Copyright © 2013, IFRS Foundation. All rights reserved. 2 Use of International Financial Reporting Standards Around the World Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Why global GAAP for listed companies 3 • Historically accounting standards evolved country by country – Set by government, or accounting profession, or independent board • National standards made sense when companies raised money in, and investors sought investment opportunities in, only their home country. • Big change 1975-2010: – Globalisation of capital markets © 2013 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org Why global GAAP for listed companies 4 • Now, investors seek investment opportunities all over the world • Companies seek capital at the lowest price anywhere • Cross-border mergers Accounting differences reduce understandability and obscure comparisons that investors want to make © 2013 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org Why global GAAP for listed companies • High quality global financial reporting standards – carefully applied – benefit investors, lenders, other capital providers: – Information is understandable – Domestically and across borders – Comparability is enhanced – Capital providers have confidence Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 5 Why global GAAP for listed companies • High quality global standards also benefit companies that seek capital: – Reduce compliance costs – Remove uncertainties that affect their cost of capital • Improve consistency in audit quality • Facilitate education and training Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 6 Use of IFRS around the world today For domestic listed companies: IFRSs required for all IFRSs required for some IFRSs permitted Not permitted 7 Number of Jurisdictions 93 7 25 28 Today, full IFRS are used by listed companies in 123 jurisdictions http://www.iasplus.com/Plone/en/resources/use-of-ifrs © 2013 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org Use of IFRS around the world today For domestic unlisted companies: IFRSs required for all IFRSs required for some IFRSs permitted Not permitted 8 Number of Jurisdictions 27 33 42 35 Today, full IFRS are used by unlisted companies in 102 jurisdictions. http://www.iasplus.com/Plone/en/resources/use-of-ifrs © 2013 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org Fortune Global 500 (July 2011) Which GAAP? IFRS and wordfor-word equivalents US GAAP National GAAP Totals 9 Based on announced plans 2011 2013 If Japan 2016 42% 44% 58% 31% 31% 27% 27% 25% 15% 100% 100% 100% Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Fortune Global 500 (July 2011) 10 Increases from 2011 to 2013 (listed companies): Switch to IFRSs Malaysia Mexico Singapore Taiwan 2012 2012 2012 (nearly IFRS now) 2013 No. G500 co’s 1 3* 2 8 *1 of Mexico’s 3 Global 500 companies is already using IFRSs in 2011 Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Fortune Global 500 (July 2011) 11 After 2013, remaining non-IFRS (listed companies): China Colombia India Japan Comments Adopted main IFRS principles IFRS planned 2015 Proposed many modifications to IFRS Seriously considering: 2016? Russia IFRS adoption approved Saudi Arabia IFRS under discussion Thailand USA Decision deferred Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org No. G500 co’s 61 1 8 68 (51 J-GAAP & 17 US GAAP) 7 1 1 133 IASB history 12 • 1973-2000: –International Accounting Standards Committee (IASC) –Set up by 9 countries because of globalisation of capital markets –IASs 1 to 41 –By 2000 only some voluntary adoptions by listed companies, very few unlisted companies 12 Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org IASB history 13 • Since 2001: –IASC reorganised into International Accounting Standards Board (IASB) –IFRSs 1-13 and improved IASs 1-41 –Adoptions for listed companies by around 100 countries –Europe was the catalyst – adopted IFRS for listed companies starting 2005 –Dozens of other countries followed Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 14 First-Time Adoption of IFRSs as Your National Standards (focus on full IFRSs) Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Definition of First-time Adoption (FTA) • 15 First set of financial statements in which the entity makes an “explicit and unreserved statement of compliance with IFRSs”: “…in conformity with International Financial Reporting Standards…” Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Two Key Steps 16 • Select accounting policies based on IFRSs in force at end of reporting period of FTA: – Assume 31 December 2013 for this presentation • Prepare at least two years financial statements, and opening balance sheet for the earliest year, using those policies – This would mean financial statements for 2013 and 2012 and an opening balance sheet at 1 January 2012 Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Selecting Initial IFRS Accounting Policies 17 • Criteria for selecting accounting policies: – Relevance – Reliability • Many accounting policy decisions depend on circumstances – not “free choice” • But some are pure “free choice” Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Selecting Initial IFRS Accounting Policies 18 • A few examples of decisions that depend on circumstances: – % of completion versus completed contract – Method of depreciation – Specific identification or FIFO for inventories – Whether to adjust the financial statements for events occurring after end of period – Functional currency for translation Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Selecting Initial IFRS Accounting Policies 19 • On the other hand, IFRSs allow quite a few accounting policy choices that do not depend on circumstances: – First-time adopters must choose – Examples on next ten slides Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 20 • IFRS 1 – Options for whether to restate prior periods for some types of transactions at time of FTA: – I will cover these in detail later this morning • IFRS 3 – In an acquisition of less than 100%, measure 100% of goodwill or only parent’s share of goodwill Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 21 • IFRS 4 – Option to re-measure insurance liabilities to fair value each period • IFRS 6 – Oil & gas or mining company may revalue exploration and evaluation assets through OCI • IFRS 9 – Option to designate financial assets individually at fair value through profit or loss Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 22 • IFRS 9 – Option to designate financial liabilities individually at fair value through profit or loss • IFRS 9 – Option not to separate embedded derivatives in a host contract that is not a financial instrument and, instead, measure whole contract at fair value through P&L • IFRS 9 – Option to use hedge accounting Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 23 • IFRS 9 – Option to designate financial liabilities individually at fair value through profit or loss • IFRS 9 – Option to designate equity investments as fair value through P&L or fair value through OCI (no recycling) • IFRS 10 – Option not to present consolidated financial statements in limited circumstances Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 24 • IAS 1 – Present expenses in income statement by nature or by function • IAS 1 – One statement of comprehensive income or separate income statement and comprehensive income statement Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 25 • IAS 2 – Option to measure inventories such as agricultural produce, minerals, and commodities at net realisable value rather than cost • IAS 2 – Inventories at FIFO or weighted average (but LIFO is prohibited) Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 26 • IAS 7 – Direct or indirect method for presenting operating cash flows • IAS 7 – Option to classify interest and dividends as operating, investing, or financing • IAS 16 – Measure PP&E using costdepreciation model or revaluation through OCI model Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 27 • IAS 20 – Many options for government grants • IAS 27 – In separate financial statements, choose cost or fair value for investments in subsidiaries, associates, joint ventures • IAS 28 – In certain cases, option to measure investments in associates and joint ventures at FVTPL rather than equity method Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 28 • IAS 38 – Cost-depreciation model or revaluation through equity model for intangible assets with quoted market prices • IAS 39 – Hedge accounting is optional • IAS 39 – Designate individual financial assets and financial liabilities to be measured at fair value through profit or loss (fair value option) Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 29 • IAS 39 – Option to designate equity investments as fair value through P&L or fair value through OCI • IAS 39 – Option not to separate an embedded derivative and, instead, account for the entire contract at fair value through P&L • IAS 39 – Choice of trade date or settlement date accounting Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 30 • IAS 39 – Choose whether to adjust the carrying amount of a hedged item for gains or losses on the hedging instrument • IAS 39 – Option to reclassify out of fair value through P&L and out of available for sale • If adopting in 2013, do you want to earlyapply IFRS 9 (which is effective 2015) or start with IAS 39? Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Accounting Policy Options in IFRSs 31 • IAS 40 – For investment property, choose the cost-depreciation model or fair value through profit or loss model • IAS 40 – Whether to treat land use rights as investment property • Early application – Some new or amended standards effective after the end of 2013 permit early application Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Adjustments Required to Move to IFRSs • Five kinds of adjustments from national GAAP to IFRSs: 1. Derecognise some old assets and liabilities 2. Recognise some new assets and liabilities 3. Reclassifications 4. Measurement changes 5. New disclosures Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 32 Adjustments Required to Move to IFRSs 33 1. Derecognise some old assets and liabilities. Examples: – No capitalised research, training, preoperating, or advertising costs – No accrued liabilities for general reserves, future losses, and most restructurings Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Adjustments Required to Move to IFRSs 2. Recognise some new assets and liabilities. Examples: – Derivatives and embedded derivatives – Obligations for defined benefit pension, retiree medical and life insurance, termination benefits, accrued vacation continued… Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 34 Adjustments Required to Move to IFRSs 35 2. Recognise some new assets and liabilities (more examples): – Deferred tax assets and liabilities – Provisions (liabilities) for onerous contracts, litigation, decommissioning, environmental, warranties – Capitalise development costs – Capitalise borrowing costs during construction Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Adjustments Required to Move to IFRSs 36 3. Reclassifications. Examples: – Dividends declared after balance sheet date are not liabilities – Treasury stock is not an asset – Split land and buildings acquired jointly – Liability versus equity: – Mandatorily redeemable preferred shares and puttables are a liability – Minority interest is in equity continued… Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Adjustments Required to Move to IFRSs 37 3. Reclassifications. More examples: – Equity component of convertible debt, if still outstanding at FTA date – Defining reportable segments under IFRS 8 – Scope of consolidation – Some offsetting – Assets held for sale – Discontinued operations Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Adjustments Required to Move to IFRSs 38 4. Measurement changes: – Measurement principles in IFRSs at 31 Dec 2013 must be applied to measure all recognised assets and liabilities at date of FTA – More fair value measurements – More present value Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Adjustments Required to Move to IFRSs 39 4. Potential measurement changes: – Share-based payments – Noncontrolling interest in bus. comb. – LIFO prohibited under IFRSs – Reversals of writedowns under IFRSs – IFRSs allow revaluation of PP&E – Agricultural assets at FV thru P&L – Immediately recognise past service cost Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Adjustments Required to Move to IFRSs 40 4. Potential measurement changes: – Immediately recognise actuarial gains and losses – Definition of borrowing costs – Must conform subs’ accounting policies – No proportionate consolidation for joint ventures – Expected value for provisions Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Adjustments Required to Move to IFRSs 41 4. Potential measurement changes: – Fair value options for FI – Hedge accounting measurements (eg IFRS has no ‘shortcut method’ as in US GAAP) – Investment property at FV thru P&L – Precise definition of fair value under IFRS 13 Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Adjustments Required to Move to IFRSs 5. New disclosures ─ examples of IFRS requirements: – Specific line items on the face of the financial statements – One-year comparative information – Comprehensive financial instrument disclosures – Segment liabilities – Information about major customers – Related party disclosures Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 42 Adjustments Required to Move to IFRSs 43 • Adjustments to move from previous GAAP to IFRSs at FTA: – Should generally be recognised directly in retained earnings at the date of the opening IFRS balance sheet – Or, if appropriate, recognise in another category of equity Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Exceptions to Restatement 44 • There are some exceptions to the requirement to restate comparative data using IFRSs at 31 Dec 2013: – Some exceptions are optional – Some exceptions are mandatory Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Optional Exceptions • Business Combinations: – May keep old GAAP. Need not restate: – Initial measurement of goodwill – Goodwill written off against equity – Carrying amounts of acquired assets and liabilities – However, entity may elect to restate old business combinations – Must test goodwill for impairment at opening balance sheet date Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 45 Optional Exceptions 46 • Property, plant and equipment (3 choices): – May measure at FV at 1/1/2012. This becomes ‘deemed cost’ going forward – Also, revaluations under old GAAP can be deemed cost at 1/1/2012 – Or may go back and apply costdepreciation-impairment model of IAS 16 in full Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Optional Exceptions 47 • Cumulative foreign currency translation adjustments: – Any amount deferred in equity under old GAAP can be eliminated (adjust retained earnings) at 1 Jan 2012 – If eliminated, gain or loss on future disposal of the foreign operation reflects only translation adjustments arising after 1 Jan 2012 Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Optional Exceptions 48 • ‘Split accounting’ for convertible debt redeemed before 1 Jan 2012 • Entity may designate financial instrument as available-for-sale or fair-value-option at 1 Jan 2012 – IFRS 9/IAS 39 allow designation only on date instrument is acquired • Need not apply IFRS 2 to share-based payments issued before 1 Jan 2012 Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Optional Exceptions 49 • Full-cost oil and gas assets – Retrospective application of IFRSs for oil and gas assets is not required. Carrying amount under old GAAP = deemed cost • Determining whether an arrangement contains a lease (IFRIC 4) – Determination under old GAAP need not change even if at a date different from what IFRIC 4 would require Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Optional Exceptions • In general IAS 1 requires comparative information for all amounts in financial statements and in the notes – Exemptions for some comparative information for financial instruments (including IFRS 7), insurance contracts, extractive industries, and historical summaries Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 50 Mandatory Exceptions 51 • Derecognition of financial assets and liabilities: – Do not “undo” past derecognitions based on new information. • Hedge accounting – No new designation of hedge accounting for hedges prior to 1 Jan 2012 if not treated as hedges under old GAAP • Estimates – Do not change previous estimates unless there was an error Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Disclosure • Reconciliation – Of equity and profit or loss under old GAAP to IFRSs • Newly recognised impairment losses • Material adjustments from old cash flow statement to IAS 7 cash flow statement Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 52 53 First-time adoption of the IFRS for Small and Medium-sized Entities Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org The Final IFRS for SMEs 54 Good Financial Reporting Made Simple. • About 230 pages – Compared to 3,636 pages for full IFRSs • Simplified IFRSs, but built on an IFRS foundation • Tailored for SMEs and needs of users of their financial statements • Issued 9 July 2009 • Already adopted by over 80 jurisdictions Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Who are we aiming at? 55 Non-publicly accountable entities that must produce general purpose financial statements (GPFS) – Not publicly traded – Not a bank or other financial institution Which entities must produce GPFS is a public interest issue – Decided by legislature and regulators, not by IASB Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org How did we simplify? 56 1. Some topics in IFRSs omitted if irrelevant to private entities 2. Where IFRSs have options, include only simpler option 3. Recognition and measurement simplifications 4. Reduced disclosures 5. Simplified drafting Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org What would first-time adoption involve? 57 • First assertion of compliance with IFRS for SMEs • Can be switching from: – National GAAP – Full IFRSs – Or maybe never published GPFS in the past • Date of transition is beginning of earliest period presented Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org What would first-time adoption involve? 58 • As with first-time adoption of full IFRSs, FTA of IFRS for SMEs potentially involves adjustments from national GAAP or full IFRSs to IFRS for SMEs: 1. Derecognise some old assets and liabilities 2. Recognise some new assets and liabilities 3. Reclassifications 4. Measurement changes Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org What would first-time adoption involve? 59 • Select accounting policies based on choices in IFRS for SMEs (next 3 slides) • Prepare at least two years financial statements, and opening balance sheet for the earliest year, using those policies • Important simplification for SMEs: – If it is impracticable to restate one or more items, IFRS for SMEs allows an exception, with disclosure of the resulting non-comparabilities Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org What would first-time adoption involve? 60 • Accounting policy choices permitted in the IFRS for SMEs (page 1 of 3): – Single statement of comprehensive income or separate income statement and statement of comprehensive income – Combined statement of income and retained earnings allowed in some circumstances Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org What would first-time adoption involve? 61 • Accounting policy choices permitted in the IFRS for SMEs (page 2 of 3): – Direct or indirect method for operating cash flows – Investments in associates and JVs at cost, equity method, or FV thru P&L – All actuarial gains/losses reported as part of P&L or as Other Comprehensive Income (but no deferrals allowed) Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org What would first-time adoption involve? 62 • Accounting policy choices permitted in the IFRS for SMEs (page 3 of 3): – In separate company financial statements, account for investment in subsidiary at cost or at fair value through P&L • This list of choices is small compared with full IFRSs and US GAAP Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org What would first-time adoption involve? 63 • Examples of choices in full IFRSs not available in IFRS for SMEs: – Revalue PP&E and intangibles – Investment property at cost or FVTPL – Government grants – range of methods – Financial instruments: fair value option, available-for-sale option, held-to-maturity, OCI option for equity, macro hedging Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org What would the impact be? 64 • What’s the expected impact on income and equity if SME switches to IFRS for SMEs? – Depends on what its existing GAAP is – Is it now close to IFRSs? Miles away? – Are things like deferred taxes, pensions, provisions, impairments accrued? – Capital leases? Derivatives? – Consolidation? Cash flow statement? – And quality of implementation. – Depends on which options it chooses Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org We congratulate Taiwan 65 • ARDF has taken the bold step to adopt IFRSs for listed companies, financial institutions, and others 2013-2015 – Benefits of global comparability • We hope that, at some appropriate time in the future, you will also give consideration to the IFRS for SMEs and our forthcoming Guide for Micro Entities – We are confident that there will be benefits for Taiwan’s SMEs and Taiwan’s economy. Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org Thank you Panel and Q&A 10:50 to 11:50 Expressions of individual views by members of the IASB and its staff are encouraged. The views expressed in this presentation are those of the presenter. Official positions of the IASB on accounting matters are determined only after extensive due process and deliberation. Copyright © 2013 IFRS Foundation | 30 Cannon Street | London EC4M 6XH UK | www.ifrs.org 66