IASB Annual Improvements 2009 - 2011 Cycle

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27 June 2012

The annual improvements process has been developed by the IASB to deal efficiently with a collection of narrow scope amendments to IFRSs. It is a vehicle for making non-urgent but necessary changes to IFRSs. Rather than involving a series of piecemeal changes, publishing the changes to several standards in a single document streamlines the standard-setting process. On May 17, 2012, the IASB issued “Annual Improvements to IFRSs 2009-2011 Cycle”, which affects five standards. Our article introduces these amendments, which generally clarify or remove inconsistencies between the standards. These changes are compulsory for annual periods beginning on or after January 1, 2013.

Amendments to IFRS 1: Repeated Application of IFRS 1

IFRS 1 must be applied in preparing an entity’s first IFRS financial statements. The Board has addressed the issue of whether that entity can later apply IFRS 1 again. This could happen if an entity’s shares were listed in a foreign jurisdiction which introduced a requirement to prepare IFRS financial statements for listed companies. That entity applied IFRS 1 at that (first) time, but later abandoned its listing and ceased preparing under IFRSs; since then it has followed its domestic GAAP. If that jurisdiction now adopts IFRSs for all entities, can the entity apply IFRS 1 again?

The decision is that it may apply IFRS 1 again, but does not have to do so; if it does, it will have access to the exceptions and exemptions to retrospective application of IFRSs in force at the later date. However it can choose not to apply IFRS 1 again; in this case it will apply IFRSs retrospectively in accordance with IAS 8 as if it had never stopped.

Amended disclosures are required regarding the reason why the entity stopped applying IFRSs and why it is now resuming their application. If the entity is not applying IFRS 1 again, it must also disclose its reasons for this choice.



Amendments to IFRS 1: Borrowing Costs

An optional exemption to full retrospective application permits a first-time adopter to elect to apply the requirements of IAS 23 to capitalise eligible borrowing costs relating to constructing or acquiring assets with a commencement date

• on or after the date of transition to IFRSs; or
• from an earlier date.

Some first-time adopters raised the issue of what to do if they had been capitalising borrowing costs under previous GAAP but the amounts capitalised were not the same as required by IAS 23. Should they be retained, restated or eliminated? The Board decided that borrowing costs capitalised under previous GAAP should be carried forward unchanged in the opening statement of financial position at the date of transition (or at the earlier date).

Another issue has been clarified. If a qualifying asset was under construction at the date of transition to IFRSs, it was not clear what to do; should IAS 23’s capitalisation requirements be applied or should it continue to follow its previous GAAP requirements? The Board decided that borrowing costs incurred after the date of transition that relate to assets under construction at that date should be accounted for under IAS 23, whether these were capitalised or expensed under previous GAAP.



Amendments to IAS 1: Clarification of Requirements for Comparative Information

IAS 1 has been amended to clarify that the minimum requirements for presenting financial statements comprise two statements of financial position, two statements of profit or loss and other comprehensive income, two separate statements of profit or loss (if presented), two statements of cash flows and two statements of changes in equity and related notes.

An entity may decide to present comparative information in addition to the minimum comparative financial statements required, as long as that information is prepared according to IFRSs. This comparative information may consist of one or more statements, but need not comprise a complete set of financial statements. In this case, it is necessary to present related note information for those additional statements.

For example, an entity may present a third statement profit or loss and other comprehensive income. However, this does not necessitate presenting a third statement of financial position, a third statement of cash flows or a third statement of changes in equity. The entity is required to present the related note information for the additional statement.
It is necessary to present an additional (i.e. a third) statement of financial position as at the beginning of the preceding period, if:

• an accounting policy is applied retrospectively, a retrospective restatement is made, or when items are reclassified; and
• this has a material effect on the information in the statement of financial position at the beginning of the preceding period.

N.B. The second bullet point above has been added to IAS 1 to clarify that the third statement of financial position is only required where the impact of the change, restatement or reclassification is material with regard to the statement of financial position.

Other than disclosing information required by IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors in relation to these changes, related notes need not accompany the opening balance sheet as at the beginning of the preceding period.
By contrast, IFRS 1 requires that an entity’s first IFRS financial statements must include a third statement of financial position, as well as related notes to that statement. This is because the IASB decided that the requirements for a first-time adopter of IFRSs in this regard should be different from the requirements for an existing preparer.



Amendments to IAS 16: Classification of Items such as Spare Parts, Stand-by Equipment and Servicing Equipment

The amended paragraph 8 of IAS 16 simply states that items such as spare parts, stand-by equipment and servicing equipment have to be recognised according to IAS 16 Property, plant and Equipment when they meet the definition of property, plant and equipment. Otherwise, they are classified as inventory.



Amendments to IAS 32: Income Tax Consequences of Distributions to Holders of Equity
Instruments and of Transaction Costs of Equity Transactions

A new paragraph was added, which states that income tax relating to distributions to holders of equity instruments and to transaction costs of equity transactions must be accounted for according to IAS 12.

The intention of IAS 32 was to follow the requirements in IAS 12 for accounting for income tax relating to distributions to holders of equity instruments and to transaction costs of equity transactions. The purpose of the amendment is to clarify this intention.



Amendments to IAS 34: Disclosure of a Measure of Segment Assets and Segment Liabilities in Interim Financial Statements

The amended text of IAS 34 requires a measure of total assets and liabilities for a particular reportable segment to be disclosed in the entity’s interim financial statements, if both of the following criteria are met:

• Such amounts are regularly provided to the chief operating decision maker;
• There has been a material change from the amount disclosed in the last annual financial statements for that reportable segment.

Disclosure of segment information is required in the entity's interim financial statements onlyif IFRS 8 requires that entity to disclose segment information in its annual financial statements.

Effective Date of the Amendments and Transition

The amendments are effective for annual periods beginning on or after1 January 2013.Early application of any individual amendment or of all of the amendments together is permitted. The amendments have to be applied retrospectively. In the European Union, endorsement is expected to take place in the first quarter of 2013.