and developments related to accounting frameworks. Today, we present the new IFRS 9 hedging model.

My name is Steve Aubin and I am an Advisory Partner in the Calgary office. I will be your

host for today’s webcast and I will be joined by others from the Canadian practice. A couple

of items before I tell you about the agenda and introduce our speakers. In the lower right-hand

corner of the screen are the webcast links, which include the link to download and print

out today’s slides, links to the webcast assistance, the links to the Deloitte updates

of upcoming sessions as well as the links to the archive sessions. If you have a pop-up

blocker on your computer, you will need to disengage it in order to download the slides

or participate in our polling questions. For those of you who know of colleagues who could

not attend today’s live event, they can simply register at any time for the event

the same way that you just did and they will be able to view the archived webcast within

48 hours after this event. So, please feel free to invite your colleagues to take advantage

of this feature afterwards. In addition, although you are on a listening mode only, you can

ask questions to our presenters during the session in the box at the bottom of the screen

and click submit. We will do our best to respond to your questions and comments during the

presentation. We also have interactive polling questions that will appear throughout the

webcast on your screen. Again, we invite you to participate by simply answering these questions

on your screen. A summary of the results will be provided on the screen shortly afterwards.

Now, let me introduce our speakers and discuss the agenda. First, you will hear from Kerry

Danyluk, who will provide us with an overview of the new standard and some additional information

on eligible hedging and hedged items under the standard. After Kerry, Kiran Khun-Khun

will update us on the hedge effectiveness requirements of the new standard as well as

the accounting and disclosure of consideration. She will finish with some important matters

to consider on transition and finally, we will conclude the session with a brief Q&A

session. You can read the bios of our presenters and access the agenda and technical support

in the navigation areas on your screen. Please keep in mind that it is a lot of material

for a 90-minute webcast, so we will need to keep the discussion at a fairly high level.

As I mentioned earlier, if timing permits, we will conclude with a question and answer

period. I would like to remind our viewers that our comments on this webcast are our

own views and do not constitute official interpretive accounting guidance from Deloitte. Indeed

as you know before taking any actions on any of these issues, it is always a good idea

to check with a qualified advisor. Before we kick it off, let us start with our

first polling question. We are going to ask everyone on the line to participate in this

webcast with our first polling question and please note that your response will remain

anonymous. Here is the first question: Are you considering early adopting IFRS 9

to take advantage of the new hedging standards? a. Yes

b. Probably not c. Maybe

While we are waiting for the results of the polling question, I would like to remind you

that today’s webcast maybe counted towards your continuing professional education. If

you stay with us for the whole webcast, you can credit yourself with one and a half hours

towards your annual total. This applies to those in public practice and those working

in industry. We do not issue certificates for the webcast, but your email registration

and confirmation can form part of your documentation in support of your attendance.

  Let us look at the results of the first question.

We have about 5% of the people, 6% that are considering it and 65% probably not. I would

say that is probably consistent with the discussion I had with a lot of companies out there over

the last six months. Having said that a lot of people are starting to consider the benefits

and the advantages, we have to keep in mind that this is a fairly new standard that just

came out in December and I truly think that people are just starting to really understand

the benefits. Now, I would like to welcome our first speaker

for today’s webcast, Kerry Danyluk. Kerry Danyluk is a Partner in Deloitte’s National

office in Toronto. She specializes in a number of areas of IFRS, ASPE and not-for-profit

accounting. She has worked with entities in a number of sectors of IFRS implementation

and complex accounting issues including Crown corporations, financial services and public

utilities. So Kerry, I will now turn it over to you.

Thanks Steve. Before we get into meat I guess of the hedging standard, I just wanted to

give a little overview about IFRS 9. As you all know, I am sure, IFRS 9 in the hedging

instalment that we are going to be talking about today is part of a larger project and

so, all these pieces of IFRS 9 have been in development for a number of years and we got

a little schematic on the slide here of sort of all the various pieces and where we sit

with them. There are currently a number of parts of IFRS 9 that are available for early

adoption and today we are going to focus our comments on the general hedge accounting standard,

which was just released late last year and this is the latest instalment in the IFRS

9 story I guess. In terms of other pieces of the standard, we expect the new impairment

standard to be finalized later this year and macro hedging is still at a much earlier phase.

It is still at sort of the discussion paper phase. We currently expect that all the pieces

of IFRS 9 will be mandatory for fiscal years starting on or after January 1, 2018. If you

have been following the project, you probably will remember that there was a thought at

one point that parts of IFRS 9 would be mandatory as early as 2013. So, we have really seen

a fair bit of slippage, I guess probably due just to the overall complexity and controversy

of this project. So as I mentioned, there are various parts of IFRS 9 that are available

for early adoption and as we will see on the next slide, there is a bit of complexity in

the order to which these parts may be adopted. The first piece of IFRS 9 to be released related

to classification and measurement of financial assets. This part of the standard sets out

the parameters for measuring financial assets at cost or fair value. There are currently

some proposed changes to the standard out for comment right now, but we do have an existing

version of the standard. We expect resolution of the exposure process later this year. So,

there may be some more changes to the classification and measurement of financial assets to come.

In the meantime, the current version of IFRS 9 on classification and measurement of financial

assets is available now for early adoption and this part of the standard could actually

be adopted by itself and in fact a number of companies have adopted this standard, not

financial institutions because the regulated ones have not been allowed to by the regulators,

but we have seen companies in other industries who have early adopted parts of IFRS 9.

The next thing we got was guidance on classification and measurement of financial liabilities in

2010. This part of the standard can also be early adopted, but must be adopted with classification

and measurement of financial assets. If for some reason you wanted to adopt the financial

liabilities part of the standard, you would also adopt the financial assets part that

came out in 2009. In 2013, there was a more limited amendment that was released that deals

with re-measurement gains and losses related to a company’s own credit risk when financial

liabilities are recorded at fair value to profit and loss. This standard requires that

gains and losses related to changes in own credit risk should be recorded in other comprehensive

income and not profit and loss. This part of the standard, just to make it

even more confusing, can actually be adopted all by itself without any of the other pieces.

So if you had something under IAS 39, a financial liability, that you were classifying, carrying

at fair value through profit and loss, so maybe it was a liability that had a complex

embedded derivative or something like that and you opted to mark it to fair value, then

you could adopt this part of the standard that talks about what to do with gains and

losses on the fair value re-measurement. Also in 2013, and this is the subject what we are

going to talk about today, we got the amendments related to hedge accounting. If the hedge

accounting standards are early adopted, then what you must do is adopt all the other pieces

of IFRS 9 that came before, so you need to adopt all those at the same time. If you do

decide to adopt the hedge accounting rules, just recognize that, that means that other

things need to happen as well such as making sure to classify your financial assets and

liabilities under the new standard. On the next slide, we just thought we should

point out some of the things that have not changed from IAS 39, so applying hedge accounting

remains a choice. The main objective behind the new IFRS 9 changes on hedge accounting

was to allow the accounting to more closely reflect risk management strategies and also

simplification was an objective as well. There were a lot of concerns that hedge accounting

was very complicated and did not reflect the way people actually are or the way the companies

are actually hedging their risks. So really trying to deal with both of those things in

the new standard and I guess it remains to be seen how well they have achieved that as

we get through our implementation of this new standard. Let us just look at that. There

are a number of things about IFRS 9 that are not changing. They did want to make it simpler

and more closely match up with risk management strategies, but they did leave some certain

principles in place. First of all, hedge accounting is still a

choice. What that means is if you are doing hedging, economic hedging I will say where

you are not applying hedge accounting, you do not need to and there is nothing in IFRS

9 that would say that you would need to apply hedge accounting. You could continue with

economic hedges and not seek hedge accounting and in fact, really the only way to trigger

your hedge accounting is to comply with all the pieces of IFRS 9 including designation

and documentation, which is another feature of hedge accounting that we are quite familiar

with from IAS 39 that the hedges must be designated at inception of the hedge relationship and

there is documentation requirements that need to be met. Also there is no change under IFRS

9 in the kinds of hedges for accounting purposes. If you are familiar with hedge accounting

now, you will know that there are fair value hedges, cash flow hedges, and hedges of net

investment in a foreign currency entity. There is no change in the basic types of hedges

and really a lot of similarities are pretty much the same in the mechanics of how those

different hedges would be accounted for. This next slide presents a good, more complete

overview, of the new hedge accounting standard and highlights some of the areas of difference

that we will go through in more detail through the presentation. As under IAS 39 just to

get some of the terminology down, we will refer to hedging instruments, what kinds of

things can you use to hedge an exposure, as well as hedged items, so these are the exposures

that are eligible for hedge accounting. These two elements work together to form the hedging

strategy for designation and documentation and accounting purposes. There have been some

changes in what can be a hedging instrument as well as changes in what are eligible hedged

items. We are going to go through these in a bit more detail shortly and then Kiran is

going to talk about in more detail about the effectiveness assessment process. This is

another area where hopefully the standard has become a little bit more user-friendly

and somewhat more judgement based than what we have seen in the past and then as well

Kiran is going to touch on the disclosure requirements, which have been increased in

the new standard. First on to eligible hedging items. This first

slide sort of presents, so on here we are going to focus you in on what you can now

consider to be hedging instruments under IFRS 9 and there are a couple of areas of difference

that we are going to touch on. Under IAS 39, non-derivatives could be used as hedging instruments

only related to hedging foreign currency risk. For example you could use US dollar debt to

hedge a net investment in a US dollar foreign operation, so that is an example of using

something that is not a derivative, being the debt, to hedge an exposure, but now this

has been broadened out a bit more under IFRS 9 as we will see. Let us look at an example.

An example, as the slides says, it is now possible to use non-derivatives in more cases

to hedge exposures and one of the examples that is given is a financial instrument measured

at fair value through profit and loss could now be a hedging instrument. What would be

an example of that? There is a company that has a highly probable forecast gold purchase

and so they know that they have got this exposure to the price of gold, what could they use

to hedge that? Under this new feature of IFRS 9, they could, in fact go out and purchase

units of a gold fund that holds physical gold and those would be a financial instrument