The headline event for December year-ends is obviously that IFRS 9 and IFRS 15 are now both effective. However, it should not be overlooked that there are a number of other Amendments to IFRSs and IFRS Interpretations that have also become effective for periods beginning on or after 1 January 2018. We outline the changes below.
IFRIC 22 Foreign Currency Transactions and Advance Consideration
This IFRS Interpretations Committee (IFRIC) interpretation considers how to determine the date of the transaction when applying IAS 21 ‘The Effects of Changes in Foreign Exchange Rates’ to advance consideration. If an entity pays or receives foreign currency consideration in advance, for example, for the purchase or sale of property, plant and equipment or inventory, IAS 21 requires the entity to translate the foreign currency item using the exchange rate at the ‘date of the transaction’. The Interpretation concludes that:
- The date of the transaction is the date of initial recognition of the non-monetary asset or liability arising from the payment or receipt of advance consideration
- If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.
Entities can choose to apply the Interpretation either:
- Retrospectively for each period presented
- Prospectively to items that are initially recognised on or after the beginning of the reporting period in which the Interpretation is first applied, or
- Prospectively from the beginning of a prior reporting period presented as comparative information.
Amendments to IFRS 2: Classification and Measurement of Share-based Payment Transactions
This Amendment to IFRS 2 provides clarification on the accounting for:
- The effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments:
The same approach should be used for cash-settled arrangements as is used for equity-settled share based payments.
- Share-based payment transactions with a net settlement feature for withholding tax obligations:
An exception has now been added so that, where the entity settles the share-based payment arrangement net, the award is classified as equity-settled in its entirety, if the entire share-based payment would otherwise be classified as equity-settled if it had not included the net settlement feature.
- Modifications that change the classification from cash-settled to equity-settled:
The change addresses the derecognition of the liability, the measurement of the equity instruments on change of classification and accounting for the difference arising on the date of modification.
The amendments are to be applied prospectively, although retrospective application is allowed if this is possible without the use of hindsight.
Amendments to IAS 40: Transfers of Investment Property
IAS 40 requires a property to be transferred to, or from, investment property only when there is a change in use. This Amendment clarifies that a change in management’s intentions for the use of a property does not, in isolation, provide evidence of a change in use: an entity must have taken other observable actions to support such a change. IAS 40.57 provides examples of appropriate sources of evidence.
The amendments are to be applied prospectively, although retrospective application is allowed if this is possible without the use of hindsight. An entity should consider the transitional rules carefully as the requirements are specific and include disclosures if the Amendment is applied prospectively.
Amendments to IAS 28: Measuring investees at fair value through profit or loss on an investment-by-investment basis (part of 2014-16 Annual Improvements Cycle)
IAS 28 has been amended to clarify that a venture capital organisation, or a mutual fund, unit trust or similar entity (including investment-linked insurance funds) may choose, on an investment-by-investment basis, to account for its investments in joint ventures and associates at fair value or using the equity method. The choice of method for each investment is made on initial recognition.
This annual improvement must be applied retrospectively; no transitional relief is available.
The following Standards and Amendments are also effective for periods beginning on or after 1 January 2018:
In addition, two more minor changes to IFRS 1 First-time Adoption of IFRSs’ and IFRS 12 ‘Disclosure of Interests in Other Entities’ have become effective.
Read more about the FRC’s Thematic Review of IFRS 9 and IFRS 15 transitional disclosures and the results of the FRC’s other Thematic Reviews of annual reports in 2018 disclosures [link to BE3 article].
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