IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB's replacement of IAS 39 Financial Instruments: Recognition
and Measurement. The Standard includes requirements for recognition and measurement, impairment, derecognition and general
hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the standard as it completed each phase.
The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning on or
after 1 January 2018 with early adoption permitted (subject to local endorsement requirements). For a limited period, previous
versions of IFRS 9 may be adopted early if not already done so provided the relevant date of initial application is before 1
February 2015.
IFRS 9 does not replace the requirements for portfolio fair value hedge accounting for interest rate risk (often referred to as the
‘macro hedge accounting’ requirements) since this phase of the project was separated from the IFRS 9 project due to the longer
term nature of the macro hedging project which is currently at the discussion paper phase of the due process. In April 2014, the
IASB published a Discussion Paper Accounting for Dynamic Risk management: a Portfolio Revaluation Approach to Macro
Hedging. Consequently, the exception in IAS 39 for a fair value hedge of an interest rate exposure of a portfolio of financial
assets or financial liabilities continues to apply.
The phased completion of IFRS 9
On 12 November 2009, the IASB issued IFRS 9 Financial Instruments as the first step in its project to replace IAS 39 Financial
Instruments: Recognition and Measurement. IFRS 9 introduced new requirements for classifying and measuring financial assets
that had to be applied starting 1 January 2013, with early adoption permitted. Click for IASB Press Release (PDF 101k).
On 28 October 2010, the IASB reissued IFRS 9, incorporating new requirements on accounting for financial liabilities, and
carrying over from IAS 39 the requirements for derecognition of financial assets and financial liabilities. Click for IASB Press
Release (PDF 33k).
On 16 December 2011, the IASB issued Mandatory Effective Date and Transition Disclosures (Amendments to IFRS 9 and IFRS
7), which amended the effective date of IFRS 9 to annual periods beginning on or after 1 January 2015, and modified the relief
from restating comparative periods and the associated disclosures in IFRS 7.
On 19 November 2013, the IASB issued IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7
and IAS 39) amending IFRS 9 to include the new general hedge accounting model, allow early adoption of the treatment of fair
value changes due to own credit on liabilities designated at fair value through profit or loss and remove the 1 January 2015
effective date.
On 24 July 2014, the IASB issued the final version of IFRS 9 incorporating a new expected loss impairment model and
introducing limited amendments to the classification and measurement requirements for financial assets. This version
supersedes all previous versions and is mandatorily effective for periods beginning on or after 1 January 2018 with early adoption
permitted (subject to local endorsement requirements). For a limited period, previous versions of IFRS 9 may be adopted early if
not already done so provided the relevant date of initial application is before 1 February 2015.
Overview of IFRS 9
Initial measurement of financial instruments
All financial instruments are initially measured at fair value plus or minus, in the case of a financial asset or financial liability not
at fair value through profit or loss, transaction costs. [IFRS 9, paragraph 5.1.1]
Subsequent measurement of financial assets
IFRS 9 divides all financial assets that are currently in the scope of IAS 39 into two classifications - those measured at amortised
cost and those measured at fair value.
Where assets are measured at fair value, gains and losses are either recognised entirely in profit or loss (fair value through profit
or loss, FVTPL), or recognised in other comprehensive income (fair value through other comprehensive income, FVTOCI).
For debt instruments the FVTOCI classification is mandatory for certain assets unless the fair value option is elected. Whilst for
equity investments, the FVTOCI classification is an election. Furthermore, the requirements for reclassifying gains or losses
recognised in other comprehensive income are different for debt instruments and equity investments.
The classification of a financial asset is made at the time it is initially recognised, namely when the entity becomes a party to the
contractual provisions of the instrument. [IFRS 9, paragraph 4.1.1] If certain conditions are met, the classification of an asset may
subsequently need to be reclassified.
Debt instruments
A debt instrument that meets the following two conditions must be measured at amortised cost (net of any write down for
impairment) unless the asset is designated at FVTPL under the fair value option (see below):
[IFRS 9, paragraph 4.1.2]


Business model test: The objective of the entity's business model is to hold the financial asset to collect the contractual
cash flows (rather than to sell the instrument prior to its contractual maturity to realise its fair value changes).
Cash flow characteristics test: The contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding.
A debt instrument that meets the following two conditions must be measured at FVTOCI unless the asset is designated at FVTPL
under the fair value option (see below):
[IFRS 9, paragraph 4.1.2A]


Business model test: The financial asset is held within a business model whose objective is achieved by both
collecting contractual cash flows and selling financial assets.
Cash flow characteristics test: The contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest on the principal amount outstanding.
All other debt instruments must be measured at fair value through profit or loss (FVTPL). [IFRS 9, paragraph 4.1.4]
Fair value option
Even if an instrument meets the two requirements to be measured at amortised cost or FVTOCI, IFRS 9 contains an option to
designate, at initial recognition, a financial asset as measured at FVTPL if doing so eliminates or significantly reduces a
measurement or recognition inconsistency (sometimes referred to as an 'accounting mismatch') that would otherwise arise from
measuring assets or liabilities or recognising the gains and losses on them on different bases. [IFRS 9, paragraph 4.1.5]
Equity instruments
All equity investments in scope of IFRS 9 are to be measured at fair value in the statement of financial position, with value
changes recognised in profit or loss, except for those equity investments for which the entity has elected to present value changes
in 'other comprehensive income'. There is no 'cost exception' for unquoted equities.
'Other comprehensive income' option
If an equity investment is not held for trading, an entity can make an irrevocable election at initial recognition to measure it at
FVTOCI with only dividend income recognised in profit or loss. [IFRS 9, paragraph 5.7.5]
Measurement guidance
Despite the fair value requirement for all equity investments, IFRS 9 contains guidance on when cost may be the best estimate of
fair value and also when it might not be representative of fair value.
Subsequent measurement of financial liabilities
IFRS 9 doesn't change the basic accounting model for financial liabilities under IAS 39. Two measurement categories continue to
exist: FVTPL and amortised cost. Financial liabilities held for trading are measured at FVTPL, and all other financial liabilities
are measured at amortised cost unless the fair value option is applied. [IFRS 9, paragraph 4.2.1]
Fair value option
IFRS 9 contains an option to designate a financial liability as measured at FVTPL if [IFRS 9, paragraph 4.2.2]:


doing so eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as an
'accounting mismatch') that would otherwise arise from measuring assets or liabilities or recognising the gains and
losses on them on different bases, or
the liability is part or a group of financial liabilities or financial assets and financial liabilities that is managed and its
performance is evaluated on a fair value basis, in accordance with a documented risk management or investment
strategy, and information about the group is provided internally on that basis to the entity's key management personnel.
A financial liability which does not meet any of these criteria may still be designated as measured at FVTPL when it contains one
or more embedded derivatives that sufficiently modify the cash flows of the liability and are not clearly closely related. [IFRS 9,
paragraph 4.3.5]
IFRS 9 requires gains and losses on financial liabilities designated as at FVTPL to be split into the amount of change in fair value
attributable to changes in credit risk of the liability, presented in other comprehensive income, and the remaining amount
presented in profit or loss. The new guidance allows the recognition of the full amount of change in the fair value in profit or loss
only if the presentation of changes in the liability's credit risk in other comprehensive income would create or enlarge an
accounting mismatch in profit or loss. That determination is made at initial recognition and is not reassessed. [IFRS 9, paragraphs
5.7.7-5.7.8]
Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss, the entity may only
transfer the cumulative gain or loss within equity.
Derecognition of financial assets
The basic premise for the derecognition model in IFRS 9 (carried over from IAS 39) is to determine whether the asset under
consideration for derecognition is: [IFRS 9, paragraph 3.2.2]




an asset in its entirety or
specifically identified cash flows from an asset (or a group of similar financial assets) or
a fully proportionate (pro rata) share of the cash flows from an asset (or a group of similar financial assets). or
a fully proportionate (pro rata) share of specifically identified cash flows from a financial asset (or a group of similar
financial assets)
Once the asset under consideration for derecognition has been determined, an assessment is made as to whether the asset has
been transferred, and if so, whether the transfer of that asset is subsequently eligible for derecognition.
An asset is transferred if either the entity has transferred the contractual rights to receive the cash flows, or the entity has retained
the contractual rights to receive the cash flows from the asset, but has assumed a contractual obligation to pass those cash flows
on under an arrangement that meets the following three conditions: [IFRS 9, paragraphs 3.2.4-3.2.5]



the entity has no obligation to pay amounts to the eventual recipient unless it collects equivalent amounts on the
original asset
the entity is prohibited from selling or pledging the original asset (other than as security to the eventual recipient),
the entity has an obligation to remit those cash flows without material delay
Once an entity has determined that the asset has been transferred, it then determines whether or not it has transferred substantially
all of the risks and rewards of ownership of the asset. If substantially all the risks and rewards have been transferred, the asset is
derecognised. If substantially all the risks and rewards have been retained, derecognition of the asset is precluded. [IFRS 9,
paragraphs 3.2.6(a)-(b)]
If the entity has neither retained nor transferred substantially all of the risks and rewards of the asset, then the entity must assess
whether it has relinquished control of the asset or not. If the entity does not control the asset then derecognition is appropriate;
however if the entity has retained control of the asset, then the entity continues to recognise the asset to the extent to which it has
a continuing involvement in the asset. [IFRS 9, paragraph 3.2.6(c)]
These various derecognition steps are summarised in the decision tree in paragraph B3.2.1.
Derecognition of financial liabilities
A financial liability should be removed from the balance sheet when, and only when, it is extinguished, that is, when the
obligation specified in the contract is either discharged or cancelled or expires. [IFRS 9, paragraph 3.3.1] Where there has been
an exchange between an existing borrower and lender of debt instruments with substantially different terms, or there has been a
substantial modification of the terms of an existing financial liability, this transaction is accounted for as an extinguishment of the
original financial liability and the recognition of a new financial liability. A gain or loss from extinguishment of the original
financial liability is recognised in profit or loss. [IFRS 9, paragraphs 3.3.2-3.3.3]
Derivatives
All derivatives in scope of IFRS 9, including those linked to unquoted equity investments, are measured at fair value. Value
changes are recognised in profit or loss unless the entity has elected to apply hedge accounting by designating the derivative as a
hedging instrument in an eligible hedging relationship.
Embedded derivatives
An embedded derivative is a component of a hybrid contract that also includes a non-derivative host, with the effect that some of
the cash flows of the combined instrument vary in a way similar to a stand-alone derivative. A derivative that is attached to a
financial instrument but is contractually transferable independently of that instrument, or has a different counterparty, is not an
embedded derivative, but a separate financial instrument. [IFRS 9, paragraph 4.3.1]
The embedded derivative concept that existed in IAS 39 has been included in IFRS 9 to apply only to hosts that are not financial
assets within the scope of the Standard. Consequently, embedded derivatives that under IAS 39 would have been separately
accounted for at FVTPL because they were not closely related to the host financial asset will no longer be separated. Instead, the
contractual cash flows of the financial asset are assessed in their entirety, and the asset as a whole is measured at FVTPL if the
contractual cash flow characteristics test is not passed (see above).
The embedded derivative guidance that existed in IAS 39 is included in IFRS 9 to help preparers identify when an embedded
derivative is closely related to a financial liability host contract or a host contract not within the scope of the Standard (e.g.
leasing contracts, insurance contracts, contracts for the purchase or sale of a non-financial items).
Reclassification
For financial assets, reclassification is required between FVTPL, FVTOCI and amortised cost, if and only if the entity's business
model objective for its financial assets changes so its previous model assessment would no longer apply. [IFRS 9, paragraph
4.4.1]
If reclassification is appropriate, it must be done prospectively from the reclassification date which is defined as the first day of
the first reporting period following the change in business model. An entity does not restate any previously recognised gains,
losses, or interest.
IFRS 9 does not allow reclassification:


for equity investments measured at FVTOCI, or
where the fair value option has been exercised in any circumstance for a financial assets or financial liability.
Hedge accounting
The hedge accounting requirements in IFRS 9 are optional. If certain eligibility and qualification criteria are met, hedge
accounting allows an entity to reflect risk management activities in the financial statements by matching gains or losses on
financial hedging instruments with losses or gains on the risk exposures they hedge.
The hedge accounting model in IFRS 9 is not designed to accommodate hedging of open, dynamic portfolios. As a result, for a
fair value hedge of interest rate risk of a portfolio of financial assets or liabilities an entity can apply the hedge accounting
requirements in IAS 39 instead of those in IFRS 9. [IFRS 9 paragraph 6.1.3]
In addition when an entity first applies IFRS 9, it may choose as its accounting policy choice to continue to apply the hedge
accounting requirements of IAS 39 instead of the requirements of Chapter 6 of IFRS 9 [IFRS 9 paragraph 7.2.21]
Qualifying criteria for hedge accounting
A hedging relationship qualifies for hedge accounting only if all of the following criteria are met:
1.
2.
3.
the hedging relationship consists only of eligible hedging instruments and eligible hedged items.
at the inception of the hedging relationship there is formal designation and documentation of the hedging relationship
and the entity’s risk management objective and strategy for undertaking the hedge.
the hedging relationship meets all of the hedge effectiveness requirements (see below) [IFRS 9 paragraph 6.4.1]
Hedging instruments
Only contracts with a party external to the reporting entity may be designated as hedging instruments. [IFRS 9 paragraph 6.2.3]
A hedging instrument may be a derivative (except for some written options) or non-derivative financial instrument measured at
FVTPL unless it is a financial liability designated as at FVTPL for which changes due to credit risk are presented in OCI. For a
hedge of foreign currency risk, the foreign currency risk component of a non-derivative financial instrument, except equity
investments designated as FVTOCI, may be designated as the hedging instrument. [IFRS 9 paragraphs 6.2.1-6.2.2]
IFRS 9 allows a proportion (e.g. 60%) but not a time portion (eg the first 6 years of cash flows of a 10 year instrument) of a
hedging instrument to be designated as the hedging instrument. IFRS 9 also allows only the intrinsic value of an option, or the
spot element of a forward to be designated as the hedging instrument. An entity may also exclude the foreign currency basis
spread from a designated hedging instrument. [IFRS 9 paragraph 6.2.4]
IFRS 9 allows combinations of derivatives and non-derivatives to be designated as the hedging instrument. [IFRS 9 paragraph
6.2.5]
Combinations of purchased and written options do not qualify if they amount to a net written option at the date of designation.
[IFRS 9 paragraph 6.2.6]
Hedged items
A hedged item can be a recognised asset or liability, an unrecognised firm commitment, a highly probable forecast transaction or
a net investment in a foreign operation and must be reliably measurable. [IFRS 9 paragraphs 6.3.1-6.3.3]
An aggregated exposure that is a combination of an eligible hedged item as described above and a derivative may be designated
as a hedged item. [IFRS 9 paragraph 6.3.4]
The hedged item must generally be with a party external to the reporting entity, however, as an exception the foreign currency
risk of an intragroup monetary item may qualify as a hedged item in the consolidated financial statements if it results in an
exposure to foreign exchange rate gains or losses that are not fully eliminated on consolidation. In addition, the foreign currency
risk of a highly probable forecast intragroup transaction may qualify as a hedged item in consolidated financial statements
provided that the transaction is denominated in a currency other than the functional currency of the entity entering into that
transaction and the foreign currency risk will affect consolidated profit or loss. [IFRS 9 paragraphs 6.3.5 -6.3.6]
An entity may designate an item in its entirety or a component of an item as the hedged item. The component may be a risk
component that is separately identifiable and reliably measurable; one or more selected contractual cash flows; or components of
a nominal amount. [IFRS 9 paragraph 6.3.7]
A group of items (including net positions is an eligible hedged item only if:
1.
2.
3.
it consists of items individually, eligible hedged items;
the items in the group are managed together on a group basis for risk management purposes; and
in the case of a cash flow hedge of a group of items whose variabilities in cash flows are not expected to be
approximately proportional to the overall variability in cash flows of the group:
1. it is a hedge of foreign currency risk; and
2. the designation of that net position specifies the reporting period in which the forecast transactions are
expected to affect profit or loss, as well as their nature and volume [IFRS 9 paragraph 6.6.1]
For a hedge of a net position whose hedged risk affects different line items in the statement of profit or loss and other
comprehensive income, any hedging gains or losses in that statement are presented in a separate line from those affected by the
hedged items. [IFRS 9 paragraph 6.6.4]
Accounting for qualifying hedging relationships
There are three types of hedging relationships:
Fair value hedge: a hedge of the exposure to changes in fair value of a recognised asset or liability or an unrecognised firm
commitment, or a component of any such item, that is attributable to a particular risk and could affect profit or loss (or OCI in the
case of an equity instrument designated as at FVTOCI). [IFRS 9 paragraphs 6.5.2(a) and 6.5.3]
For a fair value hedge, the gain or loss on the hedging instrument is recognised in profit or loss (or OCI, if hedging an equity
instrument at FVTOCI and the hedging gain or loss on the hedged item adjusts the carrying amount of the hedged item and is
recognised in profit or loss. However, if the hedged item is an equity instrument at FVTOCI, those amounts remain in OCI.
When a hedged item is an unrecognised firm commitment the cumulative hedging gain or loss is recognised as an asset or a
liability with a corresponding gain or loss recognised in profit or loss. [IFRS 9 paragraph 6.5.8]
If the hedged item is a debt instrument measured at amortised cost or FVTOCI any hedge adjustment is amortised to profit or loss
based on a recalculated effective interest rate. Amortisation may begin as soon as an adjustment exists and shall begin no later
than when the hedged item ceases to be adjusted for hedging gains and losses. [IFRS 9 paragraph 6.5.10]
Cash flow hedge: a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with all, or
a component of, a recognised asset or liability (such as all or some future interest payments on variable-rate debt) or a highly
probable forecast transaction, and could affect profit or loss. [IFRS 9 paragraph 6.5.2(b)]
For a cash flow hedge the cash flow hedge reserve in equity is adjusted to the lower of the following (in absolute amounts):


the cumulative gain or loss on the hedging instrument from inception of the hedge; and
the cumulative change in fair value of the hedged item from inception of the hedge.
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in OCI and any
remaining gain or loss is hedge ineffectiveness that is recognised in profit or loss.
If a hedged forecast transaction subsequently results in the recognition of a non-financial item or becomes a firm commitment for
which fair value hedge accounting is applied, the amount that has been accumulated in the cash flow hedge reserve is removed
and included directly in the initial cost or other carrying amount of the asset or the liability. In other cases the amount that has
been accumulated in the cash flow hedge reserve is reclassified to profit or loss in the same period(s) as the hedged cash flows
affect profit or loss. [IFRS 9 paragraph 6.5.11]
When an entity discontinues hedge accounting for a cash flow hedge, if the hedged future cash flows are still expected to occur,
the amount that has been accumulated in the cash flow hedge reserve remains there until the future cash flows occur; if the
hedged future cash flows are no longer expected to occur, that amount is immediately reclassified to profit or loss [IFRS 9
paragraph 6.5.12]
A hedge of the foreign currency risk of a firm commitment may be accounted for as a fair value hedge or a cash flow hedge.
[IFRS 9 paragraph 6.5.4]
Hedge of a net investment in a foreign operation (as defined in IAS 21), including a hedge of a monetary item that is
accounted for as part of the net investment, is accounted for similarly to cash flow hedges:


the portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognised in
OCI; and
the ineffective portion is recognised in profit or loss. [IFRS 9 paragraph 6.5.13]
The cumulative gain or loss on the hedging instrument relating to the effective portion of the hedge is reclassified to profit or loss
on the disposal or partial disposal of the foreign operation. [IFRS 9 paragraph 6.5.14]
Hedge effectiveness requirements
In order to qualify for hedge accounting, the hedge relationship must meet the following effectiveness criteria at the beginning of
each hedged period:



there is an economic relationship between the hedged item and the hedging instrument;
the effect of credit risk does not dominate the value changes that result from that economic relationship; and
the hedge ratio of the hedging relationship is the same as that actually used in the economic hedge [IFRS 9 paragraph
6.4.1(c)]
Rebalancing and discontinuation
If a hedging relationship ceases to meet the hedge effectiveness requirement relating to the hedge ratio but the risk management
objective for that designated hedging relationship remains the same, an entity adjusts the hedge ratio of the hedging relationship
(i.e. rebalances the hedge) so that it meets the qualifying criteria again. [IFRS 9 paragraph 6.5.5]
An entity discontinues hedge accounting prospectively only when the hedging relationship (or a part of a hedging relationship)
ceases to meet the qualifying criteria (after any rebalancing). This includes instances when the hedging instrument expires or is
sold, terminated or exercised. Discontinuing hedge accounting can either affect a hedging relationship in its entirety or only a part
of it (in which case hedge accounting continues for the remainder of the hedging relationship). [IFRS 9 paragraph 6.5.6]
Time value of options
When an entity separates the intrinsic value and time value of an option contract and designates as the hedging instrument only
the change in intrinsic value of the option, it recognises some or all of the change in the time value in OCI which is later removed
or reclassified from equity as a single amount or on an amortised basis (depending on the nature of the hedged item) and
ultimately recognised in profit or loss. [IFRS 9 paragraph 6.5.15] This reduces profit or loss volatility compared to recognising
the change in value of time value directly in profit or loss.
Forward points and foreign currency basis spreads
When an entity separates the forward points and the spot element of a forward contract and designates as the hedging instrument
only the change in the value of the spot element, or when an entity excludes the foreign currency basis spread from a hedge the
entity may recognise the change in value of the excluded portion in OCI to be later removed or reclassified from equity as a
single amount or on an amortised basis (depending on the nature of the hedged item) and ultimately recognised in profit or loss.
[IFRS 9 paragraph 6.5.16] This reduces profit or loss volatility compared to recognising the change in value of forward points or
currency basis spreads directly in profit or loss.
Credit exposures designated at FVTPL
If an entity uses a credit derivative measured at FVTPL to manage the credit risk of a financial instrument (credit exposure) it
may designate all or a proportion of that financial instrument as measured at FVTPL if:


the name of the credit exposure matches the reference entity of the credit derivative (‘name matching’); and
the seniority of the financial instrument matches that of the instruments that can be delivered in accordance with the
credit derivative.
An entity may make this designation irrespective of whether the financial instrument that is managed for credit risk is within the
scope of IFRS 9 (for example, it can apply to loan commitments that are outside the scope of IFRS 9). The entity may designate
that financial instrument at, or subsequent to, initial recognition, or while it is unrecognised and shall document the designation
concurrently. [IFRS 9 paragraph 6.7.1]
If designated after initial recognition, any difference in the previous carrying amount and fair value is recognised immediately in
profit or loss [IFRS 9 paragraph 6.7.2]
An entity discontinues measuring the financial instrument that gave rise to the credit risk at FVTPL if the qualifying criteria are
no longer met and the instrument is not otherwise required to be measured at FVTPL. The fair value at discontinuation becomes
its new carrying amount. [IFRS 9 paragraphs 6.7.3 and 6.7.4]
Impairment
The impairment model in IFRS 9 is based on the premise of providing for expected losses.
Scope
IFRS 9 requires that the same impairment model apply to all of the following:
[IFRS 9 paragraph 5.5.1]



Financial assets measured at amortised cost;
Financial assets mandatorily measured at FVTOCI;
Loan commitments when there is a present obligation to extend credit (except where these are measured at FVTPL);
o Financial guarantee contracts to which IFRS 9 is applied (except those measured at FVTPL);
o Lease receivables within the scope of IAS 17 Leases; and
o Contract assets within the scope of IFRS 15 Revenue from Contracts with Customers (i.e. rights to
consideration following transfer of goods or services).
General Approach
With the exception of purchased or originated credit impaired financial assets (see below), expected credit losses are required to
be measured through a loss allowance at an amount equal to:
[IFRS 9 paragraphs 5.5.3 and 5.5.5]


the 12-month expected credit losses (expected credit losses that result from those default events on the financial
instrument that are possible within 12 months after the reporting date); or
full lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the
financial instrument).
A loss allowance for full lifetime expected credit losses is required for a financial instrument if the credit risk of that financial
instrument has increased significantly since initial recognition, as well as to contract assets or trade receivables that do not
constitute a financing transaction in accordance with IFRS 15. [IFRS 9 paragraphs 5.5.3 and 5.5.15]
Additionally, entities can elect an accounting policy to recognise full lifetime expected losses for all contract assets and/or all
trade receivables that do constitute a financing transaction in accordance with IFRS 15. The same election is also separately
permitted for lease receivables. [IFRS 9 paragraph 5.5.16]
For all other financial instruments, expected credit losses are measured at an amount equal to the 12-month expected credit
losses. [IFRS 9 paragraph 5.5.5]
Significant increase in credit risk
With the exception of purchased or originated credit-impaired financial assets (see below), the loss allowance for financial
instruments is measured at an amount equal to lifetime expected losses if the credit risk of a financial instrument has increased
significantly since initial recognition, unless the credit risk of the financial instrument is low at the reporting date in which case it
can be assumed that credit risk on the financial instrument has not increased significantly since initial recognition. [IFRS 9
paragraphs 5.5.3 and 5.5.10]
The Standard considers credit risk low if there is a low risk of default, the borrower has a strong capacity to meet its contractual
cash flow obligations in the near term and adverse changes in economic and business conditions in the longer term may, but will
not necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations. The Standard suggests that
‘investment grade’ rating might be an indicator for a low credit risk. [IFRS 9 paragraphs B5.5.22 – B5.5.24]
The assessment of whether there has been a significant increase in credit risk is based on an increase in the probability of a
default occurring since initial recognition. Under the Standard, an entity may use various approaches to assess whether credit risk
has increased significantly (provided that the approach is consistent with the requirements). An approach can be consistent with
the requirements even if it does not include an explicit probability of default occurring as an input. The application guidance
provides a list of factors that may assist an entity in making the assessment. Also, whilst in principle the assessment of whether a
loss allowance should be based on lifetime expected credit losses is to be made on an individual basis, some factors or indicators
might not be available at an instrument level. In this case, the entity should perform the assessment on appropriate groups or
portions of a portfolio of financial instruments.
The requirements also contain a rebuttable presumption that the credit risk has increased significantly when contractual payments
are more than 30 days past due. IFRS 9 also requires that (other than for purchased or originated credit impaired financial
instruments) if a significant increase in credit risk that had taken place since initial recognition and has reversed by a subsequent
reporting period (i.e., cumulatively credit risk is not significantly higher than at initial recognition) then the expected credit losses
on the financial instrument revert to being measured based on an amount equal to the 12-month expected credit losses. [IFRS 9
paragraph 5.5.11]
Purchased or originated credit-impaired financial assets
Purchased or originated credit-impaired financial assets are treated differently because the asset is credit-impaired at initial
recognition. For these assets, an entity would recognise changes in lifetime expected losses since initial recognition as a loss
allowance with any changes recognised in profit or loss. Under the requirements, any favourable changes for such assets are an
impairment gain even if the resulting expected cash flows of a financial asset exceed the estimated cash flows on initial
recognition. [IFRS 9 paragraphs 5.5.13 – 5.5.14]
Credit-impaired financial asset
Under IFRS 9 a financial asset is credit-impaired when one or more events that have occurred and have a significant impact on
the expected future cash flows of the financial asset. It includes observable data that has come to the attention of the holder of a
financial asset about the following events:
[IFRS 9 Appendix A]




significant financial difficulty of the issuer or borrower;
a breach of contract, such as a default or past-due event;
the lenders for economic or contractual reasons relating to the borrower’s financial difficulty granted the borrower a
concession that would not otherwise be considered;
it becoming probable that the borrower will enter bankruptcy or other financial reorganisation;


the disappearance of an active market for the financial asset because of financial difficulties; or
the purchase or origination of a financial asset at a deep discount that reflects incurred credit losses.
Basis for estimating expected credit losses
Any measurement of expected credit losses under IFRS 9 shall reflect an unbiased and probability-weighted amount that is
determined by evaluating the range of possible outcomes as well as incorporating the time value of money. Also, the entity
should consider reasonable and supportable information about past events, current conditions and reasonable and supportable
forecasts of future economic conditions when measuring expected credit losses. [IFRS 9 paragraph 5.5.17]
The Standard defines expected credit losses as the weighted average of credit losses with the respective risks of a default
occurring as the weightings. [IFRS 9 Appendix A] Whilst an entity does not need to consider every possible scenario, it must
consider the risk or probability that a credit loss occurs by considering the possibility that a credit loss occurs and the possibility
that no credit loss occurs, even if the probability of a credit loss occurring is low. [IFRS 9 paragraph 5.5.18]
In particular, for lifetime expected losses, an entity is required to estimate the risk of a default occurring on the financial
instrument during its expected life. 12-month expected credit losses represent the lifetime cash shortfalls that will result if a
default occurs in the 12 months after the reporting date, weighted by the probability of that default occurring.
An entity is required to incorporate reasonable and supportable information (i.e., that which is reasonably available at the
reporting date). Information is reasonably available if obtaining it does not involve undue cost or effort (with information
available for financial reporting purposes qualifying as such).
For applying the model to a loan commitment an entity will consider the risk of a default occurring under the loan to be
advanced, whilst application of the model for financial guarantee contracts an entity considers the risk of a default occurring of
the specified debtor. [IFRS 9 paragraphs B5.5.31 and B5.5.32]
An entity may use practical expedients when estimating expected credit losses if they are consistent with the principles in the
Standard (for example, expected credit losses on trade receivables may be calculated using a provision matrix where a fixed
provision rate applies depending on the number of days that a trade receivable is outstanding). [IFRS 9 paragraph B5.5.35]
To reflect time value, expected losses should be discounted to the reporting date using the effective interest rate of the asset (or
an approximation thereof) that was determined at initial recognition. A “credit-adjusted effective interest” rate should be used for
expected credit losses of purchased or originated credit-impaired financial assets. In contrast to the “effective interest rate”
(calculated using expected cash flows that ignore expected credit losses), the credit-adjusted effective interest rate reflects
expected credit losses of the financial asset. [IFRS 9 paragraphs B5.5.44-45]
Expected credit losses of undrawn loan commitments should be discounted by using the effective interest rate (or an
approximation thereof) that will be applied when recognising the financial asset resulting from the commitment. If the effective
interest rate of a loan commitment cannot be determined, the discount rate should reflect the current market assessment of time
value of money and the risks that are specific to the cash flows but only if, and to the extent that, such risks are not taken into
account by adjusting the discount rate. This approach shall also be used to discount expected credit losses of financial guarantee
contracts. [IFRS 9 paragraphs B5.5.47]
Presentation
Whilst interest revenue is always required to be presented as a separate line item, it is calculated differently according to the
status of the asset with regard to credit impairment. In the case of a financial asset that is not a purchased or originated creditimpaired financial asset and for which there is no objective evidence of impairment at the reporting date, interest revenue is
calculated by applying the effective interest rate method to the gross carrying amount. [IFRS 9 paragraph 5.4.1]
In the case of a financial asset that is not a purchased or originated credit-impaired financial asset but subsequently has become
credit-impaired, interest revenue is calculated by applying the effective interest rate to the amortised cost balance, which
comprises the gross carrying amount adjusted for any loss allowance. [IFRS 9 paragraph 5.4.1]
In the case of purchased or originated credit-impaired financial assets, interest revenue is always recognised by applying the
credit-adjusted effective interest rate to the amortised cost carrying amount. [IFRS 9 paragraph 5.4.1] The credit-adjusted
effective interest rate is the rate that discounts the cash flows expected on initial recognition (explicitly taking account of
expected credit losses as well as contractual terms of the instrument) back to the amortised cost at initial recognition. [IFRS 9
Appendix A]
Consequential amendments of IFRS 9 to IAS 1 require that impairment losses, including reversals of impairment losses and
impairment gains (in the case of purchased or originated credit-impaired financial assets), are presented in a separate line item in
the statement of profit or loss and other comprehensive income.
Disclosures
IFRS 9 amends some of the requirements of IFRS 7 Financial Instruments: Disclosures including adding disclosures about
investments in equity instruments designated as at FVTOCI, disclosures on risk management activities and hedge accounting and
disclosures on credit risk management and impairment.
IFRS 10 Consolidated Financial Statements outlines the requirements for the preparation and presentation of consolidated
financial statements, requiring entities to consolidate entities it controls. Control requires exposure or rights to variable returns
and the ability to affect those returns through power over an investee.
IFRS 10 was issued in May 2011 and applies to annual periods beginning on or after 1 January 2013.
Summary of IFRS 10
Objective
The objective of IFRS 10 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]
The Standard: [IFRS 10:1]



requires a parent entity (an entity that controls one or more other entities) to present consolidated financial statements


sets out the accounting requirements for the preparation of consolidated financial statements
defines the principle of control, and establishes control as the basis for consolidation
set out how to apply the principle of control to identify whether an investor controls an investee and therefore must consolidate the
investee
defines an investment entity and sets out an exception to consolidating particular subsidiaries of an investment entity*.
* Added by Investment Entities amendments, effective 1 January 2014.
Key definitions
[IFRS 10:Appendix A]
Consolidated financial The financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the
statements
parent and its subsidiaries are presented as those of a single economic entity
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
An entity that:
Investment entity*
1.
obtains funds from one or more investors for the purpose of providing those investor(s) with investment
management services
2.
3.
commits to its investor(s) that its business purpose is to invest funds solely for returns from capital
appreciation, investment income, or both, and
measures and evaluates the performance of substantially all of its investments on a fair value basis.
Parent
An entity that controls one or more entities
Power
Existing rights that give the current ability to direct the relevant activities
Protective rights
Rights designed to protect the interest of the party holding those rights without giving that party power over the entity
to which those rights relate
Relevant activities
Activities of the investee that significantly affect the investee's returns
* Added by Investment Entities amendments, effective 1 January 2014.
Control
An investor determines whether it is a parent by assessing whether it controls one or more investees. An investor considers all
relevant facts and circumstances when assessing whether it controls an investee. An investor controls an investee when it 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 10:5-6; IFRS 10:8]
An investor controls an investee if and only if the investor has all of the following elements: [IFRS 10:7]

power over the investee, i.e. the investor has existing rights that give it the ability to direct the relevant activities (the activities that
significantly affect the investee's returns)


exposure, or rights, to variable returns from its involvement with the investee
the ability to use its power over the investee to affect the amount of the investor's returns.
Power arises from rights. Such rights can be straightforward (e.g. through voting rights) or be complex (e.g. embedded in
contractual arrangements). An investor that holds only protective rights cannot have power over an investee and so cannot control
an investee [IFRS 10:11, IFRS 10:14].
An investor must be exposed, or have rights, to variable returns from its involvement with an investee to control the investee.
Such returns must have the potential to vary as a result of the investee's performance and can be positive, negative, or both. [IFRS
10:15]
A parent must not only have power over an investee and exposure or rights to variable returns from its involvement with the
investee, a parent must also have the ability to use its power over the investee to affect its returns from its involvement with the
investee. [IFRS 10:17].
When assessing whether an investor controls an investee an investor with decision-making rights determines whether it acts as
principal or as an agent of other parties. A number of factors are considered in making this assessment. For instance, the
remuneration of the decision-maker is considered in determining whether it is an agent. [IFRS 10:B58, IFRS 10:B60]
Accounting requirements
Preparation of consolidated financial statements
A parent prepares consolidated financial statements using uniform accounting policies for like transactions and other events in
similar circumstances. [IFRS 10:19]
However, a parent need not present consolidated financial statements if it meets all of the following conditions: [IFRS 10:4(a)]

it is a wholly-owned subsidiary or is a partially-owned subsidiary of another entity and its other owners, including those not
otherwise entitled to vote, have been informed about, and do not object to, the parent not presenting consolidated financial
statements

its debt or equity instruments are not traded in a public market (a domestic or foreign stock exchange or an over-the-counter
market, including local and regional markets)

it did not file, nor is it in the process of filing, its financial statements with a securities commission or other regulatory organisation
for the purpose of issuing any class of instruments in a public market, and

its ultimate or any intermediate parent of the parent produces consolidated financial statements available for public use that comply
with IFRSs.
Investment entities are prohibited from consolidating particular subsidiaries (see further information below).
Furthermore, post-employment benefit plans or other long-term employee benefit plans to which IAS 19 Employee Benefits
applies are not required to apply the requirements of IFRS 10. [IFRS 10:4(b)]
Consolidation procedures
Consolidated financial statements: [IFRS 10:B86]


combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries

eliminate in full intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between entities of
the group (profits or losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets,
are eliminated in full).
offset (eliminate) the carrying amount of the parent's investment in each subsidiary and the parent's portion of equity of each
subsidiary (IFRS 3 Business Combinations explains how to account for any related goodwill)
A reporting entity includes the income and expenses of a subsidiary in the consolidated financial statements from the date it gains
control until the date when the reporting entity ceases to control the subsidiary. Income and expenses of the subsidiary are based
on the amounts of the assets and liabilities recognised in the consolidated financial statements at the acquisition date. [IFRS
10:B88]
The parent and subsidiaries are required to have the same reporting dates, or consolidation based on additional financial
information prepared by subsidiary, unless impracticable. Where impracticable, the most recent financial statements of the
subsidiary are used, adjusted for the effects of significant transactions or events between the reporting dates of the subsidiary and
consolidated financial statements. The difference between the date of the subsidiary's financial statements and that of the
consolidated financial statements shall be no more than three months [IFRS 10:B92, IFRS 10:B93]
Non-controlling interests (NCIs)
A parent presents non-controlling interests in its consolidated statement of financial position within equity, separately from the
equity of the owners of the parent. [IFRS 10:22]
A reporting entity attributes the profit or loss and each component of other comprehensive income to the owners of the parent and
to the non-controlling interests. The proportion allocated to the parent and non-controlling interests are determined on the basis of
present ownership interests. [IFRS 10:B94, IFRS 10:B89]
The reporting entity also attributes total comprehensive income to the owners of the parent and to the non-controlling interests
even if this results in the non-controlling interests having a deficit balance. [IFRS 10:B94]
Changes in ownership interests
Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary are equity
transactions (i.e. transactions with owners in their capacity as owners). When the proportion of the equity held by non-controlling
interests changes, the carrying amounts of the controlling and non-controlling interests area adjusted to reflect the changes in
their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted
and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the
parent.[IFRS 10:23, IFRS 10:B96]
If a parent loses control of a subsidiary, the parent [IFRS 10:25]:


derecognises the assets and liabilities of the former subsidiary from the consolidated statement of financial position

recognises the gain or loss associated with the loss of control attributable to the former controlling interest.
recognises any investment retained in the former subsidiary when control is lost and subsequently accounts for it and for any
amounts owed by or to the former subsidiary in accordance with relevant IFRSs. That retained interest is remeasured and the
remeasured value is regarded as the fair value on initial recognition of a financial asset in accordance with IFRS 9 Financial
Instruments or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture
If a parent loses control of a subsidiary that does not contain a business in a transaction with an associate or a joint venture gains
or losses resulting from those transactions are recognised in the parent's profit or loss only to the extent of the unrelated investors'
interests in that associate or joint venture.*
* Added by Sale or Contribution of Assets between an Investor and its Associate or Joint Venture amendments, effective 1
January 2016.
Investment entities consolidation exemption
[Note: The investment entity consolidation exemption was introduced by Investment Entities, issued on 31 October 2012 and
effective for annual periods beginning on or after 1 January 2014.]
IFRS 10 contains special accounting requirements for investment entities. Where an entity meets the definition of an 'investment
entity' (see above), it does not consolidate its subsidiaries, or apply IFRS 3 Business Combinations when it obtains control of
another entity. [IFRS 10:31]
An entity is required to consider all facts and circumstances when assessing whether it is an investment entity, including its
purpose and design. IFRS 10 provides that an investment entity should have the following typical characteristics [IFRS 10:28]:




it has more than one investment
it has more than one investor
it has investors that are not related parties of the entity
it has ownership interests in the form of equity or similar interests.
The absence of any of these typical characteristics does not necessarily disqualify an entity from being classified as an investment
entity.
An investment entity is required to measure an investment in a subsidiary at fair value through profit or loss in accordance with
IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement. However, an investment entity is
still required to consolidate a subsidiary where that subsidiary provides services that relate to the investment entity’s investment
activities. [IFRS 10:31-32]
Because an investment entity is not required to consolidate its subsidiaries, intragroup related party transactions and outstanding
balances are not eliminated [IAS 24.4, IAS 39.80].
Special requirements apply where an entity becomes, or ceases to be, an investment entity. [IFRS 10:B100-B101]
The exemption from consolidation only applies to the investment entity itself. Accordingly, a parent of an investment entity is
required to consolidate all entities that it controls, including those controlled through an investment entity subsidiary, unless the
parent itself is an investment entity. [IFRS 10:33]
Disclosure
There are no disclosures specified in IFRS 10. Instead, IFRS 12 Disclosure of Interests in Other Entities outlines the disclosures
required.
Applicability and early adoption
Note: This section has been updated to reflect the amendments to IFRS 10 made in June 2012 and October 2012.
IFRS 10 is applicable to annual reporting periods beginning on or after 1 January 2013 [IFRS 10:C1].
Retrospective application is generally required in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors [IFRS 10:C2]. However, an entity is not required to make adjustments to the accounting for its involvement with
entities that were previously consolidated and continue to be consolidated, or entities that were previously unconsolidated and
continue not to be consolidated at the date of initial application of the IFRS [IFRS 10:C3].
Furthermore, an entity is not required to present the quantitative information required by paragraph 28(f) of IAS 8 for the annual
period immediately preceding the date of initial application of the standard (the beginning of the annual reporting period for
which IFRS 10 is first applied) [IFRS 10:C2A-C2B]. However, an entity may choose to present adjusted comparative
information for earlier reporting periods, any must clearly identify any unadjusted comparative information and explain the basis
on which the comparative information has been prepared [IFRS 10.C6A-C6B].
IFRS 10 prescribes modified accounting on its first application in the following circumstances:



an entity consolidates an entity not previously consolidated [IFRS 10:C4-C4C]
an entity no longer consolidates an entity that was previously consolidated [IFRS 10:C5-C5A]
in relation to certain amendments to IAS 27 made in 2008 that have been carried forward into IFRS 10 [IFRS 10:C6].
An entity may apply IFRS 10 to an earlier accounting period, but if doing so it must disclose the fact that is has early adopted the
standard and also apply:




IFRS 11 Joint Arrangements
IFRS 12 Disclosure of Interests in Other Entities
IAS 27 Separate Financial Statements (as amended in 2011)
IAS 28 Investments in Associates and Joint Ventures (as amended in 2011).
The amendments made by Investment Entities are applicable to annual reporting periods beginning on or after 1 January 2014
[IFRS 10:C1B]. At the date of initial application of the amendments, an entity assesses whether it is an investment entity on the
basis of the facts and circumstances that exist at that date and additional transitional provisions apply [IFRS 10:C3B–C3F].
IFRS 11 Joint Arrangements outlines the accounting by entities that jointly control an arrangement. Joint control involves the
contractually agreed sharing of control and arrangements subject to joint control are classified as either a joint venture
(representing a share of net assets and equity accounted) or a joint operation (representing rights to assets and obligations for
liabilities, accounted for accordingly).
IFRS 11 was issued in May 2011 and applies to annual reporting periods beginning on or after 1 January 2013.
Summary of IFRS 11
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
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
Joint venture
A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the
arrangement
Joint venturer
A party to a joint venture that has joint control of that joint venture
Party to a joint
arrangement
An entity that participates in a joint arrangement, regardless of whether that entity has joint control of the
arrangement
Separate vehicle
A separately identifiable financial structure, including separate legal entities or entities recognised by statute,
regardless of whether those entities have a legal personality
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]
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]
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]
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]
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; and
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]
The acquirer of an interest in a joint operation in which the activity constitutes a business, as defined in IFRS 3 Business
Combinations, is required to apply all of the principles on business combinations accounting in IFRS 3 and other IFRSs with the
exception of those principles that conflict with the guidance in IFRS 11. [IFRS 11:21A] These requirements apply both to the
initial acquisition of an interest in a joint operation, and the acquisition of an additional interest in a joint operation (in the latter
case, previously held interests are not remeasured). [IFRS 11:B33C]
Note: The requirements above were introduced by Accounting for Acquisitions of Interests in Joint Operations, which applies to
annual periods beginning on or after 1 January 2016 on a prospective basis to acquisitions of interests in joint operations
occurring from the beginning of the first period in which the amendments are applied.
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]
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]
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
o a joint operation in accordance with paragraphs 20-22;
o 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:
o a joint operation in accordance with paragraphs 23;
o 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]
Disclosure
There are no disclosures specified in IFRS 11. Instead, IFRS 12 Disclosure of Interests in Other Entities outlines the disclosures
required.
Applicability and early adoption
Note: This section has been updated to reflect the amendments to IFRS 11 made in June 2012.
IFRS 11 is applicable to annual reporting periods beginning on or after 1 January 2013. [IFRS 11:Appendix C1]
When IFRS 11 is first applied, an entity need only present the quantitative information required by paragraph 28(f) of IAS 8 for
the annual period immediately preceding the first annual period for which the standard is applied [IFRS 11:C1B]
Special transitional provisions are included for: [IFRS 11.Appendix C2-C13]



transition from proportionate consolidation to the equity method for joint ventures
transition from the equity method to accounting for assets and liabilities for joint operations
transition in an entity's separate financial statements for a joint operation previously accounted for as an investment at cost.
In general terms, the special transitional adjustments are required to be applied at the beginning of the immediately preceding
period (rather than the the beginning of the earliest period presented). However, an entity may choose to present adjusted
comparative information for earlier reporting periods, and must clearly identify any unadjusted comparative information and
explain the basis on which the comparative information has been prepared [IFRS 11.C12A-C12B].
An entity may apply IFRS 11 to an earlier accounting period, but if doing so it must disclose the fact that is has early adopted the
standard and also apply: [IFRS 11.Appendix C1]






IFRS 10 Consolidated Financial Statements
IFRS 12 Disclosure of Interests in Other Entities
IAS 27 Separate Financial Statements (as amended in 2011)
IAS 28 Investments in Associates and Joint Ventures (as amended in 2011).
IFRS 12 Disclosure of Interests in Other Entities is a consolidated disclosure standard requiring a wide range of
disclosures about an entity's interests in subsidiaries, joint arrangements, associates and unconsolidated 'structured
entities'. Disclosures are presented as a series of objectives, with detailed guidance on satisfying those objectives.
IFRS 12 was issued in May 2011 and applies to annual periods beginning on or after 1 January 2013.
Summary of IFRS 12
Objective and scope
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]
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 and investment 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]
Key definitions
[IFRS 12:Appendix A]
Interest in
another
entity
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.
Disclosures required
Important note: The summary of disclosures that follows is a high-level summary of the main requirements of IFRS 12. It does
not list every specific disclosure required by the standard, but instead highlights the broad objectives, categories and nature of the
disclosures required. IFRS 12 lists specific examples and additional disclosures which further expand upon the disclosure
objectives, and includes other guidance on the disclosures required. Accordingly, readers should not consider this to be a
comprehensive or complete listing of the disclosure requirements of IFRS 12.
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.
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 group's 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.
Interests in unconsolidated subsidiaries
[Note: The investment entity consolidation exemption referred to in this section was introduced by Investment Entities, issued on
31 October 2012 and effective for annual periods beginning on or after 1 January 2014.]
In accordance with IFRS 10 Consolidated Financial Statements, an investment entity is required to apply the exception to
consolidation and instead account for its investment in a subsidiary at fair value through profit or loss. [IFRS 10:31].
Where an entity is an investment entity, IFRS 12 requires additional disclosure, including:


the fact the entity is an investment entity [IFRS 12:19A]


details of subsidiaries that have not been consolidated (name, place of business, ownership interests held) [IFRS 12:19B]

information where an entity becomes, or ceases to be, an investment entity [IFRS 12:9B]
information about significant judgements and assumptions it has made in determining that it is an investment entity, and specifically
where the entity does not have one or more of the 'typical characteristics' of an investment entity [IFRS 12:9A]
details of the relationship and certain transactions between the investment entity and the subsidiary (e.g. restrictions on transfer of
funds, commitments, support arrangements, contractual arrangements) [IFRS 12: 19D-19G]
An entity making these disclosures are not required to provide various other disclosures required by IFRS 12 [IFRS 12:21A,
IFRS 12:25A].
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.
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.
Applicability and early adoption
Note: This section has been updated to reflect the amendments to IFRS 12 made in June 2012 and October 2012.
[IFRS 12: Appendix C]
IFRS 12 is applicable to annual reporting periods beginning on or after 1 January 2013. Early application is permitted.
The disclosure requirements of IFRS 12 need not be applied for any period presented that begins before the annual period
immediately preceding the first annual period for which IFRS 12 is applied [IFRS 12:C2A]
Entities are encouraged to voluntarily provide the information required by IFRS 12 prior to its adoption. Providing some of the
disclosures required by IFRS 12 does not compel an entity to comply with all of the requirements of the IFRS or to also apply:




IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IAS 27 Separate Financial Statements (2011)
IAS 28 Investments in Associates and Joint Ventures (2011).
The amendments to IFRS 12 made by Investment Entities are applicable to annual reporting periods beginning on or after 1
January 2014 [IFRS 12:C1B].
IFRS 13 Fair Value Measurement applies to IFRSs that require or permit fair value measurements or disclosures and provides a
single IFRS framework for measuring fair value and requires disclosures about fair value measurement. The Standard defines fair
value on the basis of an 'exit price' notion and uses a 'fair value hierarchy', which results in a market-based, rather than entityspecific, measurement.
IFRS 13 was originally issued in May 2011 and applies to annual periods beginning on or after 1 January 2013.
Summary of IFRS 13
Objective
IFRS 13: [IFRS 13:1]



defines fair value
sets out in a single IFRS a framework for measuring fair value
requires disclosures about fair value measurements.
IFRS 13 applies when another IFRS requires or permits fair value measurements or disclosures about fair value measurements
(and measurements, such as fair value less costs to sell, based on fair value or disclosures about those measurements), except for:
[IFRS 13:5-7]



share-based payment transactions within the scope of IFRS 2 Share-based Payment
leasing transactions within the scope of IAS 17 Leases
measurements that have some similarities to fair value but that are not fair value, such as net realisable value in IAS 2 Inventories or
value in use in IAS 36 Impairment of Assets.
Additional exemptions apply to the disclosures required by IFRS 13.
Key definitions
[IFRS 13:Appendix A]
Fair value
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
Active market
A market in which transactions for the asset or liability take place with sufficient frequency and volume to provide
pricing information on an ongoing basis
Exit price
The price that would be received to sell an asset or paid to transfer a liability
Highest and best use
The use of a non-financial asset by market participants that would maximise the value of the asset or the group of assets
and liabilities (e.g. a business) within which the asset would be used
Most advantageous
market
The market that maximises the amount that would be received to sell the asset or minimises the amount that would be
paid to transfer the liability, after taking into account transaction costs and transport costs
Principal market
The market with the greatest volume and level of activity for the asset or liability
Fair value hierarchy
Overview
IFRS 13 seeks to increase consistency and comparability in fair value measurements and related disclosures through a 'fair value
hierarchy'. The hierarchy categorises the inputs used in valuation techniques into three levels. The hierarchy gives the highest
priority to (unadjusted) quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable
inputs. [IFRS 13:72]
If the inputs used to measure fair value are categorised into different levels of the fair value hierarchy, the fair value measurement
is categorised in its entirety in the level of the lowest level input that is significant to the entire measurement (based on the
application of judgement). [IFRS 13:73]
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. [IFRS 13:76]
A quoted market price in an active market provides the most reliable evidence of fair value and is used without adjustment to
measure fair value whenever available, with limited exceptions. [IFRS 13:77]
If an entity holds a position in a single asset or liability and the asset or liability is traded in an active market, the fair value of the
asset or liability is measured within Level 1 as the product of the quoted price for the individual asset or liability and the quantity
held by the entity, even if the market's normal daily trading volume is not sufficient to absorb the quantity held and placing orders
to sell the position in a single transaction might affect the quoted price. [IFRS 13:80]
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. [IFRS 13:81]
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, for example
o interest rates and yield curves observable at commonly quoted intervals
o implied volatilities
o

credit spreads
inputs that are derived principally from or corroborated by observable market data by correlation or other means ('marketcorroborated inputs').
Level 3 inputs
Level 3 inputs inputs are unobservable inputs for the asset or liability. [IFRS 13:86]
Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available, thereby
allowing for situations in which there is little, if any, market activity for the asset or liability at the measurement date. 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 13:87-89]
Measurement of fair value
Overview of fair value measurement approach
The objective of a fair value measurement 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 at the measurement date under current market conditions. A fair value
measurement requires an entity to determine all of the following: [IFRS 13:B2]




the particular asset or liability that is the subject of the measurement (consistently with its unit of account)
for a non-financial asset, the valuation premise that is appropriate for the measurement (consistently with its highest and best use)
the principal (or most advantageous) market for the asset or liability
the valuation technique(s) appropriate for the measurement, considering the availability of data with which to develop inputs that
represent the assumptions that market participants would use when pricing the asset or liability and the level of the fair value
hierarchy within which the inputs are categorised.
Guidance on measurement
IFRS 13 provides the guidance on the measurement of fair value, including the following:

An entity takes into account the characteristics of the asset or liability being measured that a market participant would take into
account when pricing the asset or liability at measurement date (e.g. the condition and location of the asset and any restrictions on
the sale and use of the asset) [IFRS 13:11]

Fair value measurement assumes an orderly transaction between market participants at the measurement date under current
market conditions [IFRS 13:15]

Fair value measurement assumes a transaction taking place in the principal market for the asset or liability, or in the absence of a
principal market, the most advantageous market for the asset or liability [IFRS 13:24]


A fair value measurement of a non-financial asset takes into account its highest and best use [IFRS 13:27]

The fair value of a liability reflects non-performance risk (the risk the entity will not fulfil an obligation), including an entity's own
credit risk and assuming the same non-performance risk before and after the transfer of the liability [IFRS 13:42]

An optional exception applies for certain financial assets and financial liabilities with offsetting positions in market risks or
counterparty credit risk, provided conditions are met (additional disclosure is required). [IFRS 13:48, IFRS 13:96]
A fair value measurement of a financial or non-financial liability or an entity's own equity instruments assumes it is transferred to a
market participant at the measurement date, without settlement, extinguishment, or cancellation at the measurement date [IFRS
13:34]
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. [IFRS 13:61, IFRS
13:67]
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: [IFRS 13:62]

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. [IFRS 13:63]
Disclosure
Disclosure objective
IFRS 13 requires an entity to disclose information that helps users of its financial statements assess both of the following: [IFRS
13:91]

for assets and liabilities that are measured at fair value on a recurring or non-recurring basis in the statement of financial position
after initial recognition, the valuation techniques and inputs used to develop those measurements

for fair value measurements using significant unobservable inputs (Level 3), the effect of the measurements on profit or loss or other
comprehensive income for the period.
Disclosure exemptions
The disclosure requirements are not required for: [IFRS 13:7]


plan assets measured at fair value in accordance with IAS 19 Employee Benefits

assets for which recoverable amount is fair value less costs of disposal in accordance with IAS 36 Impairment of Assets.
retirement benefit plan investments measured at fair value in accordance with IAS 26 Accounting and Reporting by Retirement
Benefit Plans
Identification of classes
Where disclosures are required to be provided for each class of asset or liability, an entity determines appropriate classes on the
basis of the nature, characteristics and risks of the asset or liability, and the level of the fair value hierarchy within which the fair
value measurement is categorised. [IFRS 13:94]
Determining appropriate classes of assets and liabilities for which disclosures about fair value measurements should be provided
requires judgement. A class of assets and liabilities will often require greater disaggregation than the line items presented in the
statement of financial position. The number of classes may need to be greater for fair value measurements categorised within
Level 3.
Some disclosures are differentiated on whether the measurements are:

Recurring fair value measurements – fair value measurements required or permitted by other IFRSs to be recognised in the
statement of financial position at the end of each reporting period

Non-recurring fair value measurements are fair value measurements that are required or permitted by other IFRSs to be measured
in the statement of financial position in particular circumstances.
Specific disclosures required
To meet the disclosure objective, the following minimum disclosures are required for each class of assets and liabilities measured
at fair value (including measurements based on fair value within the scope of this IFRS) in the statement of financial position
after initial recognition (note these are requirements have been summarised and additional disclosure is required where
necessary): [IFRS 13:93]




the fair value measurement at the end of the reporting period*

for fair value measurements categorised within Level 2 and Level 3 of the fair value hierarchy, a description of the valuation
technique(s) and the inputs used in the fair value measurement, any change in the valuation techniques and the reason(s) for
making such change (with some exceptions)*

for fair value measurements categorised within Level 3 of the fair value hierarchy, quantitative information about the significant
unobservable inputs used in the fair value measurement (with some exceptions)

for recurring fair value measurements categorised within Level 3 of the fair value hierarchy, a reconciliation from the opening
balances to the closing balances, disclosing separately changes during the period attributable to the following:
o total gains or losses for the period recognised in profit or loss, and the line item(s) in profit or loss in which those gains or
losses are recognised – separately disclosing the amount included in profit or loss that is attributable to the change in
unrealised gains or losses relating to those assets and liabilities held at the end of the reporting period, and the line
item(s) in profit or loss in which those unrealised gains or losses are recognised
o total gains or losses for the period recognised in other comprehensive income, and the line item(s) in other
comprehensive income in which those gains or losses are recognised
o purchases, sales, issues and settlements (each of those types of changes disclosed separately)
o the amounts of any transfers into or out of Level 3 of the fair value hierarchy, the reasons for those transfers and the
entity's policy for determining when transfers between levels are deemed to have occurred. Transfers into Level 3 shall
be disclosed and discussed separately from transfers out of Level 3

for fair value measurements categorised within Level 3 of the fair value hierarchy, a description of the valuation processes used by
the entity

for recurring fair value measurements categorised within Level 3of the fair value hierarchy:
o a narrative description of the sensitivity of the fair value measurement to changes in unobservable inputs if a change in
those inputs to a different amount might result in a significantly higher or lower fair value measurement. If there are
interrelationships between those inputs and other unobservable inputs used in the fair value measurement, the entity
also provides a description of those interrelationships and of how they might magnify or mitigate the effect of changes in
the unobservable inputs on the fair value measurement
o for financial assets and financial liabilities, if changing one or more of the unobservable inputs to reflect reasonably
possible alternative assumptions would change fair value significantly, an entity shall state that fact and disclose the
effect of those changes. The entity shall disclose how the effect of a change to reflect a reasonably possible alternative
assumption was calculated

if the highest and best use of a non-financial asset differs from its current use, an entity shall disclose that fact and why the nonfinancial asset is being used in a manner that differs from its highest and best use*.
for non-recurring fair value measurements, the reasons for the measurement*
the level of the fair value hierarchy within which the fair value measurements are categorised in their entirety (Level 1, 2 or 3)*
for assets and liabilities held at the reporting date that are measured at fair value on a recurring basis, the amounts of any transfers
between Level 1 and Level 2 of the fair value hierarchy, the reasons for those transfers and the entity's policy for determining when
transfers between levels are deemed to have occurred, separately disclosing and discussing transfers into and out of each level
'*' in the list above indicates that the disclosure is also applicable to a class of assets or liabilities which is not measured at fair
value in the statement of financial position but for which the fair value is disclosed. [IFRS 13:97]
Quantitative disclosures are required to be presented in a tabular format unless another format is more appropriate. [IFRS 13:99]
Effective date and transition
[IFRS 13:Appendix C]
IFRS 13 is applicable to annual reporting periods beginning on or after 1 January 2013. An entity may apply IFRS 13 to an
earlier accounting period, but if doing so it must disclose the fact.
Application is required prospectively as of the beginning of the annual reporting period in which the IFRS is initially applied.
Comparative information need not be disclosed for periods before initial application.
IFRS 14 Regulatory Deferral Accounts permits an entity which is a first-time adopter of International Financial Reporting
Standards to continue to account, with some limited changes, for 'regulatory deferral account balances' in accordance with its
previous GAAP, both on initial adoption of IFRS and in subsequent financial statements. Regulatory deferral account balances,
and movements in them, are presented separately in the statement of financial position and statement of profit or loss and other
comprehensive income, and specific disclosures are required.
IFRS 14 was originally issued in January 2014 and applies to an entity's first annual IFRS financial statements for a period
beginning on or after 1 January 2016.
Summary of IFRS 14
Objective
The objective of IFRS 14 is to specify the financial reporting requirements for 'regulatory deferral account balances' that arise
when an entity provides good or services to customers at a price or rate that is subject to rate regulation. [IFRS 14:1]
IFRS 14 is designed as a limited scope Standard to provide an interim, short-term solution for rate-regulated entities that have not
yet adopted International Financial Reporting Standards (IFRS). Its purpose is to allow rate-regulated entities adopting IFRS for
the first-time to avoid changes in accounting policies in respect of regulatory deferral accounts until such time as the International
Accounting Standards Board (IASB) can complete its comprehensive project on rate regulated activities.
Scope
IFRS 14 is permitted, but not required, to be applied where an entity conducts rate-regulated activities and has recognised
amounts in its previous GAAP financial statements that meet the definition of 'regulatory deferral account balances' (sometimes
referred to 'regulatory assets' and 'regulatory liabilities'). [IFRS 14.5]
Entities which are eligible to apply IFRS 14 are not required to do so, and so can chose to apply only the requirements of IFRS 1
First-time Adoption of International Financial Reporting Standards when first applying IFRSs. The election to adopt IFRS 14 is
only available on the initial adoption of IFRSs, meaning an entity cannot apply IFRS 14 for the first time in financial statements
subsequent to those prepared on the initial adoption of IFRSs. However, an entity that elects to apply IFRS 14 in its first IFRS
financial statements must continue to apply it in subsequent financial statements. [IFRS 14.6]
When applied, the requirements of IFRS 14 must be applied to all regulatory deferral account balances arising from an entity's
rate-regulated activities. [IFRS 14.8]
Key definitions
[IFRS 14:Appendix A]
Rate regulation
A framework for establishing the prices that can be charged to customers for goods and services and that framework is
subject to oversight and/or approval by a rate-regulator
Rate regulator
An authorised body that is empowered by statute or regulation to establish the rate or range of rates that bind an entity.
The rate regulator may be a third-party body or a related party of the entity, including the entity's own governing board, if
that body is required by statute or regulation to set rates both in the interest of customers and to ensure the overall
financial viability of the entity
Regulatory
deferral account
balance
The balance of any expense (or income) account that would not be recognised as an asset or a liability in accordance with
other Standards, but that qualifies for deferral because it is included, or is expected to be included, by the rate regulator in
establishing the rate(s) that can be charged to customers
Accounting policies for regulatory deferral account balances
IFRS 14 provides an exemption from paragraph 11 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors
when an entity determines its accounting policies for regulatory deferral account balances. [IFRS 14.9] Paragraph 11 of IAS 8
requires an entity to consider the requirements of IFRSs dealing with similar matters and the requirements of the Conceptual
Framework when setting its accounting policies.
The effect of the exemption is that eligible entities can continue to apply the accounting policies used for regulatory deferral
account balances under the basis of accounting used immediately before adopting IFRS ('previous GAAP') when applying IFRSs,
subject to the presentation requirements of IFRS 14 [IFRS 14.11].
Entities are permitted to change their accounting policies for regulatory deferral account balances in accordance with IAS 8, but
only if the change makes the financial statements more relevant and no less reliable, or more reliable and not less relevant, to the
economic decision-making needs of users of the entity's financial statements. However, an entity is not permitted to change
accounting policies to start to recognise regulatory deferral account balances. [IFRS 14.13]
Interaction with other Standards
The requirements of other IFRSs are required to be applied to regulatory deferral account balances, subject to specific exceptions,
exemptions and additional requirements contained in IFRS 14 [IFRS 14.16]. These are briefly summarised below: [IFRS 14.B7B28]
IFRS
Requirements
IAS 10 Events After the Reporting
Period
The requirements of IAS 10 are applied when determining which events after the end of the reporting
period should be taken into account in the recognition and measurement of regulatory deferral account
balances
IAS 12 Income Taxes
Deferred tax assets and liabilities arising from regulatory deferral account balances are presented
separately from total deferred tax amounts and movements in those deferred tax balances are presented
separately from tax expense (income)
IAS 33 Earnings Per Share
Entities applying IFRS 14 are required to present an additional basic and diluted earnings per share that
excludes the impacts of the net movement in regulatory deferral account balances
IAS 36 Impairment of Assets
Regulatory deferral account balances are included in the carrying amount of any relevant cash-generating
unit (CGU) and are treated in the same way as other assets and liabilities where an impairment loss arises
IFRS 3 Business Combinations
The entity's accounting policies for regulatory deferral account balances are used in applying the
acquisition method, which can result in the recognition of regulatory deferral account balances in respect
of an acquiree, regardless of whether the acquiree itself recognised such balances
IFRS 5 Non-current Assets Held for
Sale and Discontinued Operations
The measurement requirements of IFRS 5 do not apply to regulatory deferral account balances, and
modifications are made to the presentation of information about discontinued operations and disposal
groups in relation to such balances
IFRS 10 Consolidated Financial
Statements and IAS 28 Investments
in Associates and Joint Ventures
(2011)
The entity's accounting policies in respect of regulatory deferral account balances are required to be
applied in an entity's consolidated financial statements or in the determination of equity accounted
information of associates or joint ventures, notwithstanding that the entity's investees may not have
recognised regulatory deferral account balances in their financial statements
IFRS 12 Disclosure of Interests in
Other Entities
Separate disclosure of regulatory deferral account balances and net movements in those balances
recognised in profit or loss or other comprehensive income are required for various IFRS 12 disclosures
Presentation in financial statements
The impact of regulatory deferral account balances are separately presented in an entity's financial statements. This requirements
applies regardless of the entity's previous presentation policies in respect of regulatory deferral balance accounts under its
previous GAAP. Accordingly:

Separate line items are presented in the statement of financial position for the total of all regulatory deferral account debit
balances, and all regulatory deferral account credit balances [IFRS 14.20]

Regulatory deferral account balances are not classified between current and non-current, but are separately disclosed using
subtotals [IFRS 14.21]

The net movement in regulatory deferral account balances are separately presented in the statement of profit or loss and other
comprehensive income using subtotals [IFRS 14.22-23]
The Illustrative examples accompanying IFRS 14 set out an illustrative presentation of financial statements by an entity applying
the Standard.
Disclosures
IFRS 14 sets out disclosure objectives to allow users to assess: [IFRS 14.27]

the nature of, and risks associated with, the rate regulation that establishes the price(s) the entity can charge customers for the
goods or services it provides - including information about the entity's rate-regulated activities and the rate-setting process, the
identity of the rate regulator(s), and the impacts of risks and uncertainties on the recovery or reversal of regulatory deferral balance
accounts

the effects of rate regulation on the entity's financial statements - including the basis on which regulatory deferral account balances
are recognised, how they are assessed for recovery, a reconciliation of the carrying amount at the beginning and end of the
reporting period, discount rates applicable, income tax impacts and details of balances that are no longer considered recoverable or
reversible.
Effective date
Where an entity elects to apply it, IFRS 14 is effective for an entity's first annual IFRS financial statements that are for a period
beginning on or after 1 January 2016. The standard can be applied earlier, but the entity must disclose when it has done so. [IFRS
14.C1]
IFRS 15 specifies how and when an IFRS reporter will recognise revenue as well as requiring such entities to provide users of
financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model
to be applied to all contracts with customers.
IFRS 15 was issued in May 2014 and applies to an annual reporting period beginning on or after 1 January 2017.
Summary of IFRS 15
Objective
The objective of IFRS 15 is to establish the principles that an entity shall apply to report useful information to users of financial
statements about the nature, amount, timing, and uncertainty of revenue and cash flows arising from a contract with a customer.
[IFRS 15:1] Application of the standard is mandatory for annual reporting periods starting from 1 January 2017 onwards. Earlier
application is permitted.
Scope
IFRS 15 Revenue from Contracts with Customers applies to all contracts with customers except for: leases within the scope of
IAS 17 Leases; financial instruments and other contractual rights or obligations within the scope of IFRS 9 Financial
Instruments, IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IAS 27 Separate Financial Statements
and IAS 28 Investments in Associates and Joint Ventures; insurance contracts within the scope of IFRS 4 Insurance Contracts;
and non-monetary exchanges between entities in the same line of business to facilitate sales to customers or potential customers.
[IFRS 15:5]
A contract with a customer may be partially within the scope of IFRS 15 and partially within the scope of another standard. In
that scenario: [IFRS 15:7]

if other standards specify how to separate and/or initially measure one or more parts of the contract, then those separation and
measurement requirements are applied first. The transaction price is then reduced by the amounts that are initially measured under
other standards;

if no other standard provides guidance on how to separate and/or initially measure one or more parts of the contract, then IFRS 15
will be applied.
Key definitions
[IFRS 15: Appendix A]
Contract
An agreement between two or more parties that creates enforceable rights and obligations.
Customer
A party that has contracted with an entity to obtain goods or services that are an output of the entity’s ordinary activities in
exchange for consideration.
Income
Increases in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases
of liabilities that result in an increase in equity, other than those relating to contributions from equity participants.
A promise in a contract with a customer to transfer to the customer either:
Performance
obligation


a good or service (or a bundle of goods or services) that is distinct; or
a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to
the customer.
Revenue
Income arising in the course of an entity’s ordinary activities.
Transaction price
The amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or
services to a customer, excluding amounts collected on behalf of third parties.
Accounting requirements for revenue
The five-step model framework
The core principle of IFRS 15 is that an entity will recognise revenue to depict the transfer of promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or
services. This core principle is delivered in a five-step model framework: [IFRS 15:IN7]


Identify the contract(s) with a customer
Identify the performance obligations in the contract



Determine the transaction price
Allocate the transaction price to the performance obligations in the contract
Recognise revenue when (or as) the entity satisfies a performance obligation.
Application of this guidance will depend on the facts and circumstances present in a contract with a customer and will require the
exercise of judgment.
Step 1: Identify the contract with the customer
A contract with a customer will be within the scope of IFRS 15 if all the following conditions are met: [IFRS 15:9]





the contract has been approved by the parties to the contract;
each party’s rights in relation to the goods or services to be transferred can be identified;
the payment terms for the goods or services to be transferred can be identified;
the contract has commercial substance; and
it is probable that the consideration to which the entity is entitled to in exchange for the goods or services will be collected.
If a contract with a customer does not yet meet all of the above criteria, the entity will continue to re-assess the contract going
forward to determine whether it subsequently meets the above criteria. From that point, the entity will apply IFRS 15 to the
contract. [IFRS 15:14]
The standard provides detailed guidance on how to account for approved contract modifications. If certain conditions are met, a
contract modification will be accounted for as a separate contract with the customer. If not, it will be accounted for by modifying
the accounting for the current contract with the customer. Whether the latter type of modification is accounted for prospectively
or retrospectively depends on whether the remaining goods or services to be delivered after the modification are distinct from
those delivered prior to the modification. Further details on accounting for contract modifications can be found in the Standard.
[IFRS 15:18-21].
Step 2: Identify the performance obligations in the contract
At the inception of the contract, the entity should assess the goods or services that have been promised to the customer, and
identify as a performance obligation: [IFRS 15.22]


a good or service (or bundle of goods or services) that is distinct; or
a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer.
A series of distinct goods or services is transferred to the customer in the same pattern if both of the following criteria are met:
[IFRS 15:23]

each distinct good or service in the series that the entity promises to transfer consecutively to the customer would be a performance
obligation that is satisfied over time (see below); and

a single method of measuring progress would be used to measure the entity’s progress towards complete satisfaction of the
performance obligation to transfer each distinct good or service in the series to the customer.
A good or service is distinct if both of the following criteria are met: [IFRS 15:27]


the customer can benefit from the good or services on its own or in conjunction with other readily available resources; and
the entity’s promise to transfer the good or service to the customer is separately idenitifable from other promises in the contract.
Factors for consideration as to whether a promise to transfer the good or service to the customer is separately identifiable include,
but are not limited to: [IFRS 15:29]

the entity does not provide a significant service of integrating the good or service with other goods or services promised in the
contract.


the good or service does not significantly modify or customise another good or service promised in the contract.
the good or service is not highly interrelated with or highly dependent on other goods or services promised in the contract.
Step 3: Determine the transaction price
The transaction price is the amount to which an entity expects to be entitled in exchange for the transfer of goods and services.
When making this determination, an entity will consider past customary business practices. [IFRS 15:47]
Where a contract contains elements of variable consideration, the entity will estimate the amount of variable consideration to
which it will be entitled under the contract. [IFRS 15:50] Variable consideration can arise, for example, as a result of discounts,
rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items. Variable
consideration is also present if an entity’s right to consideration is contingent on the occurrence of a future event. [IFRS 15:51]
The standard deals with the uncertainty relating to variable consideration by limiting the amount of variable consideration that
can be recognised. Specifically, variable consideration is only included in the transaction price if, and to the extent that, it is
highly probable that its inclusion will not result in a significant revenue reversal in the future when the uncertainty has been
subsequently resolved. [IFRS 15:56]
However, a different, more restrictive approach is applied in respect of sales or usage-based royalty revenue arising from licences
of intellectual property. Such revenue is recognised only when the underlying sales or usage occur. [IFRS 15:B63]
Step 4: Allocate the transaction price to the performance obligations in the contracts
Where a contract has multiple performance obligations, an entity will allocate the transaction price to the performance obligations
in the contract by reference to their relative standalone selling prices. [IFRS 15:74] If a standalone selling price is not directly
observable, the entity will need to estimate it. IFRS 15 suggests various methods that might be used, including: [IFRS 15:79]



Adjusted market assessment approach
Expected cost plus a margin approach
Residual approach (only permissible in limited circumstances).
Any overall discount compared to the aggregate of standalone selling prices is allocated between performance obligations on a
relative standalone selling price basis. In certain circumstances, it may be appropriate to allocate such a discount to some but not
all of the performance obligations. [IFRS 15:81]
Where consideration is paid in advance or in arrears, the entity will need to consider whether the contract includes a significant
financing arrangement and, if so, adjust for the time value of money. [IFRS 15:60] A practical expedient is available where the
interval between transfer of the promised goods or services and payment by the customer is expected to be less than 12 months.
[IFRS 15:63]
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
Revenue is recognised as control is passed, either over time or at a point in time. [IFRS 15:32]
Control of an asset is defined as the ability to direct the use of and obtain substantially all of the remaining benefits from the
asset. This includes the ability to prevent others from directing the use of and obtaining the benefits from the asset. The benefits
related to the asset are the potential cash flows that may be obtained directly or indirectly. These include, but are not limited to:
[IFRS 15:31-33]






using the asset to produce goods or provide services;
using the asset to enhance the value of other assets;
using the asset to settle liabilities or to reduce expenses;
selling or exchanging the asset;
pledging the asset to secure a loan; and
holding the asset.
An entity recognises revenue over time if one of the following criteria is met: [IFRS 15:35]



the customer simultaneously receives and consumes all of the benefits provided by the entity as the entity performs;
the entity’s performance creates or enhances an asset that the customer controls as the asset is created; or
the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to
payment for performance completed to date.
If an entity does not satisfy its performance obligation over time, it satisfies it at a point in time. Revenue will therefore be
recognised when control is passed at a certain point in time. Factors that may indicate the point in time at which control passes
include, but are not limited to: [IFRS 15:38]





the entity has a present right to payment for the asset;
the customer has legal title to the asset;
the entity has transferred physical possession of the asset;
the customer has the significant risks and rewards related to the ownership of the asset; and
the customer has accepted the asset.
Contract costs
The incremental costs of obtaining a contract must be recognised as an asset if the entity expects to recover those costs. However,
those incremental costs are limited to the costs that the entity would not have incurred if the contract had not been successfully
obtained (e.g. ‘success fees’ paid to agents). A practical expedient is available, allowing the incremental costs of obtaining a
contract to be expensed if the associated amortisation period would be 12 months or less. [IFRS 15:91-94]
Costs incurred to fulfil a contract are recognised as an asset if and only if all of the following criteria are met: [IFRS 15:95]



the costs relate directly to a contract (or a specific anticipated contract);
the costs generate or enhance resources of the entity that will be used in satisfying performance obligations in the future; and
the costs are expected to be recovered.
These include costs such as direct labour, direct materials, and the allocation of overheads that relate directly to the contract.
[IFRS 15:97]
The asset recognised in respect of the costs to obtain or fulfil a contract is amortised on a systematic basis that is consistent with
the pattern of transfer of the goods or services to which the asset relates. [IFRS 15:99]
Further useful implementation guidance in relation to applying IFRS 15
These topics include:






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





Performance obligations satisfied over time
Methods for measuring progress towards complete satisfaction of a performance obligation
Sale with a right of return
Warranties
Principal versus agent considerations
Customer options for additional goods or services
Customers’ unexercised rights
Non-refundable upfront fees
Licensing
Repurchase arrangements
Consignment arrangements
Bill-and-hold arrangements
Customer acceptance

Disclosures of disaggregation of revenue
These topics should be considered carefully when applying IFRS 15.
Presentation in financial statements
Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or
a receivable, depending on the relationship between the entity’s performance and the customer’s payment. [IFRS 15:105]
A contract liability is presented in the statement of financial position where a customer has paid an amount of consideration prior
to the entity performing by transferring the related good or service to the customer. [IFRS 15:106]
Where the entity has performed by transferring a good or service to the customer and the customer has not yet paid the related
consideration, a contract asset or a receivable is presented in the statement of financial position, depending on the nature of the
entity’s right to consideration. A contract asset is recognised when the entity’s right to consideration is conditional on something
other than the passage of time, for example future performance of the entity. A receivable is recognised when the entity’s right to
consideration is unconditional except for the passage of time.
Contract assets and receivables shall be accounted for in accordance with IFRS 9. Any impairment relating to contracts with
customers should be measured, presented and disclosed in accordance with IFRS 9. Any difference between the initial
recognition of a receivable and the corresponding amount of revenue recognised should also be presented as an expense, for
example, an impairment loss. [IFRS 15:107-108]
Disclosures
The disclosure objective stated in IFRS 15 is for an entity to disclose sufficient information to enable users of financial
statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with
customers. Therefore, an entity should disclose qualitative and quantitative information about all of the following: [IFRS 15:110]



its contracts with customers;
the significant judgments, and changes in the judgments, made in applying the guidance to those contracts; and
any assets recognised from the costs to obtain or fulfil a contract with a customer.
Entities will need to consider the level of detail necessary to satisfy the disclosure objective and how much emphasis to place on
each of the requirements. An entity should aggregate or disaggregate disclosures to ensure that useful information is not
obscured. [IFRS 15:111]
In order to achieve the disclosure objective stated above, the Standard introduces a number of new disclosure requirements.
Further detail about these specific requirements can be found at IFRS 15:113-129.
Effective date and transition
The standard should be applied in an entity’s IFRS financial statements for annual reporting periods beginning on or after 1
January 2017. Earlier application is permitted. An entity that chooses to apply IFRS 15 earlier than 1 January 2017 should
disclose this fact in its relevant financial statements. [IFRS 15:C1]
When first applying IFRS 15, entities should apply the standard in full for the current period, including retrospective application
to all contracts that were not yet complete at the beginning of that period. In respect of prior periods, the transition guidance
allows entities an option to either: [IFRS 15:C3]


apply IFRS 15 in full to prior periods (with certain limited practical expedients being available); or
retain prior period figures as reported under the previous standards, recognising the cumulative effect of applying IFRS 15 as an
adjustment to the opening balance of equity as at the date of initial application (beginning of current reporting period).