International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards
Page 846
Example 50.17: Statement of financial position format for a mutual fund
Statement of financial position at 31 December 2019 [IAS 32.IE32]
2019
2018
€
€
€ €
ASSETS
Non-current assets (classified in accordance
with IAS 1)
91,374
78,484
Total non-current assets
91,374
78,484
Current assets (classified in accordance
with IAS 1)
1,422
1,769
Total current assets
1,422
1,769
Total assets
92,796
80,253
LIABILITIES
Current liabilities (classified in accordance
with IAS 1)
647
66
Total current liabilities
(647)
(66)
Non-current liabilities excluding net assets
attributable to unit holders (classified in
accordance with IAS 1)
280
136
(280)
(136)
Net assets attributable to unit holders
91,869
80,051
As for the equivalent income statement format, it may not be immediately clear what
the final line item in this format represents. It is, in fact, a liability and therefore the
entity’s ‘equity’ (as that term is used in IAS 1) at the end of 2019 is €92,796 – €647 –
€280 – €91,869 = €nil.
4270 Chapter 50
Example 50.18: Statement of financial position format for a co-operative
Statement of financial position at
31 December 2019 [IAS 32.IE33]
2019
2018
€
€
€ €
ASSETS
Non-current assets (classified in accordance
with IAS 1)
908
830
Total non-current assets
908
830
Current assets (classified in accordance
with IAS 1)
383
350
Total current assets
383
350
Total assets
1,291
1,180
LIABILITIES
Current liabilities (classified in accordance
with IAS 1)
372
338
Share capital repayable on demand
202
161
Total current liabilities
(574)
(499)
Total assets less current liabilities
717
681
Non-current liabilities (classified in
accordance with IAS 1)
187
196
187
196
RESERVES*
Reserves, e.g. revaluation reserve, retained
earnings 530
485
530
485
717
681
MEMORANDUM NOTE
TOTAL MEMBERS’ INTERESTS
Share capital repayable on demand
202
161
Reserves 530
485
732
646
* In this example, the entity has no obligation to deliver a share of its reserves to its members.
The line item ‘Share capital repayable on demand’ is part of the entity’s liabilities and
the items within ‘Reserves’ represent its equity.
Although not required by IAS 1, an entity adopting this type of format for its statement of
financial position may choose to present an analysis of movements in (or reconciliation of)
total members’ interests (often defined as equity plus share capital repayable on demand,
perhaps adjusted for other balances with members) if this is considered to provide useful
information; this would not remove the need to present a statement of changes in equity.
Financial
instruments:
Presentation and disclosure 4271
7.5
Statement of cash flows
The implementation guidance to IFRS 9 acknowledges that the terminology in
IAS 7 – Statement of Cash Flows – was not updated to reflect publication of the
standard, but does explain that the classification of cash flows arising from hedging
instruments within the statement of cash flows should be consistent with the
classification of these instruments as hedging instruments. In other words, such
cash flows should be classified as operating, investing or financing activities, on the
basis of the classification of the cash flows arising from the hedged item.
[IFRS 9.IG G.2].
8
EFFECTIVE DATES AND TRANSITIONAL PROVISIONS
8.1
Adoption of IFRS 9: effective date and transitional provisions
IFRS 9 and the consequential amendments to IFRS 7 and IAS 1 are effective for most
entities for periods beginning on or after 1 January 2018. [IFRS 9.7.1.1]. Comparative
periods need not be restated when IFRS 9 is first applied. [IFRS 9.7.2.15]. As set out in
Chapter 51 at 10.1, certain insurers are able to postpone applying IFRS 9 until they
apply IFRS 17.
8.2
Adoption of IFRS 9: disclosure requirements
When IFRS 9 is first applied, the following information should be disclosed, in a table
unless another format is more appropriate, for each class of financial assets and financial
liabilities at the date of initial application: [IFRS 7.42I]
• the original measurement category and carrying amount determined in accordance
with IAS 39;
• the new measurement category and carrying amount determined in accordance
with IFRS 9; and
• the amount of any financial assets and financial liabilities that were previously
designated as measured at fair value through profit or loss but are no longer so
designated, distinguishing between those that are required to be reclassified and
those which an entity elects to reclassify.
In addition, qualitative information should be disclosed to provide an understanding of:
[IFRS 7.42J]
• how the classification requirements in IFRS 9 were applied to those financial assets
whose classification has changed as a result of applying IFRS 9; and
• the reasons for any designation or de-designation of financial assets or financial
liabilities as measured at fair value through profit or loss.
4272 Chapter 50
The following additional disclosures should also be provided on the application of
IFRS 9: [IFRS 7.42K, IFRS 9.7.2.15]
• at the date of initial application of IFRS 9, changes in the classifications of financial
assets and financial liabilities, showing separately: [IFRS 7.42L]
• changes in the carrying amounts on the basis of their measurement categories
in accordance with IAS 39 (i.e. not resulting from a change in measurement
attribute on transition to IFRS 9); and
• the changes in the carrying amounts arising from a change in measurement
attribute on transition to IFRS 9; and
• in the reporting period in which IFRS 9 is initially applied, for financial assets and
financial liabilities that have been reclassified so that they are measured at
amortised
cost and, in the case of financial assets, that have been reclassified out
of fair value through profit or loss so that they are measured at fair value through
other comprehensive income, as a result of the transition to IFRS 9: [IFRS 7.42M]
• the fair value of the financial assets or financial liabilities at the end of the
reporting period; and
• the fair value gain or loss that would have been recognised in profit or loss or
other comprehensive income during the reporting period if the financial
assets or financial liabilities had not been reclassified;
• for financial assets and financial liabilities that have been reclassified out of fair
value through profit or loss as a result of the transition to IFRS 9: [IFRS 7.42N]
• the effective interest rate determined on the date of initial application; and
• the interest income or expense recognised.
If an entity treats the fair value of a financial asset or a financial liability as its
amortised cost at the date of initial application (see Chapter 44 at 10.2.7.B), these
disclosures should be made for each reporting period following reclassification
until derecognition. [IFRS 7.42N].
These disclosures, together with other information in the financial statements, must
permit reconciliation as at the date of initial application between: [IFRS 7.42O]
• the measurement categories presented in accordance with IAS 39 and IFRS 9; and
• the class of financial instrument.
Information should be disclosed that permits the reconciliation as at the date of initial
application of the ending impairment allowances in accordance with IAS 39 and the
provisions in accordance with IAS 37 – Provisions, Contingent Liabilities and
Contingent Assets – to the opening loss allowances determined in accordance with
IFRS 9. For financial assets, this disclosure should be provided by the related financial
assets’ measurement categories in accordance with IAS 39 and IFRS 9 and show
separately the effect of the changes in the measurement category on the loss allowance
at that date. [IFRS 7.42P].
In the reporting period that includes the date of initial application of IFRS 9, an entity
is not required to disclose the line item amounts that would have been reported in
accordance with the classification and measurement requirements (including the
Financial
instruments:
Presentation and disclosure 4273
requirements related to amortised cost measurement of financial assets and impairment)
of IFRS 9 for prior periods or IAS 39 for the current period: [IFRS 7.42Q]
If, at the date of initial application of IFRS 9, it is impracticable (as defined in IAS 8) to assess:
• a modified time value of money element based on the facts and circumstances that
existed at the initial recognition of a financial asset; or
• whether the fair value of a prepayment feature was insignificant based on the facts
and circumstances that existed at the initial recognition of a financial asset,
the contractual cash flow characteristics of that asset should be based on the facts and
circumstances that existed at that time without taking into account the requirements
related to the modification of the time value of money or the exception for prepayment
features as appropriate. The carrying amount of the financial assets whose contractual
cash flow characteristics have been assessed in this way should be disclosed, separately
for each of the two situations above, at each reporting date until those financial assets
are derecognised. [IFRS 7.42R, 42S].
These disclosures should be provided irrespective of whether comparatives are restated.
8.3 IFRS
16
IFRS 16, which amends some of the disclosure requirements for financial instruments
arising from leases (see particularly 4.5.1 and 5.4.2 above), is effective for periods
commencing on or after 1 January 2019. Earlier application is permitted for entities that
apply IFRS 15 – Revenue from Contracts with Customers – at or before the date of
initial application of IFRS 16, although an entity should disclose that it has done so.
[IFRS 16.C1]. There are many transitional provisions and these are covered in detail in
Chapter 24 at 10.
9 FUTURE
DEVELOPMENTS
9.1 General
developments
Disclosure requirements are considered important by the IASB and those in respect of
financial instruments have been expanded significantly as a result of changes made
following the financial crisis. However, it seems unlikely that further major changes will
be forthcoming in the near term.
The IASB’s disclosure initiative (see Chapter 3 at 6.3.1) may influence the way entities
present their disclosures about financial instruments. Initiatives by other bodies, such
as reports and surveys of the Enhanced Disclosure Task Force of the Financial
Stability Board (see 9.2 below) and the Basel Committee on Banking Supervision, may
also influence the disclosures provided, particularly by financial institutions. In
addition, we may see a gradual evolution of disclosure requirements in the light of
practical experience.
In the longer term, any new accounting requirements arising from the IASB’s project
addressing financial instruments with the characteristics of equity (see Chapter 43 at 12)
and macro hedge accounting (see Chapter 49 at 11) will likely result in extensive new
disclosure requirements.
4274 Chapter 50
9.2
Enhanced Disclosure Task Force
The Enhanced Disclosure Task Force (‘EDTF’) was a private sector group comprising
representatives from financial institutions, investors and analysts, credit rating agencies
and external auditors. It was formed by the Financial Stability Forum in May 2012 and
its objectives included the development of principles for enhanced disclosures about
market conditions and risks, including ways to enhance the comparability of those
disclosures and identifying those disclosures seen as leading practice.
In October 2012 the EDTF issued its first report – Enhancing the Risk Disclosures of
Banks – in which seven fundamental principles for achieving enhanced risk disclosures
were identified, namely that disclosures should:
• be clear, balanced and understandable;
• be comprehensive and include all of the bank’s key activities and risks;
• present relevant information;
• reflect how the bank manages its risks;
• be consistent over time;
• be comparable among banks; and
• be provided on a timely basis.
The report also identified 32 detailed recommendations for enhancing risk disclosures,
grouped under the following subjects (as well as addressing more general matters):
• risk governance and risk management strategies/business model;
• capital adequacy and risk-weighted assets;
• liquidity;
• funding;
• market risk;
• credit risk; and
• other risks.
These were accompanied by illustrative examples as well as observations on and
extracts from recent reports issued by banks and were followed by three further reports
charting the progress of a number of b
anks in applying the principles and
recommendations set out in the first report. The latest of these reports noted that banks
should continue to improve their credit risk disclosures. In November 2015, a few
months before the EDTF was disbanded having completed its work, it published
another report – Impact of Expected Credit Loss Approaches on Bank Risk Disclosures
– containing guidance for banks in this area.
This aims of the November 2015 guidance was to enhance banks’ disclosures, help the
market understand the then upcoming change in provisioning based on expected credit
losses (whether under IFRS or US GAAP) and promote consistency and comparability of
disclosures across internationally-active banks. It built on the existing fundamental principles
and recommendations noted above and addressed the following key areas of user focus:
Financial
instruments:
Presentation and disclosure 4275
• concepts, interpretations and policies developed to implement the new expected
credit loss approaches, including the significant credit deterioration assessment
required by IFRS 9;
• the specific methodologies and estimation techniques developed;
• the impact of moving from an incurred to an expected credit loss approach;
• understanding the dynamics of changes in impairment allowances and their
sensitivity to significant assumptions, including those as a result of the application
of macro-economic assumptions;
• any changes made to the governance over financial reporting, and how they link
with existing governance over other areas including credit risk management and
regulatory reporting; and
• understanding the differences between the expected credit losses applied in the
financial statements and those used in determining regulatory capital.
In particular, it contained additional considerations regarding the application of certain