A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2016. The most important ones are listed below.
Changes effective in the European Union
The amendments to IAS 1 Disclosure Initiative represent a first step in the broader ‘disclosure initiative’ of the International Accounting Standards Board (IASB) which will include other short-term and medium-term projects. They were primarily made to address the concerns about ‘disclosure overload’ and immaterial information being disclosed and to provide more company-specific, relevant information. Key amendments include putting emphasis on materiality when disclosing information, removing the prescribed order of notes to the financial statements, clarifying aggregation and disaggregation and adding additional requirements for presenting subtotals, including reconciliation.
The amendments to IAS 27 Equity Method in Separate Financial Statements allow an entity to use the equity method to account for investments in subsidiaries, associates and joint ventures in its separate financial statements. The amendments might impact the dividends if they are based on separate financial statements and the entity changes its accounting policy.
The changes in IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation are related to acceptable methods of depreciation and amortization. They were made in order to provide clearer guidance that revenue-based amortisation is permitted for intangible assets under IAS 38 only when revenue is ‘highly correlated’ with consumption of economic benefits embodied in the asset or intangible right is expressed as a measure of revenue. Revenue-based depreciation is banned for property, plant and equipment under IAS 16.
IFRS not yet adopted in the European Union
They include IFRS 15 Revenue from contracts with customers and IFRS 9 Financial instruments which are expected to have a significant impact on both, financial and non-financial institutions, in the period ahead.
IFRS 15 Revenue from contracts with customers is effective as of 1 January 2018 and is expected to impact a number of sectors, including: Real Estate and Construction, Telecommunication and Cable, Software Developers, Asset Managers, Aerospace and Defence, Licensors – Pharma, Film and Entertainment, Franchisors, an others. It represents a single global standard for revenue recognition and introduces a contract-based five-step analysis of transactions, focusing on transfer of control and two approaches to recognise revenue: at a point in time or over time. Its application will involve significant judgments and extensive new disclosure requirements for all companies will be set.
IFRS 9 Financial instruments is effective as of 1 January 2018 and introduces changes in the classification and measurement of financial assets. Financial assets will be classified as measured at amortized cost and measured at fair value, with significant changes in the criteria for classifying the assets. In measuring impairment of financial assets IFRS 9 introduces the expected loss model, which takes into consideration the forecast of future economic condition and will involve more judgment.
The topic was discussed at the 2016 KPMG Business Seminar for clients.
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