IFRS – issues for the treasurer - Revision history

imported>Doug Williamson: Mend broken link to ICAEW.

2019-08-07T13:25:17Z

Mend broken link to ICAEW.

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	Third, company law is an important consideration in determining the legality of a distribution and thus legal advice may need to be sought. With respect to UK companies, extensive guidance is available from the Institute of Chartered Accountants of England and Wales [~~http~~://www.icaew.~~co.uk~~ (ICAEW)] on the realisation of profits and losses. This comes in the form of a technical release: TECH 02/10 “Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006” and is of particular relevance in terms of IFRS.		Third, company law is an important consideration in determining the legality of a distribution and thus legal advice may need to be sought. With respect to UK companies, extensive guidance is available from the Institute of Chartered Accountants of England and Wales [https://www.icaew.com/ (ICAEW)] on the realisation of profits and losses. This comes in the form of a technical release: TECH 02/10 “Guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006” and is of particular relevance in terms of IFRS.

	==IFRS of specific relevance to treasurers==		==IFRS of specific relevance to treasurers==

imported>Doug Williamson: Update for mandatory application of IFRS 9.

2018-03-21T14:10:36Z

Update for mandatory application of IFRS 9.

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	Treasurers will also need to keep abreast of the changes to the IFRS landscape, whether that is new standards or interpretations of existing ones. The need to apply IFRS 9 by 2018 is ~~by far the biggest~~ challenge for corporate treasurers. ~~Treasurers~~ are ~~likely to be~~ involved in the implementation of IFRS 9, particularly hedge accounting, measuring expected losses on holdings of debt securities and loans, as well as assisting in meeting the ~~new~~ financial instrument disclosures.		Treasurers will also need to keep abreast of the changes to the IFRS landscape, whether that is new standards or interpretations of existing ones. The need to apply IFRS 9 from 2018 is a significant challenge for corporate treasurers. Many treasurers are involved in the implementation of IFRS 9, particularly hedge accounting, measuring expected losses on holdings of debt securities and loans, as well as assisting in meeting the strengthened financial instrument disclosures.

imported>Doug Williamson: Update for IFRS 9 mandatory application.

2018-03-21T14:06:44Z

Update for IFRS 9 mandatory application.

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	IFRS 9 ~~has a~~ mandatory ~~effective date~~ for annual periods beginning on or after 1 January 2018~~, with earlier application permitted~~. IFRS 9 will need to be endorsed by the EU, though, before it can be applied by entities reporting under EU endorsed IFRS.		IFRS 9 is mandatory for annual periods beginning on or after 1 January 2018. IFRS 9 will need to be endorsed by the EU, though, before it can be applied by entities reporting under EU endorsed IFRS.

	* '''''Classification and measurement:''''' IFRS 9 applies a dual test, based on contractual cash flow characteristics and the entity’s business model, to determine the classification of financial assets. Where a financial asset’s contractual cash flows are solely a return of principal and interest on the principal outstanding it is measured at (i) amortised cost if it is held within a business whose objective is to hold financial assets to collect the contractual cash flows, or (ii) fair value through other comprehensive income (FVTOCI) if it is held within a business whose objective is to hold financial assets to collect the contractual cash flows and to sell the financial assets, or (iii) fair value if the business models in (i) or (ii) do not apply. Where a financial asset’s contractual cash flow is not solely a return of principal and interest on the principal outstanding it is always measured at FVTPL. Separation of embedded derivatives in financial assets is not permitted.		* '''''Classification and measurement:''''' IFRS 9 applies a dual test, based on contractual cash flow characteristics and the entity’s business model, to determine the classification of financial assets. Where a financial asset’s contractual cash flows are solely a return of principal and interest on the principal outstanding it is measured at (i) amortised cost if it is held within a business whose objective is to hold financial assets to collect the contractual cash flows, or (ii) fair value through other comprehensive income (FVTOCI) if it is held within a business whose objective is to hold financial assets to collect the contractual cash flows and to sell the financial assets, or (iii) fair value if the business models in (i) or (ii) do not apply. Where a financial asset’s contractual cash flow is not solely a return of principal and interest on the principal outstanding it is always measured at FVTPL. Separation of embedded derivatives in financial assets is not permitted.
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	The IASB has decided to develop new requirements for macro hedging (hedging an open portfolio) outside the IFRS 9 project. The specific requirements for macro fair value hedges will remain in IAS 39 and entities can apply these in combination with the rest of IFRS 9. However, IFRS 9 also allows preparers a choice between continuing to apply the general hedge accounting requirements of IAS 39 and those of IFRS 9. This choice is expected to remain available until the completion of the macro hedging project.		The IASB has decided to develop new requirements for macro hedging (hedging an open portfolio) outside the IFRS 9 project. The specific requirements for macro fair value hedges will remain in IAS 39 and entities can apply these in combination with the rest of IFRS 9. However, IFRS 9 also allows preparers a choice between continuing to apply the general hedge accounting requirements of IAS 39 and those of IFRS 9. This choice is expected to remain available until the completion of the macro hedging project.

	==The present and the future==		==The present and the future==

imported>Doug Williamson: Update links to IFRS & IASB.

2017-08-22T05:18:56Z

Update links to IFRS & IASB.

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	==Introduction==		==Introduction==
	Given the growing importance of treasurers within the financial affairs of corporate entities it should come as no surprise that treasury professionals are increasingly impacted by changes in the world of financial reporting. The one predominant driver of change in this area over the past decade has come in the form of International Financial Reporting Standards (IFRS), as developed by the International Accounting Standards Board ~~[http://www.iasb.org (IASB)~~].		Given the growing importance of treasurers within the financial affairs of corporate entities it should come as no surprise that treasury professionals are increasingly impacted by changes in the world of financial reporting. The one predominant driver of change in this area over the past decade has come in the form of International Financial Reporting Standards [http://www.ifrs.org (IFRS)], as developed by the [[International Accounting Standards Board]].


	==IFRS and the IASB – some background==		==IFRS and the IASB – some background==

imported>Jeeten.patel@thinkpublishing.co.uk at 15:57, 19 October 2015

2015-10-19T15:57:39Z

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imported>Jeeten.patel@thinkpublishing.co.uk at 14:15, 19 October 2015

2015-10-19T14:15:43Z

imported>Doug Williamson: Protected "IFRS – issues for the treasurer" (‎[edit=sysop] (indefinite) ‎[move=sysop] (indefinite))

2015-07-27T13:01:24Z

Protected "IFRS – issues for the treasurer" (‎[edit=sysop] (indefinite) ‎[move=sysop] (indefinite))

← Older revision	Revision as of 13:01, 27 July 2015
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imported>Jeeten.patel@thinkpublishing.co.uk at 10:32, 24 November 2014

2014-11-24T10:32:26Z

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imported>Jeeten.patel@thinkpublishing.co.uk at 17:00, 1 November 2014

2014-11-01T17:00:07Z

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	\|header1 = ~~Authors~~		\|header1 = Author
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	\| label2 = Helen Shaw		\| label2 = Helen Shaw
	\| data2 = Senior Manager,		\| data2 = Senior Manager,
	UK IFRS Centre of Excellence, Deloitte		UK IFRS Centre of Excellence, [http://www.deloitte.com/ Deloitte]

	\|belowstyle = background:#ddf;		\|belowstyle = background:#ddf;

imported>Jeeten.patel@thinkpublishing.co.uk: Jeeten.patel@thinkpublishing.co.uk moved page IFRS – Issues For The Treasurer to IFRS – issues for the treasurer

2014-10-08T09:44:09Z

Jeeten.patel@thinkpublishing.co.uk moved page IFRS – Issues For The Treasurer to IFRS – issues for the treasurer

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	As part of the IFRS Foundation’s initiative to assess the progress towards global adoption of IFRS ~~130~~ jurisdiction profiles (including all G20 jurisdictions) have been published on the IFRS website. The eventual aim is to provide profiles for every jurisdiction that has either adopted or is on a programme to adopt IFRS in order to provide a central source of information on global adoption of IFRS.		As part of the IFRS Foundation’s initiative to assess the progress towards global adoption of IFRS 140 jurisdiction profiles (including all G20 jurisdictions) have been published on the IFRS website. The eventual aim is to provide profiles for every jurisdiction that has either adopted or is on a programme to adopt IFRS in order to provide a central source of information on global adoption of IFRS.


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	===IFRS 3 business combinations===		===IFRS 3 business combinations===
	Certain accounting assessments that may affect treasury arise on the date of a business combination where an acquirer obtains control of another business. Two assessments are of note. Firstly, in order to achieve hedge accounting in the consolidated group immediately following the business combination the consolidated group will need to put in place hedge accounting documentation, including hedge effectiveness testing. This may differ from the hedge documentation that the acquired business had put in place, if at all. As the date of designation in the consolidated financial statements is likely to differ from the date of designation in the financial statements of the acquired business this can lead to difficulties in achieving hedge accounting for cash ~~flows~~ hedges because the fair value of certain derivatives may be considered off-market at the date of acquisition. Secondly, the consolidated financial statements will need to assess the existence and potential separation of embedded derivatives on the date of the business combination.		Certain accounting assessments that may affect treasury arise on the date of a business combination where an acquirer obtains control of another business. Two assessments are of note. Firstly, in order to achieve hedge accounting in the consolidated group immediately following the business combination the consolidated group will need to put in place hedge accounting documentation, including hedge effectiveness testing. This may differ from the hedge documentation that the acquired business had put in place, if at all. As the date of designation in the consolidated financial statements is likely to differ from the date of designation in the financial statements of the acquired business this can lead to difficulties in achieving hedge accounting for cash flow hedges because the fair value of certain derivatives may be considered off-market at the date of acquisition. Secondly, the consolidated financial statements will need to assess the existence and potential separation of embedded derivatives on the date of the business combination.

	===IFRS 7 financial instruments: disclosure===		===IFRS 7 financial instruments: disclosure===
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	Following the move to increasing use of central clearing counterparties, IFRS 7 was amended in 2011 to require further disclosures about financial assets and financial liabilities that are offset in the statement of financial position or are subject to enforceable master netting arrangements (eg derivatives instruments transacted under an ISDA agreement). The purpose of the new disclosure requirements are to enable users of ~~its~~ financial statements to evaluate the effect or potential effect of netting arrangements on the entity’s financial position (not limited solely to central clearing counterparties). The disclosures also allow better comparison of the financial position of entities that report under IFRS and those that apply US GAAP where the requirements for offset are different.		Following the move to increasing use of central clearing counterparties, IFRS 7 was amended in 2011 to require further disclosures about financial assets and financial liabilities that are offset in the statement of financial position or are subject to enforceable master netting arrangements (eg derivatives instruments transacted under an ISDA agreement). The purpose of the new disclosure requirements are to enable users of financial statements to evaluate the effect or potential effect of netting arrangements on the entity’s financial position (not limited solely to central clearing counterparties). The disclosures also allow better comparison of the financial position of entities that report under IFRS and those that apply US GAAP where the requirements for offset are different.
			For companies applying the new financial instrument standard, IFRS 9, a number of additional disclosure requirements apply in respect of hedge accounting and impairment. These disclosures are extensive and will require a significant amount of new information and data to be collected and presented to comply with the requirements. For those companies transitioning to the new standard, this will require careful planning.

	===IFRS 10 consolidated financial statements~~, IFRS 11~~===		===IFRS 10 consolidated financial statements===
	These standards are relevant to treasurers since they determine how the results and position of subsidiaries, associates and joint ventures are reported in the consolidated financial statements. This has implications in several key areas, such as the extent to which the balances of subsidiaries, associates or joint arrangements contribute to the group’s reported net debt and cash flows. When treasurers are involved in M&A activities it is important that they are conversant with the manner in which a potential target company will be reported in the event that a bid is successful.		These standards are relevant to treasurers since they determine how the results and position of subsidiaries, associates and joint ventures are reported in the consolidated financial statements. This has implications in several key areas, such as the extent to which the balances of subsidiaries, associates or joint arrangements contribute to the group’s reported net debt and cash flows. When treasurers are involved in M&A activities it is important that they are conversant with the manner in which a potential target company will be reported in the event that a bid is successful.

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	IFRS 13 requires all ~~financial~~ assets and ~~financial~~ liabilities measured at fair value to be categorised into one of three levels of a fair value hierarchy based on the significance of inputs used in making the measurements. Corporate treasurers are likely to be closely involved in categorising instruments into level 1 (quoted prices, unadjusted in active markets for identical instrument), level 2 (inputs other than quoted prices included in level 1 that are observable) or level 3 (inputs for the instrument that are not based on observable market data). In addition, for entities with ~~financial~~ assets or ~~financial~~ liabilities falling into level 3, a reconciliation of movements between the opening and closing balance sheet position is necessary.		IFRS 13 also contains fair value disclosure requirements describing valuation techniques and inputs used to determine fair values. In particular, it requires all assets and liabilities measured at fair value to be categorised into one of three levels of a fair value hierarchy based on the observability and significance of inputs used in making the measurements. Corporate treasurers are likely to be closely involved in categorising instruments into level 1 (quoted prices, unadjusted in active markets for identical instrument), level 2 (inputs other than quoted prices included in level 1 that are observable) or level 3 (inputs for the instrument that are not based on observable market data). In addition, for entities with assets or liabilities falling into level 3, a reconciliation of movements between the opening and closing balance sheet position is necessary.

	===IAS 7 cash flow statements===		===IAS 7 cash flow statements===
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	All leases other than finance leases are operating leases for which the rental payments are expensed on a straight-line basis over the lease term (unless another systematic basis is more representative of the time pattern of the lessee’s benefit).		All leases other than finance leases are operating leases for which the rental payments are expensed on a straight-line basis over the lease term (unless another systematic basis is more representative of the time pattern of the lessee’s benefit).
	Despite the fact that operating leases are not recorded on the balance sheet, a company’s total future commitment under operating lease agreements is required to be disclosed in the financial statements and may be considered by analysts and credit rating agencies when assessing the company’s debt. It is therefore necessary for a treasurer to understand the figures disclosed in respect of operating lease commitments. The IASB issued an exposure draft on leasing in August 2010 where it proposed recognising all leases, including operating leases, as right to use assets and liabilities on the balance sheet. In May 2013 they issued a second exposure draft responding to issues highlighted through the consultation process. The comment closed in September 2013 ~~and~~ redeliberations are currently ongoing.		Despite the fact that operating leases are not recorded on the balance sheet, a company’s total future commitment under operating lease agreements is required to be disclosed in the financial statements and may be considered by analysts and credit rating agencies when assessing the company’s debt. It is therefore necessary for a treasurer to understand the figures disclosed in respect of operating lease commitments.

			The IASB issued an exposure draft on leasing in August 2010 where it proposed recognising all leases, including operating leases, as right to use assets and liabilities on the balance sheet. In May 2013 they issued a second exposure draft responding to issues highlighted through the consultation process. The comment closed in September 2013, redeliberations are currently ongoing and a revised standard is due before the end of 2015.

	===IAS 19 employee benefits===		===IAS 19 employee benefits===
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	Whether settlement of the receivable or payable with the foreign operation is planned or likely to occur in the foreseeable future is important in determining whether the foreign currency risk on the receivable or payable is recognised in consolidated equity. This may cause difficulties for groups which operate centralised treasury operations and which require subsidiaries to deposit surplus cash with, or borrow from, the centre. Such funding balances may not qualify ~~in their entirety~~ due to the foreign operation’s cash requirements fluctuating as a result of the working capital cycle of the business. In such a case (which is a common funding strategy for many groups) it may be necessary for ~~some~~ exchange differences to be recognised in the group income statement. The ACT has been active in lobbying the IASB in order to ensure it addresses situations such as this, in which the application of accounting rules to normal treasury practice generates significant income statement volatility.		Whether settlement of the receivable or payable with the foreign operation is planned or likely to occur in the foreseeable future is important in determining whether the foreign currency risk on the receivable or payable is recognised in consolidated equity. This may cause difficulties for groups which operate centralised treasury operations and which require subsidiaries to deposit surplus cash with, or borrow from, the centre. Such funding balances may not qualify for retranslating via equity due to the foreign operation’s cash requirements fluctuating as a result of the working capital cycle of the business. In such a case (which is a common funding strategy for many groups) it may be necessary for exchange differences to be recognised in the group income statement.

	===IAS 32 financial instruments: presentation===		===IAS 32 financial instruments: presentation===