off in accordance with paragraph 42 of IAS 32. These disclosures also apply to recognized financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with paragraph 42 of IAS 32. | ||
13B | An entity shall disclose information to enable users of its financial statements to evaluate the effect or potential effect of netting arrangements on the entity's financial position. This includes the effect or potential effect of rights of set-off associated with the entity's recognised financial assets and recognised financial liabilities that are within the scope of paragraph 13A. | ||
13C | To meet the objective in paragraph 13B; an entity shall disclose, at the end of the reporting period, the following quantitative information separately for recognised financial assets and recognised financial liabilities that are within the scope of paragraph 13A: | ||
(a) | the gross amounts of those recognised financial assets and recognised financial liabilities; | ||
(b) | the amounts that are set off in accordance with the criteria in paragraph 42 of IAS 32 when determining the net amounts presented in the statement of financial position; | ||
(c) | the net amounts presented in the statement of financial position; | ||
(d) | the amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in paragraph 13C(b), including: | ||
(i) | amounts related to recognised financial instruments that do not meet some or all of the offsetting criteria in paragraph 42 of IAS 32; and | ||
(ii) | amounts related to financial collateral (including cash collateral); and | ||
(e) | the net amount after deducting the amounts in (d) from the amounting in (c) above. | ||
The information required by this paragraph shall be presented in a tabular format, separately for financial assets and financial liabilities, unless another format is more appropriate. | |||
13D | The total amount disclosed in accordance with paragraph 13C(d) for an instrument shall be limited to the amount in paragraph 13C(c) for that instrument. | ||
13E | An entity shall include a description in the disclosures of the rights of set-off associated with the entity's recognised financial assets and recognised financial liabilities subject to enforceable master netting arrangements and similar agreements that are disclosed in accordance with paragraph 13C(d), including the nature of those rights. | ||
13F | If the information required by paragraphs 13B-13E is disclosed in more than one note to the financial statements, an entity shall cross-refer between those notes. |
Paragraph 44R is added. |
44R | Disclosures-Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7), issued in December 2011, added paragraphs IN9, 13A-13F and B40-B53. An entity shall apply those amendments for annual periods beginning on or after 1 January 2013 and interim periods within those annual periods. An entity shall provide the disclosures required by those amendments retrospectively. |
After paragraph B39, headings and paragraphs B40-B53 are added. |
B40 | The disclosures in paragraphs 13B-13E are required for all recognised financial instruments that are set off in accordance with paragraph 42 of IAS 32. In addition, financial instruments are within the scope of the disclosure requirements in paragraphs 13B-13E if they are subject to an enforceable master netting arrangement or similar agreement that covers similar financial instruments and transactions, irrespective of whether the financial instruments are set off in accordance with paragraph 42 of IAS 32. |
B41 | The similar agreements referred to in paragraphs 13A and B40 include derivative clearing agreements, global master purchase agreements, global master securities lending agreements, and any related rights to financial collateral. The similar financial instruments and transactions referred to in paragraph B40 include derivatives, sale and repurchase agreements, reverse sale and repurchase agreements, securities borrowing, and securities lending agreements. Examples of financial instruments that are not within the scope of paragraph 13A are loans and customer deposits at the same institution (unless they are set off in B44 the statement of financial position), and financial instruments that are subject only to a collateral agreement. |
Disclosure of quantitative information for recognised financial assets and recognised financial liabilities within the scope of paragraph 13A (paragraph 13C) | |
B42 | Financial instruments disclosed in accordance with paragraph 13C may be subject to different measurement requirements (for example, a payable related to a repurchase agreement may be measured at amortised cost, while a derivative will be measured at fair value). An entity shall include instruments at their recognised amounts and describe any resulting measurement differences in the related disclosures. |
Disclosure of the gross amounts of recognised financial assets and recognised financial liabilities within the scope of paragraph 13A (paragraph 13C(a)) | |
B43 | The amounts required by paragraph 13C(a) relate to recognised financial instruments that are set off in accordance with paragraph 42 of IAS 32. The amounts required by paragraph 13C(a) also relate to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement irrespective of whether they meet the offsetting criteria. However, the disclosures required by paragraph 13C(a) do not relate to B45 any amounts recognised as a result of collateral agreements that do not meet the offsetting criteria in paragraph 42 of IAS 32. Instead, such amounts are required to be disclosed in accordance with paragraph 13C(d). |
Disclosure on the amounts that are set off in accordance with the criteria in paragraph 42 of IAS 32 (paragraph 13C(b)) | |
B44 | Paragraph 13C(b) requires that entities disclose the amounts set off in accordance with paragraph 42 of IAS 32 when determining the net amounts presented in the statement of financial position. The amount of both the recognised financial assets and the recognised financial liabilities that are subject to set-off under the same arrangement will be disclosed in both the financial asset and financial liability disclosures. However, the amounts disclosed (in, for example, a table) are limited to the amounts that are subject to set-off. For example, an entity may have a recognised derivative asset and a recognised derivative liability that meet the offsetting criteria in paragraph 42 of IAS 32. If the gross amount of the derivative asset is larger than the gross amount of the derivative liability, the financial asset disclosure table will include the entire amount of the derivative asset (in accordance with paragraph 13C(a) and the entire amount of the derivative liability (in accordance with paragraph 13C(b)). However, while the financial liability disclosure table will include the entire amount of the derivative liability (in accordance with paragraph 13C(a)), it will only include the amount of the derivative asset (in accordance with paragraph 13C(b)) that is equal to the amount of the derivative liability. |
Disclosure of the net amounts presented in the statement of financial position (paragraph 13C(c)) | |
B45 | If an entity has instruments that meet the scope of these disclosures (as specified in paragraph 13A), but that do not meet the offsetting criteria in paragraph 42 of IAS 32, the amounts required to be disclosed by paragraph 13C(c) would equal the amounts required to be disclosed by paragraph 13C(a). |
B46 | The amounts required to be disclosed by paragraph 13C(c) must be reconciled to the individual line item amounts presented in the statement of financial position. For example, if an entity determines that the aggregation or disaggregation of individual financial statement line item amounts provides more relevant information, it must reconcile the aggregated or disaggregated amount disclosed in paragraph 13C(c) back to the individual line item amounts presented in the statement of financial position. |
Disclosure of the amounts subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in paragraph 13C(d) | |
B47 | Paragraph 13C(d) requires that entities disclose amounts that are subject to an enforceable master netting arrangement or similar agreement that are not otherwise included in paragraph 13C(b). Paragraph 13C(d)(i) refers to amounts related to recognised financial instruments that do not meet some or all of the offsetting criteria in paragraph 42 of IAS 32 (for example, current rights of set-off that do not meet the criterion in paragraph 42(b) of IAS 32, or conditional rights of set-off that are enforceable and exercisable only in the event of default, or in the event of insolvency or bankruptcy of any of the counterparties). |
B48 | Paragraph 13C(d)(ii) refers to amounts related to financial collateral, including cash collateral, both received and pledged. An entity shall disclose the fair value of those financial instruments that have been pledged or received as collateral. The amounts disclosed in accordance with paragraph 13C(d)(ii) should related to the actual collateral received or pledged and not to any resulting payables or receivables recognised to return or receive back such collateral. |
Limits on the amounts disclosed in paragraph 13C(d) (paragraph 13D) | |
B49 | When disclosing amounts in accordance with paragraph 13C(d), an entity must take into account the effects of over-collateraJisation by financial instrument. To do so, the entity must first deduct the amounts disclosed in accordance with paragraph 13C(d)(i) from the amount disclosed in accordance with paragraph 13C(c ). The entity shall then limit the amounts disclosed in accordance with paragraph 13C(d)(ii) to the remaining amount in paragraph 13C(c) for the related financial instrument. However, if rights to collateral can be enforced across financial instruments, such rights can be included in the disclosure provided in accordance with paragraph 13D. |
Description of the rights of set-off subject to enforceable master netting arrangements and similar agreements (paragraph 13E) | |
B50 | An entity shall describe the types of rights of set-off and similar arrangements disclosed in accordance with paragraph 13C(d), including the nature of those rights. For example, an entity shall describe its conditional rights. For instruments subject to rights of set-off that are not contingent on a future event but that do not meet the remaining criteria in paragraph 42 of IAS 32, the entity shall describe the reason(s) why the criteria are not met. For any financial collateral received or pledged, the entity shall describe the terms of the collateral agreement (for example, when the collateral is restricted). |
Disclosure by type of financial instrument or by counterparty | |
B51 | The quantitative disclosures required by paragraph 13C(a)-(e) may be grouped by type of financial instrument or transaction (for example, derivatives, repurchase and reverse repurchase agreements or securities borrowing and securities lending agreements). |
B52 | Alternatively, en entity may group the quantitative disclosures required by paragraph 13C(a)-(c) by type of financial instrument, and the quantitative disclosures required by paragraph 13C(c)-(e) by counterparty. If an entity provides the required information by counterparty, the entity is not required to identify the counterparties by name. However, designation of counterparties (Counterparty A, Counterparty B, Counterparty C, etc) shall remain consistent from year to year for the years presented to maintain comparability. Qualitative disclosures shall be considered so that further information can be given about types of counterparties. When disclosure of the amounts in paragraph 13C(c)-(e) is provided by counterparty, amounts that are individually significant in terms of total counterparty amounts shall be separately disclosed and the remaining individually insignificant counterparty amounts shall be aggregated into one line item. |
Other; | |
B53 | The specific disclosures required by paragraphs 13C-13E are minimum requirements. To meet the objective in paragraph 13B an entity may need to supplement them with additional (qualitative) disclosures, depending on the terms of the enforceable master netting arrangements and related agreements, including the nature of the rights of set-off, and their effect or potential effect on the entity's financial position. |
43 | This standard requires the presentation of financial assets and financial liabilities on a net basis when doing so reflects an entity's expected future cash flows from settling two or more separate financial instruments. When an entity has the right to receive or pay a single net amount and intends to do so, it has, in effect, only a single financial asset or financial liability. In other circumstances, financial assets and financial liabilities are presented separately from each other consistently with their characteristics as resources or obligations of the entity. An entity shall disclose the information required in paragraphs 13B-13E of IFRS 7 for recognised financial that are within the scope of paragraph 13A of IFRS 7. |