International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards

by International GAAP 2019 (pdf)

  Interpretations Committee for further consideration. The Group does not interpret

  IFRS or seek consensus on its application in Canada. It meets in public up to four

  times per year and has generated several submissions for the Interpretations

  Committee’s agenda.

  4.3.3 Brazil

  Local accounting standards in Brazil (CPCs) have been converged with IFRS since 2010

  and public companies regulated by the ‘Comissão de Valores Mobiliários’ (CVM) are

  also required to make a formal statement of compliance with IFRS as issued by the IASB

  for their consolidated financial statements. The only exception is for homebuilding

  companies, which are temporarily permitted to continue to apply IAS 11 – Construction

  Contracts – rather than IAS 18 – Revenue – under IFRIC 15 – Agreements for the

  Construction of Real Estate.

  Banks are regulated by the Brazilian Central Bank, which continues to require

  preparation of financial statements under its pre-existing rules. However, larger

  companies, as defined by law, including banks, are also required to prepare annual

  financial statements in accordance with IFRS since 2010, which must be made publicly

  available. Insurance companies were required to adopt the local CPCs, and hence

  IFRS, in 2011.

  Non-public companies outside financial services are required to apply the CPCs.

  Smaller non-public companies are permitted to apply CPCs for SMEs which is an

  equivalent of IFRS for SMEs.

  4.4 Asia

  4.4.1 China

  4.4.1.A Mainland

  China

  The Ministry of Finance in China (the MOF) – through its Accounting Regulatory

  Department – is responsible for the promulgation of accounting standards, which are

  applicable to various business enterprises.

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  Representatives of the China Accounting Standards Committee (CASC), which falls

  under the Accounting Regulatory Department of the MOF, and the IASB met in Beijing

  in November 2005 to discuss a range of issues relating to the convergence of Chinese

  accounting standards with IFRS. At the conclusion of the meeting, the two delegations

  released a joint statement setting out key points of agreement, including the following:

  • the CASC stated that convergence is one of the fundamental goals of its standard-

  setting programme, with the intention that an enterprise applying Chinese

  accounting standards should produce financial statements that are the same as

  those of an enterprise that applies IFRS; and

  • the delegation acknowledged that convergence with IFRS will take time and how

  to converge with IFRS is a matter for China to determine.

  Since February 2006, the MOF issued a series of new and revised Accounting

  Standards for Business Enterprises (ASBE), which included the Basic Standard and 41

  specific accounting standards. In April 2010, the MOF issued the Road Map for

  Continual Convergence of the ASBE with IFRS (the MOF Road Map), which requires

  the application of ASBE by all listed companies, some non-listed financial enterprises

  and central state-owned enterprises, and most large and medium-sized enterprises.

  The MOF Road Map also states that ASBE will continue to maintain convergence

  with IFRS.

  To maintain continuous convergence with IFRS, during the period from August 2017

  to July 2018, the MOF released the exposure draft for leases, which is generally

  consistent with IFRS 16. The MOF also released application guidance for the

  following accounting standards: revenue, non-current assets held for sale, disposal

  groups and discontinued operations, government grants, and financial instruments.

  ASBE, to a large extent, represents convergence with IFRS, with due consideration

  being given to specific situations in China. ASBE covers the recognition,

  measurement, presentation and disclosure of most transactions and events, financial

  reporting, and nearly all the topics covered by current IFRS. Most of ASBE is

  substantially in line with the corresponding IFRS, with a more simplified form of

  disclosures. However, there are ASBE that do not have an IFRS equivalent, such as

  that on non-monetary transactions, debt restructurings and common control business

  combinations, and there are certain standards that restrict or eliminate measurement

  alternatives that exist in IFRS. For example, the ASBE on investment property

  permits the use of the fair value model only when certain strict criteria are met. While

  ASBE and IFRS can be largely harmonised by selecting appropriate accounting

  policies with supplemental disclosures which satisfy the requirements of both sets of

  accounting standards, the more significant divergence from IFRS is that the ASBE on

  impairment of assets prohibits the reversal of an impairment loss for long-lived assets

  in all situations.

  4.4.1.B Hong

  Kong

  The Hong Kong Institute of Certified Public Accountants (HKICPA) is the principal source

  of accounting principles in Hong Kong. These include a series of Hong Kong Financial

  Reporting Standards, accounting standards referred to as Hong Kong Accounting

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  Standards (HKAS) and Interpretations issued by the HKICPA. The term ‘Hong Kong

  Financial Reporting Standards’ (HKFRS) is deemed to include all of the foregoing.

  HKFRS was fully converged with IFRS (subject to the exceptions discussed below) with

  effect from 1 January 2005. The HKICPA Council supports the integration of its

  standard-setting process with that of the IASB.

  Although the HKICPA Council has a policy of maintaining convergence of HKFRS

  with IFRS, the HKICPA Council may consider it appropriate to include additional

  disclosure requirements in an HKFRS or, in some exceptional cases, to deviate from

  an IFRS. Each HKFRS contains information about the extent of compliance with the

  equivalent IFRS. When the requirements of an HKFRS and an IFRS differ, the HKFRS

  is required to be followed by entities reporting within the area of application of

  HKFRS. However in practice, exceptions to IFRS are few and relate to certain

  transitional provisions.

  Certain smaller companies or groups meeting the necessary requirements and size

  criteria are permitted (but not required) to adopt the HKICPA’s locally developed small

  and medium-sized financial reporting framework and financial reporting standards.

  4.4.2 Japan

  Gradual convergence of Japanese GAAP and IFRS has been ongoing for a number of

  years; however, full mandatory adoption of IFRS in Japan has been put on hold for the

  time being.

  In June 2009, the Business Advisory Council (BAC), a key advisory body to the Financial

  Services Agency, approved a roadmap for the adoption of IFRS in Japan. This roadmap

  gives the option of voluntary adoption to companies that meet certain conditions.

  In June 2013, the BAC published an ‘Interim Policy Relating to IFRS’ (the Policy), which

  further encourages the voluntary adoption of IFRS. The Policy states that although it is

  not yet the right time to determine whether or not to require mandatory implementation

  of IFRS in Japan, the BAC recognises that it is important to expand greater voluntary

  a
doption of IFRS in Japan. Accordingly, conditions for voluntary adoption of IFRS have

  been relaxed, and some other measures have been taken to make the dual reporting of

  IFRS in consolidated financial statements and Japanese GAAP in standalone financial

  statements less of a burden on preparers.

  The ruling Liberal Democratic Party (LDP) issued a ‘Statement on Approach to IFRS’

  (the Statement) in June 2013. In contrast to the Policy issued by the BAC, the Statement

  puts more emphasis on preparation for the future adoption of IFRS. The Statement

  highlights key points to expand greater voluntary adoption of IFRS in Japan.

  All IFRSs issued by the IASB are the basis of voluntary adoption of IFRS in Japan, but

  a further endorsement mechanism was put in place in 2015. It is contemplated that

  under this endorsement mechanism, each IFRS would be reviewed and amended

  only after careful consideration of situations specific to Japan. However, the

  endorsement mechanism has been used to introduce a ‘carved-out version’ of IFRS

  to make transition to IFRS as issued by the IASB easier for Japanese companies. In

  June 2015, Japan’s Modified International Standards (JMIS): Accounting Standards

  Comprising IFRSs and the ASBJ Modifications was issued by the Accounting

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  Standards Board of Japan (ASBJ). JMIS may be adopted in annual periods ending on

  or after 31 March 2016. JMIS differs from IFRS in that it requires goodwill to be

  amortised and requires all items recorded in other comprehensive income be

  recycled to profit or loss eventually. At the time of writing, no Japanese companies

  have announced plans to apply JMIS. It should be noted that despite the introduction

  of JMIS, there is no change in the option of Japanese companies to use IFRS as issued

  by the IASB if they so elect.

  As a result, the number of the companies adopting IFRS in Japan voluntarily increased

  to approximately 200, mostly larger, companies. Although a small percentage of listed

  companies, the companies that have adopted IFRS represent a significant and growing

  part of the market capitalisation of the Tokyo Stock Exchange, accounting for more

  than 25% of the total market capitalisation at the time of writing.

  4.4.3 India

  Accounting standards in India are issued by the Institute of Chartered Accountants

  of India (ICAI) and are ‘notified’ by the Ministry of Corporate Affairs (MCA) under

  the Companies Act. Until the financial year ended 31 March 2016, all companies

  registered under the Companies Act were required to follow Indian GAAP

  standards, which are based on old versions of IFRS and contain many key

  differences from IFRS.

  In February 2015, the MCA notified the Companies (Indian Accounting Standards)

  Rules, 201570 laying down the roadmap for application of IFRS converged standards,

  known as Indian Accounting Standards (Ind AS), to Indian companies other than

  banking companies, insurance companies and non-banking finance companies

  (NBFCs). The Ind AS standards have also been notified.

  In January 2016, the MCA issued the phasing-in dates of Ind AS applicability for NBFCs.

  The Reserve Bank of India also issued the Ind AS applicability dates in phases for banks

  starting from 1 April 2018. However, pending necessary legislative amendments and

  considering the level of preparedness of many banks, implementation of Ind AS to the

  banks has been deferred by one year. The Insurance Regulatory and Development

  Authority of India initially expected to apply Ind AS to insurers from the same date as

  banks. However, due to the issuance of IFRS 17 by the IASB, the applicability of Ind AS

  to insurers is deferred by two years.

  All companies applying Ind AS are required to present comparative information

  according to Ind AS for at least one year. Ind AS will apply to both standalone

  financial statements and consolidated financial statements of companies covered

  under the roadmap.

  Companies not covered under the roadmap can either apply Ind AS voluntarily or

  continue applying existing standards, i.e. current Indian GAAP. If Ind AS is applied

  voluntarily, this option will be irrevocable.

  In 2009, the Securities and Exchange Board of India (SEBI), the securities regulator in

  India, permitted listed companies with subsidiaries to submit their consolidated

  financial statements in accordance with IFRS as issued by the IASB. Few companies in

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  India had availed themselves of this option. The option is no longer available for

  companies. Ind AS contains certain departures from IFRS, including:

  • mandatory deviations from IFRS, such as, accounting for foreign currency

  convertible bonds, accounting for a bargain purchase gain (i.e. ‘negative goodwill’)

  in a business combination and current/non-current classification of liabilities on

  breach of loan covenants;

  • optional carve-outs, such as, measurement of property, plant and equipment on

  first-time adoption and accounting for foreign exchange differences on long-term

  monetary items that exist at the date of transition;

  • removal of accounting options under IFRS, such as, removal of the fair value

  measurement option for investment properties and the removal of the two-

  statement approach for the statement of comprehensive income;

  • additional guidance under Ind AS, such as for common control business

  combinations, foreign exchange differences regarded as an adjustment of

  borrowing costs and treatment of security deposits; and

  • companies are required to apply Ind AS 109 Financial Instruments, corresponding to

  IFRS 9, from the date of initial application of Ind AS. There is no Ind AS corresponding

  to IAS 39. Ind AS 115 – Revenue from Contracts with Customers, corresponding to

  IFRS 15 – Revenue from Contracts with Customers, whose application was originally

  deferred, is applicable for financial year beginning on or after 1 April 2018.

  Consequently, financial statements prepared in accordance with Ind AS may not

  comply with IFRS.

  4.5 Australia

  Australia has a regime in which IFRSs are issued under its legal framework as Australian

  Accounting Standards. These are essentially word-for-word copies of IFRSs. Australian

  Accounting Standards also include some additional Australian specific standards for entities

  such as superannuation entities, general insurance and life insurance entities (the insurance

  standards will be replaced by AASB 17 – Insurance Contracts, which is equivalent to IFRS 17,

  once effective) and some additional disclosures within certain standards.

  Compliance by Australian private sector for-profit entities with Australian Accounting

  Standards will result in compliance with IFRS as issued by the IASB. Explicit statements

  to this effect are made by the preparers (in the notes to the financial statements and in

  the Directors’ Declaration required by the Corporations Act), as well by the auditors in

  their reports. Not-for-profit and public sector entities broadly follow for-profit

  Australian Accounting Standards and hence IFRS, but there are some differences.

  Australia has not adopted IFRS for SMEs, and does not appear likely to in the near future


  because of measurement differences and the removal of options as compared to IFRS.

  Australia has a Reduced Disclosure Regime (RDR) for entities that are not publicly

  accountable (per the IFRS for SMEs definition). This framework requires such entities

  to apply all of the recognition and measurement requirements of Australian Accounting

  Standards, but have reduced disclosure requirements. The Reduced Disclosure Regime

  disclosures are mandated and are based on the principles adopted by the IASB in its

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  development of the IFRS for SMEs. Financial statements prepared under the Reduced

  Disclosure Regime are general purpose financial statements but will not comply with

  IFRS as issued by the IASB.

  Australia also permits non-reporting entities (as defined by Australian Accounting

  Standards) to prepare special purpose financial statements. Preparers are encouraged to

  follow the recognition and measurement requirements of Australian Accounting

  Standards and have a great deal of flexibility as to the level of disclosure to provide.

  The Consultation Paper Applying the IASB’s Revised Conceptual Framework and

  Solving the Reporting Entity and Special Purpose Financial Statement Problems issued

  by the Australian Accounting Standards Board in May 2018 proposed to eliminate

  special purpose financial statements for entities required by legislation or otherwise to

  comply with Australian Accounting Standards. The affected entities may therefore be

  required to prepare general purpose financial statements in accordance with Australian

  Accounting Standards. Depending on the nature of the entity, these general purposes

  financial reports may be fully compliant with IFRS or may be prepared under the RDR.

  4.6 South

  Africa

  For periods beginning on or after 1 January 2005, the South African securities exchange,

  JSE Limited (JSE), has required that all listed companies prepare financial statements

  under IFRS.

  Effective 1 May 2011, the South African Companies Act permits different accounting

  frameworks to apply to different categories of companies based on their ‘public interest

  score’. Listed companies are required to use IFRS, however other companies

  (depending on their public interest score) may apply IFRS, IFRS for SMEs, or in certain