Q3 2015 IFRS quarterly technical update - Bringing clarity to an IFRS world

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Hi, welcome to Deloitte financial reporting updates. Our webcast series for issues and
developments related to the various accounting frameworks. This presentation is bringing
clarity to an IFRS world and IFRS quarterly technical update.
I’m am Jon Kligman, your host this webcast and I am joined by others from our National
Office. As you are aware, this webcast has been prerecorded. It could be accessed at
any time at www.deloitte.com/ca/update. So, please let your colleagues know of its availability.
Now, onto our agenda. First, you will hear from Julia Suk who will
discuss the Canadian securities administrators’ continuous disclosure review program. After
Julia, Clair Grindley will provide an update on IFRS 15 Revenue from Contracts with Customers,
discuss the exposure draft on IAS 19 and IFRIC 14, and then provide an update on upcoming
IASB projects. I would like to remind our viewers that our
comments on this webcast represent our own personal views and do not constitute official
interpretive accounting guidance from Deloitte. Before taking any action on any of these issues,
it is always a good idea to check with a qualified advisor.
I would now like to welcome our speakers. Julia Suk is a Senior Manager with National
Assurance and Advisory Services of Deloitte Canada. In this role, Julia is responsible
for monitoring quality standards for Deloitte’s public company client filings. Julia also
provides consultative advice to attest and non-attest clients on general securities filings
and financial reporting matters. In the past, Julia also completed a one year secondment
to the Ontario Securities Commission, working within the office of the Chief Accountant.
Clair Grindley is a partner at Deloitte’s National Office and is a member of both the
Technical Consultations Group for the Canadian firm and Deloitte’s IFRS Leadership Team.
Subjects of focus for Clair include employee benefits, impairment and joint arrangements.
And she is also a member of the IFRS Discussion Group or IDG, a subgroup of the Canadian Accounting
Standards Board. Over to you Julia.
Thanks Jon. Hi everyone. As traditionally done in the past, the CSA has reported on
their annual staff notice on their Continuous Disclosure Review Program conducted throughout
the year. Their fiscal year ends in March and so, their report generally comes out mid-summer
and for this year, it was published July 16. The Continuous Disclosure Review Program was
established in 2004 by the staff of the CSA for which the main goal was to improve the
completeness, quality and timeliness of the continuous disclosure provided by reporting
issuers in Canada. It really aims to assess the compliance of the continuous disclosure
documents filed by the reporting issuers and to help companies understand and comply with
their obligations under the continuous disclosure rules so that the investors receive high quality
disclosure. The Staff notice 51-344 consists of the main body of the report, which contains
a summary of their findings and then in the appendices the CSA includes information about
areas where common deficiencies were noted with examples to assist companies address
the noted deficiencies and give some best practices where applicable.
The current year results are shown on the slide here. In total, Tthere were 1,058 reviews
performed in total where 580 of them were full reviews and the rest for issue-oriented
reviews or IORs. This is a 7% increase in the number of reviews compared to the prior
year where the total was 991 reviews with 221 of them being full reviews and the rest
were IORs. The bar graph at the bottom illustrates the
results from this year. The CSA Class 5, the outcomes of the reviews into five categories
as done in the past. The first one is referred to enforcement, cease-traded or on the default
list. Second is re-filings required. Third in the middle is prospective changes that
were made as a result of the reviews. Education and awareness, this is where there were enhancements
that should be considered in its next filings that were discussed with the issuers or the
staff of the local jurisdictions ended up publishing staff notices and reported on a
variety of continuous disclosure subject matter reflecting best practices and expectations,
and of course the last category being no action is required. This year 59% of the outcomes
required issuers to take some kind of action to improve or amend their disclosures in their
filings or resulted in the issuer being referred to enforcement, cease-traded or placed on
the default list. The result in the last year was 60%, which is comparable, although as
you can tell from the graph, the distribution is somewhat different with more re-filings
being required this year than last. Just as a reminder, re-filings are significant events
that should be clearly and broadly disclosed to the marketplace in a timely manner. This
appears to not always have happened and when discussed, some issuers indicated that the
delay was due to the fact there were no scheduled audit committee meetings or board meetings
where the news release could be approved and then waited for the next scheduled meeting.
The CSA staff states in the report that this is not an appropriate reason and the news
release filings cannot be delayed for such reasons. They refer back to the requirements
in NI 51-102, Section 11.5, which requires that if there is issuer decides, it will refile
a document under 51-102 and the information in the refiled document or restated financial
information will defer materially from the information originally filed, the issuer must
immediately issue and file a news released authorized by an executive officer disclosing
the nature and substance of the change or proposed changes. This may involve audit committee
approval or board member approval prior to their next scheduled meeting, and this is
required because they need to provide timely news release as required.
The CSA when performing their full reviews applies a risk-based approach for selecting
reporting issuers. A full review is broader in scope than an IOR and covers many different
types of disclosures including selected issuers most recent annual and interim financial statements,
the management discussion and analysis file before the start of the review. For all other
continuous disclosure documents, the review covers a period of approximately 12 to 15
months. In certain cases, the scope of the review may be extended in order to cover prior
periods. The issuers continues to disclose documents or monitors until the review is
completed. A full review also includes an issuer’s technical disclosures such as technical
reports for oil and gas, and mining issuers, AIFs, annual reports, information circulars,
news releases, material change reports, BARs, corporate websites, certifying officers’
certifications and material contracts. The selection for the IORs or issue-oriented
reviews are based on targeted objective or subject matter of the review. An IOR focused
on a specific accounting, legal or regulatory issue, and may focus on emerging issues, implementation
of recent rules or on matters where the staff believe there may be heightened risk of investor
harm. During this year, a total of 74% of all continuous disclosure reviews completed
were IORs compared to 78% last year. The category shown on the graph to the right in the slide
are some of the IORs conducted by one or more jurisdictions. The other category accounting
for 16% of the total IORs this year related to non-financial topics, which are MD&A topics,
material change reports, redistributions, complaints, referrals and other regulatory
requirements. For the MD&A related findings, you can see
on the slide here for the six main areas. The securities rules pertaining to the MD&A
disclosures are given in National Instrument 51-102, Form 1 (F1). Findings on liquidity
and capital resources from the reviews related to issuers, failures and providing sufficient
analysis. For example, issuers often reproduce information in their MD&A that was already
provided in the financial statements like a repeat of cash flow balances that come from
operating, investing and financial activities. Rather the regulators are expecting to see
much more focus on an issuer’s ability to generate sufficient liquidity in the short-
and long-term in order to find a plan growth, development activities and expenditures necessary
to maintain the capacity. Also they are expecting to see an analysis of capital resources including
the amount, nature and purpose of the commitments and expected sources of funds to meet these
commitments. The CSA staff emphasize this information is even more critical when issuers
have negative cash flows from operations, negative working capital position or deteriorating
financial position because this disclosure is intended to help the users to assess how
the issuer will meet its long- and short-term obligations and objectives. For discussion
relating to results of operations, the observation was that some issuers just provided a boilerplate
disclosure and repeated the financial statement information and disclosure. The discussion
of the year over year change of balances should really provide sufficient detail to discuss
key drivers and reasons contributing to the change for the period. Trends, commitments,
risks and uncertainties that will impact company should be discussed. Forward-looking information,
non-GAAP measures as in the past couple of years, failures of such disclosures in this
area came up again as a hot button for the CSA staff and the reviews. It seems that companies
that use forward looking information and non-GAAP measures and their continuous disclosure documents
have not clearly identified them as such and/or included the appropriate disclosures that
go with this type of information. The concern from the staff here is that the users may
be misled if the disclosures are not provided as required by the rules in National Instrument
51-102 as well as CSA Staff Notice 52 306. Redistribution is came up as a hot button
this year as it was noted that some reach to clear distributions, which exceed the cash
they generate from their operations, but do not provide the relevant disclosures in the
MD&A and AIF. The disclosure is required to signal to the investor that excess distributions
have occurred during the period as well, as information on how they were financed and
that they represented a return of capital amongst other things. The CSA emphasized that
this is important to alert the investor so that they are not misled in such circumstances.
In their review of related party transactions, they observe that some issuers provided a
boilerplate disclosure, which is not useful to the users rather they remind issuers that
the discussion should really provide both qualitative and quantitative information that
is necessary for the readers to understand the business purpose and economic substance
of such transaction. I will go through the last point presented here relating to the
staff’s findings relating to management certifications on the next slide.
The staff this year discussed in some great detail the certification disclosures and their
findings. The requirement around certification disclosures are included in NI 52-109 and
requires issuers to file certificates of annual and interim filing signed by an issuer CEO
and CFO. Non-venture issuers are required to design or have caused to be designed, DC&P,
which is disclosure controls and procedures, and ICFR, internal controls over financial
reporting on an annual basis and on an annual basis evaluated or caused to be evaluated
under their supervision, the effectiveness of DC&P and ICFR. The issuer is also required
to disclose in its annual MD&A, the CEO and CFO’s conclusion about the effectiveness
of DC&P and ICFR. When the certifying officers determine that there is a material weakness
relating to the design or operations of ICFR, or when there has been a limitation on the
scope of the design, issuers must include certain information as dictated by form requirements
in National Instrument 52-109 in their certification as well as including disclosure in the MD&A
describing the material weakness or summary financial information relating to the entities
subject to the scope limitation. Upon their CD reviews, they have identified three common
areas of deficiencies. First they found out there were inconsistencies between the certificate
and the MD&A disclosure. For example, where they have indicated on the certificate that
there was a material weakness, there was no discussion in the MD&A of the material weakness.
Secondly, material weakness disclosure. For instance, some issuers did not describe the
material weakness in sufficient detail. Rather it was vague and gave little insight about
the impact of the issuers financial reporting. It was also noted that certain issuers reported
material weakness for a number of consecutive years and during that time had experienced
significant growth in their operations. Other remediation of an identified material weakness
is not required under the rules. It would be useful to an investor if the issuer discussed
whether they have committed or will commit to a plan to remediate the material weakness
and whether there are any mitigating procedures that reduced the risks that have not been
addressed as a result of identified material weakness. There is further discussion of such
in the Companion Policy 52-109, Section 9.7, so issuers are reminded to refer to the policy
when this is applicable. They also remind issuers that a meaningful discussion of an
unremediated material weakness should be updated in each MD&A to ensure that the impact of
the material weakness continues to be properly reflected as the company grows or goes through
other changes in their operation. This will be further discussed using an example in the
next slide. Thirdly, they found that the limitation or scope of design relating to an acquired
business was not disclosed sufficiently. Staff noted that certain issuers had a scope limitation
relating to two or more unrelated entities, but presented combined financial information
instead of disclosing information for each entity separately. They encourage issuers
to refer to Section 14.2 of 52-109 CP, which permits presenting of combined financial information
only when the businesses are related. As discussed on the previous slide, this is
an example of a deficient disclosure relating to a material weakness. I will not read off
the entire slide for you, but the illustration is given to reemphasize some deficiencies
relating to the description of the material weakness, the impact of the material weakness
on the issuers financial reporting and its ICFR and whether the issuers plans if any,
to remediate. More specifically in this example, there is a reference to more than one internal
control deficiencies in one place, but in the actual discussion of the deficiency, they
only described one, a lack of segregation of duties, and there is also a lack of a clear
identification that this is a material weakness. Also, in this example, they referred to financial
matters, but the meaning of such term used in the description of the deficiency relating
to segregation of duties is unclear and insufficient. Findings from the CSA’s continuous disclosure
reviews included other regulatory disclosure deficiencies. These were the five that is
pointed out here on the bubbles on the slide with material contracts going from left to
right, the staff mainly reminds issuers that there is a list of contracts given in National
Instrument 51-102 that must be filed even if the contracts are entered in the ordinary
course of business. Material change reports were noted as sometimes not being filed on
time, which is within the 10 days of the date of change or as soon as applicable as practicable.
It was also noted that issuers should be mindful that these announcements should be factual
and balanced. And unfavorable news must be disclosed just as promptly and completely
as favorable news. Selective disclosure was noted in the report as a hot button also,
as it appears that certain issuers disclose material non-public information to one or
more individuals or companies and not broadly to the investing public. Once again, mineral
projects as it relates to disclosures that is required in National Instrument 43-101
standard of disclosure from mineral projects was noted as a deficient area as well as filings
of news release was mentioned in the report as the staff continued to see unbalanced and
promotional disclosures. Issuers are reminded to refer to guidance on best disclosure practices
in National Policy 51-201 as well as Form 51 102, F1, Part 1A.
Now, we can move onto some detailed look at
the common deficiencies that were identified in the full reviews as well as IORs that relate
to financial statements. This of course is not an exhaustive list of disclosure deficiencies
that the CSA noted in their reviews. They reminded issuers that they are required to
ensure that the continuous disclosure record complies with all relevant securities legislation
and that the volume does not always equally took full compliance. In their notice the
CSA outlined three hot buttons in a disclosure example to illustrate financial statement
deficiencies. These were in the areas of operating segments, business combinations, fair value
measurements and impairment of assets. Now, we will look at these individually in more
detail in the following slides with my colleague in the National Accounting Group, Clair Grindley.
First, we will visit the deficiencies noted relating to operating segments. The two observations
that were pointed out by the regulators here was that there were failures to disclose the
appropriate information on geographic areas as well as major customers where appropriate.
Clair, with respect to these findings, can you explain the IFRS requirements on disclosures
in these areas? Yes, I can Julia. There are two paragraphs
that are of the focus of the CSA comments and they are paragraphs 33 and 34 of IFRS
8. Paragraph 33 deals with disclosures for revenues and for non-current assets by geographical
area and the intent of this disclosure is to assist users in understanding the risk
concentration within the entity as a whole. For both external revenues and non-current
assets, an entity is required under IFRS 8 to show each amount for the country of domicile
as well as all for foreign countries in aggregate. In addition, if a balance in an individual
foreign country is material then this must be disclosed separately. Paragraph 34 deals
with disclosure of information about major customers because major customers of an enterprise
represent a significant risk concentration and under Paragraph 34, if revenues from a
single external customer amount to 10% of more of an entity’s revenues, then this
fact must be disclosed along with a total revenues for that customer and the segment
to which the revenues relate. There is however no requirement to disclose the identity of
the major customer. So, let us take a look at how that might work in practice with an
example disclosure And we have got one here, and you can see,
you have got the group operates in two areas, Canada and that is the country of domicile
in this case and the UK, and we have got some narrative and in a table and as you can see
both for the current year and the prior year for Canada and for the UK, you can see the
revenue from external customers and also the non-current asset. Now, in this case, we have
just got the country of domicile Canada and one foreign jurisdiction being the UK. If
say we had a third foreign country or second foreign country, so we had UK and France,
an entity would be permitted to just show the aggregate revenue and non-current assets
for those foreign countries unless one of those foreign countries was individually material.
Then, immediately below the table, we have got information about major customers and
as you can see in this case, we do have one major customer that contributed to 10% or
more of the group’s revenue for both years, for 2015 and 2014. So, here we have disclosed
what that amount is, but as I noted just now with no requirement to disclose the identity
of the customer itself. Clair, I know that the IASB completed a post
implementation review of IFRS 8 a couple of years ago. Were there any findings from that
review that coincide with the results of the CSA review here?
You are right Julia. There was a post-implementation review, but there was not a lot here that
was commented with respect to geographical information on major customers being the subject
of the CSA’s comments this year; however, there were a number of other findings from
that review and there are going to be some changes in IFRS 8 in other areas and in fact
an exposure draft is currently being drafted to address the proposed amendments, we expect
to see something from the IASB in the next six months.
The next hot button that was listed in the
staff notice this year related to business combinations. It seemed that when companies
had acquired a business, it was unclear to the staff as to whether the issuers have appropriately
assessD the purchase business to separately identify intangible assets such as customer
lists, intellectual properties, etc. Clair, can you tell us some details as to what the
IFRS requirements are that relate to deficiencies noted by CSA and what does IFRS 3 say?
So, the paragraphs that the CSA focused on are 10-13, 45 and Appendix B of IFRS 3, but
at the heart of the CSA’s comment is the requirement under IFRS 3 to do a purchase
price allocation at the date of acquisition and that effectively takes the total purchase
price and allocates this out to all the assets and liabilities that have been acquired, and
this process requires the acquiring entity to recognize the identifiable assets acquired
including intangible assets and that could be a whole host of intangibles that meet the
criteria for recognition as a separate asset and it is important for entities who are in
acquiring activities to perform a complete search for all intangibles and separately
recognize them. There is some temptation perhaps to short cut the process and just leave all
of the residual purchase price in goodwill, but this is not in compliance with IFRS 3
and remember, the goodwill is not amortized and most intangibles have indefinite-life
intangibles are amortized and as such the failure to properly identify all intangibles
will have a direct impact on post-acquisition performance. Now, IFRS 3 does allow some time
to complete this purchase price allocation in case entities are listening and thinking
that is quite a lot of effort that might involve there and they are right, it is, but a measurement
period of up to one year is permitted for acquiring entity to obtain information about
facts and circumstances that existed at the acquisition date and I told the purchase price
allocation is finalized, provisional amounts reported in the financial statements, but
if the amounts changed when we actually finalize and close the purchase price allocation, adjustments
have to be made and they have to be made to comparative periods previously presented as
well and this might include say if you reallocated maybe $100 million from goodwill to an amortized
intangible, you would not just do that reallocation, you would also have to record any catch-up
amortization for that time period. To illustrate what I have been saying a little
more, we have got a before and after picture here, a kind of IFRS 3 makeover. So, let us
look at the transaction before an entity has considered the IFRS 3 requirements appropriately
and here you can see, you have got a total purchase price of $700 million, but we have
actually in this case identified no intangible assets and any excess purchase price has just
been allocated to goodwill. They have got a pretty sizeable goodwill balance there of
$465 million; however, on the right hand side of the screen, the entity has seen the light
and indeed here, we have actually got $300 million of intangible assets separately recognized
in the form of licenses, patents and customers list, so goodwill diminishes from $465 million
to $165 million and that’s a very simple example but that is quite succinctly illustrates
the point the CSA is making. We would also like to here as well that this is not a new
one. IFRS 3 has been around for a while and this has been a recurring comment that we
have seen in practice from regulators and elsewhere. So, clearly some entities are still
struggling with this aspect of IFRS 3, so perhaps it is time to just take a refresher
of the requirements. Thanks Clair. The next topic was fair value
measurement observation. Here we have the discussion and the notice where the staff
of the CSA continues to see issuers that fail to disclose a description of the evaluation
technique and inputs used for fair value measurements categorized within Level 3 of the fair value
hierarchy. Clair, can you please discuss with us what the specific requirements are in IFRS
13 and what the CSA is expecting to see here. And IFRS 13, unlike IFRS 3 is a new area and
it is a very complex standard that is pervasive to the financial statements of an entity perhaps
before I just explain the requirements of the CSA is focusing on, it might be just helpful
to review that the fair value hierarchy in IFRS 13 and if we think about Level 1 items,
these are unadjusted quoted prices in active markets for identical assets or liabilities
that the entity can access the measurement date. So, quoted prices in active markets.
Level 2 refers to a fair value measurement that includes inputs other than quoted prices
within Level 1, but nonetheless those inputs are observable for the asset or liability
in question. Level 3 however valuations rely on unobservable inputs and may include also
the entity’s own data, so certainly it is unsurprising that standard setters require
an additional degree of disclosure for a fair value measurement that is Level 3 in nature
versus Level 1 and Level 2, and indeed that is exactly what the CSA has picked up that
IFRS 13 requires more disclosure for Level 3 items, but some entities are failing to
provide that disclosure in their financial statements. I will go through a few of the
items in the gray-shaded box that we have shown on the screen, but would caution people
to take a proper review of paragraphs 93D to 93H and there you can see more fully all
of the disclosure requirements relating to Level 3 items. The first one relates to on
the screen here, it relates to recurring and non-recurring fair value measurements in both
Level 2 and Level 3. Here there is a requirement to give a description of the valuation technique,
the inputs used, any change in these and reasons for the change.
The next item on the screen relates to recurring fair value measurements in Level 3 and here
there is a requirement to do a:  reconciliation from the opening balances
to the closing balances disclosing details of any changes
 disclosure of the amount of the total gains or losses for the period included in
profit or loss and attributable to the change in unrealized gains or losses
 and also a narrative description of the sensitivity of the fair value measurement
to changes in unobservable inputs and description of interrelationships with other inputs
So, there is a quite a bit of disclosure that IFRS 13 requires entities to provide to users.
Lastly on this slide for both recurring and non-recurring fair value measurements in Level
3, there is a requirement to provide quantitative information about the significant unobservable
inputs used in the fair value measurement and lastly a description of the valuation
processes used to decide valuation policies and procedures.
So, quite a lot there and I have to take a bit of a deep breath just in thinking about
all that, but perhaps if we move to the next slide, you can see how some of that is put
into practice with an example that we provided. And what I would say here is I know some entities
make use of Deloitte checklist or other checklist for financial statements and some entities
choose not to do that, but what I would recommend that for IFRS 13 in particular it is really
easy to miss some of the disclosure requirements, there are a lot of them. So, I would recommend
you make reference to a checklist or speak to a Deloitte advisor when you are reviewing
the completeness of your IFRS 13 disclosure requirements. Here in this table you can see
two items Level 1 and Level 3 and really we have included these here to show the contrast
of the additional information that is required for the Level 3 item, the privately held equity
securities in contrast to the Level 1 fair value item and you can see for the Level 3
item, we have got a description of the valuation techniques and the key inputs and then if
we move along that table we have got details of the significant unobservable inputs and
here got a description of each one so a narrative description as well as the quantitative amount
as well. So, for example for long-term pre-tax operating margin, which is one of the significant
unobservable inputs, you can see that it is from 5-12%. Lastly, we have got the sensitivity
piece in the far right column of the table and here there is a description of what the
relationships are between the different inputs and what happens to the fair value measurements
in the instance one or more of those inputs changes.
Okay, so the impairment of assets continues to be an area of deficiency once again. This
was an area noted in the last year’s staff notice and it was discussed that there was
a deficiency noted where issuers failed to disclose how the loss amount was determined.
The same deficiency was noted once again this year. In addition, there were also failures
to use appropriate cash flow projections when the recoverable amount of an asset or the
cash-generating unit was value in use and also that some did not disclose the significant
judgments and the uncertainties involved in estimating the recoverable amount of the asset
or the CGUs. Clair, can you elaborate as to what the requirements under IFRS are? I believe
there are multiple IFRS disclosure requirements that come into play here.
Yeah, there are indeed Julia and as you know the CSA decided to give reporting issuers
a reminder in this area and it does appear to be a recurring area of focus. In their
report, they actually focused on some of the measurement requirements as well as disclosure
and just reminding people that if you are doing a value in use calculation under IAS
36 that the cash flow projections have to be based on reasonable and supportable assumptions
and also to the extent that you are using a budget forecast as the standard requires
in order to do that valuation in use calculation, there is a comment in the report that must
be cognizant of the fact that there is a maximum of five years that is anticipated an entity
can forecast out for and you can only use a longer period if an entity is able to justify
that and in some unusual situations an entity might be able to justify it based on past
experience and a demonstrated track record of reliability and forecasting, but it would
be unusual for an entity to be able to reliably forecast beyond a five-year period. So, generally
some form of extrapolation is required. From a disclosure perspective, the CSA commented
on the requirements, Paragraph 130 of IAS 36, which requires these items are required
to be disclosed when an impairment loss is recognized or when an impairment loss is reversed.
Firstly, the events and the circumstances that led to recognition or reversal of the
impairment loss. Secondly, the amount of the impairment loss recognized or reversed. Then,
when an asset is tested for impairment on a standalone basis, the nature of the asset
and also the reportable segment to which that asset belongs. Where an asset is tested for
impairment as part of a CGU, then a requirement to give a description of the CGU, the amount
of the impairment loss recognized or reversed by class of asset and then lastly, if you
recall the recoverable amount is based on either fair value less cost of disposal, which
is an IFRS 13 based measure or value in use and depending on what recoverable amount calculation
is used to calculate the impairment then the disclosure requirements differ. Firstly, if
it is fair value less cost of disposal then there is a requirement to disclose the level
of the fair value hierarchy just what we have talked about on IFRS 13 that the measurement
relates to and if it is Level 2 or Level 3 then description of the valuation techniques
used and lastly, on this slide if value in use is used to determine the recoverable amount
then there is a requirement to disclose the discount rate used in the current period as
well as in any previous estimate of impairment. So, I think Julia the CSA included in their
report some disclosure of what was bad disclosure and what was good disclosure for IAS 36.
Yes, Clair. So now that you have gone over what the requirements are under IAS 36, let
us look at this example. The deficient example appears to be quite light as you can see and
the deficiencies include a lack of disclosure of how it measure the recoverable amount of
property Y and the associated judgments and estimation uncertainty including whether the
recoverable amount was value in use or fair value less cost of disposal and if the recoverable
amount was value in use the discount rate used in the current and previous estimate
of the value in use, which is required by IAS 36, Paragraph 130G or if the recoverable
amount was fair value less cost of disposal, the applicable level of fair value hierarchy
and in the case of Level 2 or 3 of the hierarchy, the valuation technique and the key assumptions
used as required by paragraph 130F and of course the judgments made and the uncertainties
involved in estimating the recoverable amount of the property as required by Paragraph 125
of IAS 1. In contrast, the bottom example, which is a good example of the disclosure
is much more detailed and provides the disclosure that is required by the two standards IAS
36 and IAS 1. So, on this slide here, we have just shown
some reminders relating to IAS 36. I will go through it quickly now, but really just
wanted to reinforce some of the key requirements of 36, nothing new again, but ones that perhaps
need some refreshers for when applying in practice. So, in terms of IAS 36, some assets
are tested for impairment on an annual basis and that is goodwill, but then for all other
CGUs and assets there is a requirement to assess at the end of each reporting period
whether there are any indicators of impairment and IAS 36 includes a lot of guidance as to
how you assess for indicators of impairment as well as for reverse indicators. And if
there is an indication of impairment then there is a requirement then to estimate the
recoverable amount and that is based on the higher of the fair value less cost of disposal
and value in use. Now when you have an impairment, there is a requirement to disclose whether
or not the recoverable amount is fair value less cost of disposal ofr value in use and
then I am not going to go through the next couple of comments we have got on the slide
here because it is just reiterating the comments that I made on the previous slide, but if
you look at Paragraph 130, it will set those out in detail for you. Again, the value in
use comment on this slide is just a reminder about the restrictions regarding cash flow
projections and making sure entities adhere to those restrictions. Last point that we
have got on this slide refers to Paragraph 109 through 123 of IAS 36 and this is just
a reminder that there is a requirement to assess for reverse impairment indicators as
well as for impairment indicators. On the next slide, we have got IFRS 6 and
this is just a refresher as well and a reminder that the impairment process for IFRS 6 is
slightly different to IAS 36 and there are specific indicators that are listed for entities
who are within the scope of IFRS 6. Impairment is required to be assessed under IFRS 6 when
facts or circumstances suggest that the carrying amount may exceed the recoverable amount and
then what IFRS 6 does is go on to list specific impairment indicators that would be relevant
for an entity within the scope of IFRS 6. So, for example, does the right to explore
expire, is there a plan to discontinue any further expenditures relating to the exploration
activity, are we at a point in time where there has been no discovery of commercially
viable mineral resources or is there some kind of other information that indicates that
the carrying amount of the E&E asset is unlikely to be recovered through development or sale.
We have also noted here market cap considerations as well, noting that market cap is not an
impairment indicator that specifically listed under IFRS 6, but this could indicate that
other impairment triggers may exist. So, if your market cap is fallen under water then
that could be an indication that you have got some other impairment triggers that are
causing that market cap to go under water. There was a useful IDG discussion on this,
that’s the IFRS discussion group, on this a year or two ago where the group discussed
at length that the impact of market capitalization on impairments E&E entities and if anybody
has trouble finding that discussion which was public and for which minutes are available
then feel free to contact any of the Deloitte team and we can certainly point you in that
direction. So, we are going to move away now from CSA
and look at some other developments in the IFRS world. So, things that are changing,
things that are coming up in the future and the first section is focused on IFRS 15 Revenue
from Contracts with Customers. Now the summer months were pretty busy months
as it related to IFRS 15 Revenue from Contracts with Customers. You might recall that the
standard as originally issued had a mandatory effective date of January 1, 2017; however,
subsequent to the issuance of the standard, the IASB and the FASB formed a joint Transition
Resource Group for revenue recognition referred to as a TRG and this was designed to support
the implementation of the new standards and as a result of the ongoing discussions of
the TRG, a number of targeted amendments to the new revenue standard have been discussed
and approved, and I will talk through some of those on the next slide. However in light
of all this activity and these proposed amendments, concerns were raised about the broad impact
of the new standard and the boards both the IASB and the FASB, began to receive unsolicited
comment letters from stakeholders requesting a one year deferral. So, as a result, the
IASB took note of this as did the FASB and in its July 22 meeting the IASB formally approved
the deferral of IFRS 15 to January 1, 2018, with earlier application still being permitted.
The IASB finalized this amendment on September 11, 2015 and this amendment is now published.
It is important to remember also that this standard is generally converged with US GAAP
and the equivalent US GAAP topic is 606 and earlier in July, the FASB also approved a
one year deferral of their revenue standard. Now, as I mentioned there are some proposed
targeted amendments that were expected to be made to IFRS 15 and in late July of this
year, the IASB issued an exposure draft on these proposed amendments and the amendments
include clarifications to the following topics:  Identifying performance obligations
 Principal versus agent considerations  Licensing and a right to use versus a
right to access  Practical expedients on transition
I should also note here that there are some differences between the approaches taken by
the IASB and the FASB in addressing these proposed amendments. Now comments due on this
exposure draft by October 28, 2015, but I am not going to talk about them anymore here
because we do actually have a revenue focused webcast on October 21 that will discuss these
amendments in a lot more depth. So, we hope very much that you can join us for this webcast
and find out more about these areas. So, looking ahead, we are going to look at
one exposure draft that the IASB have issued after which the comment period expires soon
and then along with the usual tradition in webcasts look at the IASB project plan.
So, firstly the exposure draft on IAS 19 and IFRIC 14. So, this deals with two areas actually.
This was quite a meaty exposure draft, deals with remeasurements following a significant
event and I will talk to that in a few seconds, but firstly I wanted to talk about the IFRIC
14 amendment and that relates to the refund of a surplus from a defined benefit plan.
Now the proposed amendments to IFRIC 14 are related to the asset ceiling test that we
have got in IAS 19, which limits the extent of any surplus that can be recognized and
effectively a surplus can only be recognized to the extent that the surplus can be recovered
through a refund back to the entity or through a reduction in future contributions and the
proposals deal with the former of these items, the right to a refund and whether or not it
is unconditional and therefore available to the entity. Now under the proposals where
trustees are able to enhance benefits without the consent of the entity then a right to
refund is not considered to be unconditional under the proposals. Conversely, the ability
of plan trustees to purchase annuities as plan assets or make all the kinds of investment
decisions does not impact the availability of a refund. This will not really be a common
issue in Canada because on the one hand many plans do not operate at a surplus and also
when we do look at recoverability, generally we are able to find and to support it through
reduced future contributions and not through a refund of contributions; however, it may
be relevant to some entities, hence we wanted to update you of this change or proposed change.
The second part of the amendments deals with IAS 19 and remeasurements and it relates to
the accounting treatment when you have a significant event such as a plan amendment, a settlement,
a curtailment and how the accounting works in that scenario. So, I am going to go through
what the proposals are. On this slide, got three main points to be made here, noting
that some of these are in the standard already today, but the wording is going to be clarified,
but one of the items specifically is not addressed in the standard as it stands today and would
if it goes through have a significant impact or could have a significant impact on profit
or loss for entities entering into these types of transactions. So, firstly if you have got
a plan amendment or a curtailment or a settlement then immediately before the event occurs,
there is a requirement to update the amounts and the assumptions. So, for example, if in
the middle of the year you decide to settle part of your plan then the discount rate might
have moved between the start of the year and the date of that settlement, so you would
remeasure the obligation based on the new discount rate. Similarly, there might be other
changes, for example the returns on plan assets during that period. So, immediately before
the event you would recognize a remeasurement that goes to other comprehensive income to
reflect these updated assumptions. Then after that event, you are required to remeasure
the net defined benefit liability or asset so as to reflect the benefits offered after
the plan amendment, curtailment or settlement and this part of the change is recorded in
profit or loss and it is where the settlement gain or loss or past service cost and that
effectively shows to the users of the financial statements how the obligation is changed as
a result of this transaction. The third item is the significant new item that the proposals
are focusing on and this relates to net interest and current service cost. So, ordinarily speaking
net interest and current service cost are based on financial assumptions and demographic
assumptions as at the start of the year, but what the proposals require is that if you
have a remeasurement event then you look at your new assumptions as of the date of the
remeasurement and for the period subsequent to the remeasurement event, you update your
assumptions that you employ a net interest and current service cost. So, for example
if at the start of the year the discount rate was 4.5% and if mid-year that changes to 5%,
and mid year is when you have your remeasurement event, net interest and current service cost
for that post-event period would be based on the discount rate of 5% and not 4.5%.
So, it is good to have a visual to illustrate these sorts of things. So, let us look at
the next slide where we have got that, even got some color in there as well and here you
can see got a calendar year end entity, January 1 is when they would initially set the actuarial
assumptions that are employed to determine current service cost and net interest cost
for the year and in ordinary situations, those would flow through and be applied throughout
the year, but under the proposals if say on June 1 or any other date in the year, you
have some kind of plan amendment, curtailment or settlement, then current service and net
interest in the period subsequent to that event would be based on the actuarial assumptions
as at the date of the plan amendments and as I said before that would have a direct
impact on profit or loss. Now, the exposure draft is out for comment at the moment and
we have included a link to that on the preceding slide, so if anybody is interested in commenting
or reading more about the proposals then you might want to take a look at that link.
So, that is what exposure drafts have been issued at present or the ones that we thought
would be of interest to you in this webcast, but what is on the horizon for the future?
Well, if we take a look at the IASB’s latest work plan, there are quite a few other things
that are in the works. The one that really stands out is of course the proposals for
the new leasing standard and we do actually expect to see a new leasing standard before
the end of the calendar year and I know that many people have been waiting for this one,
but perhaps not waiting eagerly for this one because this will fundamentally change lease
accounting as we know it today and this is a new standard that has been the topic of
a significant amount of research as well as a lot of debate, so it will be interesting
to see the culmination of the efforts in the months to come and I am sure once that new
standard is issued, we will be talking about it a lot more in our webcast of the future.
Before the couple of items, I would like to focus on some draft IFRIC interpretations
that you may or may not be aware of. The first one relates to uncertainties in income taxes.
So, this is your uncertain income tax positions, for which there has been a bit of a vacuum
of guidance or a lack of IFRS guidance on this in the past. We expect within the next
month or so to see an interpretation, which will address how uncertain income tax positions
are going to be recognized and measured. The second draft IFRIC interpretation that we
expect to see relates to foreign currency transactions and advance consideration and
this might be a case where you enter into a sale and it is a foreign currency transaction,
the cash consideration is received before the point in time at which the revenue can
be recognized and what this draft interpretation is proposing to address is what is the appropriate
exchange rate to be used. Is it that the exchange rate when the cash consideration is received
or is it the exchange rate that is in place when the revenue is actually able to be recognized
and I think that is probably good enough for now? There are obviously a number of items
that are in the works that I have not touched upon here, but you can access the IASB work
plan directly yourself if you would like to find out more about those. So, I think on
that note Jon, I will hand it back to you. Okay, thanks Clair and thank you Julia. Julia,
we have a question here for you. Earlier in the presentation, you highlighted some disclosure
deficiencies related to IFRS 8. Are there any new requirements on operating segments
that we might expect to see the CSA focus on in the review next year?
Yes Jon, the amendment to IFRS 8 regarding the additional disclosures are effective for
annual periods on or after July 1, 2014 and these amendments relate to the disclosures
of aggregation of operating segments where entities are also required to disclose the
judgements made in applying the aggregation criteria in IFRS 8, Paragraph 12, so the description
of the operating segments are aggregated and assessments of similar economic characteristics.
And also the new requirement is the disclosure to provide a reconciliation of the total of
the reportable segments assets to the entity’s total assets only if the amount is regularly
provided to the CODM, which is the Chief Operating Decision Maker.
Great, thanks Julia. We are pleased to introduce Deloitte Canada
Center for financial Reporting or CFR website. The CFR features an extensive collection of
news and resources about accounting and financial reporting developments relevant to the Canadian
marketplace. Our site is easy to use and intuitive. You can find the link to the website at the
bottom of your screen. So, please be sure to check it out.
Thanks again to our speakers, Julia Suk and Clair Grindley. I would also like to thank
our behind the scenes team, Nura Taef, Kiran Kullar, Elise Beckles and Alan Kirkpatrick.
We hope you found this webcast helpful and informative. If you have any questions or
feedback, you can reach out to Deloitte partner or other Deloitte contact. If you would like
additional information, please visit our website at www.deloitte.ca. And to all of you viewing
our webcast, thank you for joining us. This concludes our webcast, Bringing clarity to
an IFRS world - IFRS Quarterly Technical Update.