Looking forward - IFRS Standards and interpretations effective for 2021

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Looking forward - IFRS Standards & interpretations

At the beginning of each year I try to take some time to gather my thoughts and plan for the year ahead. One of the areas I always look at and I’m sure many preparers do too is to look at what accounting standards will need to be applied in the current year.

The IFRS standards also require you to provide details of the standards and interpretations that have been issued but are not yet effective, so while you are looking at the standard you might as well get a feel for what you’re going to be disclosing there too… it also helps in deciding if you’re going to early adopt any of these.

To make your lives a little easier this year, we have done the research for you.

Standards and interpretations effective for current year

What is important to remember in disclosing the application of a new standard and interpretation, or amendment thereof, is that the disclosures required are guided by paragraph 28 of International Accounting Standard 8 Accounting Policies, Changes in Accounting Estimates and Errors (IAS 8). This paragraph requires disclosures where the initial application of an IFRS had an effect on the current or prior periods presented or might have an effect on future periods. This means that if there is no effect or expected effect, the disclosures should not be made. Very often I see pages and pages of detail included for the application of a standard, this is also not required, the readers of the financial statements don’t need or want a whole history of the standard. We recommend that the details be provided as required, including the name of the standard, the explanation of the change in the accounting policy, if applicable, and a description of any applicable transitional provisions and practical expedients applied, after that the number impacts must be disclosed.

High level details of the standards and interpretations issued and effective for the current year (years beginning on or after 1 January 2020), as well as those effective immediately, are included in the table below.

Standard

Details of Standard or amendment

Annual periods beginning on or after#

The Conceptual Framework for Financial Reporting 1

 

The revised Conceptual Framework is not a standard, and none of the concepts override those in any standard or any requirements in a standard.

The purpose of the Conceptual Framework is to:

  • assist the Board in developing standards,
  • help preparers develop consistent accounting policies if there is no applicable standard in place and
  • Assist all parties to understand and interpret the standards

1 January 2020

1 The changes to the Conceptual Framework may affect the application of IFRS in situations where no standard applies to a particular transaction or event, otherwise it is not expected to impact preparers.

Standard

Details of Standard or amendment

Annual periods beginning on or after#

IFRS 3 Business Combinations

 

 

Amendments: Definition of a Business

Appendix A, Appendix B and Illustrative Examples:

  • Clarifies that a minimum requirement for a business includes inputs and a substantive process that together significantly contribute to create outputs
  • Narrows the definition of a business and outputs by placing emphasis on goods and services provided to customers and de-emphasising the ability to reduce costs
  • Adds an optional concentration test that permits a simplified assessment of whether an asset or a group of similar assets is not a business

 

1 January 2020 (Applicable for business combinations and asset acquisitions with acquisition dates on or after the first annual reporting period beginning on or after this date.)

 

Interest Rate Benchmark reform – Phase 1 – Amendments to IFRS 9, IAS 39 and IFRS 7

Amendments: provide relief from the potential effects on hedge accounting due to the uncertainties caused by interest rate benchmark reform (the phasing out of interest-rate benchmarks such as the interbank offered rates (IBOR)).

Amendments include exceptions to be applied to all hedging relationships that are directly affected by the interest rate benchmark reform.

The amendments:

  • Modify some specific hedge accounting requirements;
  • Require companies to provide additional information about hedging relationships directly affected by the uncertainties.

1 January 2020, (Previously de-designated hedging relationships cannot be reinstated, and hedge relationships cannot be designated using hindsight.)

IFRS 16 Leases

Amendment (lessee only) IFRS 16 and Covid-19: to make it easier to account for Covid-19-related rent concessions e.g. rent holidays and temporary rent reductions.

  • exempts lessees from having to consider individual lease contracts to determine whether rent concessions occurring as a direct consequence of the Covid-19 pandemic are lease modifications;
  • allows lessees to account for such rent concessions as if they were not lease modifications;
  • Applies to Covid-19-related rent concessions that reduce lease payments due on or before 30 June 2021.

The amendment does not affect lessors.

1 June 2020

(can be applied immediately in financial statements - interim or annual - not yet authorised for issue)

 

 

Amendment to Illustrative Example 132: Lease incentives

  • Removes the lessor’s reimbursement of leasehold improvements from the example to resolve any potential confusion regarding the treatment of lease incentives.

No effective date as it is an illustrative example

IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors

 

Disclosure Initiative relating to the Definition of Material that:

  • Clarifies that materiality will depend on the nature and/or magnitude of information individually or in combination in the context of the financial statements. 
  • Explains how ‘obscured’ information is similar to omitting or misstatement.
  • Replaces the threshold of ‘could influence’ with ‘could reasonably be expected to influence’ in the definition of ‘material’.  The materiality assessment only considers reasonably expected influence on economic decisions of primary users.

1 January 2020

Standards and interpretations issued and not yet effective

Paragraph 30 of IAS 8 requires preparers to disclose information about new IFRSs that are issued and not yet effective, detailing this fact, together with information that explains the expected impact that future application. Once again, if the amendment is not relevant to the entity, for example an entity does not have agriculture and would therefore not expect an amendment to IAS 41 to impact it, then the details of this amendment would not be included in the financial statements.

As mentioned above, the full details and history of the new IFRS is not required, paragraph 31 of IAS 8 requires disclosure of the title of the new IFRS, the nature of expected changes to the accounting policies, the date that the application is required and is expected to apply together with a discussion on the expected impact thereof.

Below is a high-level summary of the IFRSs issued but not effective before 31 December 2021.

Standard

Details of Standard or amendment

Annual periods beginning on or after#

IFRS 1 First-time Adoption of International Financial Reporting Standards

Amendment: Subsidiary as a first-time adopter 3

  • a subsidiary is permitted to measure cumulative translation differences at transition date using the amounts reported by its parent, based on the parent’s transition date.

1 January 2022

2 Annual Improvements to IFRS Standards 2018 - 2020

3 Annual Improvements to IFRS Standards 2018 - 2020

Standard

Details of Standard or amendment

Annual periods beginning on or after#

IFRS 3 Business Combinations

 

Amendment: Reference to the Conceptual Framework:

  • update to refer to the 2018 Conceptual Framework;
  • adds a requirement that transactions and other events within the scope of IAS 37 or IFRIC 21 must be accounted for per IAS 37 and IFRIC 21 to identify the liabilities assumed in a business combination; and
  • adds an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination.

1 January 2022

Interest Rate Benchmark reform – Phase 2 – Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16

Amendments provide temporary relief to address financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR) (‘IBOR reform’) including:

  • Contractual and cash flow changes to be treated as changes due to a floating rate of interest.
  • Changes to hedge designations and documentation - do not result in the discontinuation of the hedge relationship.
  • The ‘separately identifiable’ requirement - not required when a RFR instrument is designated as a hedge of a risk component.
  • Additional disclosures required.

1 January 2021

(Restatement of prior periods not required & only permitted if possible without the use of hindsight)

 

IFRS 9 Financial Instruments

Amendment: Fees in the ‘10 per cent’ test for derecognition of financial liabilities 4

  • Clarifies which fees must be applied in the application of the ‘10 per cent’ test when assessing whether to derecognise a financial liability. Only include fees paid or received between the borrower and the lender, including those paid or received on the other’s behalf.

1 January 2022

IFRS 17 Insurance Contracts and Amendments

New standard establishing the principles for the recognition, measurement, presentation and disclosure of insurance contracts. The single accounting model makes use of current estimates.

The amendments are aimed at helping companies implement the Standard and making it easier to explain their financial performance, are designed to:

  • reduce costs by simplifying some requirements;
  • make financial performance easier to explain; and
  • ease transition by deferring the effective date to 2023 and by providing additional relief to reduce the effort required when applying IFRS 17 for the first time.

1 January 2023

(earlier application is permitted if IFRS 9 and IFRS 15 have been applied)

4 Annual Improvements to IFRS Standards 2018 - 2020

Standard

Details of Standard or amendment

Annual periods beginning on or after#

IAS 1 Presentation of Financial Statements

Amendment: Classification of Liabilities as Current or Non-current:

  • Classification to be based on whether the right to defer settlement by at least twelve months exists at the end of the reporting period.
  • Classification is unaffected by expectation of settlement.
  • Settlement refers to transfer of cash equity instruments, other assets or services.
  • That only if an embedded derivative in a convertible liability is itself an equity instrument would the terms of a liability not impact its classification.

1 January 2023

IAS 16 Property, Plant and Equipment

Amendment: Proceeds Before Intended Use

  • Prohibits the deduction of proceeds from selling items produced while brings an asset into use from the cost of that asset. The entity must recognise the proceeds from sale, and the cost of producing those items, in profit or loss.

1 January 2022 (retrospectively applied only to items of PPE that are bought in the location and condition necessary to operate as intended by management on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments)

IAS 37 Provisions, Contingent Liabilities and Contingent Assets

Amendment: Onerous Contracts — Cost of Fulfilling a Contract

  • Specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).

1 January 2022

Standard

Details of Standard or amendment

Annual periods beginning on or after#

IAS 41 Agriculture

Clarification: Taxation in Fair Value Measurements 5

  • Requirement to exclude taxation cash flows when determining fair value of a biological asset through a present value technique removed ensuring consistency with IFRS 13.

1 January 2022

Standards and Interpretations, as well as the amendments thereto, are effective retrospectively, with early application permitted, for annual periods beginning from this date unless otherwise indicated.

Another change that will impact companies listed on the JSE is the CEO and FD responsibility statement which became effective for issuers with years ending on or after 31 December 2020. This has not been detailed in here but has been detailed in other articles.

It is important to stay on track with what is new and what is coming, the IFRSs not yet effective must be presented as at the date that the financial statements are released, so this is only applicable until the International Accounting Standards Board releases a new standard, interpretation or amendment thereto. Make sure you follow the changes throughout the year.

5 Annual Improvements to IFRS Standards 2018 - 2020

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