September 18, 2008
Updates to IASB Work Plan
IASB Work Plan changes likely to complicate your conversion plans
On a regular basis, the IASB will update its Work Plan—a timetable showing the current best estimate of publication dates of proposed changes to IFRS standards. In its recently updated Work Plan, the IASB expects to issue several new or amended standards in 2010 and 2011.
Although not known until later in the standard-setting process, the effective date of a new or amended standard is usually not less than 12 months after the publication date. Consequently, standards issued in 2010 and 2011 may have an effective date no earlier than 2012 or 2013, respectively.
Canadian companies preparing their opening IFRS balance sheet as at their transition date (being January 1, 2010, for a calendar year end company) must adopt those standards that will be effective for their first annual IFRS financial statements (i.e., standards issued and effective as at December 31, 2011).
For those amended IFRS standards that are issued as at
December 31, 2011, but not yet effective, Canadian companies cannot apply such standards on transition to IFRS unless the individual standards permit early adoption. Therefore, any new or amended standards issued in 2010 and 2011 may have a significant impact on their conversion plans. To the extent that early adoption is permitted, companies will need to evaluate the merits of early adopting, considering both the impact on their reported results, as well as their overall conversion efforts.
Some IFRS standards likely to be amended address complex topics, such as revenue recognition, employee benefits, provisions and income taxes, therefore, the time or efforts required to make IFRS “business as usual” will likely be prolonged.
Click here for a description of each project and the major areas of existing IFRS standards that may be affected.
IASB discusses expected 2008 exposure drafts
At its July meeting, the IASB discussed projects for which it expects to issue Exposure Drafts (ED) by the end of 2008. These projects include:
- Consolidation – the IASB staff’s overall aim is to develop a cohesive control based model that encompasses special purpose entities, including structured financing and investment vehicles.
- Income Taxes – the IASB tentatively decided that some existing differences between IFRS and US GAAP would be eliminated, and the draft ED would take the form of a new IFRS standard rather than amendments to existing IAS 12, Income Taxes.
Discussion also covered new models for accounting for leases by lessees (but not lessors), fair value measurement and revenue recognition. Discussions on these projects are expected to continue at the IASB’s remaining 2008 meetings.
Click here for a summary of the July 2008 IASB meeting.
Recent International Developments
New Interpretation: Agreements for the Construction of Real Estate
The issuance of IFRIC 15, Agreements for the Construction of Real Estate, will standardize revenue recognition among real estate developers for sales of units (such as apartments or houses) before construction is complete, so-called “off-plan” sales.
Currently, among existing IFRS users that are real estate developers, there has been a divergence in practice. Some developers have recognized revenue when the completed real estate is delivered to buyers, while other developers have accounted for such arrangements as construction contracts and recognized revenue as construction progresses based on the stage of completion. IFRIC 15 provides guidance to determine which IFRS standard is to be applied and when revenue from the construction should be recognized.
While IFRIC 15 specifically addresses agreements for the construction of real estate, it may be appropriate to apply the interpretation by analogy to agreements for the construction of other assets.
Click here for more on the accounting for agreements for the construction of real estate.
New Interpretation: Eligible Hedge Risks
IFRIC 16, Hedges of a Net Investment in a Foreign Operation clarifies that the hedged risk must be an economic exposure arising from foreign currency differences between the functional currency of the foreign operation and the functional currency of any parent entity, and not an accounting exposure arising from the translation of the foreign operation to the presentation currency of the group.
Although IFRIC 16 has clarified that a risk exposure can only be hedged once in the consolidated financial statements, it allows for some flexibility by permitting any of the parent entities (immediate, intermediate or ultimate parent entity) to hedge the risk exposure arising from a direct or indirect investment in a foreign operation.
IFRIC 16 also provides guidance on the amounts that are to be reclassified from equity to profit or loss on disposal of the foreign operation.
There may be a number of hedging scenarios available under IFRS that are different from Canadian GAAP. Since IFRS provides, in certain cases, more flexibility in designating hedging relationships, Canadian companies may want to revisit their hedging strategies on transition to IFRS.
Click here for more information on the interpretation of hedges of net investment in foreign operations.
IFRS Publications
New accounting for Business Combinations and Non-Controlling Interests
The proposed changes to the Canadian accounting standards for business combinations and non-controlling (minority) interests will produce closer alignment with the revised standards issued earlier in the year by the IASB and FASB.
These new standards will significantly change the accounting for business combinations and non-controlling interests, and may affect how certain acquisitions are structured.
Click here for our new publication on the proposed Canadian standards, how they differ from IFRS and their impact on Canadian enterprises.
Anticipated changes to Income Tax Accounting under IFRS
While our basic accounting model for income taxes is similar to IFRS, Canadian companies will need to contend with several existing differences on their changeover to IFRS. Many companies have not started to assess the impact of adopting IFRS in the area of income taxes because of expected changes to the IFRS standard.
After much delay, the IASB is proposing to reissue their income tax accounting standard later in 2008. Certain aspects of the proposed IFRS standard are expected to change and converge with current Canadian GAAP. However, several important differences will likely still remain. In our new publication, we focus on some of the differences in accounting for income taxes between IFRS and Canadian GAAP that exist today based on the current IFRS standard, as well as those that are expected to remain with proposed changes to the IFRS standard.
Publicly accountable enterprises should ensure their tax departments are engaged in their IFRS conversion projects to address these expected differences and the impacts they will have on reported results and their effective tax rate.
Click here for our publication to help in evaluating the impact IFRS will have on your tax provisions and deferred tax balances.
We welcome any comments or suggestions you have for future issues.
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