IFRSs and Their Adoption in Bangladesh

Presentation by:

Dr. Swapan Kumar Bala FCMA

Professor Department of Accounting & Information Systems University of Dhaka

Issues to be covered:
Introduction to IFRSs Effective IFRSs/IASs on 1-1-2012 Ineffective IFRSs/IASs on 1-1-2012 Corporate Reporting in Bangladesh Adoption of IFRSs/IASs in Bangladesh Recent Developments in IFRSs/IASs

Updated Classified Inventory of IFRSs/IASs (May 2012)

Recent Developments FRAMEWORK IFRSs on Inter-Entity Investments: Recent Amendments [IFRS 10, IFRS 11, IFRS Conclusion
12, IFRS 13, IAS 27 & IAS 28]

Introduction to IFRSs
Accounting or reporting standards provide principles for preparing financial reports and determine the types and amounts of information that must be provided to users of financial information, including investors and creditors, so that they may make informed decisions (CFA Institute 2010: 103). According to the definition under paragraph 7 of IAS 1 Presentation of Financial Statements: International Financial Reporting Standards (IFRSs) are Standards and Interpretations adopted by the International Accounting Standards Board (IASB). They comprise: (a) International Financial Reporting Standards; (b) International Accounting Standards; and (c) Interpretations developed by the IFRS Interpretations Committee or the former Standing Interpretations Committee (SIC) (IASB 2011).
Note: The IFRS Interpretations Committee was until 2002 known as the Standing Interpretations Committee (SIC), and between 2002 and 31 March 2010 known as the International Financial Reporting Interpretations Committee (IFRIC).

Effective IFRSs/IASs on 1-1-2012:

8 IFRSs and 29 IASs . total 37 IFRSs/IASs Valid 8 IFRSs (issued between Jun 03 & Nov 09) IFRS 1 First-time Adoption of International Financial Reporting Standards IFRS 2 Share-based Payment IFRS 3 Business Combinations IFRS 4 Insurance Contracts IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 7 Financial Instruments: Disclosures IFRS 8 Operating Segments

Effective IFRSs/IASs on 1-1-2012:

Valid 29 IASs (issued between Jan 1975 & Dec 2000) IAS 1 Presentation of Financial Statements IAS 2 Inventories IAS 7 Cash Flow Statements IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 10 Events After the Balance Sheet Date IAS 11 Construction Contracts IAS 12 Income Taxes IAS 16 Property, Plant and Equipment IAS 17 Leases IAS 18 Revenue IAS 19 Employee Benefits IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 21 The Effects of Changes in Foreign Exchange Rates IAS 23 Borrowing Costs IAS 24 Related Party Disclosures

Effective IFRSs/IASs on 1-1-2012:

Valid 29 IASs (issued between Jan 1975 & Dec 2000)
IAS 26 IAS 27 IAS 28 IAS 29 IAS 31 IAS 32 IAS 33 IAS 34 IAS 36 IAS 37 IAS 38 IAS 39 IAS 40 IAS 41 Accounting and Reporting by Retirement Benefit Plans Consolidated and Separate Financial Statements Investments in Associates Financial Reporting in Hyperinflationary Economies [not yet adopted by ICAB] Interests in Joint Ventures Financial Instruments: Presentation Earnings per Share Interim Financial Reporting Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets Intangible Assets Financial Instruments: Recognition and Measurement Investment Property Agriculture

Ineffective IFRSs/IASs on 1-1-2012:

12 IASs (with their latest titles) superseded or withdrawn IAS 3 Consolidated Financial Statements superseded in 1989 by IAS 27 and IAS 28 IAS 4 Depreciation Accounting withdrawn in 1999, replaced by IAS 16, 22, and 38 IAS 5 Information to Be Disclosed in Financial Statements superseded by IAS 1 in 1997 IAS 6 Accounting Responses to Changing Prices superseded by IAS 15 (also withdrawn December 2003 IAS 9 Accounting for Research and Development Activities superseded by IAS 38 IAS 13 Presentation of Current Assets and Current Liabilities superseded by IAS 1 IAS 14 Segment Reporting superseded by IFRS 8 IAS 15 Information Reflecting the Effects of Changing Prices withdrawn December 2003 IAS 22 Business Combinations superseded by IFRS 3 IAS 25 Accounting for Investments superseded by IAS 39 and IAS 40 IAS 30 Disclosures in the Financial Statements of Banks and Similar Financial Institutions superseded by IFRS 7 IAS 35 Discontinuing Operations superseded by IFRS 5

Corporate Reporting in Bangladesh

Frequency of Reporting 28 Sept 1987: Half-yearly reporting 27 Sept 2009: Quarterly reporting (Q ending Sep09)-IAS 34 Separate Reporting IFRS-based Reporting: 22 Oct 1997 for listed companies* (25 June 2003: Banks . IAS 30**) CG Reporting: 17 Sept 1996 (Banks; REVISED 24.7.2003); 20.2.2006 SEC CSR Reporting by Banks: 01.6.2008 Green Reporting by Banks: 27.2.2011 (Q ending June11) Means of Reporting 27.9.2009: Newspapers (2) & Web-based (Q ending Sep09)
* the International Accounting Standards as adopted by the Institute of Chartered Accountants of Bangladesh [u/r 12(2) of SER 87] & the applicable International Accounting Standard (IAS)

[Form B: Forms of the Independent Auditors Report u/r 12(3)]

** Issued in August 1990 w.e.f. 1991, reformatted in 1994; amended by IAS 39 in Dec. 1998 w.e.f. 2001; superseded by IFRS 7 issued in August 2005 effective from 1.1.2007

Adoption of IFRSs/IASs in Bangladesh

As claimed by Mr. Anwaruddin Chowdhury FCA (ICABs 2001 President), The ICAB is the sole custodian, professional body in Bangladesh concerned with the adoption and issuance of IAS/IFRS and ISA as the Bangladesh Accounting Standards (BAS) and the Bangladesh Standards on Auditing (BSA) respectively (Chowdhury 2010: 24). But this mandate is not explicitly given by the regulations of the ICAB.
Following is the standard-adoption process of the ICAB: In the adoption process, an IAS/IFRS or ISA is first considered by the Technical and Research Committee (TRC) of the Council of ICAB. Thereafter it is critically reviewed by a nominated sub-committee comprising of one or two members who would undertake a stringent vetting exercise to ensure elimination of any anomalies or inconsistencies and ensure conformity with the requirement of the existing legal regulatory requirements. Based on the recommendations of the Sub-committee and taking into consideration necessary modifications, the TRC then formulates its recommendation to the Council for adoption. Once approved by the Council, it becomes a definitively adopted Bangladesh Financial Reporting Standard (BFRS) or Bangladesh Standard on Auditing (BSA) (Chowdhury 2010: 24).

Adoption of IFRSs/IASs in Bangladesh

30
Sl. # Framework/ IAS/IFRS Conceptual Framework (2010) IFRS 1 (Jun 2003) IFRS 2 (Feb 2004) IFRS 3 (Mar 2004) IFRS 4 (Mar 2004) Framework/ BAS/BFRS Apr. 2004 ** NYE NYE NYE NYE NYE BAS 1 BAS 2 BAS 7 BAS 8 Yes Yes Yes Yes

39
Sept. 2008 Yes Yes Yes Yes Yes Yes Yes Yes NYE NYE NYE NYE NYE Yes Yes Yes Yes

36
Dec. 2009 Yes Yes Yes Yes Yes Yes Yes Yes NYE NYE NYE NYE NYE Yes Yes Yes Yes Dec. 2011 status Effective on or after 01.01.2009 01.01.2007 01.01.2010 01.01.2010 01.01.2007 01.01.2007 01.01.2010 01.01.2010 01.01.2007 01.01.2007 01.01. 1999 01.01.2007

1 2 3 4 5 6 7 8 9* 10 11 12 13 14 15 16 17

BFRS 1 BFRS 2 BFRS 3 BFRS 4 BFRS 5 BFRS 6 BFRS 7 BFRS 8

IFRS 5 (Mar 2004)

IFRS 6 (Dec 2004)

IFRS 7 (Aug 2005)

IFRS 8 (Nov 2006)

IFRS 9 (Nov 2009) IFRS 10 (May 2011)

IFRS 11 (May 2011) IFRS 12 (May 2011) IFRS 13 (May 2011) IAS 1 IAS 2 IAS 7 IAS 8

Adoption of IFRSs/IASs in Bangladesh

30
Sl. #3 18 19 20 21 22 23 24 Framework/ IAS/IFRS IAS 10 IAS 11 IAS 12 IAS 16 IAS 17 IAS 18 IAS 19 Framework/ BAS/BFRS BAS 10 BAS 11 BAS 12 BAS 16 BAS 17 BAS 18 BAS 19 Apr. 2004 Yes Yes Yes Yes Yes Yes Yes

39
Sept. 2008 Yes Yes Yes Yes Yes Yes Yes

36
Dec. 2009 Yes Yes Yes Yes Yes Yes Yes Dec. 2011 status
Effective on or after

01.01.2007 01.01. 1999 01.01. 1999 01.01.2007 01.01.2007 01.01.2007 01.01.2004 01.01. 1999 01.01.2007 01.01.2010 01.01.2007 01.01.2007

25 26 27 28
29 30 31

IAS 20 IAS 21 IAS 23 IAS 24

IAS 26 IAS 27 (May 2011) IAS 28 (May 2011)

BAS 20 BAS 21 BAS 23 BAS 24

BAS 26

Yes Yes Yes Yes

Yes

Yes Yes Yes Yes

Yes NYE NYE

Yes Yes Yes Yes

Yes NYE NYE

32
33 34 35

IAS 29
IAS 31 (May 2011) IAS 32 IAS 33 BAS 32 BAS 33

Yes

NYE Yes Yes

NYE Yes Yes

01.01.2010 01.01.2007

Adoption of IFRSs/IASs in Bangladesh

30
Sl. # 36 37 38 39 40* 41 42 43a 44a 45a Framework/ IAS/IFRS IAS 34 IAS 36 IAS 37 IAS 38 IAS 39 (rev 2003, 04) IAS 40 IAS 41 IAS 27 (rev 2003) IAS 28 (rev 2003) IAS 31 (rev 2003) Framework (1989) IAS 14 (1997) IAS 22 (Dec. 1993) IAS 25 (ref 1994) IAS 27 (ref 1994) IAS 28 (ref 1994) IAS 30 (ref 1994) IAS 31 (ref 1994) IAS 35 (1994) Framework/ BAS/BFRS BAS 34 BAS 36 BAS 37 BAS 38 BAS 39 (rev 2003, 04) BAS 40 BAS 41 BAS 27 (rev 2003) BAS 28 (rev 2003) BAS 31 (rev 2003) Framework (1989) BAS 14 (1997) BAS 22 (Dec. 1993) BAS 25 (ref 1994) BAS 27 (ref 1994) BAS 28 (ref 1994) BAS 30 (ref 1994) BAS 31 (ref 1994) BAS 35 (1994) Apr. 2004 Yes Yes Yes Yes Yes ------Yes Yes Yes Yes Yes Yes Yes Yes Yes

39
Sept. 2008 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes ----Yes --**

36
Dec. 2009 Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes Yes *** ---- --** Dec. 2011 status Effective on or after 01.01. 1999 01.01.2005 01.01.2007 01.01.2005 01.01.2010 01.01.2007 01.01.2007 01.01.2010 01.01.2007 01.01.2007

S U P E R S E E D

46 47 48 43b 44b 49 45b 50

---- -----

IAS 22 supers. by IFRS 3 ** IAS 35 supers. by IFRS 5. *** IAS 22 supers. by IFRS 8.

Recent Developments in IFRSs/IASs

New IFRSs/IASs Issued in May 2011
IFRS 9 Financial Instruments (partially developed and issued in November 2009; w.e.f. 1 January 2013; IFRS 9 first replaces paragraphs of IAS 39 relating to the classification and measurement of financial assets; in Oct 2010 the IASB added to IFRS 9 the requirements for classification and measurement of financial liabilities; and IFRS 9 will ultimately replace IAS 39 in its entirety). Consolidated Financial Statements (replaces the consolidation guidance in IAS 27 Consolidated and Separate Financial Statements and SIC-12 Consolidation Special Purpose Entities; issued on 12 May 2011 w.e.f. 1 January 2013) Joint Arrangements (replaces IAS 31 Interests in Joint Ventures; issued on 12 May 2011 w.e.f. 1 January 2013) Disclosure of Interests in Other Entities (issued on 12 May 2011 w.e.f. 1 January 2013) Fair Value Measurement (which replaces the guidance on fair value measurement in existing IFRS accounting literature with a single standard; issued on 12 May 2011 w.e.f. 1 January 2013) Separate Financial Statements (revised on 12 May 2011; w.e.f. 1 January 2013; previous title IAS 27 Consolidated and Separate Financial Statements) Investments in Associates and Joint Ventures (revised and renamed on 12 May 2011; w.e.f. 1 January 2013; previous title IAS 28 Investments in Associates)

IFRS 10

IFRS 11 IFRS 12 IFRS 13

IAS 27

IAS 28

Recent Developments in IFRSs/IASs

04 IASs superseded
IAS 27 Consolidated and Separate Financial Statements issued as IAS 27 Consolidated Financial Statements and Accounting for Investments in Subsidiaries in April 1989 w.e.f. 1990, reformatted in 1994, revised in 2003 with new title (Consolidated and Separate Financial Statements) w.e.f. 2005; Superseded by IFRS 10, IFRS 12 and IAS 27 (rev. 2011) effective 2013 IAS 28 Investments in Associates issued in April 1989 as IAS 28 Accounting for Investments in Associates; reformatted in 1994; revised in December 2003 with new title (Investments in Associates) w.e.f. 2005; Superseded by IAS 28 (rev. 2011) and IFRS 12 wef 2013 IAS 31 Interests in Joint Ventures issued Dec. 1990 as IAS 31 Financial Reporting of Interests in Joint Ventures w.e.f. 1992; reformatted in 1994; revised in Dec. 2003 with new title (Interests in Joint Ventures) w.e.f. 2005; Superseded by IFRS 11 and IFRS 12 effective 2013 IAS 39 Financial Instruments: Recognition and Measurement (revised 2003 and 2004; partially deleted; paragraphs relating to the classification and measurement of financial assets replaced in November 2009 by IFRS 9 effective from 1 January 2013; ultimately replaced by IFRS 9 in its entirety); IAS 39 and IAS 40 replace IAS 25 Accounting for Investments

Updated Classified Inventory of IFRSs/IASs

Part 1: Framework - Conceptual Framework for Financial Reporting 2010 (Sept. 2010) Part 2: Presentation of Financial Statements and Revenue-Expense Recognition and Fair Value Measurement [6] IAS 1 Presentation of Financial Statements IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors IAS 18 Revenue IAS 20 Accounting for Government Grants and Disclosure of Government Assistance IAS 23 Borrowing Costs IFRS 13 Fair Value Measurement** Part 3: Accounting for Assets [10] IAS 2 Inventories IAS 16 Property, Plant and Equipment IAS 38 Intangible Assets IAS 36 Impairment of Assets IAS 40 Investment Property IAS 41 Agriculture IFRS 5 Non-current Assets Held for Sale and Discontinued Operations IFRS 6 Exploration for and Evaluation of Mineral Resources IFRS 9 Financial Instruments** IAS 39 Financial Instruments: Recognition and Measurement Part 4: Accounting for Liabilities [6] IAS 37 Provisions, Contingent Liabilities and Contingent Assets IAS 17 Leases IAS 19 Employee Benefits IAS 26 Accounting and Reporting by Retirement Benefit Plans IFRS 2 Share-based Payment IAS 12 Income Taxes

May 2012

Updated Classified Inventory of IFRSs/IASs

Part 5: Accounting for Cash Flows [1] IAS 7 Statement of Cash Flows Part 6: Other Disclosure Issues [7] IAS 10 Events after the Reporting Period IFRS 8 Operating Segments IAS 34 Interim Financial Reporting IAS 24 Related Party Disclosures IAS 33 Earnings per Share IFRS 7 Financial Instruments: Disclosures IAS 32 Financial Instruments: Presentation Part 7: Accounting for Equity Interests in Other Entities [6] IFRS 3 Business Combinations IFRS 10 Consolidated Financial Statements** IAS 27 Separate Financial Statements (2011) ** IFRS 11 Joint Arrangements** IFRS 12 Disclosure of Interests in Other Entities** IAS 28 Investments in Associates and Joint Ventures (2011)*** Part 8: Foreign Currency [1] IAS 21 The Effects of Changes in Foreign Exchange Rates Part 9: IFRSs for Special Entities/Purposes and First-Time Adoption of IFRSs [4] IFRS 4 Insurance Contracts IAS 11 Construction Contracts IAS 29 Financial Reporting in Hyperinflationary Economies** IFRS 1 First-time Adoption of International Financial Reporting Standards

May 2012

Recent Developments in IFRSs/IASs

Changes in Conceptual Framework
Framework (1989): Framework for the Preparation and Presentation of Financial Statements (the Framework) was published by IASC in July 1989 and adopted by the IASB in April 2001. Conceptual Framework 2010: Conceptual Framework for Financial Reporting 2010 (the IFRS Framework) approved by the IASB in September 2010 and thus, the Framework (1989) withdrawn to the extent of coverage similar to the IFRS Framework (2010).

Changes in Conceptual Framework

Objectives of Financial Reporting:
Title Content Framework (1989) The objective of financial statements The objective of financial statements is to provide information about the financial position, performance and changes in financial position of an entity that is useful to a wide range of users in making economic decisions. [para 12] financial statements (of an entity) Conceptual Framework 2010 The objective of general purpose financial reporting
The objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity. Those decisions involve buying, selling or holding equity and debt instruments, and providing or settling loans and other forms of credit. [para OB2]

Scope

general purpose financial reporting (of the reporting entity) Users a wide range of users existing and potential investors, lenders and other creditors Use in making economic decisions in making decisions about providing resources to the entity Informati information about the financial financial information about the on about position, performance and changes reporting entity [thus does not list the in financial position of an entity information within the objective itself]

Changes in Conceptual Framework

Reporting Entity (IFRS Framework ExpDraft):
A reporting entity is a circumscribed area of economic activities whose financial information has the potential to be useful to existing and potential equity investors, lenders and other creditors who cannot directly obtain the information they need in making decisions about providing resources to the entity and in assessing whether management and the governing board of that entity have made efficient and effective use of the resources provided. [RE2] A reporting entity has three features: (a) economic activities of an entity are being conducted, have been conducted or will be conducted; (b) those economic activities can be objectively distinguished from those of other entities and from the economic environment in which the entity exists; and (c) financial information about the economic activities of that entity has the potential to be useful in making decisions about providing resources to the entity and in assessing whether the management and the governing board have made efficient and effective use of the resources provided. These features are necessary but not always sufficient to identify a reporting entity. [RE3]

Changes in Conceptual Framework

Qualitative Characteristics of Information:
Framework (1989) Understandability Relevance Materiality Reliability Faithful representation Substance over form Neutrality Prudence Completeness Comparability Constraints on relevant and reliable information Timeliness Balance between benefit and cost Balance between qualitative characteristics True and fair view/fair presentation Conceptual Framework 2010 Fundamental qualitative characteristics Relevance Materiality Faithful representation Enhancing qualitative characteristics Comparability Verifiability Timeliness Understandability THE COST CONSTRAINT ON USEFUL FINANCIAL REPORTING
Qualitative characteristics not included

Transparency, high quality, internal consistency, true and fair view or fair presentation and credibility [as different words to describe information]

Changed Set of Financial Statements

A complete set of financial statements (IAS 1): A statement of financial position (previously titled as balance sheet) at the end of the period; A statement of comprehensive income for the period
[presented as either (a) in a single statement of comprehensive income, or (b) in two statements: a statement displaying components of profit or loss (separate income statement) and a second statement beginning with profit or loss and displaying components of other comprehensive income (statement of comprehensive income);

A statement of changes in equity for the period; A statement of cash flows (previously titled as cash flow statement) for the period; Notes, including a summary of significant accounting policies and other explanatory information; and A statement of financial position at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement of items in its financial statements.

Other Comprehensive Income (IAS 1)

Items of income and expenses (including reclassification adjustments) that are not recognized in profit or loss, as required or permitted by other IFRS. The components of other comprehensive income include: (a) changes in revaluation surplus (see IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets); (b) actuarial gains and losses on defined benefit plans recognised in accordance with paragraph 93A of IAS 19 Employee Benefits; (c) gains and losses arising from translating the financial statements of a foreign operation (see IAS 21 The Effects of Changes in Foreign Exchange Rates); (d) gains and losses from investments in equity instruments measured at fair value through other comprehensive income in accordance with paragraph 5.4.4 of IFRS 9 Financial Instruments; (e) the effective portion of gains and losses on hedging instruments in a cash flow hedge (see IAS 39).

IFRSs on Inter-Entity Investments: Recent Amendments

Old Versions & Titles (prior to 12.5.2011) IAS 27 Consolidated and Separate Financial Statements New Versions & Titles (on 12.5.2011) IFRS 10 Consolidated Financial Statements IAS 27 Separate Financial Statements [2011] IAS 28 Investments in Associates IAS 28 Investments in Associates and Joint Ventures [2011] IAS 31 Interests in Joint Ventures* IFRS 11 Joint Arrangements Disclosure requirements of: IFRS 12 Disclosure of IAS 27 Consolidated and Separate Involvement with Other Financial Statements Entities IAS 28 Investments in Associates IAS 31 Interests in Joint Ventures*
Superseded

by IFRS 10

*Superseded by IFRS 11

Interaction between IFRSs 10, 11, 12 and IAS 28 Control Alone?

yes
IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IAS 28 Investments in Associates and Joint Ventures IFRS 9 Financial Instruments

no

Consolidation in accordance with IFRS 10

Disclosures in accordance with IFRS 12 yes

Joint Control?

no Significant influence? yes no IFRS 9

Define type of joint arrangement in accordance with IFRS 11

Joint operation Joint venture

Account for assets, liabilities, revenues and expenses

Account for an investment in accordance with IAS 28

Disclosures in accordance with IFRS 12

Disclosures in accordance with IFRS 12

24

IFRS 10 Consolidated Financial Statements (2011)

Objective: The objective of this IFRS is to establish principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities [IFRS 10.1]. Control: An investor controls an investee if and only if the investor has all the following: (a) power over the investee*; (b) exposure, or rights, to variable returns from its involvement with the investee**; and (c) the ability to use its power over the investee to affect the amount of the investor's returns. (IFRS 10.7) * when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee's returns (IFRS 10.10).

** when the investor's returns from its involvement have the potential to vary as a result of the investee's performance. The investor's returns can be only positive, only negative or wholly positive and negative (IFRS 10.15).

IFRS 11 Joint Arrangements (2011)

Reasons for issuing IFRS 11 The IFRS is concerned principally with addressing two aspects of IAS 31 Interests in Joint Ventures [rev. Dec. 2003]: first, that the structure of the arrangement was the only determinant of the accounting and, second, that an entity had a choice of accounting treatment for interests in jointly controlled entities. [IFRS 11.IN3] IFRS 11 improves on IAS 31 by establishing principles that are applicable to the accounting for all joint arrangements. [IFRS 11.IN4]
26

Core Principles & Key Definitions

Core principle The core principle of IFRS 11 is that a party to a joint arrangement determines the type of joint arrangement in which it is involved by assessing its rights and obligations and accounts for those rights and obligations in accordance with that type of joint arrangement. [IFRS 11:1-2] Key Definitions [IFRS 11:Appendix A]
Joint arrangement An arrangement of which two or more parties have joint control Joint control The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement
27

Joint operation

Core Principles & Key Definitions

Key Definitions [IFRS 11:Appendix A] Joint venture A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement A party to a joint venture that has joint control of that joint venture An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the arrangement A separately identifiable financial structure, including separate legal entities or entities recognised by statute, regardless of whether those entities have a legal personality
28

Joint venturer

Party to a joint arrangement

Separate vehicle

Joint Arrangements
A joint arrangement is an arrangement of which two or more parties have joint control. [IFRS 11:4] A joint arrangement has the following characteristics: [IFRS 11:5] - the parties are bound by a contractual arrangement, and - the contractual arrangement gives two or more of those parties joint control of the arrangement. A joint arrangement is either a joint operation or a joint venture. [IFRS 11:6]

29

Joint Arrangements
Joint control Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. [IFRS 11:7] Before assessing whether an entity has joint control over an arrangement, an entity first assesses whether the parties, or a group of the parties, control the arrangement (in accordance with the definition of control in IFRS 10 Consolidated Financial Statements). [IFRS 11:B5] After concluding that all the parties, or a group of the parties, control the arrangement collectively, an entity shall assess whether it has joint control of the arrangement. Joint control exists only when decisions about the relevant activities require the unanimous consent of the parties that collectively control the arrangement. [IFRS 11:B6] The requirement for unanimous consent means that any party with joint control of the arrangement can prevent any of the other parties, or a group of the parties, from making unilateral decisions (about the relevant activities) without its consent. [IFRS 11:B9] 30

Joint Arrangements
Types of joint arrangements Joint arrangements are either joint operations or joint ventures: A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators. [IFRS 11:15] A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers. [IFRS 11:16]
31

Joint Arrangements
Classifying Joint Arrangements
The classification of a joint arrangement as a joint operation or a joint venture depends upon the rights and obligations of the parties to the arrangement. An entity determines the type of joint arrangement in which it is involved by considering the structure and form of the arrangement, the terms agreed by the parties in the contractual arrangement and other facts and circumstances. [IFRS 11:6, IFRS 11:14, IFRS 11:17] Regardless of the purpose, structure or form of the arrangement, the classification of joint arrangements depends upon the parties' rights and obligations arising from the arrangement. [IFRS 11:B14; IFRS 11:B15] A joint arrangement in which the assets and liabilities relating to the arrangement are held in a separate vehicle can be either a joint venture or a joint operation. [IFRS 11:B19] A joint arrangement that is not structured through a separate vehicle is a joint operation. In such cases, the contractual arrangement establishes the parties' rights to the assets, and obligations for the liabilities, relating to the arrangement, and the parties' rights to the corresponding revenues and obligations for the corresponding expenses. [IFRS 11:B16]
32

Joint Arrangements
Classifying Joint Arrangements
Structure of the joint arrangement

Not structured through a separate vehicle

Structured through a separate vehicle

An entity shall consider: (i) the legal form of the separate vehicle; (ii) the terms of the contractual arrangement; and (iii) when relevant, other facts and circumstances.

Joint operation 33

Joint venture

Joint Arrangements
Classification of a joint arrangement structured through a separate vehicle
Legal form of the separate vehicle Does the legal form of the separate vehicle give the parties rights to the assets, and obligations for the liabilities, relating to the arrangement? No Terms of the contractual arrangement Do the terms of the contractual arrangement specify that the parties have rights to the assets, and obligations for the liabilities, relating to the arrangement? No Other facts and circumstances
Have the parties designed the arrangement so that: (a) its activities primarily aim to provide the parties with an output (ie the parties have rights to substantially all of the economic benefits of the assets held in the separate vehicle) and (b) it depends, on the parties on a continuous basis for settling the liabilities relating to the activity conducted through the arrangement?

Yes Joint operation Yes

Yes

No Joint Venture
34

Financial Statements of Parties to a Joint Arrangement

Joint Operations
A joint operator recognises in relation to its interest in a joint operation: [IFRS 11:20] its assets, including its share of any assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue from the sale of its share of the output of the joint operation; its share of the revenue from the sale of the output by the joint operation; & its expenses, including its share of any expenses incurred jointly. A joint operator accounts for the assets, liabilities, revenues and expenses relating to its involvement in a joint operation in accordance with the relevant IFRSs. [IFRS 11:21] A party that participates in, but does not have joint control of, a joint operation shall also account for its interest in the arrangement in accordance with the above if that party has rights to the assets, and obligations for the liabilities, relating to the joint operation. [IFRS 11:23]
35

Financial Statements of Parties to a Joint Arrangement

Joint Ventures
A joint venturer recognises its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures unless the entity is exempted from applying the equity method as specified in that standard. [IFRS 11:24] A party that participates in, but does not have joint control of, a joint venture accounts for its interest in the arrangement in accordance with IFRS 9 Financial Instruments unless it has significant influence over the joint venture, in which case it accounts for it in accordance with IAS 28 (as amended in 2011). [IFRS 11:25]

36

Separate Financial Statements

The accounting for joint arrangements in an entity's separate financial statements depends on the involvement of the entity in that joint arrangement and the type of the joint arrangement: If the entity is a joint operator or joint venturer it shall account for its interest in a joint operation in accordance with paragraphs 20-22; a joint venture in accordance with paragraph 10 of IAS 27 Separate Financial Statements. [IFRS 11:26] If the entity is a party that participates in, but does not have joint control of, a joint arrangement shall account for its interest in: a joint operation in accordance with paragraphs 23; a joint venture in accordance with IFRS 9, unless the entity has significant influence over the joint venture, in which case it shall apply paragraph 10 of IAS 27 (as amended in 2011). [IFRS 11:27] 37

Disclosure Requirements: Old IAS 27 & SIC-12 vs. IFRS 12

IAS 27 Consolidated and
Separate Financial Statements and SIC-12 Consolidation Special Purpose Entities (superseded by IFRS 10)

IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 expands the disclosure requirements for both consolidated entities and unconsolidated structured entities. The disclosure objectives in IFRS 12 will give preparers flexibility to tailor their individual disclosures to meet these objectives.

IAS 27 and SIC-12 contain limited disclosure requirements for consolidated entities and no disclosure requirements for unconsolidated structured entities.

IFRS 12 presents a single disclosure standard for reporting entities with special relationships with other entities, including subsidiaries, joint ventures, associates and unconsolidated structured entities.
38

Objective and Scope of IFRS 12

The objective of IFRS 12 is to require the disclosure of information that enables users of financial statements to evaluate: [IFRS 12:1] the nature of, and risks associated with, its interests in other entities the effects of those interests on its financial position, financial performance and cash flows. Where the disclosures required by IFRS 12, together with the disclosures required by other IFRSs, do not meet the above objective, an entity is required to disclose whatever additional information is necessary to meet the objective. [IFRS 12:3]
39

Objective and Scope of IFRS 12

IFRS 12 is required to be applied by an entity that has an interest in any of the following: [IFRS 12:5] subsidiaries joint arrangements (joint operations or joint ventures) associates unconsolidated structured entities IFRS 12 does not apply to certain employee benefit plans, separate financial statements to which IAS 27 Separate Financial Statements applies (except in relation to unconsolidated structured entities in some cases), certain interests in joint ventures held by an entity that does not share in joint control, and the majority of interests in another entity accounted for in accordance with IFRS 9 Financial Instruments. [IFRS 12:6]
40

Key Definitions
Interest in another entity

[IFRS 12:Appendix A]

Refers to contractual and non-contractual involvement that exposes an entity to variability of returns from the performance of the other entity. An interest in another entity can be evidenced by, but is not limited to, the holding of equity or debt instruments as well as other forms of involvement such as the provision of funding, liquidity support, credit enhancement and guarantees. It includes the means by which an entity has control or joint control of, or significant influence over, another entity. An entity does not necessarily have an interest in another entity solely because of a typical customer supplier relationship.

Structured entity
An entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements.

Key Definitions

[IFRS 12:Appendix A]

Control, Joint control or Significant influence

Control of another entity----- Subsidiary and consolidation under IFRS 10 Joint control of an arrangement------Joint Operation under IFRS 11 or Joint Venture under new IAS 28 Significant influence over another entity-----Associate under new IAS 28 Control of an investee: An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. [IFRS 10: Appendix A] Power: Existing rights that give the current ability to direct the relevant activities. [IFRS 10: Appendix A] Joint Arrangement: An arrangement of which two or more parties have joint control. [IFRS 11: Appendix A]. (Joint Operation under IFRS 11 or Joint Venture under new IAS 28) Joint Control: The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. [IFRS 11: Appendix A] Joint Operation: A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. [IFRS 11: Appendix A] Associate: An entity over which the investor has significant influence [IAS 28(2011).3]

Key Definitions
Significant influence

[IAS 28]

power to participate in the financial and operating policy decisions but not control them. A holding of 20% or more of the voting power (directly or through subsidiaries) will indicate significant influence unless it can be clearly demonstrated otherwise. If the holding is less than 20%, the investor will be presumed not to have significant influence unless such influence can be clearly demonstrated. [IAS 28.6] The existence of significant influence by an investor is usually evidenced in one or more of the following ways: [IAS 28.7] representation on the board of directors or equivalent governing body of the investee participation in the policy-making process material transactions between the investor and the investee interchange of managerial personnel provision of essential technical information Potential voting rights are a factor to be considered in deciding whether significant influence exists. [IAS 28.9]

Summary of Disclosures Required

Significant judgements and assumptions

An entity discloses information about significant judgements and assumptions it has made (and changes in those judgements and assumptions) in determining: [IFRS 12:7] that it controls another entity that it has joint control of an arrangement or significant influence over another entity the type of joint arrangement (i.e. joint operation or joint venture) when the arrangement has been structured through a separate vehicle.
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Summary of Disclosures Required

Interests in subsidiaries
An entity shall disclose information that enables users of its consolidated financial statements to: [IFRS 12:10] understand the composition of the group understand the interest that non-controlling interests have in the groups activities and cash flows evaluate the nature and extent of significant restrictions on its ability to access or use assets, and settle liabilities, of the group evaluate the nature of, and changes in, the risks associated with its interests in consolidated structured entities evaluate the consequences of changes in its ownership interest in a subsidiary that do not result in a loss of control evaluate the consequences of losing control of a subsidiary during the reporting period.
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Summary of Disclosures Required

Interests in joint arrangements and associates

An entity shall disclose information that enables users of its financial statements to evaluate: [IFRS 12:20] the nature, extent and financial effects of its interests in joint arrangements and associates, including the nature and effects of its contractual relationship with the other investors with joint control of, or significant influence over, joint arrangements and associates the nature of, and changes in, the risks associated with its interests in joint ventures and associates.

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Summary of Disclosures Required

Interests in unconsolidated structured entities

An entity shall disclose information that enables users of its financial statements to: [IFRS 12:24] understand the nature and extent of its interests in unconsolidated structured entities evaluate the nature of, and changes in, the risks associated with its interests in unconsolidated structured entities.

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IFRS 13 Fair Value Measurement

IFRS 13 Fair Value Measurement was published on 12 May 2011 with effect from January 1, 2013. Existing Definition of Fair value. The amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms-length transaction. IFRS 13: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Thus, fair value is an exit price. is a market-based measurement, not an entity-specific measurement is not, while measuring, relevant when entity's intention to hold an asset or to settle or otherwise fulfill a liability.

IFRS 13 Fair Value Measurement

Fair value hierarchy IFRS 13 seeks to increase consistency and comparability in fair value measurements and related disclosures through a 'fair value hierarchy'. Level 1 inputs: Level 1 inputs are quoted prices in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2 inputs: Level 2 inputs are inputs other than quoted market prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include:
quoted prices for similar assets or liabilities in active markets quoted prices for identical or similar assets or liabilities in markets that are not active inputs other than quoted prices that are observable for the asset or liability inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 inputs: Level 3 inputs are unobservable inputs for the asset or liability. An entity develops unobservable inputs using the best information available in the circumstances, which might include the entity's own data, taking into account all information about market participant assumptions that is reasonably available.

IFRS 13 Fair Value Measurement

Measurement of fair value Valuation techniques An entity uses valuation techniques appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. The objective of using a valuation technique is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants and the measurement date under current market conditions. Three widely used valuation techniques are: market approach uses prices and other relevant information generated by market transactions involving identical or comparable (similar) assets, liabilities, or a group of assets and liabilities (e.g. a business) cost approach reflects the amount that would be required currently to replace the service capacity of an asset (current replacement cost) income approach converts future amounts (cash flows or income and expenses) to a single current (discounted) amount, reflecting current market expectations about those future amounts. In some cases, a single valuation technique will be appropriate, whereas in others multiple valuation techniques will be appropriate.

Conclusion
Achieving consistency in financial reporting worldwide is the need of the hour, especially if meaningful comparisons are to be made of financial information emanating from different countries using accounting standards that, until recently, were vastly different from each other. Thus, there has arisen the urgent need for promulgation of a common set of global accounting standards or, in other words, global convergence into a common language of accounting for the financial world. International Financial Reporting Standards (IFRS), the standards promulgated by the International Accounting Standards Board (IASB), previously known as International Accounting Standards (IAS) that were issued by the International Accounting Standard Committee (IASC), the IASBs predecessor body, appear to be emerging as the global accounting standards and, according to some, could even qualify for the coveted title of the Esperanto* of accounting (Mirza, Holt and Orrell, 2006: xi).
* Esperanto means an artificial language designed for universal use.
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Q&A