Annual Improvements to IFRS® Standards

Annual Improvements to IFRS® Standards

Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41

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As part of its process to make non-urgent but necessary amendments to IFRS® Standards, the IASB International Accounting Standards Board (the Board) has issued the Annual Improvements to IFRS Standards 2018–2020.

The amendments are effective for annual reporting periods beginning on or after 1 January 2022 with earlier application permitted.

Final amendments  KPMG insight 
IFRS 1 First-time Adoption of International Financial Reporting Standards
This amendment simplifies the application of IFRS 1 for a subsidiary that becomes a first-time adopter of IFRS Standards later than its parent – i.e. if a subsidiary adopts IFRS Standards later than its parent and applies IFRS 1.D16(a), then a subsidiary may elect to measure cumulative translation differences for all foreign operations at amounts included in the consolidated financial statements of the parent, based on the parent’s date of transition to IFRS Standards.
This amendment will ease transition to IFRS Standards for subsidiaries applying this optional exemption by:
  • reducing undue costs; and
  • avoiding the need to maintain parallel sets of accounting records.
IFRS 9 Financial Instruments 
This amendment clarifies that – for the purpose of performing the ‘’10 per cent test’ for derecognition of financial liabilities – in determining those fees paid net of fees received, a borrower includes only fees paid or received between the borrower and the lender, including fees paid or received by either the borrower or lender on the other’s behalf.
This is a welcome clarification that is largely consistent with our existing guidance in Insights into IFRS.  [Insights 7.6.410.20]
IFRS 16 Leases, Illustrative Example 13
The amendment removes the illustration of payments from the lessor relating to leasehold improvements. As currently drafted, this example is not clear as to why such payments are not a lease incentive.
The amendments will help to remove the potential for confusion in identifying lease incentives in a common real estate fact pattern.
IAS 41 Agriculture
This amendment removes the requirement to exclude cash flows for taxation when measuring fair value, thereby aligning the fair value measurement requirements in IAS 41 with those in IFRS 13  Fair Value Measurement.

The Board’s change is welcome. When a present value technique is used to measure fair value, the assumptions used for the cash flows and discount rates should be internally consistent – i.e. using either after tax or pre-tax for both. The amendments provide the flexibility to use either, as appropriate, in line with IFRS 13.

The assumptions about cash flows and discount rates should reflect market participants’ views, which in practice are predominantly performed on a post-tax basis. 

 

References to ‘Insights’ mean our publication Insights into IFRS

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