International Financial Reporting Standards (“IFRS”) – complex accounting issues
The recent changes in accounting rules have been fuelled by a combination of actions and events which have undoubtedly left a distinct mark on the accounting profession. Accounting and auditing practitioners will need to be aware of these changes and to assess the extent to which these will affect them during the course of their work. This article provides an overview of some of the more complex current accounting issues under IFRS.
Fair Value Measurement - Most practitioners will be aware of the number of inconsistencies in the determination and the disclosure of fair value measurements under current IFRS. These inconsistencies have led to diversity in practice and to a lack of comparability. The new IFRS 13, which addresses these issues, is applicable for annual periods beginning on or after 1 January 2013, with earlier application being permitted.
Control - Some practitioners might be of the view that the assessment of control is principally a matter of determining whether an investor has a majority equity holding in an investee. While this assessment can sometimes be conclusive for relatively simple structures, IFRS require entities to make a more detailed assessment based on substance. In terms of the new IFRS 10, certain entities will be required to consolidate certain investees for the first time. Conversely, the Standard can also result in certain investees ceasing to be classified as subsidiaries.
Joint arrangements - Most practitioners will be familiar with the current accounting policy choice for jointly controlled entities. The new IFRS 11 eliminates this choice and revises the classification of joint arrangements. In terms of IFRS 11, certain entities will need to resort to the equity method of accounting for their joint arrangements. Conversely, certain entities which currently present their interest in joint arrangements within one line item in their Statements of Comprehensive Income and Financial Position, will need to expand that presentation.
Business Combinations - The current version of IFRS 3 Business Combinations was revised in 2008. The accounting treatment of business combinations includes identifying whether the transaction falls within the scope of IFRS 3, identifying the acquirer, measuring the consideration transferred and the assets acquired and the liabilities assumed and calculating goodwill and any non-controlling interests.
Financial risk disclosures - IFRS 7 addresses the disclosures that need to be made by an entity in connection with its financial risks. The extent of an entity’s disclosure depends on the nature of its financial instruments and the extent of the risks to which it is exposed. The financial risks which are addressed by this Standard include credit risk, liquidity risk and market risk.
Accounting issues applicable to Investment Funds - The fund industry faces certain accounting issues that are less prevalent in other industries. In particular, the recent amendment entitled Investment Entities requires a parent that is an investment entity to measure its investments in particular subsidiaries at fair value through profit or loss rather than consolidating those subsidiaries in its financial statements. This is an important change in perspective, aligning more closely to the typical user needs of this industry’s financial statements.
Impairment considerations - Impairment considerations are mainly addressed by IAS 36 Impairment of Assets. This Standard focuses on the term “recoverable amount” and the level at which that amount needs to be determined. It requires entities to recognise an impairment loss to the extent that the carrying amount of an item (or a group of items) exceeds that item’s (those items’) recoverable amount.
Deferred tax - Accounting for deferred tax is typically another relatively challenging topic. In terms of IAS 12 Income Taxes, entities are required to recognise a deferred tax liability or asset (with certain limited exceptions) to the extent that it is probable that recovery or settlement of the carrying amount of an asset or a liability will make future tax payments larger or smaller than they would be if such recovery or settlement were to have no tax consequences.
Deloitte is organising a series of IFRS training sessions which will address the above topics and which will qualify for 18 CPE hours (core). Giselle Cini, senior manager within Deloitte’s Technical Department will be delivering these sessions. For more information please visit http://www.deloitte.com/mt/ifrs or send an email on email@example.com
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