International Financial Reporting Standards

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Dec 13, 2013 (3 years and 7 months ago)

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International Financial
Reporting

Standards






Introduction

to IFRS




Use of IFRS in the world, in Europe and in Belgium



IASB structure, standards and driving principles



Brief comparison between IFRS and Belgian GAAP



Overview of a transition to IFRS



Concluding comments and questions
















Carl Rombaut

CPA

C. Rombaut CPA

Belpairestraat

4 b 2.1

2600
Antwerp
-
Berchem

Tel: +32 (03) 272 57 59

revisoren@
c
-
rombaut.be











2




Global
use

of IFRS
































3


European

Regulation

1606
/
2002

dated

July

19
,

2002

requires

all

EU

companies

listed

on

a

regulated

market

to

prepare

their

consolidated

financial

statements

in

accordance

with

IFRS

as

from

2005



IFRS

also

required

/

permitted

in

other

major

countries



European

Union



required

2005


Brazil



required

2010


Canada



required

2011


China



IFRS

based

required


India



IFRS

based

required


Japan



permitted

2010

with

requirement

expected

in

the

coming

years


US



Final

decision

pending


Understanding

this

common

language

is

thus

necessary

for

all


stakeholders

of

major

companies,

including

shareholders,

investors,


banks,

employees,

suppliers,

clients,

public

authorities,

auditors,

































4


European

Regulation

1606
/
2002

dated

July

19
,

2002



All

EU

companies

listed

on

a

regulated

market

have

to

prepare

their

consolidated

financial

statements

in

accordance

with

International

Financial

Reporting

Standards

as

from

2005

at

the

latest



Possibility

to

extend

the

obligation

or

to

permit

the

application

of

IFRS

to
:


Non
-
listed

companies

for

consolidated

financial

statements


Individual

financial

statements



But

“Endorsement

Mechanism”

in

order

to

pre
-
approve

all

IASB

standards

and

interpretations

to

be

applied

in

the

EU































5






























IAS REGULATION


IASB

Approved


EU
review

EU
-
Parliament

+ Co Ministers


Endorsed


EFRAG

Endorses


EU

bureaus


ARC

Endorses


2m

1,5m


2m


1m

6






























S
T
A
T
U
T
O
R
Y

C
O
N
S
O
L

I

D
A
T
E
D

2005

?

IAS/IFRS
not

permitted

IAS/IFRS
permitted

public and
non
-
public

entities

IAS/IFRS
mandatory

for

public
entities

(
European

Regulation
)

IAS/IFRS
permitted

for

non
-
public

entities

7


Royal

Decree

4

December

2003


Consolidated

financial

statements

of

listed

entities



Allowed

before

2005


Required

from

2005

onwards


Individual

financial

statements

=>

not

permitted


Entities

with

only

interest

bearing

securities

listed

and

entities

that

are

listed

in

a

third

country

are

exempted

from

IFRS
-
application

until

2007


Royal

Decree

5

December

2004



Non

listed

credit

institutions

shall

apply

IFRS

for

their

consolidated

financial

from

2006

onwards


Royal

Decree

18

January

2005


Non
-
listed

entities

are

allowed

to

use

IFRS

for

their

consolidated

financial

statements


Decision

is

irrevocable


Royal

Decree

21

June

2006


All

Belgian

listed

Real

Estate

Investment

Trusts

(SICAF

Immobilières
/

Vastgoed

BEVAK)

shall

apply

IFRS

also

for

the

preparation

of

their

individual

financial

statements

as

from

2007


Royal

Decree

27

September

2009


As

from

2012
,

Belgian

insurance

and

reinsurance

companies

shall

prepare

their

consolidated

financial

statements

in

accordance

with

IFRS

as

endorsed

in

the

EU































8




IASB
objective
,
structure


and
driving

principles
































9


Develop,

in

the

public

interest,

a

single

set

of

high

quality,

understandable

and

enforceable

global

accounting

standards

that

require

high

quality,

transparent,

and

comparable

information

in

financial

statements

and

other

financial

reporting

to

help

participants

in

the

various

capital

markets

of

the

world

and

other

users

of

the

information

to

make

economic

decisions
.



To

promote

the

use

and

rigorous

application

of

those

standards
;

and



To

work

actively

with

national

standard

setters

to

bring

about

convergence

of

national

accounting

standards

and

IFRSs

to

high

quality

solutions































10






























11






























12






























13

Substance over form and principle
-
based

standards


Classification of leases


Consolidation (including SPE)


Revenue recognition


Systematic recognition of items in the FS


Derivatives even embedded in host contracts


Share
-
based payments (including warrants)


Intangible assets and contingent liabilities in a business
combination


Employee benefit obligations


Deferred taxes































14

Frequent use of fair value


Financial instruments


Investment property


Items acquired / assumed in a business
combination


Biological assets


No standard reporting format but extended

presentation and disclosure requirements


Statement of cash flows


Segment reporting


Discontinued operations


Related party disclosures


Earnings per share


Interim reporting































15




How

to keep
updated
?
































16






























17






























18




IASB Standard/

Interpretations
































19






























20






























21






























22






























23






























24






























25


Brief
comparison


between

IFRS and

Belgian

GAAP
































26






























Overview

of

IFRS

requirements


Conceptual

framework

identifying

the

qualitative

characteristics

of

useful

financial

information

and

defining

the

key

elements

of

financial

statements


Content

of

a

complete

set

of

IFRS

financial

statements

(IAS

1
)


Statement

of

financial

position

(Balance

Sheet)


Statement

of

comprehensive

income

(in

one

or

two

statements)


Statement

of

changes

in

equity


Statement

of

cash

flows

(IAS

7
)


Distinction

to

be

made

between

operating,

investing

and

financing

cash

flows


Direct

or

indirect

presentation

of

operating

cash

flows


Notes


Accounting

policies

and

estimates

(IAS

8
)


Policies

applied

consistently

within

the

group



Changes

in

policies

applied

retrospectively

(in

principle)

and

changes

in

estimates

applied

prospectively


Major

judgments

in

applying

policies

and

significant

estimates

to

be

disclosed

(IAS

1
)


27






























Overview

of

IFRS

requirements


Comparative

information

to

be

presented

for

amounts

in

the

statements

and

notes


Presentation

format

not

predefined

but
:



Minimum

line

items

to

be

presented



Current

/

non
-
current

distinction

in

the

BS


Operating

expenses

by

function

or

nature

in

the

IS


Lost

of

detailed

disclosures,

especially

for

listed

companies

(see

below)


Non
-
current

assets

(and

disposal

groups)

held

for

sale

to

be

presented

separately

in

the

BS

without

further

depreciation

/

amortisation

(IFRS

5
)


Discontinued

operations

to

be

presented

separately

in

the

IS

(IFRS

5
)


Transactions

in

a

foreign

currency

to

be

translated

at

spot

rate

(average

rate

in

practice)

when

initially

recognized

and

recognition

of

realized

and

unrealized

exchange

differences

on

monetary

items

in

the

income

statement

(IAS

21
)


Post
-
balance

sheet

events

to

be

considered

only

if

provide

evidence

of

condition

that

existed

at

closing

(adjusting

events



IAS

10
)


28






























Main

differences

with

Belgian

GAAP


No

conceptual

Framework


Standard

reporting

format

to

be

used
:



No

statement

of

cash

flows

and

statement

of

(other)

comprehensive

income


Extraordinary

income

and

expenses


Less

detailed

disclosures


Changes

in

accounting

policies

no

addressed

but

adjustment

of

opening

equity

(retained

earnings)

not

allowed


Dividends

of

the

year

to

be

treated

as

an

adjusting

event

and

recognized

as

a

liability

at

closing


No

specific

requirement

for

non
-
current

assets

held

for

sale

and

discontinued

operations


Unrealized

exchange

gains

not

recognized

as

income

but

deferred

in

the

balance

sheet


29






























Overview

of

IFRS

requirements


Revenue

(IAS

18
)


Measured

at

the

fair

value

of

the

consideration

received

or

receivable


Recognized

when

(
i
)

probable

that

future

benefits

will

flow,

(ii)

amount

of

revenue

can

be

measured

reliably

and

(iii)
:


Sale

of

goods
:

significant

risks

and

rewards

have

been

transferred,

effective

control

is

lost

and

costs

can

be

reliably

measured


Rendering

of

services
:

stage

of

completion

can

be

measured

reliably


If

transaction

with

multiple

components,

each

one

to

be

assessed

separately


Comprehensive

IASB

/

FASB

revision

project

(ED)


Construction

contracts

(IAS

11
)


Defined

as

a

contract

specifically

negotiated

for

the

construction

of

an

asset

or

a

combination

of

interrelated

assets


Revenue

recognized

by

reference

to

the

stage

of

completion

if

outcome

can

be

estimated

reliably,

otherwise

revenue

limited

to

recoverable

costs

incurred

with

any

expected

loss

recognized

immediately


Inventoried

measured

at

lower

of

full

cost

and

net

realizable

value

with

only

FIFO

and

weighted

average

allowed

(IAS

2
)


30






























Overview

of

IFRS

requirements


Provisions

(IAS

37
)


Only

recognized

when
:


Present

(legal

or

constructive)

obligation

as

a

result

of

a

past

even


Probable

outflow

of

resources


Amount

of

obligation

can

be

measured

reliably


Restructuring

only

recognized

when
:


Detailed

restructuring

plan


Restructuring

started

or

announced

before

the

balance

sheet

date


Measured

at

the

best

estimate

of

the

settlement

amount

at

closing

with

discounting

if

material


Contingent

liabilities

and

assets

not

recognized

but

just

disclosed

(IAS

37
)


31






























Main

differences

with

Belgian

GAAP


Less

precise

guidance

regarding

revenue

recognition

but

general

alignment

with

IFRS

principles


Completed

contract

method

allowed

for

construction

type

contracts


Direct

costing

and

LIFO

method

allowed

for

inventories


Provisions


Provisions

for

risks

and

charges

are

intended

to

cover

losses

or

charges,

the

nature

of

which

is

clearly

defined

and

which

at

the

balance

sheet

date

are

either

likely

to

be

incurred

or

certain

but

uncertain

as

to

their

amount

(prudence

principle

allows

wide

use

of

provisions)


Restructuring
:

decision

of

the

Board

of

Directors

sufficient

to

recognize

such

provision


Provision

for

major

inspection/overhaul

costs

and

dismantling,

removal

and

restoration

costs

:

mandatory

progressive

recognition

of

provision

for

such

costs


32






























Overview of IFRS requirements


Intangible assets (IAS 38)


Recognition and measurement principles depend on the situation


Separate acquisition:


Recognition if probable future economic benefits and reliable
measurement


Initial measurement at cost


Internally generated intangible


Only development costs to be recognized under strict
conditions


Initial measurement at cost


Acquisition as part of a business combination (see next
slides)


Wider recognition basis (
eg

in
-
process R&D)


Initial measurement at fair value


Start
-
up costs, research costs, training costs, advertising costs
to be expensed


Amortization over the useful life, unless it is indefinite in which
case it is subject to annual impairment test


33






























Overview

of

IFRS

requirements


Property,

plant

and

equipment

(IAS

16
,

IAS

23
,

IAS

20
)



Initially

measured

at

cost,

including
:



Costs

necessary

to

bring

the

asset

to

the

intended

condition

and

location



Dismantling

costs,

if

any

under

IAS

37


Borrowing

costs

if

the

PPE

takes

a

substantial

period

of

time

to

be

constructed

(IAS

23
)


Component

accounting

to

be

applied

to

significant

parts,

including

for

major

overhaul

costs


Subsequent

measurement

under

the

cost

or

the

revaluation

model

(under

strict

condition)

with

depreciation

over

the

(economic)

useful

life


Leases

(IFRIC

4

and

IAS

17
)


Arrangements

having

the

substance

of

a

lease

to

be

treated

as

such

(IFRIC

4
)


Classification

as

finance

or

operating

lease

on

the

basis

of

the

economic

substance

of

lease


Finance

lease

if

substantially

all

risks

and

rewards

incident

to

ownership

have

been

transferred

to

the

lessee



34






























Overview

of

IFRS

requirements


Impairment

(IAS

36
)



Impairment

test

to

be

performed


When

there

is

an

indication

of

impairment


Every

year

on

goodwill

and

intangible

assets

with

an

indefinite

useful

life


Impairment

loss

to

be

recognized

if

the

carrying

amount

of

an

asset

(or

cash

generating

unit



CGU)

exceeds

its

recoverable

amount,

which

is

the

higher

of
:



The

fair

value

less

cost

to

sell

of

the

asset

(or

CGU)


The

value

in

use

of

the

asset

(or

CGU)

which

represents

the

discounted

cash

flows

expected

to

arise

from

the

asset

(or

CGU)


Goodwill

tested

at

the

level

of

the

CGU(s)

expected

to

benefit

from

the

synergies

of

the

combination

and


Represents

to

lowest

level

at

which

the

goodwill

is

monitored

for

internal

management

purposes


Is

lot

larger

than

an

operating

segment


35






























Main

differences

with

Belgian

GAAP


Fixed

assets


Start
-
up

costs,

research

cost,

loan

issue

costs

and

capital

increase

costs

may

be

capitalized

as

intangible

asset

under

certain

conditions


Tax

driven

amortization

/

depreciation

allowed

(double
-
declining)


Borrowing

costs

may

be

expensed


Dismantling

obligations

of

a

PPE

not

recognized

against

the

cost

of

PPE


Component

accounting

(including

for

major

overhaul)

not

applied

in

practice


Revaluation

of

PPE

subject

to

less

conditions



Leases


Identification

and

classification

of

leases

rather

based

on

the

legal

form

of

the

contract


Financial

lease

only

if

lease

payments

cover



in

addition

to

interest

and

ancillary

costs



the

entire

fair

value

of

the

leased

asset

(full

pay
-
out

condition)

with

strike

price

of

purchase

option

only

taken

into

account

for

movable

assets

if

less

than

15
%

of

fair

value


Impairment


No

detailed

guidance

on

when

and

how

to

perform

an

impairment

test


36






























Overview

of

IFRS

requirements


Recognition

and

measurement

(IAS

39
)


All

derivative

financial

instruments

recognized

on

the

balance

sheet

and

measured

at

fair

value



Non

consolidated

equity

investments

measured

at

fair

value

with

changes

recognized

in

equity

(AFS)

or

in

the

income

statement

if

held

for

trading


Loans

and

receivable

measured

at

amortized

cost


Financial

liabilities

measured

at

amortized

cost,

unless

held

for

trading


Very

strict

conditions

to

apply

hedge

accounting


Very

strict

conditions

to

derecognize

financial

assets

(securitization

/

factoring)



Presentation

(IAS

32

and

IFRIC

2
)


Classification

of

an

instrument

as

liability

or

equity

based

on

the

substance


Split

accounting

for

compound

financial

instruments

(
eg

convertible

bond)


Own

shares

deducted

from

equity


Very

detailed

disclosures

(IFRS

7
)


Comprehensive

revision

project

on

the

recognition

and

measurement

of

financial

instruments

with

effective

date

expected

in

2015

(IFRS

9
)


37






























Main differences with Belgian GAAP


Some derivatives kept off balance sheet


Equity investment usually measured at cost


Soft conditions to apply hedge accounting and to derecognize a financial
asset


Classification as equity or liability rather based on the legal form of the
instrument and no application of split accounting


Own share presented as an asset


Less detailed disclosures


38






























Overview

of

IFRS

requirements


Differed

taxes

(DT)

arise

on
:



Temporary

differences
:

difference

between

the

carrying

amount

of

an

asset

or

liability

(i
.
e
.

book

value

in

the

IFRS

consolidated

financial

statements)

and

its

tax

base

(i
.
e
.

amount

attributed

to

that

asset

or

liability

for

tax

purposes)


Unused

tax

losses

and

tax

credits


A

DT

liability

shall

be

recognized

for

all

taxable

temporary

differences,

except

on

goodwill

and

under

specific

conditions

(initial

recognition

exemption)


A

DT

asset

shall

be

recognized

for

all

deductible

temporary

and

unused

tax

losses

/

credits

to

the

extent

that

it

is

probable

that

taxable

profit

will

be

available

against

which

the

deductible

temporary

difference

can

be

utilized,

unless

the

initial

recognition

exemption

applies


DT

are

measured

on

an

undiscounted

basis

at

the

tax

rate

expected

to

apply


Main

differences

with

Belgian

GAAP


In

individual

financial

statements
:

deferred

taxes

only

recognized

on

capital

grants

and

spread

taxation

of

capital

gains


In

consolidated

financial

statements
:

deferred

taxes

to

be

recognized

but



no

specific

guidance


39






























Overview

of

IFRS

requirements


Business

combination

(IFRS

3
R)


Transaction

in

which

an

entity

(acquirer)

takes

control

over

a

business

(
acquiree
)



Identifiable

assets

acquired

(including

soft

intangible

assets)

and

(contingent)

liabilities

assumed

measured

at

fair

value

at

acquisition

date


Goodwill

is

the

difference

between

the

consideration

transferred

to

the

seller

and

the

share

in

the

net

assets

(
remeasured

at

fair

value)

of

the

acquiree

with
:



“Full

goodwill”

option

available

on

a

case

by

case

basis


Goodwill

not

amortized

but

subject

to

a

annual

impairment

test

(see

above)


Acquisition

related

costs

to

be

expensed

immediately


Contingent

considerations

measured

at

fair

value

with

changes

recognized

in

the

income

statement


Negative

goodwill

immediately

recognized

as

income


Step

acquisition

treated

as

if

the

existing

non

controlling

interest

is

initially

sold

at

fair

value

(with

a

gain

or

loss

recognized)

and

the

controlling

interest

immediately

acquired

in

one

step


40






























Overview of IFRS requirements


Consolidation












Consolidation

of

subsidiary

into

the

presentation

currency

of

the

group

(IAS

21
)


All

assets

and

liabilities

are

translated

at

the

closing

rate


Income

and

expenses

are

translated

at

transaction

(average)

rate


All

resulting

exchange

difference

is

recognized

in

other

comprehensive

income

(equity)

with

recycling

in

the

income

statement

on

disposal


Classification
% voting rights
(presumption)
Substantive
criterion
Accounting
Treatment
Other equity
investments
Associate
Subsidiary
(including SPE)
Joint venture
No significant
influence
Significant
influence
Control
Joint control
<20%
20%
-
50%
>50%
Fair value in
P/L or equity
Equity method
Consolidation
N/A
Equity method
(proportionate)
IAS 39
(IFRS 9)
IAS
28
(IAS 28R)
IAS 31
(IFRS 11/IAS 28R)
Standard
(New/revised
standard)
IAS 27
(IFRS 10)
41






























Main

differences

with

Belgian

GAAP


Business

combination


Goodwill

measured

by

reference

to

the

book

value

of

the

assets

acquired

/

liabilities

assumed

(fair

value

allocation

made

to

the

extent

possible

and

limited

to

the

first

consolidation

difference)

and

amortized

over

a

period

not

exceeding

five

years

(unless

justified)


Acquisition

related

costs

included

in

goodwill


Contingent

consideration

only

recognized

when

realized


Negative

goodwill

presented

in

equity

and

recognized

insofar

and

when

expectation

of

unfavorable

future

result

materializes


Treatment

of

step

acquisitions

not

specifically

addressed


Consolidation


Non

rebuttable

presumption

of

control

in

case

voting

rights

exceeds

50
%


Potential

voting

rights

no

considered

in

the

assessment

of

control

/

joint

control

/

significant

influence


Proportionate

consolidation

is

the

benchmark

for

joint

ventures


No

requirement

to

apply

consistent

accounting

policies

to

associates


42






























Overview

of

IFRS

requirements


Cost

of

providing

employee

benefits

is

recognized

in

the

period

in

which

the

entity

receives

services

from

the

employee,

rather

than

when

the

benefits

are

paid

or

payable


Post
-
employment

benefits

(
eg

pensions

and

health

care)

are

categorized

as

either
:


Defined

contribution

plans
:

expense

recognized

in

the

period

in

which

the

contribution

is

payable


Defined

benefits

plans
:

liability

recognized

for

the

net

of

the

present

value

of

the

defined

benefit

obligation

and

the

fair

value

of

any

plan

assets


Actuarial

gains

and

losses

are

recognized

immediately

in

other

comprehensive

income

(IAS

19
R)

Main

differences

with

Belgian

GAAP


No

requirement

to

recognize

a

provision

for

unfunded

defined

benefit

obligation


43




First
-
time

adoption

of

IFRS (IFRS 1)
































44






























Overview of an IFRS conversion process for a 2012 closing with one

comparative period



Date of
transition

to
IFRS Opening
IFRS BS



Closing

date
first

IFRS
Financial
Statements


Closing

last
FS
under

previous

GAAP

2011

2012

Publication

first

IFRS
financial

statements

45






























Opening

Balance

Sheet


Opening

balance

sheet

to

be

prepared

at

the

date

of

transition

to

IFRS

(e
.
g
.

January

1
,

2011
)


This

is

the

starting

point

for

the

entity’s

subsequent

accounting

under

IFRS

Accounting

policies


Based

on

each

IFRS

effective

at

the

reporting

date

of

the

first

IFRS

financial

statements

(e
.
g
.

December

31
,

2012
)

unless
:


Optional

exceptions


Exceptions

to

retrospective

application


Recognise

all

assets

and

liabilities

to

be

recognised

under

IFRS


Derecognise

assets

or

liabilities

if

IFRS

does

not

permit

recognition


Proper

reclassification

in

accordance

with

IFRS

(liabilities,

equity,

...
)


Apply

IFRS

in

measuring

all

recognised

assets

and

liabilities

Recognise

adjustments

directly

in

equity

at

date

of

transition

(unless

exceptions

46






























Explanation

of

transition

to

IFRS


Reconciliation

of

equity

reported

under

previous

GAAP

to

its

equity

under

IFRS

on
:


The

date

of

transition

to

IFRS


The

end

of

the

latest

period

presented

in

the

entity’s

most

recent

annual

financial

statements

under

previous

GAAP


Reconciliation

of

the

total

comprehensive

income

reported

under

previous

GAAP

for

the

latest

period

in

the

entity’s

most

recent

financial

statements

to

its

total

comprehensive

income

under

IFRS


Recognition

or

reversal

of

impairment

losses

for

the

first

time

in

opening

balance

sheet

(see

IAS

36
)

47




Concluding

comments
































48