PWC Client IFRS Update 2016 PDF

02/09/2016
IFRS Update 2016

Zimbabwe
PwC
Welcome
Logistics and other information
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02/09/2016
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Agenda
1
Recent developments in IFRS
Elana du Plessis
IFRS 15: Revenue
Elana du Plessis
IFRS 9: Financial instruments
Elizabeth Dicks
IFRS 16: Leases
Elana du Plessis
IFRS 7: Financial instruments: Disclosures
Elizabeth Dicks
IFRS 13: Fair value measurement
Elana du Plessis
7 IAS 12: Income taxes

Pull out of an important
8 Zimbabwe tax update
statistic goes in this
Accounting
for treasury bills
9area
20pt Georgia
(white)
10 Financial statement preparation and presentation
60%
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Elizabeth Dicks
David Masaya
Clive Mukondiwa
Evelyn Namusi and
Prudence Mhembere
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1. New and amended standards
2. IASB work plan
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Recent development in IFRS

New standards and amendments since 2015
1
2
3
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IFRS 16, Leases
Effective
date:
1 January
2019
Amendment
IAS 7, Cash flow
statements
Effective
date:
1 January
2017
Amendment IAS 12,

Income taxes on
recognition of deferred tax
assets for unrealised losses
Effective
date:
1 January
2017
02/09/2016

Narrow scope amendment to IAS 7, Statement of cash
flows
Purpose of amendment:
Enable users to evaluate changes in liabilities arising from financing activities.
What is the additional disclosure?
An entity is required to disclose information that will allow users to understand
changes in liabilities arising from financing activities. This includes changes arising
from:
cash flows, such as drawdowns and repayments of borrowings; and
non-cash changes, such as acquisitions, disposals and unrealised exchange

differences.
No format mandated but the disclosure should provide sufficient information to link
items included in the reconciliation to the balance sheet and statement of cash flows.
Effective: 1 January 2017
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Narrow scope amendment to IAS 7,
Statement of cash flows
Does the amendment require a net debt reconciliation ?

The purpose is to determine if an entity that had a significant increase in cash has
achieved this only by, for example, taking on a corresponding increase in debt. It can
also highlight:
- Net debt generally includes the entitys borrowings, including finance leases, less
cash and cash equivalents. Some entities also include deficits on defined benefit
pension plans and an adjustment for operating lease obligations. The inclusion of
other debt-like liabilities provides additional insight into entity's significant
expected future cash outflows. This variation means that it is important for
management to explain clearly what it means by net debt.
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Note that : the amendment requires such disclosure to be separate from the disclosure
of changes in liabilities arising from financing activities.
02/09/2016

Narrow scope amendment to IAS 7,
Statement of cash flows
Example note from the amendment:
20X1
Long-term borrowings
Short-term borrowings
Lease liabilities
Assets held to hedge longterm borrowings
Total liabilities from
financing activities
Cash
flows
22,000
10,000
4,000
Non-cash changes
20X2
Foreign
Fair value
Acquisition exchange
changes
movement
-1,000
-500
200
-800
300
21,000
9,700
3,500
-675
150
-25
-550
35,325
-2,150
300
200
-25
33,650
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Narrow scope amendment to IAS 12, Income Taxes
Purpose of amendment:
Clarity on the accounting for deferred tax where an asset is measured at fair value and
that fair value is below the assets tax base.
What is the additional guidance?
A temporary difference does exist whenever the carrying amount is less than its tax
base at the end of the reporting period.
An entity may assume that it will recover an amount higher than the carrying amount
of an asset to estimate future taxable profit. Determining the existence of temporary
differences and estimating future taxable profits are two separate steps. Recovering
assets for more than their carrying amounts is inherent in an expectation of taxable
profits. See example.
Deferred tax assets are considered for recoverability collectively unless local tax law
imposes restrictions on the source of taxable profits against which particular deferred
tax assets can be recovered.
Effective: 1 January 2017
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Narrow scope amendment to IAS 12, Income Taxes
Example from the amendment

Entity A purchases a debt instrument at Year 1 for R 1000, payable on maturity in 5 years with an
interest rate of 2% payable annually. The debt instrument is measured at fair value.
At the end of Year 2, the fair value of the instrument has decreased to R 918 as a result of an increase in
interest rates to 5%. It is probable that Entity A will collect the contractual cash flows if the debt
instrument continues to be held.
Any gains/(losses) on the instrument are taxable/(deductible) only when realised. The gains/(losses)
are calculated as the difference between the amount collected and original cost. Accordingly the tax
base of the instrument is its original cost.
Application of the amendment

The difference between the carrying amount of R 918 and tax base of R 1000 results in a deductible
temporary difference of R 82 at the end of Year 2, irrespective of the method of recovery (sale or use).
This is because Entity A obtains a deduction equivalent to the tax base of the asset of R 1000 in
determining taxable profit/(loss) either on sale or maturity.
Note: The amendments merely clarify the existing guidance under IAS 12. They do not change the
underlying principles for the recognition of deferred tax assets.
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IASB Work plan (as at 20 July 2016)
http://www.ifrs.org/Current-Projects/IASB-Projects/Documents/2016/IASB-work-plan-July-2016.pdf
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Publications
www.pwcinform.com
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Publications
www.pwcinform.com
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Questions?
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IFRS 15 Revenue from contracts

with customers
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Warm-up question
www.pollev.com/ifrs2016
How significant do you anticipate the impact of the new revenue
standard to be?
a.
Fundamental
b. Significant
c.
Moderate
d. Limited/none
e.
Not sure at this stage
f.
Not my problem, Ill be retired by 2018!
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Scope Revenue from contracts with customers
Revenue is income from ordinary activities

A contract creates enforceable rights and obligations
between two or more parties
A customer obtains goods or services
that are an output of the entitys ordinary activities
What is scoped out?
- Leases, insurance, financial instruments, non-monetary
exchanges between entities in the same line of business to
facilitate sales to customers
Contracts with elements in multiple standards
- Evaluate under other standards first
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The 5-step model
Core principle
Revenue recognised to depict transfer of goods or services
Step 1 - Identify the contract with the customer
Step 2 - Identify the performance obligations in the contract
Step 3 - Determine the transaction price
Step 4 - Allocate the transaction price
Step 5 - Recognise revenue when (or as) a performance obligation is satisfied
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Revenue recognition model a simple example

Step 1 -Identify
Signed contract
the contract
exists
with the customer
Contract
An agreement between two or more parties that creates

enforceable rights and obligations (not necessarily written)
Approved
Commercial substance
Rights of each party identified
Collectibility
Payment terms identified

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1
contract
Step 2
Signed
Customer
B canexists
benefit from X, Y and Z separately as they are sold
separately three separate performance obligations
Performance obligation:
A promise in a contract with a customer to

transfer a good or service to the customer
AND
Distinct
Explicit
Implicit
Written
Verbal
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Focus on POs: Why does it matter?

Construction Co. contracts with Developer to build 1oo houses on
Developers land for CU1,000,000
All houses are constructed based on one of three designs provided by
Developer
Developer manages the overall development including other
contractors on site for the plumbing, electrical and other
infrastructure work
How is revenue recognised.
If one PO.recognise revenue over time, cost plus reasonable margin
If multiple POs.recognise revenue over time, cost plus reasonable margin

Why does it matter?
What happens if 10 more houses are added? A contract modification.
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Question
Entity E enters into a contract with Customer F to construct a brand
new high-end power station. Control of the power station is expected to
transfer at the end of five years.
It is the first power station of this particular design and Entity E agreed
to provide support to Customer F in connection with the general
maintenance of the plant for the first year of operation free of charge.
Entity E also provides similar maintenance services to other power
stations.
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Question
How many performance obligations exist in this agreement?
a. One. The maintenance service is not a distinct performance
obligation. It is a marketing expense and costs should be expensed
as incurred.
b. Two. The construction of the plant and maintenance represent two
distinct performance obligations. They can be sold separately to the
customer.
c. Many. Each component of the power station that can be sold
separately (for example, the generator) is a distinct performance
obligation
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Question Debrief
Step 2: Identify the performance obligations
Entity E
Customer F
$
How many performance obligations exist in this agreement?
A. One
B. Two
C. Many
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Step 2
Question Debrief
Step 2: Identify the performance obligations
Distinct considered
from the perspective of
the customer
Can the customer benefit

from the goods or services
transferred on their own?
Distinct Performance
Obligations
Is the promise separately

identifiable from other
promises?
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Deep dive: performance obligations (Step 2)

In practice
Individual
distinct
good or service
Sold separately
or
can be used separately
Consumer goods
Simple installation
Mobile and service
Group of
inseparable
goods or service
Dependent on
or interrelated with
other items in the
contract
Construction contracts
Complex installations
Customised software
Series of
homogeneous
services
Consistent pattern of
transfer over time
Daily cleaning service

Ferry service
Call centre processing
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Step
contract exists
Step 13
Signed
The transaction
price is fixed at CU18m.
Step
2 Customer
benefit from
X, Y and
Z separately
are sold
Transaction
priceB=can
Amount
to which
entity
expectsas
tothey
be entitled
separately inthree
separate
performance
obligations
exchange for transferring goods or services
Highly probable?
Subject to significant
reversal?

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Step 3 Determine the transaction price

Variable consideration
Use expected value or most likely amount
Included in the transaction price only if highly probable that there will not be a
significant revenue reversal
Uncertainty over
long period of time
Limited experience
with similar contracts
Susceptible to
factors outside
control
Broad range of prices

/ outcomes
Key effects
Must recognise minimum amount highly probable of not reversing
Reassessed at the end of each reporting period
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Step 3
Question 3 Debrief
Step 3: Calculate the transaction price
Variable
consideration
IAS 11 / 18
IFRS 15
Financing
IAS 11 / 18
IFRS 15
New model for variable

consideration and
financing
Measured reliably?
Sufficiently advanced that performance

is probable to meet [IAS 11]?
Highly probable?
Not subject to significant reversal?
Prepayment is non-financial liability
Time value of money only considered

for deferred payments
Need to determine if significant

financing component exists
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Step 41
discount
is allocated
Step
25%
Signed
contract
exists evenly Total stand alone price =
CU24m
Total transaction price =
CU18m
Total discount =
25%
Step 2 Customer B can benefit from Discount
X, Y and*Zstand-alone
separately=as they are
sold
CU6m
across X, Y, Z
separately - three separate performance obligations
Observable
good at
or CU18m.
service that is sold separately
Step 3 The
transaction price of
is fixed
1
Estimate selling prices if not observable

Relative
Adjusted
market assessment
approach or expected cost plus margin
Step 4 - Allocate
the transaction
price
stand-alone
2
approach
selling price
Residual approach
Only when selling price is highly variable or uncertain (different to
current
residual
method)
Step35 - Recognise
revenue
when
(or as) a performance obligation is satisfied
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Question 4
Entity G sells mobile phones, tablets and airtime plans to its
customers.
Entity G offers a new promotion package where customers can
purchase a phone, subscribe for a 12-month airtime plan and receive
a free tablet for a total price of CU800.
This reflects a 20% discount from the standalone selling prices of the
items which are as follows:
Phone:
Airtime:
Tablet:
Total:
CU300
CU300
CU400
CU1,000
The entity regularly offers bundled packages for the phone and a 12month airtime plan for CU400.
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Question 4
How should the transaction price of CU800 be allocated to the phone,
airtime and tablet?
a. Phone: CU240, Airtime: CU240, Tablet: CU320, based on 20%
discount applied proportionally to all three performance obligations
b. Phone: CU200, Airtime: CU200, Tablet: CU400, based on the entire
discount being allocated to the phone and airtime because there is
objective evidence that the discount relates to those two performance
obligations
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Question 4 Debrief
Step 4: Allocate the transaction price
Phone
CU300
Airtime
CU300
CU1,000
Tablet
CU400
20%
Discount
CU800
How should the transaction price of CU800 be allocated?

A. Phone: CU240, Airtime: CU240, Tablet: CU320
B. Phone: CU200, Airtime: CU200, Tablet: CU400
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Step 4
Question 4 Debrief
Step 4: Allocate the transaction price
Phone
R300
Airtime
R300
Based on relative standalone selling price but

more guidance provided
R1,000
Tablet
R400
20%
Discount
R800
Phone/airtime R400
Tablet R400
Phone and airtime regularly sold
together for R400
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Step51CU6m
Signed
contract
existswhen control of X / Y transfers
Step
each
= recognise
CU6m = recognise over the period that Z is provided
Step 2 Customer B can benefit from X, Y and Z separately as they are sold
separately
- threeCustomer
separatereceives
performance
Yes
benefits obligations
as performed/another
entity would not need to re-perform
e.g. cleaning service, shipping
Over time
Step 4 Yes
25% discount
is allocatedan asset
Total
stand controls
alone price =
Create/enhance
customer
evenly across X, Y, Z
e.g. house on customers
land
Total transaction
price =
Total discount =
No
Discount
* stand-alone =
Point in time
Step 3 The transaction price is fixed at CU18m.

No
CU24m
CU18m
25%
CU6m
Does not create asset w/alternative use

No
AND
Right to payment for work to date
e.g. manufacturing service
Yes
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Step 5: Recognise revenue

Good or service transfers over time if one of the follow criteria met:
Customer receive benefits
as performed/another
would not need to reperform
Create/enhance an asset
customer controls
Does not create asset

w/alternative use
AND
right to payment for work
to date
If criteria not met, transfers at a point in time based on following indicators

Right to payment
for asset
Legal title to asset
Physical possession
of asset
Customer has
accepted the asset
Customer has
significant risk and
rewards
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Licensing
WHAT are some examples of a licence? HOW are these
accounted for under IAS 18?
Music
CD
Currently
Software
No specific
guidance
Examine the substance of the agreement

Consider whether the licensee can exploit the right freely; and if the licensor
has any remaining performance obligations
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Licensing
Right to use
Right to access
Right to use IP as it exists at a point in

time
Right to access IP as it exists

throughout the licence period
Revenue recognised at point in time
Revenue recognised over time
In addition,
The royalties constraint
For licences of intellectual property with a sales or usage based royalty, revenue
recognised only when sales/usage occurs
Only relates to a licence of intellectual property or when a licence of intellectual
property is the predominant item to which the royalty relates
If not apply variable consideration provisions
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Licensing
Distinct or
predominant
Guidance for licences?
Right to
access
Licensor performs activities

that significantly affect the
IP
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Right to use
Rights expose customer to

effects of those activities
Activities are not a separate

good/service
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Contract modifications
Accounting when enforceable rights and obligations are created or changed
Accounting depends on whether distinct goods or services added
Modification adds additional
distinct performance
obligations priced at their
stand alone selling price
Modification is a new
contract
(Prospective)
At modification date,
remaining performance
obligations are distinct from
those already transferred, but
not priced at stand alone
selling price
Treat the old contract as

cancelled. Remaining and
new performance
obligations as new contract
(Prospective)
At the modification date,

remaining performance
obligations are NOT distinct
from those already
transferred
Adjust revenue at the date

of the modification on a
cumulative catch-up basis
(Retrospective)
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Transition
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02/09/2016
IFRS 15 Revenue from contracts with customers

Effective date = 1 Jan 2018
Transition
2017
2018
NEW
NEW
Option 1
IFRS 15
IFRS 15
Full
retrospective
(Apply IAS 8) Cumulative effect at 1 Jan 2017
Option 2
No
restatement
OLD STD
Cumulative
effect at 1 Jan 2018
Reliefs
For completed contracts:
No adjustment for interims
Hindsight allowed for variable
consideration
No restatement for
modifications completed
No price disclosure
NEW
IFRS 15
Include disclosure as required

by IFRS 15, para C8.
Disclose
OLD STD
May apply the contract

modification expedient above
Which is better? It depends.

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The pervasive business impact

Accounting and reporting
Accounting & Reporting
Changes to revenue model allocation of revenue;
timing of recognition; etc.
Changes beyond revenue time value of money; sales
commissions; etc.
Judgement & estimates
Additional disclosures
Transition consideration
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Process & systems
Process & System
Impacts across quote to cash cycle
Involvement of IT is paramount
Likely to accelerate trend of revenue automation
(replacing Excel and manual processes)
Leverage internal initiatives: a) 3-5 year roadmaps; b)
Process & system optimisation; & c) Future GAAP
ready
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Crossfunctional impacts
Cross functional Impacts
Audit Committee
Investor Relations
Financial Planning & Analysis
Sales & Legal
HR
Tax
Accounting & IT Functions
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Business changes
Business Changes
Changing business models
- Organic changes; and M&A activity
Opportunity to structure and go to - market differently
Pricing strategy
Impact on compensation
Executive communication and awareness
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Closing question
How significant do you anticipate the impact of the new revenue
standard will be?
a.
Fundamental
b. Significant
c.
Moderate
d. Limited/none
e.
Not sure at this stage
f.
Not my problem, Ill be retired by 2018!
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Questions?
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IFRS 9 Financial instruments
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Introduction and Scope

The scope of IAS 39 was carried forward to IFRS 9 as scope of IAS 39
was not raised as a matter of concern during the financial crisis.
There have however been some changes as a consequence of new
requirements.
Scope of IFRS 9
Financial
instruments
within the
scope of
IAS 39
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Certain
contracts
that are
subject to
own use
exemption
For the recognition of

expected credit losses
Certain loan commitment
not measured @ FVTPL
Contract assets as defined
by IFRS 15
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Classification and measurement
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Classification & measurement overview

Financial assets
IAS 39
Held to Maturity
IFRS 9
Amortised cost
Loans and receivables

Profit or loss
Available for Sale
At fair value through
profit or loss
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Fair
value
OCI
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Classification & measurement overview

Financial assets
Equity
instrument
Classification &
measurement
depends on
whether
Debt
instrument
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Classification & measurement of equity

instruments
Business Model Assessment
Overview
Is the financial asset an

equity investment?
Yes
Is the equity investment

held for trading?
Yes
No
Has the entity elected the

OCI option?
No
Fair value
through
P&L
Yes
FV-OCI
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Classification & measurement of financial

liabilities
Overview
The classification and measurement of financial liabilities under IFRS 9
remains the same as in IAS 39 except where an entity has chosen to measure
a financial liability at FVPL.
For such liabilities, changes in fair value related to changes in own credit
risk, are presented separately in OCI.
Amounts in OCI relating to own credit are not recycled to profit or loss even
when the liability is derecognised and the amounts are realised. However,
transfers within equity are permitted.
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Classification & measurement of financial

liabilities
Embedded derivatives
Component of a
hybrid
(combined)
instrument
Considerations only
apply to financial
liabilities
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Also includes
a nonderivative
host contract
Causes cash
flows required
by the contract
to be modified
according to
specified
rate/index etc.
Underlying
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Classification & measurement of debt instruments

Overview of three categories
Amortised cost
Fair value OCI
Hold to collect; and
Solely payments of
principal and
interest.
Hold to collect and

sell; and
Solely payments of
principal and
interest.
Amortised cost
Fair value P&L
FV-OCI
Residual category.
FV-PL
Key question is where these lines are drawn.
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Overview
Is the objective of the entitys
business model to hold the
financial assets to collect
contractual cash flows?
Yes
No
Is the financial asset held to

achieve an objective by both
collecting contractual cash
flows and selling financial
assets?
Yes
Do contractual cash flows represent solely payments of principal

and interest?
Yes
No
No
Yes
Yes
Fair value
through
P&L
Does the company apply the fair value option to eliminate an

accounting mismatch?
No
Amortised cost
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No
FV-OCI
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SPPI test
Principal and interest
Principal
Interest
Fair value initial

recognition
Consideration for the

time value of money
May change over the

life of the asset
Consideration for
credit risk
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Classification & Measurement of debt instruments

SPPI test- Prepayment and extension options
What if the financial asset contains a contingent feature?
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Classification & Measurement of debt instruments

SPPI
Non-SPPI
Loan CU 60
Prepay CU 100
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Knowledge check
Minion Limited acquires bonds. The bonds mature in 10 years and pays
a variable market interest rate. The bonds are managed with an
objective of collecting contractual cash flows. How would this be
classified under IFRS 9?
1. FVOCI
2. FVPL
3. Amortised cost
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Knowledge check
Minion Limited acquires bonds. The bonds mature in 10 years and pays
a variable market interest rate. The bonds are managed with an
objective of collecting contractual cash flows. How would this be
classified under IFRS 9?
1. FVOCI
Objective
Hold the bonds to collect
contractual cash flows
SPPI
2. FVPL
3. Amortised cost
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Knowledge check
Minion Limited acquires bonds. The bonds are held to manage the
liquidity needs of the of Minion Limited. The bonds are sold if a higher
yield can be achieved on another financial asset. There were frequent
sales in the past of a significant value. Similar activity is expected in
future. How would this be classified under IFRS 9?
1. FVOCI
2. FVPL
3. Amortised cost
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Knowledge check
Minion Limited acquires bonds. The bonds are held to manage the
liquidity needs of the of Minion Limited. The bonds are sold if a higher
yield can be achieved on another financial asset. There were frequent
sales in the past of a significant value. Similar activity is expected in
future. How would this be classified under IFRS 9?
1. FVOCI
2. FVPL
3. Amortised cost
Objective
Maximise returns on the
portfolio
Collect contractual cash
flows and sell financial
assets
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Expected credit losses
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Impairment
Knowledge check
Choose the correct option
IAS 39 requires entities to account for an impairment loss when
there is objective evidence of impairment.
IFRS 9 requires entities to:
1. Recognise a loss allowance for ECL on all financial assets
2. Recognise a loss allowance for ECL on some financial assets
3. Nothing has changed from IAS 39 requirements
Under IFRS 9 one will recognise expected credit losses on
financial assets carried at amortised cost, at FVOCI, lease
receivables, contract assets, loan commitments and financial
guarantee contracts
This does not apply to at FVPL or equities electing FVOCI option
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Revised impairment model for financial assets
Debt instruments
at amortised cost
Lease
receivables
Trade
receivables or
Contract assets
under IFRS 15
New model
applies to
Financial
guarantees not
at FVPL
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Debt
instruments
at FVOCI
Loan
commitments not
at FVPL
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Revised impairment model

Change in credit quality since initial recognition
Recognition of expected credit losses
Lifetime expected
credit losses
Lifetime expected
credit losses
Effective interest on gross

carrying amount
Effective interest on amortised

cost carrying amount
(i.e. net of credit allowance)
12 month expected
credit losses
Interest revenue
Effective interest on gross
carrying amount
Stage 1
Performing
(Initial recognition*)
Stage 2
Underperforming
(Assets with significant
increase in credit risk since
initial recognition*)
Stage 3
Non-performing
(Credit impaired assets)
*Except for purchased or originated credit impaired assets
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Simplified approach for lease and trade receivables
The Standard provides two operational simplifications:
Trade receivables or contract assets
- No significant financing component:
Relief from calculating 12-month ECL and to assess when a
significant increase in credit risk occurred.
Lifetime ECL throughout the trade receivables life.
Lease and trade receivables or contract assets
Contains a significant financing component:
Accounting policy choice to apply simplified approach to
measure loss allowance at lifetime ECL on initial recognition.
PwC
80
40
02/09/2016

Knowledge check
Minion United, a non-financial institution holds trade receivables that
do not have a significant financing component.
The book of trade receivables amounts to R100,000.
Management estimates that 0.3% of the carrying value of current
receivables are eventually impaired.
1. Recognise impairment on day 1
2. No impairment recognised on day 1 because receivables are not past
due
3. Recognise impairment when objective evidence of impairment
PwC
81
41
02/09/2016

Knowledge check
Minion United, a non-financial institution holds trade receivables that
do not have a significant financing component.
The book of trade receivables amounts to R100,000.
Management estimates that 0.3% of the carrying value of current
receivables are eventually impaired.
1. Recognise impairment on day 1
2. No impairment recognised on day 1 because receivables are not past
due
3. Recognise impairment when objective evidence of impairment
PwC
83

Trade receivables no significant financing component
IFRS 9
Initial recognition Expected loss model

DR
Receivable
CR
Revenue
R100,000
R100,
000
Initial recognition Expected loss model
PwC
DR
Impairment loss
(P/L)
CR
Allowance
account
R300
R300
84
42
02/09/2016

Trade receivables No significant financing component
Minion United, a manufacturer holds trade receivable that do not have a

significant financing component. The following facts are relevant:
Trade receivables at reporting date - R30 million.
Management uses a provision matrix (based on historical default rates and
forward looking estimates) to determine credit losses.
Estimates are updated at each reporting date.
Default
rate
Current
1-30 days
past due
31-60
days past
due
61-90
days past
due
More
than 90
days past
due
0.3%
1.6%
3.6%
6.6%
10.6%
PwC
85

Trade receivables No significant financing component
Applying the provision matrix, the following impairment allowance should be

recognised:
PwC
Provision
Matrix
Gross carrying
amount
Lifetime ECL
allowance
Current
0.3%
R15,000,000
R45,000
1-30 days past due
1.6%
R7,500,000
R120,000
31-60 days past due
3.6%
R4,000,000
R144,000
61-90 days past due
6.6%
R2,500,000
R165,000
More than 90 days

past due
10.6%
R1,000,000
R106,000
R30,000,000
R580,000
86
43
02/09/2016
Key disclosures for impairment
Quantitative
Reconciliation of opening to
closing amounts showing key
drivers of change
loss allowance
gross carrying amounts
Qualitative
Inputs, assumptions and
estimation techniques
expected credit losses
significant increases in credit
risk and default
credit impaired
Gross carrying amounts by credit

risk grade
Write off, recoveries and
modifications
Write off policies, modification

policies and collateral
PwC
87
Hedge accounting under IFRS 9
PwC
88
44
02/09/2016
Hedge accounting
What has changed?
Override
of own
use
exemption
Hedging
components
of nonfinancial
items
Net
positions
Aggregate
positions
including
derivative
s
Removal of
80%-125%
bright line
Hedge
accountin
g for
options
IFRS 9
Hedging
Basis
adjustment
for nonfinancial
items
Effectiveness
testing on a
discounted
basis
PwC
Deferral of
forward
points
89
Effective date and transition

Overview
The effective date: annual
periods starting on or
after 1 January 2018.
Early adoption possible.
Retrospective application
is required.
Comparatives are not
restated (limited
exceptions).
PwC
90
45
02/09/2016
Effective date and transition
Prior to 1 February 2015

Own Credit Risk for FL
OR
Classification and Measurement:

Financial Assets
OR
All Classification and

Measurement:
Financial Assets + Financial
liabilities (incl. own credit)
OR
After 1 February 2015

Own Credit Risk for FL
OR
All Classification and Measurement

+
Impairment
+
Hedge Accounting*
+
Own credit risk
*An entity has an accounting policy choice to apply the hedging
requirements in IFRS 9 or IAS 39.
All Classification and Measurement

+
Hedge Accounting
PwC
91
Questions?
PwC
92
46
02/09/2016
IFRS 16 Leases
Key changes
Identifying a lease
Lessee accounting
Lessor accounting
PwC
93
IFRS 16
Leases
Lessee has to recognise a rightof-use asset and a lease
liability for almost all lease
contracts
Exemptions for short-term
leases and leases of low
value assets
Lessor accounting stays
almost the same as
under current guidance
IFRS 16 was
published on
13 January 2016
PwC
Effective date
1 January 2019
Lessee has to present interest expense

(on lease liability) and depreciation
charge (for right-of-use asset) separately
Cash payments for principal portion:
cash flow from financing activities;
cash payments for interest portion:
depending on entitys policy for
interest payments
Enhanced disclosure
requirements
Earlier application
permitted (together
with IFRS 15)
Still differences
between IFRS and US
GAAP
94
47
02/09/2016
IFRS 16
A long and winding road
March 2009:
Discussion paper
August 2010:
Exposure Draft
May 2013:
Revised
exposure draft
January 2016:
Final standard
July 1996:
G4+1 - Leases:
Implementation of a
New Approach
Effective date: 1 January 2019 (early adoption

permitted in conjunction with IFRS 15)
EU-Endorsement: To be determined
PwC
95
IFRS 16
Agenda
Identifying a lease
PwC
Definition of a lease
Lease term
Recognition and measurement exemptions
96
48
02/09/2016
IFRS 16
A lease is defined as a contract that conveys to the customer the right to use
an asset for a period of time in the exchange for consideration.
A lease exists when a customer controls the right to use an identified item,
which is when the customer:
Has exclusive use of the item for a period of time
Can decide how to use it.
PwC
97
IFRS 16
There is an identified asset

No identified asset if supplier has substantive right to substitute
asset
and
Contract conveys the right to control the use of an

identified asset
Right to obtain substantially all of the economic benefits from
use of the identified asset throughout the period of use and
Right to direct the use of the identified asset throughout the period
of use
PwC
98
49
02/09/2016
IFRS 16
Definition of a lease - process
no
Is there an identified asset?

yes
Does the customer have the right to obtain substantially all of the economic
benefits from the use of the asset throughout the period of use ?
yes
no
Who has the right to direct how and for what purpose the asset is used
throughout the period of use ?
Customer
Supplier
Predetermined
yes
Customer
operates the asset or
has designed the asset?
no
Contract does not contain a lease
Contract contains a lease

PwC
99
IFRS 16
Lease term (1/2)
Non-cancellable period of lease
Periods covered by
option to extend
if
lessee is reasonably certain to

exercise option
Periods covered by option to terminate
if
lessee is reasonably certain not

to exercise option
Assessing reasonably certain consider all facts/circumstances creating

economic incentive to exercise, e.g.:
PwC
contractual terms/conditions for optional periods compared with market rates

significant leasehold improvements undertaken (or expected to be undertaken)
costs relating to termination of lease/signing of new replacement lease
importance of underlying asset to lessees operations
conditionality associated with exercising the option
100
50
02/09/2016
IFRS 16
Lease term (2/2)
Reassessment of the lease term when
Modification of contract
not accounted for as
separate lease (lessee)
Exercise of option becomes or ceases to

be reasonably certain
Because:
Event occurs that obliges lessee to exercise
[prohibits from exercising] option or
Lessee does not exercise [exercises] option
previously included [not included] in lease
term or
Significant event or significant change in
circumstances within control of lessee occurs
and affects reasonably certainty of exercising
option
PwC
101
IFRS 16
Recognition and measurement exemptions (1/3)
Short-term leases
Lease term of 12 months or less; lease that contains a purchase option is

not a short-term lease
Accounting policy choice (by class of underlying assets)
Only applicable for lessee
Also applies in business combinations (acquiree is lessee):

lease term ends within 12 months after acquisition date
Acquirer can apply short-term leases
exemption
PwC
102
51
02/09/2016
IFRS 16
Recognition and measurement exemptions (2/3)
Exemption for leases for which the underlying asset is of low
value
Assets with a value, when new, of USD 5,000 or less
Accounting policy choice (lease-by-lease basis)
Only applicable for lessee
Also applies for contracts of acquiree in a business combination (i.e. no

asset (liability) for favourable (unfavourable) contracts)
PwC
103
IFRS 16
Recognition and measurement exemption - Portfolio
approach (3/3)
Lease contracts with similar characteristics
and
Applying standard to portfolio does not differ materially from
applying to individual leases within portfolio
Portfolio approach permitted for lessee and lessor
PwC
104
52
02/09/2016
IFRS 16
Lease vs Service: Example Lease of a retail unit
Description of the contract
Customer A enters into a contract to lease a retail unit for a period of 5 years. The lessor
can require the customer to move into another retail unit. There are several retail units
of similar quality and specification available. The lessor is responsible for paying any
relocation costs. The lessor will therefore only benefit from relocating the customer if
there is a new tenant willing to pay a rent sufficient to cover the relocation costs. Those
circumstances may arise, but they are not considered likely to occur. Customer A has to
operate during the opening hours of the larger retail space but they decide on the mix of
goods sold, pricing of goods sold and quantities of inventories held.
PwC
Is there an identified asset?
Yes
Substantially all of the economic benefits?
Customer
Direct the use of the retail unit?
Customer
105
IFRS 16
Agenda
Identifying a lease
Lessee accounting
PwC
Overview
Initial measurement
Subsequent measurement
Presentation/Disclosures
106
53
02/09/2016
IFRS 16 - Lessee accounting

Summary of the proposed accounting
Proposed Lease
Accounting
a
a
a
a
a
BALANCE SHEET
All leases in balance sheet
Exemption for short term leases
Exemption for small asset leases ($5,000)
Lease liabilities on a discounted basis
Measurement Initial lease asset = lease liability
Amortisation of lease assets
Lease liabilities
Presentation
Lease assets
Recognition
Typically straight-line
IAS 1
PPE or own line item
I NCOME STATEMENT
Operating costs
Finance costs
Amortisation
Interest
CASH FLOW STATEMENT

Operating activities / Finance activities
Finance activities
Interest (IAS 7)
Principal
PwC
107
IFRS 16
Lessee accounting initial measurement (1/5)
Right-of-use asset
Lease liability
Lease liability
Lease payments
Discount rate
Lease payments made before

or at commencement date
Restoration costs
Provision
Initial direct costs

PwC
108
54
02/09/2016
IFRS 16
Lease payments
Including in-substance fixed payments
Fixed payments
Variable lease payments
+
Residual value guarantees
Exercise price of a
purchase option
Only if they depend on index/rate

Measured using index/rate as at
commencement date
Expected payments lessee has to
make under guarantee
if
the lessee is reasonably certain

to exercise the option
if
the lease term reflects the

termination by the lessee
+
Penalties for terminating
PwC
109
IFRS 16
In-substance fixed
payments
dependent on .
rate/index
other variable
e.g. inflation/
interest rate or
market rental rates
e.g. sales in a retail store
Part of lease
liability
PwC
Not part of lease

liability
e.g. payments made only if

asset is proven capable of
operating
Part of lease liability
110
55
02/09/2016
IFRS 16
Discount rate
Interest rate implicit in the lease
if rate cannot be readily
determined
Incremental borrowing rate at commencement date
Initial direct costs

Incremental costs of obtaining a lease that would have not been
incurred if lease had not been obtained
E.g.: commissions, payments to existing tenant to obtain lease
PwC
111
IFRS 16
Restoration costs
Costs to
Restoring underlying asset to conditions required by lease
contract
Dismantle and remove underlying asset
Restore the site on which underlying asset is located
Measured at estimated costs (IAS 37)
PwC
112
56
02/09/2016
IFRS 16
Lessee accounting subsequent measurement
Right-of-use asset
Depreciation (in general on straight-line basis)

Impairment test based on guidance in IAS 36
Adjustments for remeasurement of lease liability
Lease liability
Measured using effective interest rate method

Remeasured to reflect reassessment, modifications or revised insubstance fixed payments
(not dependent on rate/index)
Recognised in profit/loss in period in which incurred

PwC
113
IFRS 16
Other measurement models for right-of-use asset
Property, plant and equipment
Lessee may elect to apply revaluation model in IAS 16 to right-of-use asset (by
class) if
a) it relates to a class of property, plant and equipment and
b) lessee applies revaluation model to all assets in that class
Investment property
Lessee shall apply fair value model in IAS 40 to right-of-use asset if
(a) it meets definition of investment property in IAS 40 and
(b) lessee applies fair value model in IAS 40 to its investment properties
PwC
114
57
02/09/2016

Effects on the balance sheet
Lease assets
Right of use
Financial liabilities
Obligation to pay
Equity
Carrying value of asset will typically reduce more
quickly than carrying value of lease liabilities
PwC
115

Effects on the income statement
Income statement
Revenue
Operating cost
(excl depr and amort)
EBITDA
Depreciation and amortisation
Operating profit
Finance costs
Profit before tax
PwC
Proposed Lease
Accounting
Amortisation
Interest
116
58
02/09/2016

Effects on the income statement
EBITDA, operating profits & finance

costs
Currently the entire off balance sheet lease
payments are included as part of operating costs
Implicit interest of former lease payments will
now form part of finance costs
Profit before tax

Over the long term minimal change expected.
Initially lower due to front-loading (higher
interest and amortisation)
PwC
117

Effects on the cash flow statement
Operating cash flow

Currently, lessees present cash flows on off balance sheet
leases as operating activities
Financing cash flow

Under new model, principal payments to be included
within financing activities
Interest payments classification in terms of IAS 7
Total cash flow

No change in total cash flows as there is no economic
change
PwC
118
59
02/09/2016
IFRS 16
Agenda
Identifying a lease
Overview
Lessor accounting
PwC
119
IFRS 16
Lessor accounting overview
Classification
Distinction based on
risk and rewards
Finance lease
Lease receivable
(net investment in lease)
Operating
lease
Underlying asset
No significant change compared to

current guidance
Disclosures
Link
Comparison US-GAAP
PwC
120
60
02/09/2016
IFRS 16
Agenda
Transition
Retrospective application
Simplified approach
PwC
121
IFRS 16
Transition
Effective date
Annual reporting periods beginning on or after 1 January 2019

Date of initial application (DIA): Beginning of the period in which
the entity first applies the standard
Early adoption permitted in conjunction with IFRS 15
No mandatory reassessment (i.e. contracts are grandfathered);

practical expedient
If entity chooses the practical expedient it shall be applied to all
contracts
PwC
122
61
02/09/2016
IFRS 16
Transition
Lessee
Retrospectively in accordance with IAS 8
or
Simplified approach
Simplified approach
Retrospectively with cumulative effect as adjustment to

opening balance of retained earnings (or other component
of equity, if appropriate) on DIA
No restatement of comparative information
PwC
123
IFRS 16
Transition
Simplified approach
Previously finance lease
Previously operating lease
Lease liability =
remaining lease payments,
discounted using incremental
borrowing rate at date of initial
application
Right-of-use asset =
retrospective based on
incremental borrowing rate at
date of initial application, or
amount of lease liability
Not required to apply if remaining

lease term < 12 months
PwC
Lease liability = carrying amount of

lease liability immediately before date
of initial application
Right-of-use asset = carrying amount

of lease asset immediately before date
of initial application
124
62
02/09/2016
IFRS 16
Agenda
Lessee disclosure requirements

Disclosure
PwC
125
IFRS 16
Lessee disclosure requirements
Quantitative disclosure requirements:
(a) Lease expense, split between amortisation of ROU assets and interest expense
(b) Lease expense, split by class of underlying asset
(c) Short term lease expense
(d) Small asset lease expense
(e) Variable lease expense
(f) Sublease income
(g) Total cash flow for leases
(h) Additions to ROU assets
(i) Gains and losses arising from sale and leaseback transactions
(j) Carrying amount of ROU assets, split by class of underlying asset
Maturity analysis of lease liability and additional information to meet the disclosure
objectives are also required.
PwC
126
63
02/09/2016
Questions?
PwC
127
IFRS 7 Financial instruments:

Presentation and disclosure
PwC
Scope
Disclosure
Classes
128
64
02/09/2016
Lets get practical IFRS 7

Objective of IFRS 7
The objective of IFRS 7 is to provide disclosures that will
enable users to evaluate the significance of financial
instruments:
Financial position
and performance
IFRS 10?
Nature, extent and

management of
risks
PwC
129

Meet VacScene Limited
What do they do?
VacScene Limited
developed a
breakthrough vaccine
against malaria.
They manufacture and
sell the vaccine locally to
hospitals, as well as the
government, and
internationally to
hospitals and clinics.
PwC
What do you need to

know?
Local sales are in ZAR.
Offshore sales are in
USD.
The company recently
received a letter from the
regulator questioning
certain IFRS 7
disclosures.
130
65
02/09/2016
Handout 1

Exercise 1: Scope of IFRS 7
Determine which items are

in the scope of IFRS 7.
PwC
131
Solution 1

Solution 1: Scope of IFRS 7
In scope of IFRS 7
Assets
Non-current assets
Intangible assets
Investments
Current assets
Receivables and prepayments
Inventory
Cash and cash equivalents
PwC
Outside scope of
IFRS 7
Investment
in associate
Prepayment
132
66
02/09/2016
Solution 1

In scope of IFRS 7
Equity
Equity and reserves
Share capital
Available for sale reserve
Retained earnings
Outside scope of
IFRS 7
PwC
133
Solution 1

In scope of IFRS 7
Liabilities
Non-current liabilities
Borrowings
PwC
Outside scope of
IFRS 7
Current liabilities
Borrowings
Payables
Financial guarantee
Employee
bonuses
134
67
02/09/2016

IFRS 7 scope
Loans to subs,
jvs and assocs in
scope of IAS 39
Inv in
sub,
assoc,
JV
IFRS 5
Employee
benefit
plans
Recognised
financial
instruments
Own equity
Unrecognised
financial
instruments
Included
Broader
than IAS
39
Share based
payments
Insurance
contracts
Excluded
PwC
135

Disclosure per category
Fair value
through profit
or loss (FVTPL)
Designated
Mandatory
Amortised cost
Fair value
through OCI
Fair value
through profit
or loss (FVTPL)
Designated
Income, expense,
gains or losses by
category
Carrying amount
by category
Financial assets
Trading
Amortised cost
PwC
136
68
02/09/2016
Handout 2

Exercise 2: Disclosure of categories
For the line items included

in the scope of IFRS 7,
determine the amount to be
disclosed per category.
PwC
137
Solution 2

Solution 2: Disclosure of categories
R
million
Assets
Non-current assets
Property, plant and
equipment
Intangible assets
Investments
Current assets
Receivables and
prepayments
Inventory
Cash and cash
equivalents
PwC
Financial
assets at
amortised
cost
Available
for sale
Financial
liabilities
at
amortised
cost
Fair value
through
profit and
loss
Not IFRS 7
920
200
200
600
120
600
5
100
15
600
250
235
15
300
300
50
50
1,520
285
100
15
1,120
138
69
02/09/2016
Solution 2

Solution 2: Disclosure of categories
R
million
Equity
Equity and reserves
Share capital
Available for sale
reserve
Retained earnings
Liabilities
Non-current
liabilities
Borrowings
Current liabilities
Borrowings
Payables
Financial
assets at
amortised
cost
Available
for sale
Financial
liabilities
at
amortised
cost
Fair value
through
profit and
loss
Not IFRS 7
580
100
100
20
20
460
460
90
90
850
150
700
1,520
90
150
500
740
50
50
PwC
150
730
139

Classes of financial instruments
Nature of information disclosed
Sufficient information to reconcile to balance sheet
Fair value
Amortised
cost
Outside
scope
Characteristics of the instrument
Why is this necessary?

PwC
Minimum
140
70
02/09/2016

Classes of financial instruments
Whats the difference between a class and a
category?
Certain disclosures are
required by class.
Entity specific
What constitutes a class?

Level of detail
Balance between too
much and too little
PwC
141

Exercise 3: Classes of financial assets
PwC
Handout 3
Which classes of financial

assets would you
recommend for VacScene
Ltd?
142
71
02/09/2016
Solution 3

Solution 3: Classes of financial assets
Classes of financial assets
Investments
Local available for sale
Local fair value
Different
characteristics and
risks
Receivables and prepayments
Local amortised cost
Export amortised cost
Local government amortised cost

Financial guarantee
PwC
143

Risks associated with financial instruments
Credit risk
The risk that one
party to a financial
instrument will
cause a financial
loss for the other
party by failing to
discharge an
obligation
PwC
Liquidity risk
Market risk
The risk that an

entity will
encounter difficulty
in meeting
obligations
associated with
financial liabilities
that are settled by
delivering cash or
another financial
asset
The risk that the fair

value or future cash
flows of a financial
instrument will
fluctuate because of
changes in market
prices.
144
72
02/09/2016

Minimum market risk disclosures
Sensitivity analysis for all financial instruments giving rise to:
Interest rate risk
Currency risk
Reasonably
possible
change in
risk
variables
Quantitative
effect on:
Profit or
loss
OCI
Other price risk
PwC
145

Exercise 4: Risk disclosures
PwC
Handout 4
Indicate which risks would

likely apply to the
instruments included in the
scope of IFRS 7.
146
73
02/09/2016
Solution 4

Solution 4: Risk disclosures
Financial assets
Investments
Local - available for sale
Local - fair value
Receivables and
prepayments
Export - amortised cost
Government - amortised cost
Financial guarantees
R
million
Credit
risk
115
100
15
Liquidity
risk
Market
risk
235
135
60
40
50
50
500
PwC
147
Solution 4

Solution 4: Risk disclosures
R
million
Borrowings
Local - amortised cost
Payables
Local - amortised cost
Fair value
Financial guarantees
PwC
240
240
1050
500
50
500
Credit
risk
Liquidity
risk
Market
risk
148
74
02/09/2016

Components of financial risk
Credit risk
Liquidity risk
Market risk
Qualitative disclosures
What is my exposure and how does it arise
What are my objectives, policies and processes for managing the risk?
How do I measure the risk?
Have any of the above changed since last year?
Quantitative disclosures
Summary of exposure to risk at year-end
Minimum disclosures
Concentrations of risk
Is any of this information reported to management internally?
PwC
149

Credit risk
IFRS 7 requires the following disclosure by class of financial
instrument:
The amount that best represents its maximum exposure to

credit risk;
Description of collateral held as security and of other credit

enhancements, including concentration risk; and
Information about the credit quality of financial assets that are

neither past due nor impaired;
An analysis of the age of financial assets that are past due but
not impaired; and
An analysis of financial assets that are individually determined

to be impaired.
PwC
150
75
02/09/2016
Handout 5

Exercise 5: Credit risk disclosure
Provide recommendations
for improvement to the
credit risk disclosures.
PwC
151
Solution 5

Solution 5: Credit risk disclosure
IFRS 7 requirement
Included?
Recommendation
All disclosures per class
Disclosure per class of financial asset
Maximum exposure to credit

risk
Guarantee should be disclosed
Collateral held as security and

other credit enhancements
Insurance policy relating to offshore

customers should be disclosed
Credit quality
Credit quality of financial assets neither

past due nor impaired should be
disclosed
Age analysis
Age analysis should be disclosed per

class of financial asset
Individually impaired financial

assets
Individually impaired financial assets

should be disclosed;
Concentration risk
Any concentration of credit risk should

be disclosed (e.g. government)
PwC
152
76
02/09/2016

Liquidity risk
IFRS 7 requires the following disclosure by class of financial
instrument:
A maturity analysis for non-derivative financial liabilities

(including issued financial guarantee contracts) that shows the
remaining contractual maturities.
A maturity analysis for derivative financial liabilities. The maturity

analysis should include the remaining contractual maturities for
those derivative financial liabilities for which contractual maturities
are essential for an understanding of the timing of the cash flows.
A description of how it manages the liquidity risk inherent in the

above.
PwC
153

Exercise 6: Liquidity risk disclosure
PwC
Handout 6
Provide recommendations
for improvement to the
liquidity risk disclosures.
154
77
02/09/2016

Solution 6: Liquidity risk disclosure
IFRS 7 requirement
Included?
Solution 6
Recommendation
Management of liquidity risk
Actual activities, policies and procedures

undertaken to manage liquidity risk
should be disclosed
All disclosures per class
Maturity analysis per class of financial

liability
Contractual cash flows
Undiscounted cash flows should be

disclosed
Appropriate number of time

bands
Maturity buckets should be provided for

more meaningful time periods;
Management of liquidity risk
Liquidity issues should be explained in

greater detail;
The way forward with regards to
managing liquidity risk should be
disclosed.
Concentration risk
Any concentration of liquidity risk

should be disclosed (e.g. single bank for
borrowings)
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155

Exercise 7: Market risk disclosure
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Handout 7
Which financial instruments

give rise to market risk, for
which a sensitivity analysis
should be provided?
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Solution 7

Solution 7: Market risk disclosure
Interest rate risk
Currency risk
Other price risk
Listed bond (FV)
Export debtors
AFS equity
instrument (FV)
Cash and cash

equivalents
Derivative (FEC)
Listed bond (FV)
Bank overdraft
Bank borrowing
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Sensitivity analyses
For each type of market risk;
How P&L and equity are

affected;
Reasonably possible change in

variables
Not the worst case

scenario;
Methods and assumptions used

to prepare the analysis;
Changes in methods and

assumptions from the previous
period.
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Risk variables
Yield curve of market interest
rates
Foreign exchange rates
Prices of equity instruments
Market prices of commodities
And others
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Key learning points
The scope of IFRS 7 determines

which items require disclosure
Many disclosures are required by

class of instrument
Entities should discuss their specific

risks and how it is managed
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159
Questions?
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160
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IFRS 13 Fair value measurement
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161
Fair value measurement

The basics
Definition
An exit price
- Selling an asset or transferring a liability
Principal or most advantageous market
Market participant perspective
Includes transport costs
Excludes transaction costs
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162
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Objectives
Defines Fair Value

Single framework for fair
value
Requires disclosure of fair
value
Observable
inputs
Measure fair value using a
valuation technique that
maximises observable
inputs and minimises
unobservable inputs
Intention is not relevant
Objective
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Definition focuses on fair

value of assets and
liabilities as these are the
primary subject for
accounting measurement
Applies to own equity
instruments
Assets and
liabilities
163
What is in the scope of IFRS 13?
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164
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Scope : Is fair value measured or disclosed?
Initial
Measurement
Subsequent
Measurement
Disclosure
P/O
P/O
Retirement benefit plan assets

plan assets
Trade and other receivables

amortised cost
Borrowings
P
O
O
P/O
P/O
P/O
P/O
O
Inventory
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165

What is fair value?
Core principle
Fair value is the
amount for which an
asset could be
exchanged between
knowledgeable, willing
parties in an arms
length transaction.
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Fair value is 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.
166
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How do I determine fair value?
1
2
3
4
Determine the asset/liability being measured
Determine the principal/most advantageous market

For non-financial assets:
Determine Highest and Best use (HABU)
And whether the HABU is stand-alone or in conjunction with other assets
Determine the quoted price or valuation technique
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167

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168
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What factors do we take into account?
Condition and location of the asset

Restrictions, if any, on the sale or use of
the asset
How would
these be
considered by
market
participants ?
Examples:
1. Restricted shares (on instrument or individual)
2. Restriction on land (donated land only playground, electricity right
through land)
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169

Who are market participants?
Market participants =
Buyers and sellers that are:
Knowledgeable
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Independent
Able and
willing to
transact
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What is the unit of account?
Assets or liabilities can be measured on:
Stand alone basis
Group of assets basis
IAS 39 and
IFRS 9
(unless IFRS
13 allows
otherwise)
Unit of account ?
Depends on the
relevant IFRS
Determines
measurement and
disclosure basis
IAS 36
(unless IFRS
13 allows
otherwise)
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171

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Determine the principal/most advantageous

market
172
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Question
An entity can choose whether to use the principal
or the most advantageous market.
A) True
B) False
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173
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174
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Question
An entity can choose whether to use the principal
or the most advantageous market.
A) True
B) False
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175

The market with the greatest

volume and level of activity for
the asset or liability
Based on the instrument
Normally the market in which
the entity operates
If another market, the entity
must have access to this market
Entity need not perform an
extensive search
Use principal
market if available
Otherwise use most

advantageous
market
The market that maximises
amount that would be
received to sell the asset or
minimises amount that
would be paid to transfer
the liability, after taking into
account transaction costs
and transport costs.
Entity specific
evaluation
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176
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Question 1
Example Producer has access to more than one market
An entity is in the business of growing and harvesting sugar cane. Along
with other local growers, it sells the harvested cane to the local mill.
There are other mills located throughout the country. However, it is
uneconomic to transport the sugar cane to other mills, although they
often pay higher prices for the cane.
Which market price should the entity use to establish fair
value?
A) Local mills
B) Other mills
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177
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Question 1
Example Producer has access to more than one market
An entity is in the business of growing and harvesting sugar cane. Along
with other local growers, it sells the harvested cane to the local mill.
There are other mills located throughout the country. However, it is
uneconomic to transport the sugar cane to other mills, although they
often pay higher prices for the cane.
Which market price should the entity use to establish fair
value?
A) Local mills
B) Other mills
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179

Question 2
What about transaction costs?
An asset can be sold in 2 markets with the same levels of activity.
Market A
Market B
Price
$27
$25
Transport costs
-$3
-$2
$24
$23
Transaction costs
-$3
-$1
$21
$22
What is the fair value of the asset?

A) $24
B) $23
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180
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Question 2
What about transaction costs?
An asset can be sold in 2 markets with the same levels of activity.
Market A
Market B
Price
$27
$25
Transport costs
-$3
-$2
$24
$23
Transaction costs
-$3
-$1
$21
$22
What is the fair value of the asset?

A) $24
B) $23
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182
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For non-financial assets only:

And whether the HABU is stand-alone or in
conjunction with other assets
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183

Determine the Highest and Best Use (HABU)
Perspective of a
market
participant
(disclose if
different)
Physically,
legally and
financially
possible
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Could be in
combination
with other
assets/liabilities
HABU
FV is HABU
even if
intention differs
(e.g. defensive
assets)
Current use is
usually
presumed to be
HABU
184
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Determine the Highest and Best Use
Years ago Entity A acquired land which was developed for use as an
industrial site for a factory. At the time this was considered to be the
highest and best use. Land in the vicinity has been rezoned and
developed as residential sites. The entity doesnt intend to demolish
this building.
The fair value of the land would therefore be :
A) The value as an industrial site in combination with other assets
B) Higher of A or the value as a residential development adjusted for
costs to convert the land.
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185
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Determine the Highest and Best Use
Years ago Entity A acquired land which was developed for use as an
industrial site for a factory. At the time this was considered to be the
highest and best use. Land in the vicinity has been rezoned and
developed as residential sites. The entity doesnt intend to demolish
this building.
The fair value of the land would therefore be :
A) The value as an industrial site in combination with other assets
B) Higher of A or the value as a residential development adjusted for
costs to convert the land.
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187

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Determine the quoted price or valuation

technique
188
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What is the principle basis of valuation?
Assumptions that market participants would

consider
Market based
Not entity specific
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189

Fair value hierarchy:
To increase consistency and comparability in fair value measurements and the
related disclosures, the standard requires a fair value hierarchy that prioritises
the inputs to valuation techniques into three levels.
Priority in hierarchy:
Level 1
Level 2
Level 3
quoted prices
(unadjusted) in
active markets
inputs other than

quoted prices that
are observable
inputs not based

on observable
market data
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190
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Valuation techniques
Approach must be appropriate and must maximise
observable input and minimise unobservable input
Market Approach
Income Approach
Cost approach
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191

Market Approach
Prices from market transactions for identical
or comparable assets and liabilities.
For example, valuation techniques consistent with the
market approach often use market multiples derived from
a set of comparables. Eg. P/E ratio
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Cost Approach
The amount that would be required currently to
replace the service capacity of an asset
From the perspective of a market participant seller, the price
that would be received for the asset is based on the cost to a
market participant buyer to acquire or construct a substitute
asset of comparable utility, adjusted for obsolescence.
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193

Income Approach
Discounted cash flow method such as:
present value techniques;
option pricing models, such as the Black-Scholes-Merton formula or a
binomial model (i.e. a lattice model)
the multi-period excess earnings method, which is used to measure
the fair value of some intangible assets.
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194
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Applied consistently unless

circumstances change
Change in technique accounted
for as change in estimates
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195

Quotations from third parties
Quotations
from third
parties
Beware of Third
Party
Quotations!
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Must be
based on
IFRS
Nature of the
quote to be
considered
196
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Exercise Rank the measurements!
Quoted prices of investments in associates disclosed
under IAS 28.
What level of the fair value hierarchy?
A) Level 1
B) Level 2
C) Level 3
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197

Fair value of a factory (fixed assets) held under the
revaluation model in IAS 16. The fair value is derived
based on discounted cash flows using the owners cash
flow forecasts.
A) Level 1
B) Level 2
C) Level 3
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198
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Fair value of a condominium held as an investment
property. Fair value was derived using observable psf
(per square foot) rates multiplied by the floor area.
A) Level 1
B) Level 2
C) Level 3
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199

Fair value less costs to sell of cash-generating unit in
impairment test, based on a discounted cash flow model.
A) Level 1
B) Level 2
C) Level 3
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200
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Fair value of a soya crop held under IAS 41. The fair
value was derived from a discounted cash flow approach
using inputs such as market price for the finished
products, estimate of cultivation costs, etc.
A) Level 1
B) Level 2
C) Level 3
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201
What requires disclosure?
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202
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Class disclosure
IFRS 13 requires disclosure by class of asset and liability on the basis of the
following:
Nature, characteristics and risks of the asset or liability; and
The level of the fair value hierarchy within which the fair value is categorised.
Level 3
Judgmental
Could be different
to IFRS 7
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203
Investment property carried at fair value model
The following is applicable 30 June 2014:
Carrying amount 1 July 2013
Fair value adjustment
Carrying amount 30 June 2014
Investment property details
Office buildings SA
Shopping malls SA
Shopping malls US
Shopping malls UK
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38,000
5,000
43,000
2,000
14,000
12,000
15,000
43,000
204
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Investment property carried at fair value model
The following classes are recommended for Investment
property:
A) Shopping mall, Office buildings
B) SA shopping mall and office building, UK shopping mall, US
shopping mall
C) A single class Investment Property
D) It depends
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205

Disclosure requirements
A way to think about the required disclosures:
Recurring FV
measurements
Non-recurring FV
measurements
FV disclosed in the
notes
Abbreviated disclosures required by IAS 34 in year of adoption
Detail and amount of disclosure depends on the level of hierarchy
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206
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Disclosure requirements
Basic requirement: FV measurement, hierarchy level, highest and best use
Incremental disclosure requirements:
Level 2
Level 3
FV disclosed
in the notes
Description of
valuation technique
Non-recurring
FV
measurement
Change in valuation
technique
Quantitative information on
unobservable significant inputs
Recurring FV
measurement
Transfers between
level 1 and 2
Reconciliation
Unrealised gains/losses
Sensitivity
Narrative description in
sensitivity
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207

Sensitivity analysis
Unobservable Level 3 inputs
Entities must also provide:

A narrative description of the sensitivity of fair value
measurements to changes in unobservable inputs that
might result in significantly higher or lower fair value;
and
If there are inter-relationships with other unobservable
inputs, a description of the inter-relationships and how
they might magnify or mitigate the effects of a change in
an unobservable inputs.
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208
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Recap
For non-financial assets:
And whether the HABU is stand-alone or in conjunction with other

assets
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209
Questions?
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210
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IAS 12 Income taxes
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211
Overview
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212
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Overview
Objective of IAS 12: Income taxes
Account for current and future tax consequences of:
Transactions and other events of the current period
recognised in the financial statements
The future recovery (settlement) of the carrying amount
of assets (liabilities) recognised in an entity's balance
sheet
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Overview
Scope
IAS 12 applies to accounting for income taxes; that is, taxes based
on taxable profit. Beware! Not all taxes are in the scope of IAS 12!
The following are the within the scope of IAS 12:
True/ False
An income tax assessed as a percentage of sales/revenue

or gross receipts
False
Where a tax is assessed based on the lower of a

percentage of revenue and a percentage of revenue less
expenses.
True?
An initial tax payment that is not based on net income but

represents a payment in advance that is subsequently
trued-up to give a tax based on net income.
True
Taxes based on tonnage transported or tonnage capacity.
False
Taxes on income payable by shareholders.
False
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214
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Overview
Jargon
Income tax:
Taxes based on taxable profit
Current tax:
Income tax in respect of taxable profit/ loss in the period
Deferred tax:
Income tax payable/receivable in future periods in respect of temporary
differences
Temporary difference:
Difference between carrying amount of asset or liability and its value for tax
purposes (tax base)
Taxable temporary difference
result in deferred tax liabilities
Deductible temporary differences

result in deferred tax assets
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215
Overview
Method of calculating deferred tax
Balance sheet
liability method
Reflection of future tax
consequences of
assets and liabilities
Focus on temporary
differences
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216
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Back to basics: The 9 step

approach
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217
Back to basics: The 9 step approach

A brief introduction
1
Calculate current
income tax
Determine the tax

base
4
Identify exceptions
7
Recognise deferred
tax
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3
Calculate temporary
differences
Review deductible
TDs and tax losses
Determine tax rates
Presentation and
offsetting
Disclosure
218
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What is current tax?
1
Calculate current
Calculate
current
income
tax
income
tax
Current tax is the amount of income taxes payable (recoverable) in

respect of the taxable profit (tax loss) for a period
Including amounts in respect of prior periods

NB! It is measured at the amount expected to be paid/recovered
Uncertain tax positions?

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219

Tax bases of assets and liabilities
Determine
Determine
the tax
tax Base
base
Tax base of an asset
Tax base of a liability
Tax base of deferred revenue
the amount that will be

deductible for tax
purposes against any
taxable economic benefits
that will flow to an entity
when it recovers the
carrying amount of the
asset
its carrying amount, less

any amount that will be
deductible for tax
purposes in respect of that
liability in future periods
its carrying amount, less

any revenue that will not
be taxable in future
Carrying value less

future deductible
amount
Carrying value less

future non-taxable
revenue
Future deductible
amount
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220
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What is the tax base?
Item
Carrying
amount
Determine
Determine
the tax
taxBase
base
Other information
Tax base
Loan payable
100
Repayment has no tax

consequences
100
Plant
800
Cost of 1,000, tax depreciation

to date of 600
400
Warranty
provision
600
Tax deduction only available

when cost incurred
Nil
Unearned
revenue
400
Taxed on a cash basis
Nil
Deduction of 200 when

exercised
200
Equity-settled
share-based
payment
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221

Temporary differences
Carrying amount
Tax base
Temporary difference
X
(X)
X
Asset
3 Calculate
Calculate
temporary
temporary
differences
differences
Temporary
Timing
Liability
Carrying amount > tax base
Taxable temporary
difference
Deductible temporary
difference
Carrying amount < tax base
Deductible temporary
difference
Taxable temporary
difference
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222
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Temporary differences example
3
Calculate
temporary
differences
An entity purchased a machine for cash of 500, 2 years ago. It is being

depreciated over 5 years, but the tax authority allows the entity to write off
this cost for tax purposes on the date of purchase. What is the temporary
difference at the end of year 2?
Element
Value
300
Carrying amount
Tax base
300
Q: Is this a taxable or deductible temporary difference?

A: Taxable and therefore a deferred tax liability
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223

Initial recognition exception
Related to a business
combination?
Identify
Identify
exceptions
exceptions
Yes
There are
other
exemptions!
No
Does it affect either accounting
profit or taxable profit at the time
of the transaction?
Yes
No
Do not recognise DTA/DTL
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Recognise DTA/DTL except a DTL

arising on initial recognition of
goodwill
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Initial recognition exception examples
Identify
Identify
exceptions
exceptions
Example 1
An entity acquired an intangible asset (a licence) for C100,000 that has a life of five
years. The asset will be solely recovered through use. No tax deductions can be
claimed as the licence is amortised or when it expires. No tax deductions are available
on disposal. Trading profits from using the licence will be taxed at 30%.
Example 2
An entity acquired an asset for C120,000, which it expects to recover solely through
use in the business. For tax purposes, only 60% of the asset is deductible when the
assets carrying amount is recovered through use. The asset is depreciated for both tax
and accounting purposes at 25% per annum. The tax rate is 30%.
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225

Asset recognition criteria
DTLs exist that meet relevant
criteria?
Review
deductible
TDs
Review
deductible
and
tax
TDs
and
taxlosses
losses
Yes
No
Probable future taxable profit?
Yes
No
Tax planning opportunities?
Recognise DTA limited by:

- DTLs
- Available profits
- Planning opportunities
Yes
No
Do not recognise DTA
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226
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What is the tax rate?
6
Determine tax
rates
Tax rate expected to apply when the ASSET IS REALISED/ LIABILITY

IS SETTLED
Base on EXPECTED MANNER OF RECOVERY Use or Sale?
Based on tax rates and laws SUBSTANTIVELY ENACTED at the balance

sheet date 28% (normal rate) or 18.6% (CGT rate)?
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227

Recognition
Carrying amount
100
Tax base
(40)
Tax rate
Deferred tax asset or liability
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Recognise
Recognise deferred
deferred tax
tax
60
30%
18
Easy multiplication!
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Presentation and offsetting
8
Presentation and
offsetting
Offsetting of deferred tax assets and deferred tax

liabilities can only occur if:
Legally enforceable right
Same taxation authority and net settled
No need to consider timing!
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229

Deferred tax offsetting example
8
Presentation and
offsetting
The following worksheet shows the deferred tax assets and liabilities in
Holdco and its two subsidiaries (Subco 1 and Subco 2). What amount
should be presented for deferred tax on the face of the consolidated
statement of financial position for Holdco?
Deferred Tax Assets
Deferred Tax
Liabilities
Net Deferred Tax
Subco 1
R100m
R-150m
R-50m
Subco 2
R230m
R-200m
R30m
Holdco
R50m
R-30m
R20m
R380m
R-380m
Total
A: 50m for deferred tax liabilities and 50m for deferred tax assets
Q: What if we do a group tax return?
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A: Net position presented i.e: 0

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Presentation example
Assess the following statements:
Presentation
Presentation and
and offsetting
offsetting
True/ False
Total tax expense (income) is presented on the face of the

income statement
False
Deferred tax balances are non-current
True
Deferred tax balances are discounted if the effect is

material
False
An entity can choose to offset deferred tax assets and

liabilities if they relate to the same taxation authority
False
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231

Tax reconciliation
9
Disclosure
The relationship between tax expense and accounting profit may be

affected by such factors as:
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significant taxfree income
unrecognised
deferred tax
significant
disallowable
expenses
the effect of tax

losses utilised
adjustments
related to prior
years
different tax
rates of foreignbased operations
effects of changes
in tax rates
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Disclosure reminders
9
Disclosure
Disclose tax relating to components of other comprehensive

income and equity
Set-off rules relating to deferred tax assets and liabilities
Disclose deferred tax maturity in a note
Disclose segment income tax if included in the measure of profit
or reviewed by the CODM
Disclose the movement in deferred tax assets and liabilities
Disclose unrecognised tax losses and unused tax credits
Disclose unrecognised temporary differences
Reconciliation to total tax not current tax
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233
Specific issues
Deductible temporary differences
and tax losses
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234
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Specific issues
Deductible temporary differences and tax losses
Recognise asset if probable that

future taxable profit will be
available
Probable? More likely than not
(>50%)
Requires convincing evidence of
future taxable profits
Unused tax losses ARE strong
evidence that future taxable profit
may not be available (IAS 12.35)
Quality of evidence is important
Treatment
of tax
losses
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235
Specific issues
Deductible temporary differences and tax losses
Review
deductible TDs
and tax losses
What is convincing
evidence of
sufficient taxable
profit?
Disclosures
Amount of any unused tax losses for which no

DTA recognised
Nature of evidence supporting DTA when there
are losses
Remember to disclose in critical
accounting estimates and judgements
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Background to losses type, expiry, reasons

Actions the entity will take
Expected/actual return to profitability
Accuracy of prior forecasts
More than just a hope
No arbitrary limitation on lookout period
Need to consider timing of reversal
Each year is a separate period
Consistent with basis for impairment test
Tax planning opportunities
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Report back from JSEs proactive monitoring of

financial statements
Tax rate
recons
Deferred
tax
Determine
tax base
Issues identified with preparers with regards to their tax rate

reconciliations:
Lack of the required reconciliation;
The recon not balancing to the average effective tax rate of the group;
The exclusion of a numerical reconciliation;
The inclusion of incorrect line items/ amounts in the reconciliation in
order to ensure that it balances; and
The inclusion of incorrect and confusing descriptions of line items
within the tax rate reconciliation.
Absence of disclosure supporting the justification for the recognition of
deferred tax assets. A lack of disclosure could ultimately indicate that
there is no justification and that the prepare has incorrectly raised a
deferred tax asset in its AFS.
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Investor views on deferred tax
Determine
tax base
Cash tax
Investors would like to know how the amount of tax actually paid by the
company (cash tax) relates to the overall tax charge. Few financial
statements reconcile to the cash tax position. An example of how this
reconciliation might look is as follows:
Tax rate
recons
Some investors believe that the reconciliation might provide more useful
information:
Average rate reconciliation
Commentary on the differences
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Investor views on deferred tax
Determine
tax base
Deferred tax Clearer explanation would be welcome as to the likely timing of reversals
reversals
of the often significant deferred tax items on a companys balance sheet,
and the impact that would have on a companys cash tax position.
Tax expense Unusual or one-off items can have a significant impact on the tax rate,
in relation to but financial statements are often silent on the treatment of these items.
unusual
Investors say more commentary would help.
items
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239
Questions?
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240
120
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Zimbabwe tax update
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241
Questions?
PwC
242
121
02/09/2016
Zimbabwe tax update
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243
Questions?
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244
122
02/09/2016
Accounting for treasury bills
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245
Questions?
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246
123
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Financial statement preparation and

presentation
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247
Financial statements preparation and presentation

Background
Financial statement preparation area of contention between
management and auditors for varying reasons:
New and amended standards
Alignment of business objectives and IFRS requirements
Differences in interpretation of IFRS
Misunderstanding of roles and responsibilities
Misalignment of regulator requirements and IFRS
2016 IFRS Update

PwC
248
124
02/09/2016

Comments from preparers
Why should we change from
how we prepared these last
year?
Non-routine/ unusual
transaction how do I
account for it?
Amendment only
applies next year, so
why should I worry
about it now?
Materiality in
reporting
difficult to apply
this concept!
How do I keep pace with all these

changes in IFRS? I have no access to
the latest updates
But my regulator has different

requirements to IFRS; surely
they take precedence.
Structure is too rigid,

surely I can present
my notes in any order.
The auditor understands

these changes better; let
them put through these
new IFRS requirements!
2016 IFRS Update

PwC
249

Comments from reviewers
Explanations on
movement in debt
seem insufficient.
Nature or function how does

it comply with IAS 1?
Are the accounting

policies consistently
applied?
Non-cash
transactions - how
were the cash flows
determined?
Is it comparable with financial

statements of similar entities?
Gross or net does it give
sufficient information for
the users?
Materiality is the
ommited disclosure
material enough to
affect my decision?
2016 IFRS Update
PwC
Subtotals is this
amount detracting the
loss actually incurred?
250
125
02/09/2016
Financial statement preparation and presentation
Objectives
Clarify roles and responsibilities
Expand on common issues noted by reviewers
Highlight IASB responses to reviewer and preparer comments
Accounting for irregular business transactions
2016 IFRS Update

PwC
251
Financial statement preparation

Roles and responsibilities
2016 IFRS Update

PwC
252
126
02/09/2016

What does the companies Act say?
What is in the engagement contract?
Management
Preparation and fair

presentation of the financial
statements in accordance with IFRS
and applicable laws and regulations
Implementation of internal
controls relevant to fair
presentation of financial statements
Providing auditor
unrestricted access to
information relevant to fair
presentation of financial statements
2016 IFRS Update

PwC
253

The role of the auditor
Auditor
2016 IFRS Update

PwC
Statutory responsibility to report

on whether the financial statements
are presented fairly, in all material
respects, in accordance with IFRS
independent perspective; a third eye
business advisor on interpretation
of IFRS
254
127
02/09/2016

We are preparing our annual financial
statements, what presentation and
disclosure issues should we consider?
Regulators and
other reviewers
Amendments and
clarifications
Irregular
transactions
IAS 32
IFRS 2
IFRS 3
2016 IFRS Update

PwC
255
Common reviewer comments
2016 IFRS Update

PwC
256
128
02/09/2016

Common deficiencies in the cash flow statements
Cash
equivalents
Nature or
Classification
function
Does it meet the definition?
Is it correctly classified?
- Short term
- Readily convertible
- No changes
in value
Nature
or
- Purposefunction
of holding
- Three categories
- Consistency
- Choices
Non-cash
Nature or
transactions
function
How are they presented?
Nature
or or
Nature
function
function
- Not cash flows
- Disclosed if material
2016 IFRS Update

PwC
257

Other common deficiencies
Nature or
Nature
or
function
function
How does it comply with
IAS 1?
- Logic for presentation

- Breakdown expenses
2016 IFRS Update

PwC
Gross or
Nature
0r net
function
Opening
Nature
or
balance
sheet
function
Performance
Nature or
measures
function
Why is it presented net?
Why is it not included?
What is the basis for the

alternative measures?
- Principle
- Exceptions
- IFRS 1
- Error
- New standard
- Voluntary policy change
Description
Balance
Consistency
Reconciliation
258
129
02/09/2016
Amendments and clarifications
2016 IFRS Update

PwC
259

Introduction
Rigid structure
and order of
notes
Additional/
misleading
subtotals
Issues raised by
Investors share
Amendments
preparers and
in OCI of joint
users
ventures or
Difficulty
applying the
concept of
materiality
2016 IFRS Update

PwC
associates
Explain
movements in
debt
260
130
02/09/2016

Getting yourself informed on changes!
Auditor
Communications
IFRS Handbooks
Publications
Recent developments
in IFRS
Understanding basic
layout of standards
www.pwcinform.com
Manual of Accounting
2016 IFRS Update

PwC
261

IAS 1
Others
IAS 7
Amendments to IAS 1
(Disclosure Initiative)
Offsetting (IAS 32)
Changes in liabilities
from financing activities
1 Jan 2016
IC Agenda decision
1 Jan 2017
Classification of
liabilities
Proposed Amendment
2016 IFRS Update

PwC
262
131
02/09/2016

IAS 1, Presentation of financial statements
2016 IFRS Update

PwC
263
Amendments and clarifications IAS 1

Amendment to IAS 1
D1: An entity can present an EBITDA subtotal in an
income statement presented by nature
True
False
D2: An entity should allocate its share of OCI of JVs

between items that will not be reclassified to P&L and
those that will be reclassified to P&L
D3: An entity is not required to include specific disclosures
required by a standard if the information resulting from
that disclosure is immaterial
D4: IAS 1 requires that the notes are presented in the
same order as in the primary statements
D5: All entities must disclose an accounting policy for
hedge accounting
2016 IFRS Update
PwC
264
132
02/09/2016

IAS 1
Subtotals and
disaggregation
Sub-totals should be:

Made up of amounts recognised and measured under IFRS
Clear and understandable
Consistent from period to period
Not more prominent than those required in IFRS
2016 IFRS Update

PwC
265

Amendment to IAS 1
True


False

hedge accounting
2016 IFRS Update
PwC
266
133
02/09/2016

IAS 1
OCI line items

Associates /
JVs
Entity A
40%
Associate
Will be reclassified
to P&L
Will not be
reclassified to P&L
of
CashShare
flow hedge
investment
CU150 in
associate
Available
for sale
CU60
CU150
Share of
Re-measurement
of
investment
in
DBP CU100
associate
PPE Revaluation
CU40
CU100
2016 IFRS Update

PwC
267
PollEv.com/IFRS2016
Amendment to IAS 1
True



False

hedge accounting
2016 IFRS Update
PwC
268
134
02/09/2016

IAS 1
Aggregating
items with
different
characteristics
Materiality
Presentating
immaterial
information not
required even if a
standard says
minimum
Disclosing large
amount of
immaterial
details
2016 IFRS Update

PwC
269

Amendment to IAS 1
True




False

hedge accounting
2016 IFRS Update
PwC
270
135
02/09/2016

IAS 1
Notes
Understandability
Order of the notes

Not a particular order
Significant notes
Sequential?
Comparability
Normally presents notes in the following order removed
2016 IFRS Update

PwC
271

Amendment to IAS 1
True



False


hedge accounting
2016 IFRS Update

PwC
272
136
02/09/2016

IAS 1
Reference to
summary
removed
Accounting
policies
Only
significant
policies
2016 IFRS Update

PwC
273

IAS 1
Amendments
to IAS 1
Subtotals
OCI line items associates / JVs
Materiality
Notes
Accounting policies
2016 IFRS Update

PwC
1 Jan 2016
274
137
02/09/2016

IAS 7
2016 IFRS Update

PwC
275

IAS 7: Need for additional reconciliation
Concerns about disclosures: Financing activities
Response from users
Request a net debt
reconciliation
Need for improved

disclosures for debt
and changes in debt
What is debt? Is it defined?

2016 IFRS Update
PwC
276
138
02/09/2016

IAS 7
Disclose cash flows and non-cash changes in liabilities arising from financing
activities
Changes from
financing
cash flows
Changes
arising from
obtaining or
losing control
Changes from
foreign
exchange
rates
Changes in
Fair values
Other
changes
How to comply
with this
requirement?
2016 IFRS Update

PwC
277

IAS 7
A reconciliation can be used
Non-cash changes
Long term borrowings

Short term borrowings
Total liabilities from financing
activities
2014
1,000
1,047
Cash
flows
-1,004
-592
2,047
-1,596
FX
Acquisition Movements
7,620
401
1,830
83
9,450
484
2015
8,017
2,368
10,385
An entity that provides a reconciliation of debt including items not

classified as financing activities identify them separately
Effective from 1 January 2017, early application permitted
No requirement for comparatives in first year of application
2016 IFRS Update

PwC
278
139
02/09/2016
Irregular transactions
2016 IFRS Update

PwC
279
Significant unusual business transactions
Which IFRS
applies to this
transaction?
Do I have the
experience in
accounting
for this
transaction?
2016 IFRS Update

PwC
Will this
delay my
reporting?
Is the IFRS
requirement
aligned with
business
objective?
Where do I start?
280
140
02/09/2016
Aligning business objectives and IFRS
Business
objectives
CONSULT
EARLY!
IFRS
requirements
2016 IFRS Update

PwC
Navigating IFRS
281
Non-routine/ unusual
transaction how do I
account for it?
Scope
(What? Why?)
Recognition
(When? How?)
Measurement
(How? Policy choices!)
Presentation and
disclosure
(Informing the user)
2016 IFRS Update

PwC
282
141
02/09/2016
Recap
No mix
Nature or function
Definition
Business activity
Cash flow classification
Not cash flows
Non-cash transactions
Principle and exceptions
Gross or net
Opening balance sheet
Required in specific situations
Alternative measures
Clear and consistent
2016 IFRS Update

PwC
283
Wrap up
IAS 1
Amendments to IAS 1
Subtotals
IAS 7
Changes in liabilities
from financing activities
1 Jan 2017
OCI line items

Materiality
Notes
1 Jan
2016
Accounting policies
2016 IFRS Update

PwC
284
142
02/09/2016
Questions?
PwC
285
Thank you for attending
The information contained in this publication by PwC is provided for discussion purposes only
and is intended to provide the reader or his/her entity with general information of interest. The
information is supplied on an as is basis and has not been compiled to meet the readers or
his/her entitys individual requirements. It is the readers responsibility to satisfy him or her that
the content meets the individual or his/ her entitys requirements. The information should not
be regarded as professional or legal advice or the official opinion of PwC. No action should be
taken on the strength of the information without obtaining professional advice. Although PwC
take all reasonable steps to ensure the quality and accuracy of the information, accuracy is not
guaranteed. PwC, shall not be liable for any damage, loss or liability of any nature incurred
directly or indirectly by whomever and resulting from any cause in connection with the
information contained herein.
PwC Inc. [Registration number 1998/012055/21](PwC). All rights reserved. PwC refers to
the South African member firm, and may sometimes refer to the PwC network. Each member
firm is a separate legal entity. Please see www.pwc.co.za for further details.
143

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02/09/2016

IFRS Update 2016

Recent developments in IFRS

IFRS 15: Revenue

IFRS 9: Financial instruments

IFRS 16: Leases

IFRS 7: Financial instruments: Disclosures

IFRS 13: Fair value measurement

7 IAS 12: Income taxes

Recent developments in IFRS

Recent development in IFRS

IFRS 16, Leases

Amendment IAS 12,

Recent development in IFRS

An entity is required to disclose information that will allow users to understand

cash flows, such as drawdowns and repayments of borrowings; and

non-cash changes, such as acquisitions, disposals and unrealised exchange

Effective: 1 January 2017

Recent development in IFRS

Does the amendment require a net debt reconciliation ?

Recent development in IFRS

Recent development in IFRS

Recent development in IFRS

Example from the amendment

Application of the amendment

Recent developments in IFRS

Recent developments in IFRS

Recent developments in IFRS

Recent developments in IFRS

IFRS 15 Revenue from contracts

Not sure at this stage

Not my problem, Ill be retired by 2018!

Scope Revenue from contracts with customers

Revenue is income from ordinary activities

The 5-step model

Revenue recognition model a simple example

Step 3 - Determine the transaction price

An agreement between two or more parties that creates

Rights of each party identified

Payment terms identified

Step 5 - Recognise revenue when (or as) a performance obligation is satisfied

Revenue recognition model a simple example

Step 3 - Determine the transaction price

A promise in a contract with a customer to

Focus on POs: Why does it matter?

If one PO.recognise revenue over time, cost plus reasonable margin

If multiple POs.recognise revenue over time, cost plus reasonable margin

Can the customer benefit

Is the promise separately

Deep dive: performance obligations (Step 2)

Daily cleaning service

Revenue recognition model a simple example

Step 4 - Allocate the transaction price

Step 5 - Recognise revenue when (or as) a performance obligation is satisfied

Step 3 Determine the transaction price

Broad range of prices

Must recognise minimum amount highly probable of not reversing

Reassessed at the end of each reporting period

New model for variable

Sufficiently advanced that performance

Not subject to significant reversal?

Prepayment is non-financial liability

Time value of money only considered