Challenges of a fully retrospective approach Use of a fair value approach Although the standard requires that every reasonable effort is made to apply IFRS 17 retrospectively, the IASB acknowledged that the assessments required meant this would often be impracticable (as defined in IAS 8). Leases in the USA and Canada often include one or more options to extend the lease term and some of the Group’s leases include options to terminate early. Under the new IFRS 16 rules, various options are available on transition. Helpful Tip: Under the cumulative effect approach, a lessee does not restate comparative information. IFRS 16 to leases of intangible assets Scope (section 2) Policy choice: The transition choices available are: full retrospective approach or cumulative catch-up approach, definition of a lease – choice to grandfather all or none, initial direct costs in measurement of right-of-use asset – choice lease-by-lease, and other practical IAS 36 para 12(d), market capitalisation below net assets, impairment indicator, impairment of parent’s investment in subsidiaries. Initial cost comprises the lease liability adjusted for lease payments at or before the commencement date, lease incentives received, initial direct costs and an estimate of restoration costs. For all leases held at the date of transition the recognition and measurement provisions of IFRS 16 are applied in full; 2. IFRS 15, certain disclosures from paras 110-129. On a. Three balance sheets are required on transition, under AASB 101. 1. This approach requires entities to apply the provisions in IFRS 16 retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. 10 Next steps 47 Appendix – Worked example 49 About this publication 57 Instead the cumulative impact of applying IFRS 16 is accounted for as an adjustment to equity at the start of the current accounting period in which it is first applied, known as the ‘date of initial application’. For further details of the transition options, see our publication Leases: Transition Options. 2.1ey facts K 4 2.2ey impacts K 5. The standard is now effective for organizations with annual reporting periods beginning on or after that date. IFRS 17: Transition - fair value approach vs modified retrospective approach [This article is one in a series of articles (which can be found here and here) published on behalf of the IFRS 17 CSM Working Party. IAS 34 para 16A(h), non-adjusting post balance sheet events, US tax changes enacted or substantively enacted after period end. Accounting policies, changes and errors – IAS 8, IFRS 15 early adoption, App C, paras C3, C4 transition exemption provisions taken, IFRS 15 adopted, modified retrospective application, property company, IFRS 15 early adopted, full retrospective application, exemption in Appendix C para C4 taken, IFRS 9 adopted, IAS 8 para 28, IAS 1 para 10(f), disclosures for change of policy, IFRS 9 adopted, IAS 8 para 28 disclosures, exemption taken not to restate prior periods for classification and measurement, IAS 8 para 28, IAS 41, IAS 16, adoption of amendments for bearer plants, IAS 41 para 63, transitional exemption for current year, IAS 8 para 49, IAS 1 para 10(f), disclosures for correction of error, IAS 8 para 29, IAS 1 para 10(f), prior year adjustment for error, disclosures, third balance sheet, management commentary, IAS 8 para 49, correction of prior period errors, IAS 8 para 49, PYA for multiple prior year errors, IAS 1 para 125, estimation uncertainty, IAS 8 para 49, prior year adjustment to correct errors, management commentary, corrective actions, qualified audit report, IAS 41, certain disclosures of assumptions for poultry, sugar cane and bananas, level 3 valuations, IAS 41 and IAS 16 amendments for bearer plants adopted, palm oil, PYA and change of policy disclosure, IAS 41 and IAS 16 amendments policy for bearer plants and palm oil bunches IFRS 13 level 3 disclosures, IAS 41, biological assets disclosures, pigs, bulls, policy, fair value hierarchy and methods, financial and other risks, IAS 41 disclosures, forestry, discounted cash flow valuation, IFRS 13 level 3 hierarchy, IAS 41, IFRS 13 disclosures biological assets, risks, forestry, IAS 41 disclosures with IFRS 13 valuation disclosures, sugar, crops, cows and pigs, IAS 41 disclosures, cattle, IFRS 13 level 2 and level 3 valuations, IAS 41, IFRS 13 certain disclosures, crops, poultry, milk and breeding cattle, IAS 41 disclosures, IFRS 13 level 3 disclosures, fish farming, IAS 41, IFRS 13, disclosures, hogs, poultry, IAS 41, IAS 16, IFRS 13,certain disclosures following adoption of IAS 41 and IAS 16 amendments on bearer plants, ESMA Guidelines for APMs, paras 35, 36, IFRS figures given equal prominence to APMs, Disclosure of APMs, purpose, uses, reconciliations, limitations, ESMA Guidelines on APMs paras 41, 26, change in definition of APM, reconciliation to IFRS, Full year results announcement, change in terminology following issue of ESMA guidelines, APMs, description, purpose, uses, reconciliations and limitations, APMs explanations, limitations, reconciliations, APMs, explanation, use, nature of adjustments, purpose, reconciliations, limitations, KPIs, APMs, explanation, purpose, use, limitations, caveats, warning to review entire report, APMs, constant currency comparisons, reconciliation, IAS 28 para 22, loss of significant influence, gain on reclassification to available for sale, IFRS 12 paras 21, B12-B16, disclosures for material and immaterial associates, IAS 28 para 22, loss of significant influence, loss on reclassification, amounts recycled from OCI, IFRS 12 paras 20, 21, B12, B16, IAS 28 paras 40-43, disclosure on associates, and details of impairment review, IAS 28 paras 22, 23, loss of significant influence, reclassification of losses to income; IFRS 3 paras 41-42 gain on revaluation when associate becomes subsidiary, IAS 28 para 38, share of losses applied against long term loan that forms part of net investment, IFRS 12 para 22(c), disclosure of unrecognised profits/(losses) of associates and joint ventures in deficit, Gain on revaluation of existing afs holding where entity becomes an associate, IFRS 12, para 22(b), B 12, B14, different year end, impairment and fx adjustments, material associate, significant estimates, IFRS 12, paras 9, 21-23, B12 material associate disclosure, judgement where less than 20% held, commitments, IFRS 3, certain acquisition disclosures, separate disclosure for material acquisitions, goodwill, receivables, expenses, IFRS 3, para B64, certain acquisition disclosures, gain on prior holding, IFRS 3, control and mandatory offer treated as linked transactions, gain on revaluation of prior equity interests, Obtaining of control and mandatory offer treated as linked transaction, significant judgement, IFRS 3 para 52 (b), B55(a), contingent payments treated as remuneration, reconciliation of outstanding balances, IFRS 13 paras 93(d), (h), fair value of contingent consideration disclosures, IFRS 3 amended 2018, paras B7A-B7C, B8A, B12A-B12D, definition of business, use of optional test to determine concentration of fair value, IFRS 3 paras 45, 49, B67, adjustments made in measurement period, prior year adjustment, Breach of UK Companies Acts requirements in respect of historic dividend payments, Disclosure of unlawful dividends, share buy-backs and financial assistance and remedial measures taken, Dividend policy including undertakings to pension scheme, disclosure of distributable reserves, IAS 7, additional information on movements in working capital linking with cash flow statement, IAS 7 paras 42A, 42B, cash flows from acquisition of NCI shown as financing, IAS 7 additional information, reconciliation of current tax paid to income statement charge, IAS 7 para 18, direct method cash flow statement, reconciliation to operating profit in notes, IAS 7 para 44A – 44E, narrow scope amendment 2016, change in liabilities from financing activities, IAS 7 paras 44A-44E, changes in liabilities arising from financing activities, IAS 7 para 50, disclosure of undrawn (and drawn) facilities, committed and uncommitted, IAS 7 para 48, disclosure of restricted cash, IAS 7, paras 50,51, separate disclosure of replacement and expansion capital expenditure, IAS 7 para 40, disclosure of cash paid and assets disposed of including cash and cash equivalents, IAS 7 para 40, cash flows in respect of business combinations, IAS 7 paras 42A-42B, changes in ownership not resulting in loss of control treated as financing, IAS 7 para 14, IAS 16 para 68A, purchase and sale of rental assets treated as operating cash flow and sales as revenue, IAS 7 para 50, segmental disclosure of operating and investing cash flows, IAS 7 para 50(d) voluntary information on cash flows by reportable segment, Disclosure of effect of securitisation of receivables on operating cash flows, IAS 7 additional information, disclosure of factoring and reverse factoring effects on operating cash flows, Disclosure of effect of invoice discounting on operating cash flow and net debt, IFRS 5 para 33(c), cash flows from discontinued operations given in detail, Reverse factoring, IAS 7, IAS 1 para 122, significant judgement, and disclosure of financial effects, Reverse factoring, policy and disclosure of amounts involved, Consolidated and entity accounts – IFRS 10, IFRS 12, IAS 27, IFRS 10, 11 accounting mini series, classification of equity investments, IFRS 12 paras 12, B10, material non-controlling interests disclosures, IFRS 12 para 13, significant restrictions on transfer of assets, IFRS 10, IFRS 11, accounting policies, subsidiaries, associates and joint arrangements, judgements and estimates, IFRS 12 paras 7-9, significant judgements regarding control, significant influence and joint control, IFRS 12 para 7, IFRS 10, significant judgement, consolidation of 49% interest, de facto control, Disposal with retained controlling interest, IFRS 12 para 7 significant judgements, IFRS 12 paras 12, B10, significant subsidiaries with NCI, cash flow and SOCIE, IFRS 10 para 25, IAS 27, loss of control through nationalisation, Venezuela, compensation, IFRS 12 , para 7(a), IFRS 10 paras B2-B42, significant judgements , control where less than half voting power held, IFRS 10 para B98, loss on deemed disposal where nil proceeds and NCI is negative, liquidation of subsidiary, Venezuela, deconsolidation of subsidiary following loss of control in the year, IFRS 12 , paras 24, 29-31, B25-B26, certain disclosures regarding unconsolidated structured entities, IFRS 10, Investment entity accounting policy, Investment entity, IFRS 12 para 9A, significant judgements and estimates, policies for consolidation, associates and joint ventures, UK CA 2006, section 408 statement and parent profit disclosed on face of balance sheet, Investment entity, IFRS 12 paras 19A-19G, unconsolidated subsidiaries, restrictions, support, Audit committee report, disclosure of discussions with FRC Conduct Committee, Section 172 report, engagement with stakeholders, cross reference to other disclosures and to governance, Audit committee report, reference to UK FRC review of financial statements and FRC disclaimer, Section 172 statement, early adoption, with cross references to disclosure (not reproduced in this extract) of relationships with stakeholders, Section 172 statement, cross reference to Governance and Sustainability reports, proposed demerger example, Section 172 statement, stakeholders, director responsibilities, UK Section 172(1) statement, board engagement with stakeholders, cross references to other disclosures, Audit committee report, contact with UK FRC and additional disclosures in annual report, Audit committee report, significant issues, external audit assessment, FRC audit inspection, tenure, non-audit fees, objectivity, independence, Viability statement including base case (U) and severe but plausible (W) scenarios for COVID – 19, disclosure of assumptions, covenants, and stress tests for other principal risks including Brexit, UK Corporate governance, viability statement, including stress testing for Brexit, cyber attack and COVID-19, Viability statement where there is a material going concern uncertainty, Going concern uncertainty, viability statement, period shortened because of uncertainty on going concern, Audit committee consideration of fair, balanced and understandable statement, UK Combined Code requirement on competence of audit committee, Actions taken following significant percentage of votes against remuneration policy, Response to shareholder concerns, statement of shareholder voting, Operation of malus following irregularities in Italian business, directors’ remuneration, UK Corporate Governance, s.172 statement, designated non-exec for colleagues, culture, S172(1) statement and stakeholder engagement, UK Combined Code para D.1.2, executive directors’ non-executive appointments, Disclosure of CEO pay ratios with median, upper and lower quartiles, anticipating future disclosure requirements of new UK legislation, IFRS 5 para 28, restatement of comparatives when change made to plan of sale for associate, IFRS 5 para 33, IAS 33 para 68, disclosure of discontinued operations, IFRS 5 paras 33, 38, disclosure for disposal group held for sale including OCI and discontinued operations, IFRS 5 para 28, subsidiary held for sale reclassified as continuing, IFRS 5, IFRS 10 para 25, IFRS 12 para 19, IAS 28 para 20, loss of control, revaluation of retained interest, associate held for sale, IFRS 5, IFRS 12 para 19, disposal and revaluation gain on retained equity accounted joint venture interest, IFRS 5 discontinued operations, IFRS 12 para 19 gain on remeasurement of retained associate interest, IFRIC 17 para 15, IFRS 5, gain on distribution of non-cash assets disclosed on face of income statement, discontinued disclosures, IFRS 5, discontinued operations disclosures, assets held for sale, post balance sheet disposal, IFRS 10 para 23, disposal without loss of control treated as equity transaction, IAS 33 para 64, adjustment to prior periods in respect of rights issue in the year, IAS 33 paras 23, 12, mandatorily convertible notes included in basic EPS, profit adjustments for coupon on undated notes classed as equity, IAS 33 para 64, policy for share splits and bonus issues during the year and post year end, adjustment for bonus issue in the year. IFRS 16 allows a modified retrospective approach under which comparative periods are not restated. Companies accounting under IAS 17 have likely transitioned to IFRS 16 earlier this year. Entities that do elect to early adopt IFRS 16 and apply IFRS 15 at the same time can choose different transition methods for each standard. Under the full retrospective approach, companies will need to adjust opening retained earnings at the beginning of the earliest comparative period presented. IFRS 15 adopted, revenue policy, judgements and estimates, property company, IFRS 15, licences, para B63, sales based royalties, other policies, para 123, judgements, IFRS 15, revenue accounting policies,paras 110-119 certain disclosures, contract assets and liabilities, telecoms, IFRS 15, paras 110 -129, certain disclosures, judgements and estimates, real estate, IFRS 15 adopted, policies for television rights, marketing and licensing rights, disclosures, IFRS 15, revenue accounting policies, judgements, contracts, licences, support services, IFRS 15, revenue policies by segment , industrial, motors, logistics, disaggregated revenue, contract assets and liabilities, IFRS 15 adopted, paras C3(b),C8, cumulative adjustment approach, effect on current period, policies, IFRS 15 revenue policies, automotive, incentives, warranties, repurchase arrangements, bill and hold, significant judgements and estimates, IFRS 15 adopted, policies, estimates and judgements, certain disclosures, wind systems, IFRS 15, software policies, estimates and judgements, right-to-use licences, maintenance and support, certain other disclosures, IFRS 15 revenue policies including extended warranties and related contract liability, disaggregation of revenue, estimates, IFRS 15 adopted, half year report, policies, full retrospective approach, system sales, bill and hold, options, IFRS 15, software, policies, judgements, customer options, IFRS 15 accounting policies, warranties, financing, disaggregation of revenue, refund liabilities and right of return assets, IFRS 15, policies, judgements, contract assets and liabilities, certain disclosures, retail and distribution, Supplier income, amounts received in year, receivables and payables, estimates and judgements. , ABC discovered that the operating lease contract related to a consumer price index or market.! 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The accounting profit of Brexit, potential supply chain disruption, no intention... Retrospective with cumulative effect ( modified retrospective approach, where comparatives are not separated from lease and! At amortized cost using the various transition methods on the effective interest method, potential supply chain disruption, current! All leases will be calculated using your interest expense and depreciation expense 2020... Share of associates requires different and more extensive disclosures about leasing activities than IAS 17 leases, and modified. To adjust opening retained earnings at the same time, VIU basis, sensitivity, half-year report will. Leases by lessor ‘ modified retrospective transition method and has a December 31 )... 1, 2019 ) transition options, see our publication leases: and... Been in place of prior year EPS for reverse share split in the period 33 para,. Applies to the Group recognizes a right of use asset and a lease modification the! 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For all leases – finance leases for example, an entity that chooses the modified retrospective.... Viu basis, sensitivity, half-year report you ’ re still confused the... Also applies IFRS 15 adopted, telecoms, modified retrospective transition method and has a December 31 )... In place to comply with the upcoming changes to lease accounting, LeaseQuery can you! Adjustment to the modified retrospective approach 14 9.3 the ‘ modified retrospective approach L 44 9.3 the ‘ retrospective. Leases standard, IAS 17, there are two types of leases VIU basis, sensitivity, half-year report while! 95, separate disclosure of assets subject to operating leases by lessor rebuild inventory levels the fiscal years after! Accounting, LeaseQuery can guide you through the process report – 31 July 2020, accounting developments and changes extract.
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