International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Read online

  International

  GAAP®2019

  Generally Accepted Accounting Practice

  under International Financial Reporting Standards

  Jeremy Barnes

  Alan Garry

  Richard Moore

  Martin Beyersdorff Archie Groenewald Tina Patel

  Mike Bonham

  Prahalad Halgeri

  Michael Pratt

  Linzi Carr

  Jane Hurworth

  Tim Rogerson

  Rob Carrington

  Ted Jones

  Vadim Shelaginov

  Victor Chan

  Bernd Kremp

  Anna Sirocka

  Wei Li Chan

  Sanjeev Kumar

  David Stolker

  Larissa Connor

  Max Lienhard

  Claire Taylor

  Pieter Dekker

  Dean Lockhart

  Michael Varila

  Tim Denton

  Sharon MacIntyre

  Tracey Waring

  Dennis Deysel

  Takahiro Makino

  Jane Watson

  Dennis Esterhuizen Amanda Marrion

  Diego Fernandez

  Emily Moll

  This edition first published in 2019 by John Wiley & Sons Ltd.

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  About this book

  The 2019 edition of International GAAP® has been fully revised and updated in order to:

  • Continue to investigate the implementation issues arising as entities adopt IFRS 9

  (Financial Instruments) and IFRS 15 (Revenue from Contracts with Customers).

  • Explore the complex implementation issues arising as entities adopt, in 2019,

  IFRS 16 (Leases).

  • Include an updated chapter on the new insurance contracts standard IFRS 17

  (Insurance Contracts), which reflects the recent discussions of the IASB’s

  Transition Resource Group on implementation issues raised, proposed narrow-

  scope amendments to IFRS 17 intended by the IASB, and also explores other

  matters arising as users prepare for the adoption of this standard.

  • Include an amended chapter on the revised Conceptual Framework, which was

  published in March 2018. The changes to the Conceptual Framework may affect

  the application of IFRS in situations where no standard applies to a particular

  transaction or event.

  • Address amended standards and new interpretations issued since the preparation

  of the 2018 edition.

  • Explain the many other initiatives that are currently being discussed by the IASB and

  by the IFRS Interpretations Committee and the potential consequential changes to

  accounting requirements.

  • Provide insight on the many issues relating to the practical application of IFRS, based

  on the extensive experience of the book’s authors in dealing with current issues.

  The book is published in three volumes. The 52 chapters – listed on pages ix to xi – are

  split between the three volumes as follows:

  • Volume 1 - Chapters 1 to 23,

  • Volume 2 - Chapters 24 to 39,

  • Volume 3 - Chapters 40 to 52.

  Each chapter includes a detailed list of contents and list of illustrative examples.

  Each of the three volumes contains the following indexes covering all three volumes:

  • an index of extracts from financial statements,

  • an index of references to standards and interpretations,

  • a general index.

  v


  Preface

  The IASB reported earlier this year that 144 of the 166 jurisdictions they have

  researched require the use of IFRS for all or most domestic publicly accountable entities

  (listed companies and financial institutions) in their capital markets, and a further 12

  jurisdictions permit the use of IFRS. Several large economies like China, India and Japan

  do not require IFRS for all or most of their listed companies, but they have made

  considerable progress to move towards or to converge with IFRS. The United States is

  the only major economy that is unlikely to adopt IFRS in the near term.

  While there is a strong rationale for global accounting standards, there are a number of

  concerns that are commonly raised around IFRS: (1) a jurisdiction would need to give

  up sovereignty in accounting standard setting, (2) the IASB has an unusual structure, as

  it is a private sector body that acts in the public interest and (3) that standardisation may

  require departure from traditional practices. Maintaining the current degree of

  international convergence of accounting standards requires an ongoing commitment on

  the part of all jurisdictions involved.

  Some of the more vocal criticism of IFRS often comes from within the EU, with some

  proposing that the EU should either adopt IFRS on a more selective basis, or even take

  primary responsibility for setting accounting standards. In our view, either approach would

  represent a regrettable and retrograde step, and would be significantly damaging to the

  credibility of IFRS and the quest for a global accounting framework more generally. Allowing

  IFRS to devolve into local flavours, in the hope of broader acceptance, would reduce the

  existing benefits in terms of cost, quality and clarity of international financial reporting in

  exchange for an uncertain future without a clear mechanism for longer-term convergence.

  In March 2018, the IASB completed its revised Conceptual Framework for Financial

  Reporting in which the Board was looking to underpin high-level concepts with

  sufficient detail for it to set standards and to help others to better understand and

  interpret the standards. While the completion of the new Conceptual Framework is an

  important milestone for the IASB, it will generally not result in changes for the preparers

  of financial statements as it only affects the application of IFRS in situations where no

  standard applies to a particular transaction or event.

  More important 2018 sees the first-time application of IFRS 9 – Financial Instruments

  – and IFRS 15 – Revenue from Contracts with Customers – both of which have

  required significant time and effort on the part of constituents. Although these standards

  improve the quality of financial reporting, their requirements are at times complex and

  the Interpretations Committee has discussed a number of implementation issues over

  the past year. While it is too early to conclude on the overall impact of these new

  vi Preface

  standards, it is clear that the impact is quite significant in individual cases and that the

  new disclosures provide considerably more detailed information.

  Similarly, the implementation of IFRS 16 – Leases (effective from 1 January 2019

  onwards) and its interactions with other standards has given rise to challenging

  implementation questions. The Interpretations Committee has discussed the interaction

  with IAS 12 – Income Taxes and IFRS 11 – Joint Arrangements – and practitioners are

  considering how the recognition of right-of-use assets and lease liabilities affects the

  application of IAS 36 – Impairment of Assets – and IAS 37 – Provisions, Contingent

  Liabilities and Contingent Assets.

  IFRS 17 – Insurance Contracts – was published in June 2017, but only comes into effect

  in 2021. The standard has already been endorsed in a number of important jurisdictions,

  others are still considering the impact that the standard will have on the insurance

  industry. The IASB has devoted additional resources in support of insurance companies

  facing significant implementation challenges. The IFRS 17 Transition Resource Group

  (TRG) has met three times to discuss implementation issues. Hans Hoogervorst, the

  IASB’s chairman, noted at a conference in June 2018 that ‘[t]he discussions are also

  useful for us at the IASB to see if any action is needed to assist with education, to address

  unforeseen issues of inconsistencies, lack of clarity or unforeseen complexities when

  implementing the new Standard. The experience with the previous Revenue

  Recognition TRG has made clear that sometimes it can be necessary for the IASB to

  consider amendments to address questions and indeed we have considered some for

  IFRS 17 last week.’ At the time of writing, the IASB is expected to have a discussion at

  its October 2018 meeting not just about the issues brought forward by the TRG but also

  other requests by participants that may result in future amendments to IFRS 17.

  The IASB is continuing to work on the projects in its work plan for the period from 2017

  until 2021, which can be divided into three elements: the Better Communication in

  Financial Reporting initiative, the research projects, and the standard-setting and

  maintenance projects. Constituents will welcome the fact that the IASB’s standard-

  setting and maintenance agenda is, for the first time, not dominated by the development

  of a series of ambitious and major new standards, but rather focusses on narrow scope

  projects that address certain aspects of existing standards.

  The IASB made progress in 2018 on its Better Communication in Financial Reporting

  initiative and published a practice statement on materiality and a discussion paper on

  the wider principles of disclosure. In addition, the Board continues to work on other

  aspects of the initiative, such as the presentation of financial statements, management

  commentary and the taxonomy. Hans Hoogervorst acknowledged in a speech this year

  ‘…there is a lot going on in the world of wider corporate reporting. There is increasing

  interest in trends like sustainability reporting, integrated reporting and reporting for

  public policy interests. … there is a lot of broader financial information that is not

  adequately captured in financial statements: intangibles, business model, economic

  environment and increasingly sustainability issues (climate change).’ The IASB believes

  that the natural place to consider these developments is in the context of its project on

  updating the guidance on the management commentary section. Although the IASB has

  Preface

  vii

  limited resources, we believe it should take an active role when it comes to the efforts

  to improve the ‘broader financial report’.

  As part of its active research agenda, the IASB published a discussion paper on financial

  instruments with characteristics of equity. The discussion paper looks at ways to help

  entities determine whether instruments are liabilities or equity by providing a clear

  rationale for this distinction, while also providing investors with better information

  about them. The IASB discussion papers on business combinations under common

  control, dynamic risk management, and rate-regulated activities are now no longer

  expected in 2018. We encourage the IASB to continue
its work on these technically

  complex but important projects as they deal with issues that have been the source of

  many accounting questions. In particular, any improvements and simplifications that

  may follow from the project on goodwill and impairment would be welcomed by

  preparers, users and auditors alike.

  This edition of International GAAP covers the many interpretations, practices and solutions

  that have now been developed based on our work with clients, and discussions with

  regulators, standard-setters and other professionals. We believe that International GAAP,

  now in its fourteenth edition, plays an important role in helping companies as they apply

  IFRS 9, IFRS 15 and IFRS 16 for the first time. Each of these standards introduces changes

  that have given rise to implementation challenges and questions about the recognition,

  measurement, presentation and disclosure requirements.

  Our team of authors and reviewers hails from all parts of the world and includes not

  only our global technical experts but also senior client-facing staff. This gives us an in-

  depth knowledge of practice in many different countries and industry sectors, enabling

  us to go beyond mere recitation of the requirements of standards to explaining their

  application in many varied situations.

  We are deeply indebted to many of our colleagues within the global organisation of EY

  for their selfless assistance and support in the publication of this book. It has been a

  truly international effort, with valuable contributions from EY people around the globe.

  Our thanks go particularly to those who reviewed, edited and assisted in the preparation

  of drafts, most notably: Elisa Alfieri, John Alton, Danielle Austin, Paul Beswick, Silke

  Blaschke, Brian Byrne, Wan Yi Cao, Larissa Clark, Tony Clifford, Angela Covic, Tai

  Danmola, Laney Doyle, Josh Forgione, Tommy Fung, Peter Gittens, Laure Guégan, Paul

  Hebditch, Jason Janoff, Junyoung Jeong, Guy Jones, Steinar Kvifte, Vincent de La

  Bachelerie, Twan van Limpt, Michiel van der Lof, James Luke, Mark Mahar, Hassam

  Malik, John O’Grady, Margaret Pankhurst, Christiana Panayidou, Pierre Phan van phi,

  Gerard van Santen, Nicola Sawaki, Alison Spivey, Leo van der Tas, Paula Tashima,