The headline events for period ends beginning on or after 1 January 2019 (including interim accounts) are clearly that IFRS 16, and to a lesser extent IFRIC 23, become effective for those entities that have not early adopted them. We have produced separate guidance on each of these changes at:
IFRS 16 disclosures in interim financial statements
Uncertain tax treatments - do you need to change how you account for them?
However, a number of changes to existing standards became effective from 1 January 2019 – this article summarises the impact these will have on June 2019 interim accounts.
Amendments to IAS 19 Employee benefits
The amendments provide clarification on the impact of a curtailment, settlement or amendment (hereafter a ‘change’) to a defined benefit pension plan during an accounting period. There were also planned amendments to IFRIC 14 relating to asset ceilings that had been released for exposure at the same time but the implementation of these has not been pursued at this time.
The IAS 19 amendments make it clear that when a plan undergoes a change (as defined above), the past service cost or gain or loss on settlement is calculated using revised actuarial assumptions at the date of change for both the ‘before’ and ‘after’ position. This ensures that the past service cost or gain or loss on settlement only relates to the impact of the change itself and not to changes in assumptions for the period up to the change, which are reflected in actuarial re-measurements.
Current service cost and net interest are also based on the revised assumptions. For example, net interest is based upon the re-measured plan asset or liability taking into account the revised assumptions, and on a discount rate reflecting the position at the date of change. This means that for accounting purposes entities will be required to consider the periods before and after the change separately with two sets of assumptions, unless they are genuinely unchanged. The accounting can be seen as similar to derecognition accounting for a financial instrument – derecognising one asset/liability and recognising a fresh one in its stead.
Early application is permitted.
Amendments to IAS 28 Investments in associates and joint ventures
These amendments clarify that IFRS 9, including its impairment model, should be applied to interests in associates and joint ventures that form part of its entity’s net investment and that are not equity accounted.
We believe that in most cases this amendment will provide clarification: the amendment has been made as some users found the wording of IAS 28 in this area ambiguous. Early application is permitted and the amendment applies retrospectively although there are similar transitional reliefs as with IFRS 9 itself.
Amendments to IFRS 9 Financial Instruments
IFRS 9 has been amended to state that the ‘solely payments of principal and interest’ test (one of the two tests governing classification and measurement of a financial asset) is not failed just because a party terminating the contract early receives ‘reasonable additional compensation’ instead of paying it. The definition of reasonable additional compensation is unchanged but it no longer matters which party pays it.
The amendment can be applied early, and applies retrospectively.
Annual Improvements 2015-2017 Cycle
Other minor amendments and clarifications from this cycle that become effective from 1 January 2019 are as follows:
- IFRS 11 Joint arrangements: when an entity obtains joint control over a joint operation, previously held interests in the operation are not re-measured. This contrasts with the position for when control is obtained.
- IAS 12 Income taxes: it has been clarified that the requirements in paragraph 52B of IAS 12 apply to all income tax consequences of dividends and not just in the circumstances of paragraph 52A.
- IAS 23 Borrowing costs: it has been clarified that once the related asset is ready for its intended use or sale, any remaining borrowing specific to that asset then forms part of general borrowing for the purposes of further applications of IAS 23.
For help and advice on interim accounts, please get in touch with your regular BDO contact or Richard Matthews.
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