At the end of 2010, the IASB and the FASB (Financial Accounting Standards Board) decided to amend their common work plan in order to refocus on priority projects. The main objective was to complete the most important convergence projects by 30 June 2011, in time for the SEC’s (Securities Exchange Commission) planned 2011 vote on the adoption of IFRS.
In our last blog, we summed up the status of these priority projects highlighting those that have been delayed. It is now time to focus on completed projects that resulted in new or revised standards issued in 2011.
2011 publications at a glance
- New standards on consolidation and joint-ventures (IFRS 10, 11 & 12)
- New standard IFRS 13 Fair Value Measurement
- Amendments to IAS 1 relating to the presentation of items of other comprehensive income
- Amendments to IAS 19 (Employee Benefits)
A five-standard package for consolidation
On 12 May 2011 the IASB issued 3 new standards and 2 revised ones:
- IFRS 10 Consolidated Financial Statements replaces IAS 27 for the part regarding consolidated statements and the interpretation SIC-12 relating to special purpose entities
- IFRS 11 Joint Arrangements supersedes IAS 31 Interests in Joint Ventures and its related interpretation SIC-13
- IFRS 12 Disclosure of Interests in Other Entities combines, enhances and replaces the disclosure requirements previously included in IAS 27, IAS 28 and IAS 31
- IAS 27 (revised 2011) Separate Financial Statements now only focuses on separate financial statements (as opposed to consolidated statements)
- IAS 28 (revised 2011) Investments in Associates and Joint Ventures is revised mainly as a consequence of the other issuances
These standards are effective for annual periods beginning on or after 1 January 2013. Earlier application is permitted so long all of them are applied simultaneously.
IFRS 10 provides a single consolidation model that identifies control as the basis for consolidation for all types of entities regardless of their nature (special purpose entities or “traditional” operating activities). Furthermore, IFRS 10 provides extensive guidance on how to apply the control principle in particular cases such as control with less than a majority of voting rights or agency relationships.
IFRS 11 defines 2 categories of joint-arrangements instead of the 3 previously set out in IAS 31. Moreover, it removes the accounting option for joint-ventures, which now must be accounted for using the equity method:
IFRS 12 is a separate comprehensive disclosure standard that combines the disclosure requirements for interests in subsidiaries (previously set out in IAS 27), joint-arrangements (IAS31), associates (IAS 28) and unconsolidated structured entities (IAS 27 and SIC-12).
IFRS 13: a guidance for fair value measurement
This new standard provides guidance on how to determine fair value where other IFRSs require or permit fair value measurements. In other words, IFRS 13 does not extend the use of fair value accounting or modify the way changes in fair value should be presented. Its major objective is rather to set out in a single IFRS a framework for measuring fair value.
Even if IFRS 13 is not strictly speaking an accounting standard, it concludes a major convergence project with US GAAP, as the definition of fair value is now aligned with that in Topic 820 (updated by the FASB on the same date).
New presentation of items of other comprehensive income (IAS 1)
The amendments to IAS 1 and the update to Topic 220 have been issued on the same date thus aligning the presentation of other comprehensive income (OCI) in IFRS and US GAAP. For IFRS users, the main change consists in grouping items presented in OCI on the basis of whether they would be reclassified to profit or loss at a later date. For US GAAP users, the changes are more significant as the presentation of OCI items directly in the statement of changes in equity is no more permitted.
This new presentation should be applied for financial years beginning on or after 1 July 2012.
Changes in accounting for pensions (amendments to IAS 19)
Aligning IFRS with existing US GAAP, the amendments to IAS 19 mainly address the accounting for defined benefit plans (e.g. pension plans). The main changes are the following:
- Removal of the corridor approach: this option allowed companies to defer some actuarial gains and losses that arise from defined benefit plans. Because of that, the corresponding liability did not reflect the total commitments resulting from those plans
- No more options for the presentation of gains and losses relating to defined benefit plans: service and finance costs must be recognized through profit or loss whereas remeasurements (e.g. actuarial gains and losses) are recognized in OCI.
These amendments should be applied for financial years beginning on or after 1 January 2013; the expected impact is potentially high for entities that currently use the removed options for actuarial gains and losses (corridor approach or P&L).
Please click here to read the comprehensive presentation.
Stay tuned – our next blog will focus on changes that affect consolidation process (IFRS 10 & 11) and their impact on the IFRS starter kits.