This document provides an agenda and summary of recent and upcoming changes to International Financial Reporting Standards (IFRS). Key points include: - Revisions to IAS 23 on capitalization of borrowing costs and IAS 1 on financial statement presentation requirements. - A new standard, IFRS 3 on business combinations, will be effective in July 2009. - New and revised interpretations include IFRIC 13 on customer loyalty programs and IFRIC 14 on defined benefit assets. - Proposed improvements to various IFRS standards to clarify guidance and make minor amendments. - Upcoming changes include a new standard for insurance contracts and expanded disclosure requirements in IFRS 7 on financial instruments.

1. Moore Stephens Europe Limited
January 2008
David Chopping

2. Agenda
• IAS 23 – Borrowing Costs
• IAS 1 – Presentation of Financial Statements
• IFRS 3 – Business Combinations
• IFRICS
• Proposals
• IFRS 7

3. IAS 23 - Borrowing Costs
• IAS 23 revised
– Mandatory capitalisation of borrowing costs, unless:
• Assets measured at fair value; or
• Inventories for mass production
– Effective 1 January 2009
– Transitional provisions
– Early adoption allowed

4. IAS 1
• Revised rules effective 1 January 2009
• Transactions
– Statement of changes in equity shows only transactions with
owners in that capacity
– Other changes in equity in:
• Income statement and statement of comprehensive income; or
• Combined statement of comprehensive income.
– Tax to be shown separately on all items in statement of
comprehensive income
– Reclassification adjustments (ie recycling) to be shown

5. IAS 1
• Balance sheet → Statement of financial position
• Two balance sheets usually required, but three if:
– Accounting policy changed retrospectively
– Retrospective restatement
– Reclassification of item in the financial statements
• Cash flow statement → Statement of cash flows
• Dividends prohibited from being in statement of
comprehensive income

6. IFRS 3 – Business Combinations
• Published 10 January 2008
• Effective date – 1 July 2009

7. IFRIC 13
• Customer Loyalty Programmes
• Question: Whether, in respect of a sale covered by
such a programme, providers should:
– accrue for the expected costs; or
– defer part of the consideration received; or
– do either, depending on the nature of the scheme
• Option two
• Effective 1 July 2008

8. IFRIC 14
• Defined Benefit Assets and MFRs
• Three issues
– When refunds or reductions in future contributions are
available;
– How an MFR might affect this;
– When an MFR creates a liability
• Effective 1 January 2008

9. IFRIC 14
• Refunds available if has an unconditional right, even if
arises only in the future
• Limited if dependent on uncertain events outside
entity’s control (and actuarial assumptions)
• Reductions available are the lower of:
– Surplus in plan; and
– Present value of the future service cost over the shorter of the
life of the plan and the life of the entity
• Can combine both

10. IFRIC 14
• MFR to be split between
– Existing shortfall (usually ignored); and
– Future accrual of benefits
• Where there is an MFR, reductions available are the
present value of:
– The estimated future service cost (as previously); less
– Estimated MFR contribution required in respect of accrual of
benefits for each year

11. IFRIC 14
• An obligation to make contributions to cover an
existing shortfall creates a liability if the amounts are
not available through reduced contributions or refund

12. IFRS 1 & IAS 27 – Transition & Cost
• Proposal
– Allow deemed cost for subsidiaries
• Fair value; or
• Previous GAAP value
– Allow deemed cost for associates and joint ventures
– Require dividends from subsidiaries, associates and joint
ventures to be treated as income, with a required impairment
test
– Prospective application

13. IAS 24 – Related Parties
• Proposals
– Reduce disclosure for transactions between state-controlled or
influenced entities

14. IAS 39 – Hedge Accounting
• Proposed clarification
• Designation of financial items as hedged items
– All risks
– Interest rate risk
– Foreign currency risk
– Credit risk
– Prepayment risk
– Contractually specified cash flow (eg inflation index payments)

15. IAS 39 - Hedge Accounting
• Hedge of part of cash flows
– Part of time period
– Percentage of total cash flows
– Cash flows connected with a one-sided risk (eg foreign
exchange above/below specified rate)
– Specific contractually specified cash flows
– Risk free element of cash flows
– Portion tied to a fixed inter-bank rate

16. IFRS Improvements
• Annual project
• Results from complaints about technical correction
process
• Short consultation period
• 2007 version proposes changes to 25 standards
• Coming into force 1 January 2009
• Not all proposals (or even standards) covered in slides

17. IFRS Improvements
• IFRS 1 – Restructuring of guidance, but no
substantive changes
• IFRS 5 – Clarification on subsidiaries which are
covered by a plan of sale, even if the company
proposes to maintain a non-controlling interest
• IAS 1
– Where an entity makes reference to, but does not full comply
with, IFRS then require a description of how IFRS compliance
would have differed had it complied with IFRS
– Long-term liability if can defer cash or transfer of assets for
twelve months, even if may have to convert into equity

18. IFRS Improvements
• IAS 8 – Clarify the distinction between application
guidance and implementation guidance
• IAS 16 – Clarify that assets used for rental, but
routinely sold at a later stage, are reclassified as
inventory prior to sale
• IAS 17
– Require contingent rent to be treated as incurred
– Make classification of land and buildings consistent with all
other lease classifications

19. IFRS Improvements
• IAS 19
– Treat curtailment of extant benefits as negative past service
cost
– Replace references to amounts falling due with references to
employees becoming entitled for determining current and non-
current amounts
– Remove requirement to recognise contingent liabilities, as
inconsistent with IAS 37
• IAS 20 – Clarify that government loans with below
market interest rates are governed by IAS 39

20. IFRS Improvements
• IAS 28 – Clarifying that reversal of impairment is
allowed even where amounts are (notionally)
attributable to goodwill
• IAS 36 – Make the disclosures consistent between the
valuation approaches (VIU and FV) if similar
methodologies applied
• IAS 38
– Clarify that expenditure on items that will not give rise to
assets can still be assets if service not yet received
– Clarify that unit of production amortisation can be used even if
less prudent than straight line

21. IFRS Improvements
• IAS 39
– Include as derivatives contracts related to non-financial
variables specific to a party to the contract
– Clarify held for trading, so that if part of a portfolio then
depends on status at initial recognition
– Clarify that becoming or ceasing to be a hedging instrument is
not a reclassification
– Prepayment options which compensate for lost interest are
deemed to be closely related to the host contract

22. IFRS Improvements
• IAS 40 - Property acquired for the purposes of
development as an investment property is to be within
the scope of IAS 40
• IAS 41
– Allow a pre and post tax discount rate (currently pre tax only)
– Allow account to be taken of additional biological
transformation to be included in cash flows

23. IAS 31 - Joint Arrangements
• IASB proposals
– Require accounting under contractual rights
– Abolish proportionate consolidation
– Require equity accounting
– Extend disclosures, and align with associates

24. IFRS 2 - Groups
• Clarification of IFRS 2
• Extends scope to cover arrangements where:
– suppliers receive cash payments linked to the price of the equity
instruments of the entity; or
– suppliers receive cash payments linked to the price of the equity
instruments of the parent of the entity
• Under either arrangement, the parent of the entity has an
obligation to make the required cash payments to the suppliers
of the entity
• The entity itself does not have any obligation to make such
payments to its suppliers or provide them with equity instruments

25. Other Issues
• Fair value proposals (D)
• Framework (D)
• Real estate sales (DI)
• Hedges of a net investment (DI)

26. Insurance Contracts
• Exit value approach proposed
• Exposure draft 2008
• Standard 2010

27. IFRS 7
• Classification
• Divide between
– Assets at fair value through profit or loss
– Held to maturity
– Loans and receivables
– Available for sale
– Liabilities at fair value through profit or loss
– Liabilities at amortised cost
• Give details of reclassifications

28. IFRS 7
• If there are liabilities at fair value, then:
– Changes in value not due to movements in interest rates
– Difference between carrying amount and contractual amount
at maturity

29. IFRS 7
• Details of allowance accounts for credit losses
• Details of defaults and breaches in the year, unless
remedied by the balance sheet date

30. IFRS 7
• Details of net gains or losses on:
– Items at fair value through profit or loss
– Available for sale assets
– Held to maturity investments
– Loans and receivables
– Financial liabilities at amortised cost
• Details of fee income and expense on financial assets
and liabilities, if not included in determining the
effective interest rate
• Details of interest income on impaired assets

31. IFRS 7
• Impairment
– Details of impairment losses by class of asset

32. IFRS 7
• Accounting policies
– Criteria for at fair value through profit or loss
– Criteria for available for sale
– Criteria for allowance accounts and write offs
– Criteria for impairment

33. IFRS 7
• Qualitative risk disclosures
– Details of exposures and how arose
– Objectives, policies and procedures for managing risk
– Methods used to measure risk
– Changes in any of these from the previous period
• Details of concentrations of risk

34. IFRS 7
• Credit risk
– Maximum exposure, ignoring collateral
– Description of collateral, with fair values if practicable
– Information on credit quality of financial assets with credit risks
that are neither impaired nor past due
– Details of items that are impaired or past due
– Details of collateral acquired during the period
• Liquidity risk
– Maturity analysis of liabilities
– Description of how liquidity risk is managed

35. IFRS 7
• Market risk
– Sensitivity analysis, showing the effect of changes in the
relevant variable
– Methods and assumptions used in preparing the sensitivity
analysis
– Changes in the methods and assumptions since the previous
periods

36. IAS 1 - Capital
• Capital
– Qualitative information about objectives, policies and
processes for managing capital
– Summary quantitative data about capital
– Changes from the previous period
– Whether the company complied with external requirements
– Details of implications of any non-compliance with external
requirements

37. Moore Stephens Europe Limited
January 2008
David Chopping