financial reporting update - nelson cpa · items of income and expense statement of comprehensive...
Post on 13-Jul-2020
0 Views
Preview:
TRANSCRIPT
1
Financial Reporting Update5 June 2010
copy 2008-10 Nelson Consulting Limited 1
Nelson LamNelson Lam 林智遠林智遠MBA MSc BBA ACA ACIS CFA CPA(Aust) CPA(US) FCCA FCPA FHKIoD MSCA
Effective for 2009Effective for 2009--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKFRS 2 Vesting Conditions and Cancellationsbull HKFRS 8 Operating Segments
Effective for periods beginning onafter
1 Jan20091 Jan 2009
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKFRS 8 Operating Segmentsbull HKAS 1 (Revised) Presentation of Financial Statementsbull HKAS 23 (Revised) Borrowing Costsbull Amendments to HKFRS 1 and HKAS 27 Cost of an Investment in
a Subsidiary Jointly Controlled Entity or Associatebull Amendments to HKAS 32 and HKAS 1 Puttable Financial
Instruments and Obligations Arising on Liquidationbull HK(IFRIC) 13 Customer Loyalty Programmesbull HK(IFRIC) 15 Agreements for the Construction of Real Estate
1 Jan20091 Jan20091 Jan2009 1 Jan2009
1 Jan2009
1 Jul 20081 Jan2009
copy 2008-10 Nelson Consulting Limited 2
bull HK(IFRIC) 16 Hedges of a Net Investment in a Foreign Operationbull Annual improvements to HKFRSs 2008bull HK(IFRIC) 18 Transfers of Assets from Customers
bull Amendments to HKFRS 7 Improving Disclosure about Financial Instruments
bull Amendments to HK(IFRIC) 9 and HKAS 39 Embedded Derivatives
1 Oct 20081 Jan20091 Jul 2009(trans date)1 Jan2009
Ended onafter30 Jun 2009
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
2
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 3
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 4
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
bull AB 4 Guidance on the Determination of Realised Profits and Losses in the Context of Distributions under the Hong Kong Companies Ordinance
3
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
Recap of Amendments to HKFRS effective from 200910
copy 2008-10 Nelson Consulting Limited 5
Update of Amendments to HKFRS effective after 201011
Presentation of Financial Statements(HKAS 1 Revised in 2007)
copy 2008-10 Nelson Consulting Limited 6
4
Complete Set of Financial Statements
bull A complete set of financial statements comprisesa) a statement of financial position as at the end of the
period
Previously we call it ldquoBalance Sheetrdquoperiod
b) a statement of comprehensive income for the periodc) a statement of changes in equity for the periodd) a statement of cash flows for the periode) notes comprising a summary of significant accounting
policies and other explanatory information andf) a statement of financial position as at the beginning
of the earliest comparative period
Previously we call it ldquoIncome Statementrdquo
3-column ldquobalance sheetrdquo
copy 2008-10 Nelson Consulting Limited 7
of the earliest comparative periodbull when an entity
‒ applies an accounting policy retrospectively or ‒ makes a retrospective restatement of items in its financial statements or
bull when it reclassifies items in its financial statements
bull An entity may use titles for the statements other than those used in HKAS 1
sheet
Complete Set of Financial Statements
Statement of Financial Position as at the end of the period
Complete Set of Financial Statements Previous titleor changes
Previous title ldquoBalance Sheetrdquo
To use a single statement to present all items of income and expense
Statement of Comprehensive Income for the period
Statement of Changes in Equity for the period
No title change
No title change(but restructured)
New statement
To use two statements to present all items of income and expense
Statement of Comprehensive Income for the period
Income Statement for the period
copy 2008-10 Nelson Consulting Limited 8
Statement of Cash Flows for the period
Notes
A statement of financial position as at the beginning of the earliest comparative period if required
Previous titleldquoCash Flow Statementrdquo
(but restructured)
No title change
New requirement
Sourced from Intermediate Financial Reporting (2009) by Nelson Lam and Peter Lau
5
Statement of Comprehensive Income
bull Other comprehensive incomendash Comprises items of income and expense
(including reclassification adjustments) that are
Components of other
comprehensive income
( g j )not recognised in profit or loss as required or permitted by other HKFRSs
copy 2008-10 Nelson Consulting Limited 9
Statement of Comprehensive IncomeExample
bull The components of other comprehensive income include1 changes in revaluation surplus recognised in accordance with HKAS 16
Property Plant and Equipment
Components of other
comprehensive income
2 changes in revaluation surplus recognised in accordance with HKAS 38 Intangible Assets
3 actuarial gains and losses on defined benefit plans recognised in accordance with HKAS 19 Employee Benefits
4 gains and losses arising from translating the financial statements of a foreign operation in accordance with HKAS 21 The Effects of Changes in Foreign Exchange Rates
5 gains and losses on remeasuring available-for-sale (AFS) financial assets in
copy 2008-10 Nelson Consulting Limited 10
5 gains and losses on remeasuring available for sale (AFS) financial assets in accordance with HKAS 39 Financial Instruments Recognition and Measurement (amended by HKFRS 9 and the category of ldquoAFSrdquo is deleted with a new category of ldquofair value through other comprehensive income) and
6 the effective portion of gains and losses on hedging instruments in a cash flow hedge recognised in accordance with HKAS 39
Sourced from Intermediate Financial Reporting (2009) by Nelson Lam and Peter Lau
6
Statement of Comprehensive Income
bull Other comprehensive incomendash their components classified by nature to be
reported in the statement of comprehensive
Components of other
comprehensive income
p pincome and to be presented either 1 net of related tax effects or2 before related tax effects with one amount
shown for the aggregate amount of income tax relating to those components
ndash the amount of income tax relating to each component including reclassification adjustments either
copy 2008-10 Nelson Consulting Limited 11
adjustments either 1 in the statement of comprehensive income or 2 in the notes
Statement of Comprehensive Income
bull Other comprehensive income also comprises ldquoreclassification adjustmentsrdquo ndash Reclassification adjustments are defined as
Components of other
comprehensive income
Reclassification adjustments are defined asbull amounts reclassified to profit or loss in the
current period that were recognised in other comprehensive income in the current or previous periods
bull An entity is required to disclose reclassification adjustments relating to components of other comprehensive income either
copy 2008-10 Nelson Consulting Limited 12
ndash in the statement of comprehensive incomeor
ndash in the notes (then presents the components of other comprehensive income after any related reclassification adjustments in the statement of comprehensive income)
7
Statement of Comprehensive IncomeExample
bull Reclassification adjustments arise for example1 on disposal of a foreign operation (see HKAS 21)2 on derecognition of available-for-sale financial assets in accordance with
Components of other
comprehensive income
HKAS 39 (amended by HKFRS 9 amp no reclassification adjustment then) and3 when a hedged forecast transaction affects profit or loss in accordance with
HKAS 39 in relation to cash flow hedgesbull Reclassification adjustments do not arise on
1 changes in revaluation surplus recognised in accordance with HKAS 16 or 2 changes in revaluation surplus recognised in accordance with HKAS 38 or 3 actuarial gains and losses on defined benefit plans recognised in accordance
ith HKAS 19
copy 2008-10 Nelson Consulting Limited 13
with HKAS 19 bull These two components are recognised in other comprehensive income and are
not reclassified to profit or loss in subsequent periods Changes in revaluation surplus may be transferred to retained earnings in subsequent periods as the asset is used or when it is derecognised Actuarial gains and losses are reported in retained earnings in the period that they are recognised as other comprehensive income
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 14
8
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 15
Statement of Comprehensive IncomeCase
Consolidated statement of comprehensive income
copy 2008-10 Nelson Consulting Limited 16
9
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 17
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 18
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
2
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 3
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 4
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
bull AB 4 Guidance on the Determination of Realised Profits and Losses in the Context of Distributions under the Hong Kong Companies Ordinance
3
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
Recap of Amendments to HKFRS effective from 200910
copy 2008-10 Nelson Consulting Limited 5
Update of Amendments to HKFRS effective after 201011
Presentation of Financial Statements(HKAS 1 Revised in 2007)
copy 2008-10 Nelson Consulting Limited 6
4
Complete Set of Financial Statements
bull A complete set of financial statements comprisesa) a statement of financial position as at the end of the
period
Previously we call it ldquoBalance Sheetrdquoperiod
b) a statement of comprehensive income for the periodc) a statement of changes in equity for the periodd) a statement of cash flows for the periode) notes comprising a summary of significant accounting
policies and other explanatory information andf) a statement of financial position as at the beginning
of the earliest comparative period
Previously we call it ldquoIncome Statementrdquo
3-column ldquobalance sheetrdquo
copy 2008-10 Nelson Consulting Limited 7
of the earliest comparative periodbull when an entity
‒ applies an accounting policy retrospectively or ‒ makes a retrospective restatement of items in its financial statements or
bull when it reclassifies items in its financial statements
bull An entity may use titles for the statements other than those used in HKAS 1
sheet
Complete Set of Financial Statements
Statement of Financial Position as at the end of the period
Complete Set of Financial Statements Previous titleor changes
Previous title ldquoBalance Sheetrdquo
To use a single statement to present all items of income and expense
Statement of Comprehensive Income for the period
Statement of Changes in Equity for the period
No title change
No title change(but restructured)
New statement
To use two statements to present all items of income and expense
Statement of Comprehensive Income for the period
Income Statement for the period
copy 2008-10 Nelson Consulting Limited 8
Statement of Cash Flows for the period
Notes
A statement of financial position as at the beginning of the earliest comparative period if required
Previous titleldquoCash Flow Statementrdquo
(but restructured)
No title change
New requirement
Sourced from Intermediate Financial Reporting (2009) by Nelson Lam and Peter Lau
5
Statement of Comprehensive Income
bull Other comprehensive incomendash Comprises items of income and expense
(including reclassification adjustments) that are
Components of other
comprehensive income
( g j )not recognised in profit or loss as required or permitted by other HKFRSs
copy 2008-10 Nelson Consulting Limited 9
Statement of Comprehensive IncomeExample
bull The components of other comprehensive income include1 changes in revaluation surplus recognised in accordance with HKAS 16
Property Plant and Equipment
Components of other
comprehensive income
2 changes in revaluation surplus recognised in accordance with HKAS 38 Intangible Assets
3 actuarial gains and losses on defined benefit plans recognised in accordance with HKAS 19 Employee Benefits
4 gains and losses arising from translating the financial statements of a foreign operation in accordance with HKAS 21 The Effects of Changes in Foreign Exchange Rates
5 gains and losses on remeasuring available-for-sale (AFS) financial assets in
copy 2008-10 Nelson Consulting Limited 10
5 gains and losses on remeasuring available for sale (AFS) financial assets in accordance with HKAS 39 Financial Instruments Recognition and Measurement (amended by HKFRS 9 and the category of ldquoAFSrdquo is deleted with a new category of ldquofair value through other comprehensive income) and
6 the effective portion of gains and losses on hedging instruments in a cash flow hedge recognised in accordance with HKAS 39
Sourced from Intermediate Financial Reporting (2009) by Nelson Lam and Peter Lau
6
Statement of Comprehensive Income
bull Other comprehensive incomendash their components classified by nature to be
reported in the statement of comprehensive
Components of other
comprehensive income
p pincome and to be presented either 1 net of related tax effects or2 before related tax effects with one amount
shown for the aggregate amount of income tax relating to those components
ndash the amount of income tax relating to each component including reclassification adjustments either
copy 2008-10 Nelson Consulting Limited 11
adjustments either 1 in the statement of comprehensive income or 2 in the notes
Statement of Comprehensive Income
bull Other comprehensive income also comprises ldquoreclassification adjustmentsrdquo ndash Reclassification adjustments are defined as
Components of other
comprehensive income
Reclassification adjustments are defined asbull amounts reclassified to profit or loss in the
current period that were recognised in other comprehensive income in the current or previous periods
bull An entity is required to disclose reclassification adjustments relating to components of other comprehensive income either
copy 2008-10 Nelson Consulting Limited 12
ndash in the statement of comprehensive incomeor
ndash in the notes (then presents the components of other comprehensive income after any related reclassification adjustments in the statement of comprehensive income)
7
Statement of Comprehensive IncomeExample
bull Reclassification adjustments arise for example1 on disposal of a foreign operation (see HKAS 21)2 on derecognition of available-for-sale financial assets in accordance with
Components of other
comprehensive income
HKAS 39 (amended by HKFRS 9 amp no reclassification adjustment then) and3 when a hedged forecast transaction affects profit or loss in accordance with
HKAS 39 in relation to cash flow hedgesbull Reclassification adjustments do not arise on
1 changes in revaluation surplus recognised in accordance with HKAS 16 or 2 changes in revaluation surplus recognised in accordance with HKAS 38 or 3 actuarial gains and losses on defined benefit plans recognised in accordance
ith HKAS 19
copy 2008-10 Nelson Consulting Limited 13
with HKAS 19 bull These two components are recognised in other comprehensive income and are
not reclassified to profit or loss in subsequent periods Changes in revaluation surplus may be transferred to retained earnings in subsequent periods as the asset is used or when it is derecognised Actuarial gains and losses are reported in retained earnings in the period that they are recognised as other comprehensive income
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 14
8
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 15
Statement of Comprehensive IncomeCase
Consolidated statement of comprehensive income
copy 2008-10 Nelson Consulting Limited 16
9
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 17
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 18
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
3
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
Recap of Amendments to HKFRS effective from 200910
copy 2008-10 Nelson Consulting Limited 5
Update of Amendments to HKFRS effective after 201011
Presentation of Financial Statements(HKAS 1 Revised in 2007)
copy 2008-10 Nelson Consulting Limited 6
4
Complete Set of Financial Statements
bull A complete set of financial statements comprisesa) a statement of financial position as at the end of the
period
Previously we call it ldquoBalance Sheetrdquoperiod
b) a statement of comprehensive income for the periodc) a statement of changes in equity for the periodd) a statement of cash flows for the periode) notes comprising a summary of significant accounting
policies and other explanatory information andf) a statement of financial position as at the beginning
of the earliest comparative period
Previously we call it ldquoIncome Statementrdquo
3-column ldquobalance sheetrdquo
copy 2008-10 Nelson Consulting Limited 7
of the earliest comparative periodbull when an entity
‒ applies an accounting policy retrospectively or ‒ makes a retrospective restatement of items in its financial statements or
bull when it reclassifies items in its financial statements
bull An entity may use titles for the statements other than those used in HKAS 1
sheet
Complete Set of Financial Statements
Statement of Financial Position as at the end of the period
Complete Set of Financial Statements Previous titleor changes
Previous title ldquoBalance Sheetrdquo
To use a single statement to present all items of income and expense
Statement of Comprehensive Income for the period
Statement of Changes in Equity for the period
No title change
No title change(but restructured)
New statement
To use two statements to present all items of income and expense
Statement of Comprehensive Income for the period
Income Statement for the period
copy 2008-10 Nelson Consulting Limited 8
Statement of Cash Flows for the period
Notes
A statement of financial position as at the beginning of the earliest comparative period if required
Previous titleldquoCash Flow Statementrdquo
(but restructured)
No title change
New requirement
Sourced from Intermediate Financial Reporting (2009) by Nelson Lam and Peter Lau
5
Statement of Comprehensive Income
bull Other comprehensive incomendash Comprises items of income and expense
(including reclassification adjustments) that are
Components of other
comprehensive income
( g j )not recognised in profit or loss as required or permitted by other HKFRSs
copy 2008-10 Nelson Consulting Limited 9
Statement of Comprehensive IncomeExample
bull The components of other comprehensive income include1 changes in revaluation surplus recognised in accordance with HKAS 16
Property Plant and Equipment
Components of other
comprehensive income
2 changes in revaluation surplus recognised in accordance with HKAS 38 Intangible Assets
3 actuarial gains and losses on defined benefit plans recognised in accordance with HKAS 19 Employee Benefits
4 gains and losses arising from translating the financial statements of a foreign operation in accordance with HKAS 21 The Effects of Changes in Foreign Exchange Rates
5 gains and losses on remeasuring available-for-sale (AFS) financial assets in
copy 2008-10 Nelson Consulting Limited 10
5 gains and losses on remeasuring available for sale (AFS) financial assets in accordance with HKAS 39 Financial Instruments Recognition and Measurement (amended by HKFRS 9 and the category of ldquoAFSrdquo is deleted with a new category of ldquofair value through other comprehensive income) and
6 the effective portion of gains and losses on hedging instruments in a cash flow hedge recognised in accordance with HKAS 39
Sourced from Intermediate Financial Reporting (2009) by Nelson Lam and Peter Lau
6
Statement of Comprehensive Income
bull Other comprehensive incomendash their components classified by nature to be
reported in the statement of comprehensive
Components of other
comprehensive income
p pincome and to be presented either 1 net of related tax effects or2 before related tax effects with one amount
shown for the aggregate amount of income tax relating to those components
ndash the amount of income tax relating to each component including reclassification adjustments either
copy 2008-10 Nelson Consulting Limited 11
adjustments either 1 in the statement of comprehensive income or 2 in the notes
Statement of Comprehensive Income
bull Other comprehensive income also comprises ldquoreclassification adjustmentsrdquo ndash Reclassification adjustments are defined as
Components of other
comprehensive income
Reclassification adjustments are defined asbull amounts reclassified to profit or loss in the
current period that were recognised in other comprehensive income in the current or previous periods
bull An entity is required to disclose reclassification adjustments relating to components of other comprehensive income either
copy 2008-10 Nelson Consulting Limited 12
ndash in the statement of comprehensive incomeor
ndash in the notes (then presents the components of other comprehensive income after any related reclassification adjustments in the statement of comprehensive income)
7
Statement of Comprehensive IncomeExample
bull Reclassification adjustments arise for example1 on disposal of a foreign operation (see HKAS 21)2 on derecognition of available-for-sale financial assets in accordance with
Components of other
comprehensive income
HKAS 39 (amended by HKFRS 9 amp no reclassification adjustment then) and3 when a hedged forecast transaction affects profit or loss in accordance with
HKAS 39 in relation to cash flow hedgesbull Reclassification adjustments do not arise on
1 changes in revaluation surplus recognised in accordance with HKAS 16 or 2 changes in revaluation surplus recognised in accordance with HKAS 38 or 3 actuarial gains and losses on defined benefit plans recognised in accordance
ith HKAS 19
copy 2008-10 Nelson Consulting Limited 13
with HKAS 19 bull These two components are recognised in other comprehensive income and are
not reclassified to profit or loss in subsequent periods Changes in revaluation surplus may be transferred to retained earnings in subsequent periods as the asset is used or when it is derecognised Actuarial gains and losses are reported in retained earnings in the period that they are recognised as other comprehensive income
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 14
8
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 15
Statement of Comprehensive IncomeCase
Consolidated statement of comprehensive income
copy 2008-10 Nelson Consulting Limited 16
9
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 17
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 18
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
4
Complete Set of Financial Statements
bull A complete set of financial statements comprisesa) a statement of financial position as at the end of the
period
Previously we call it ldquoBalance Sheetrdquoperiod
b) a statement of comprehensive income for the periodc) a statement of changes in equity for the periodd) a statement of cash flows for the periode) notes comprising a summary of significant accounting
policies and other explanatory information andf) a statement of financial position as at the beginning
of the earliest comparative period
Previously we call it ldquoIncome Statementrdquo
3-column ldquobalance sheetrdquo
copy 2008-10 Nelson Consulting Limited 7
of the earliest comparative periodbull when an entity
‒ applies an accounting policy retrospectively or ‒ makes a retrospective restatement of items in its financial statements or
bull when it reclassifies items in its financial statements
bull An entity may use titles for the statements other than those used in HKAS 1
sheet
Complete Set of Financial Statements
Statement of Financial Position as at the end of the period
Complete Set of Financial Statements Previous titleor changes
Previous title ldquoBalance Sheetrdquo
To use a single statement to present all items of income and expense
Statement of Comprehensive Income for the period
Statement of Changes in Equity for the period
No title change
No title change(but restructured)
New statement
To use two statements to present all items of income and expense
Statement of Comprehensive Income for the period
Income Statement for the period
copy 2008-10 Nelson Consulting Limited 8
Statement of Cash Flows for the period
Notes
A statement of financial position as at the beginning of the earliest comparative period if required
Previous titleldquoCash Flow Statementrdquo
(but restructured)
No title change
New requirement
Sourced from Intermediate Financial Reporting (2009) by Nelson Lam and Peter Lau
5
Statement of Comprehensive Income
bull Other comprehensive incomendash Comprises items of income and expense
(including reclassification adjustments) that are
Components of other
comprehensive income
( g j )not recognised in profit or loss as required or permitted by other HKFRSs
copy 2008-10 Nelson Consulting Limited 9
Statement of Comprehensive IncomeExample
bull The components of other comprehensive income include1 changes in revaluation surplus recognised in accordance with HKAS 16
Property Plant and Equipment
Components of other
comprehensive income
2 changes in revaluation surplus recognised in accordance with HKAS 38 Intangible Assets
3 actuarial gains and losses on defined benefit plans recognised in accordance with HKAS 19 Employee Benefits
4 gains and losses arising from translating the financial statements of a foreign operation in accordance with HKAS 21 The Effects of Changes in Foreign Exchange Rates
5 gains and losses on remeasuring available-for-sale (AFS) financial assets in
copy 2008-10 Nelson Consulting Limited 10
5 gains and losses on remeasuring available for sale (AFS) financial assets in accordance with HKAS 39 Financial Instruments Recognition and Measurement (amended by HKFRS 9 and the category of ldquoAFSrdquo is deleted with a new category of ldquofair value through other comprehensive income) and
6 the effective portion of gains and losses on hedging instruments in a cash flow hedge recognised in accordance with HKAS 39
Sourced from Intermediate Financial Reporting (2009) by Nelson Lam and Peter Lau
6
Statement of Comprehensive Income
bull Other comprehensive incomendash their components classified by nature to be
reported in the statement of comprehensive
Components of other
comprehensive income
p pincome and to be presented either 1 net of related tax effects or2 before related tax effects with one amount
shown for the aggregate amount of income tax relating to those components
ndash the amount of income tax relating to each component including reclassification adjustments either
copy 2008-10 Nelson Consulting Limited 11
adjustments either 1 in the statement of comprehensive income or 2 in the notes
Statement of Comprehensive Income
bull Other comprehensive income also comprises ldquoreclassification adjustmentsrdquo ndash Reclassification adjustments are defined as
Components of other
comprehensive income
Reclassification adjustments are defined asbull amounts reclassified to profit or loss in the
current period that were recognised in other comprehensive income in the current or previous periods
bull An entity is required to disclose reclassification adjustments relating to components of other comprehensive income either
copy 2008-10 Nelson Consulting Limited 12
ndash in the statement of comprehensive incomeor
ndash in the notes (then presents the components of other comprehensive income after any related reclassification adjustments in the statement of comprehensive income)
7
Statement of Comprehensive IncomeExample
bull Reclassification adjustments arise for example1 on disposal of a foreign operation (see HKAS 21)2 on derecognition of available-for-sale financial assets in accordance with
Components of other
comprehensive income
HKAS 39 (amended by HKFRS 9 amp no reclassification adjustment then) and3 when a hedged forecast transaction affects profit or loss in accordance with
HKAS 39 in relation to cash flow hedgesbull Reclassification adjustments do not arise on
1 changes in revaluation surplus recognised in accordance with HKAS 16 or 2 changes in revaluation surplus recognised in accordance with HKAS 38 or 3 actuarial gains and losses on defined benefit plans recognised in accordance
ith HKAS 19
copy 2008-10 Nelson Consulting Limited 13
with HKAS 19 bull These two components are recognised in other comprehensive income and are
not reclassified to profit or loss in subsequent periods Changes in revaluation surplus may be transferred to retained earnings in subsequent periods as the asset is used or when it is derecognised Actuarial gains and losses are reported in retained earnings in the period that they are recognised as other comprehensive income
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 14
8
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 15
Statement of Comprehensive IncomeCase
Consolidated statement of comprehensive income
copy 2008-10 Nelson Consulting Limited 16
9
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 17
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 18
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
5
Statement of Comprehensive Income
bull Other comprehensive incomendash Comprises items of income and expense
(including reclassification adjustments) that are
Components of other
comprehensive income
( g j )not recognised in profit or loss as required or permitted by other HKFRSs
copy 2008-10 Nelson Consulting Limited 9
Statement of Comprehensive IncomeExample
bull The components of other comprehensive income include1 changes in revaluation surplus recognised in accordance with HKAS 16
Property Plant and Equipment
Components of other
comprehensive income
2 changes in revaluation surplus recognised in accordance with HKAS 38 Intangible Assets
3 actuarial gains and losses on defined benefit plans recognised in accordance with HKAS 19 Employee Benefits
4 gains and losses arising from translating the financial statements of a foreign operation in accordance with HKAS 21 The Effects of Changes in Foreign Exchange Rates
5 gains and losses on remeasuring available-for-sale (AFS) financial assets in
copy 2008-10 Nelson Consulting Limited 10
5 gains and losses on remeasuring available for sale (AFS) financial assets in accordance with HKAS 39 Financial Instruments Recognition and Measurement (amended by HKFRS 9 and the category of ldquoAFSrdquo is deleted with a new category of ldquofair value through other comprehensive income) and
6 the effective portion of gains and losses on hedging instruments in a cash flow hedge recognised in accordance with HKAS 39
Sourced from Intermediate Financial Reporting (2009) by Nelson Lam and Peter Lau
6
Statement of Comprehensive Income
bull Other comprehensive incomendash their components classified by nature to be
reported in the statement of comprehensive
Components of other
comprehensive income
p pincome and to be presented either 1 net of related tax effects or2 before related tax effects with one amount
shown for the aggregate amount of income tax relating to those components
ndash the amount of income tax relating to each component including reclassification adjustments either
copy 2008-10 Nelson Consulting Limited 11
adjustments either 1 in the statement of comprehensive income or 2 in the notes
Statement of Comprehensive Income
bull Other comprehensive income also comprises ldquoreclassification adjustmentsrdquo ndash Reclassification adjustments are defined as
Components of other
comprehensive income
Reclassification adjustments are defined asbull amounts reclassified to profit or loss in the
current period that were recognised in other comprehensive income in the current or previous periods
bull An entity is required to disclose reclassification adjustments relating to components of other comprehensive income either
copy 2008-10 Nelson Consulting Limited 12
ndash in the statement of comprehensive incomeor
ndash in the notes (then presents the components of other comprehensive income after any related reclassification adjustments in the statement of comprehensive income)
7
Statement of Comprehensive IncomeExample
bull Reclassification adjustments arise for example1 on disposal of a foreign operation (see HKAS 21)2 on derecognition of available-for-sale financial assets in accordance with
Components of other
comprehensive income
HKAS 39 (amended by HKFRS 9 amp no reclassification adjustment then) and3 when a hedged forecast transaction affects profit or loss in accordance with
HKAS 39 in relation to cash flow hedgesbull Reclassification adjustments do not arise on
1 changes in revaluation surplus recognised in accordance with HKAS 16 or 2 changes in revaluation surplus recognised in accordance with HKAS 38 or 3 actuarial gains and losses on defined benefit plans recognised in accordance
ith HKAS 19
copy 2008-10 Nelson Consulting Limited 13
with HKAS 19 bull These two components are recognised in other comprehensive income and are
not reclassified to profit or loss in subsequent periods Changes in revaluation surplus may be transferred to retained earnings in subsequent periods as the asset is used or when it is derecognised Actuarial gains and losses are reported in retained earnings in the period that they are recognised as other comprehensive income
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 14
8
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 15
Statement of Comprehensive IncomeCase
Consolidated statement of comprehensive income
copy 2008-10 Nelson Consulting Limited 16
9
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 17
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 18
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
6
Statement of Comprehensive Income
bull Other comprehensive incomendash their components classified by nature to be
reported in the statement of comprehensive
Components of other
comprehensive income
p pincome and to be presented either 1 net of related tax effects or2 before related tax effects with one amount
shown for the aggregate amount of income tax relating to those components
ndash the amount of income tax relating to each component including reclassification adjustments either
copy 2008-10 Nelson Consulting Limited 11
adjustments either 1 in the statement of comprehensive income or 2 in the notes
Statement of Comprehensive Income
bull Other comprehensive income also comprises ldquoreclassification adjustmentsrdquo ndash Reclassification adjustments are defined as
Components of other
comprehensive income
Reclassification adjustments are defined asbull amounts reclassified to profit or loss in the
current period that were recognised in other comprehensive income in the current or previous periods
bull An entity is required to disclose reclassification adjustments relating to components of other comprehensive income either
copy 2008-10 Nelson Consulting Limited 12
ndash in the statement of comprehensive incomeor
ndash in the notes (then presents the components of other comprehensive income after any related reclassification adjustments in the statement of comprehensive income)
7
Statement of Comprehensive IncomeExample
bull Reclassification adjustments arise for example1 on disposal of a foreign operation (see HKAS 21)2 on derecognition of available-for-sale financial assets in accordance with
Components of other
comprehensive income
HKAS 39 (amended by HKFRS 9 amp no reclassification adjustment then) and3 when a hedged forecast transaction affects profit or loss in accordance with
HKAS 39 in relation to cash flow hedgesbull Reclassification adjustments do not arise on
1 changes in revaluation surplus recognised in accordance with HKAS 16 or 2 changes in revaluation surplus recognised in accordance with HKAS 38 or 3 actuarial gains and losses on defined benefit plans recognised in accordance
ith HKAS 19
copy 2008-10 Nelson Consulting Limited 13
with HKAS 19 bull These two components are recognised in other comprehensive income and are
not reclassified to profit or loss in subsequent periods Changes in revaluation surplus may be transferred to retained earnings in subsequent periods as the asset is used or when it is derecognised Actuarial gains and losses are reported in retained earnings in the period that they are recognised as other comprehensive income
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 14
8
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 15
Statement of Comprehensive IncomeCase
Consolidated statement of comprehensive income
copy 2008-10 Nelson Consulting Limited 16
9
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 17
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 18
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
7
Statement of Comprehensive IncomeExample
bull Reclassification adjustments arise for example1 on disposal of a foreign operation (see HKAS 21)2 on derecognition of available-for-sale financial assets in accordance with
Components of other
comprehensive income
HKAS 39 (amended by HKFRS 9 amp no reclassification adjustment then) and3 when a hedged forecast transaction affects profit or loss in accordance with
HKAS 39 in relation to cash flow hedgesbull Reclassification adjustments do not arise on
1 changes in revaluation surplus recognised in accordance with HKAS 16 or 2 changes in revaluation surplus recognised in accordance with HKAS 38 or 3 actuarial gains and losses on defined benefit plans recognised in accordance
ith HKAS 19
copy 2008-10 Nelson Consulting Limited 13
with HKAS 19 bull These two components are recognised in other comprehensive income and are
not reclassified to profit or loss in subsequent periods Changes in revaluation surplus may be transferred to retained earnings in subsequent periods as the asset is used or when it is derecognised Actuarial gains and losses are reported in retained earnings in the period that they are recognised as other comprehensive income
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 14
8
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 15
Statement of Comprehensive IncomeCase
Consolidated statement of comprehensive income
copy 2008-10 Nelson Consulting Limited 16
9
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 17
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 18
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
8
Statement of Comprehensive IncomeCase
copy 2008-10 Nelson Consulting Limited 15
Statement of Comprehensive IncomeCase
Consolidated statement of comprehensive income
copy 2008-10 Nelson Consulting Limited 16
9
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 17
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 18
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
9
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 17
Statement of Comprehensive IncomeCase
Consolidated Statement of Comprehensive Income 2009
copy 2008-10 Nelson Consulting Limited 18
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
10
Improving Disclosures about FinancialInstruments (Amendments to HKFRS 7)
copy 2008-10 Nelson Consulting Limited 19
Amendments to HKFRS 7 in 032009
bull The aim of the amendments was to enhance disclosures about ndash fair value and ndash liquidity risk
bull SFAS 157 of US FASB requires disclosures that are based on a three-level fair value hierarchy for the inputs used in valuation techniques to measure fair value
bull IASB concludedndash that such a hierarchy would improve comparability between
entities about the effects of fair value measurements as well as
copy 2008-10 Nelson Consulting Limited 20
increase the convergence of IFRSs and US GAAP ndash to require disclosures for financial instruments on the basis of a
fair value hierarchy
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
11
1 Fair Value Disclosure
bull If there has been a change in valuation techniquendash the entity shall disclose that change and the
f ki itreasons for making itbull A fair value hierarchy for disclosure is also required
ndash classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements
copy 2008-10 Nelson Consulting Limited 21
1 Fair Value Disclosure
bull The fair value hierarchy shall have the following levels
t d i ( dj t d) i ti k t fa quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1)
b inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (ie as prices) or indirectly (ie derived from prices) (Level 2) and
c inputs for the asset or liability that are not based b bl k t d t ( b bl
copy 2008-10 Nelson Consulting Limited 22
on observable market data (unobservable inputs) (Level 3)
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
12
1 Fair Value Disclosure
bull The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety shall be determined on the basis of the lowest level input that isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety ndash For this purpose the significance of an input is assessed
against the fair value measurement in its entiretyndash If a fair value measurement uses observable inputs that
require significant adjustment based on unobservable inputs bull that measurement is a Level 3 measurement
copy 2008-10 Nelson Consulting Limited 23
ndash Assessing the significance of a particular inputto the fair value measurement in its entirety requires judgement considering factors specificto the asset or liability
1 Fair Value Disclosure
bull For fair value measurements recognised in the statement of financial position an entity shall disclose for each class of financial instrumentsdisclose for each class of financial instruments1 the level in the fair value hierarchy2 any significant transfers between Level 1 and
Level 2 of the fair value hierarchy (with other details)
3 Further details for Level 3bull An entity shall present the quantitative disclosures
copy 2008-10 Nelson Consulting Limited 24
as required above in tabular format unless another format is more appropriate
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
13
1 Fair Value Disclosure
bull Further details for Level 31 total gains or losses for the period recognised in profit or loss and a
description of where they are presented in the statement ofdescription of where they are presented in the statement of comprehensive income or the separate income statement (if presented)
2 total gains or losses recognised in other comprehensive income3 purchases sales issues and settlements (each type of movement
disclosed separately)4 transfers into or out of Level 3
(eg transfers attributable to changes in theobservability of market data) and the reasons
copy 2008-10 Nelson Consulting Limited 25
for those transfers (If significant separate transfers into and out of Level 3)
5 the fact and the effect of changes (for the inputsto assumptions if their changes affect fair valuesignificantly)
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 26
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
14
1 Fair Value DisclosureCase
Annual report 2009
copy 2008-10 Nelson Consulting Limited 27
1 Fair Value DisclosureCase
Annual report 2009bull Effective from 1 January 2009 the Group adopted the amendment to HKFRS 7
for financial instruments that are measured in the statement of financial position at fair value which requires disclosure of fair value measurements by level of the following fair value measurement hierarchya) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (level 1)b) Inputs other than quoted prices included within level 1 that are observable
copy 2008-10 Nelson Consulting Limited 28
b) Inputs other than quoted prices included within level 1 that are observable for the asset or liability either directly (that is as prices) or indirectly (that is derived from prices) (level 2) and
c) Inputs for the asset or liability that are not based on observable market data (that is unobservable inputs) (level 3)
bull As at 31 December 2009 the fair value measurement of the Grouprsquos financial assets ndash available-for-sale financial assets is classified in level 3
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
15
2 Liquidity Risk Disclosure
bull An entity shall disclosea a maturity analysis for non-derivative financial liabilities
(i l di i d fi i l t t t ) th t h th(including issued financial guarantee contracts) that shows the remaining contractual maturities
b a maturity analysis for derivative financial liabilities The maturity analysis shall include the remaining contractual maturities for those derivative financial liabilities for which contractual maturities are essential for an understanding of the timing of the cash flows For example this would be the case fori i t t t ith i i t it f fi
copy 2008-10 Nelson Consulting Limited 29
i an interest rate swap with a remaining maturity of five years in a cash flow hedge of a variable rate financial asset or liability
ii all loan commitmentsc a description of how it manages the liquidity risk inherent in (a)
and (b)
HKFRS 7 Amendments
Effective Datebull An entity shall apply those amendments for annual
periods beginning on or after 1 January 2009periods beginning on or after 1 January 2009 bull In the first year of application
ndash an entity need not provide comparative information for the disclosures required by the amendments
bull Earlier application is permitted ndash If an entity applies the amendments for an earlier
copy 2008-10 Nelson Consulting Limited 30
period it shall disclose that fact
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
16
Todayrsquos Agenda
Update of Amendments to HKFRS effective for 201011
copy 2008-10 Nelson Consulting Limited 31
Effective Effective for 2010for 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull HKFRS 1 (Revised) First-time Adoption of HKFRSbull Amendments to HKFRS 1 Additional Exemptions for First time
Effective for periods beginning onafter
1 Jul 20091 Jan 2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull Amendments to HKFRS 1 Additional Exemptions for First-time Adopters
bull Amendments to HKFRS 2 Share-based Payment ndash Group Cash-settled Share-based Payment Transactions
bull HKAS 27 (Revised) Consolidated and Separate Financial Statements
bull HKFRS 3 (Revised) Business Combinationbull Amendments to HKAS 39 Eligible Hedged Itemsbull HK(IFRIC) 17 Distributions of Non-cash Assets to Owners
A l I t t HKFRS 2009
1 Jan 2010
1 Jan 2010
1 Jul 2009
1 Jul 20091 Jul 20091 Jul 20091 J 2010
copy 2008-10 Nelson Consulting Limited 32
bull Annual Improvements to HKFRSs 2009
bull HK(IFRIC) Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments
bull HKFRS for Private Entities (or IFRS for SME)bull Amendments to HK Interpretation 4 Leases ndash Determination of
the Length of Lease Term in respect of Hong Kong Land Leases
1 Jan 2010(unless specified)1 Jan 2010
Effective upon issueNot specified
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
17
Consolidated Financial Statements(HKAS 27 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 33
HKAS 27 (Revised in 2008)
bull Scope and definitionsbull Presentation of consolidated financial statementsbull Scope of consolidated financial statementsbull Consolidation proceduresbull Loss of controlbull Accounting in separate financial statements
Significant changesNew section
copy 2008-10 Nelson Consulting Limited 34
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
18
Consolidation Procedures
bull Consolidation procedures are similar to previous standard but helliphellip
bull Minority interests renamed as ldquonon-controlling interestsrdquobull Minority interests renamed as non-controlling interests which
ndash is the equity in a subsidiary not attributable directly or indirectly to a parent
copy 2008-10 Nelson Consulting Limited 35
Consolidation Procedures
Non-controlling Interests
bull Profit or loss and each component of other h i i tt ib t dcomprehensive income are attributed
ndash to the owners of the parent and ndash to the non-controlling interests
bull Total comprehensive income is attributed ndash to the owners of the parent and ndash to the non-controlling interests
bull even if this results in the non-controlling interests A d d
copy 2008-10 Nelson Consulting Limited 36
ghaving a deficit balanceAmended
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
19
Consolidation Procedures
bull Most critical helliphellipndash Changes in a parentrsquos ownership interest in a
subsidiary that do not result in a loss of controlsubsidiary that do not result in a loss of control bull are accounted for as equity transactions (ie
transactions with owners in their capacity as owners)
bull ie no gain or loss on disposal of interests in subsidiary can be recognised in profit or loss if the subsidiary is still a subsidiary
copy 2008-10 Nelson Consulting Limited 37
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 38
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
20
Consol
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Disposed of 20 interest at $50
pre-change
5500 -
(3600)
1900
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
bull In such circumstances the carrying amounts of the controlling and non-controlling interests shall be adjusted to reflect the changes in their relative interests in the subsidiary
bull Any difference between minus the amount by which the non-controlling interests are
dj t d dNCI to be dj t d (120)
copy 2008-10 Nelson Consulting Limited 39
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
Share capital (200) (100)Reserves (2380) 700
(2580) 600
adjusted andminus the fair value of the consideration paid or received
shall be recognised directly in equity and attributed to the owners of the parent
adjusted (120)Consideration 50Difference to equity 170
Consolidation ProceduresExample
Entity A holds 80 of Entity X since its incorporation and their financial statements are set out below
Consol
Disposed of 20 interest at $50
Consolafter change
5500 -
(3550)
1950
Dr(Cr)
50
A X
Property plant amp equipment 3500 2000 Interest in subsidiary 80 -Net current liabilities (1000) (2600)
Net assets 2580 (600)
pre-change
5500 -
(3600)
1900
copy 2008-10 Nelson Consulting Limited 40
(200)(1990)(2190)
240(1950)
(170)
120
Share capital (200) (100)Reserves (2380) 700
(2580) 600
Non-controlling interests(Assume fair value = carrying amount)
(200)(1820)(2020)
120(1900)
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
21
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary ita) derecognises the assets (including any goodwill) and liabilities of the
subsidiary at their carrying amounts at the date when control is lostb) derecognises the carrying amount of any non-controlling interests in
the former subsidiary at the date when control is lost (including any components of other comprehensive income attributable to them)
c) recognisesi) the fair value of the consideration received if any from the
copy 2008-10 Nelson Consulting Limited 41
i) the fair value of the consideration received if any from the transaction event or circumstances that resulted in the loss of control and
ii) if the transaction that resulted in the loss of control involves a distribution of shares of the subsidiary to owners in their capacity as owners that distribution
Loss of Control
bull Specific requirements introduced when a parent loses control of a subsidiary
If t l t l f b idi itndash If a parent loses control of a subsidiary itd) recognises any investment retained in the former subsidiary at its
fair value at the date when control is loste) reclassifies to profit or loss or transfers directly to retained earnings
if required in accordance with other HKFRSs the amounts identified in HKAS 2735 (discussed in next slide) and
f) recognises any resulting difference as a gain or loss in profit or loss attributable to the parent
copy 2008-10 Nelson Consulting Limited 42
attributable to the parent
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
22
Loss of Control
bull If a parent loses control of a subsidiary ndash the parent shall account for all amounts recognised in
other comprehensive income in relation to thatother comprehensive income in relation to that subsidiary bull on the same basis as would be required if the parent
had directly disposed of the related assets or liabilities
bull Therefore if a gain or loss previously recognised in other comprehensive income would be reclassified to profit or loss on the disposal of the related assets or
copy 2008-10 Nelson Consulting Limited 43
liabilities ndash the parent reclassifies the gain or loss from equity to
profit or loss (as a reclassification adjustment) when it loses control of the subsidiary
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 44
Anything recognised in profit or loss
What is the further information you have
to ask
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
23
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 45
- Revalued amount of PPE 100Revaluation reserves 20 20
Anything recognised in profit or loss
Loss of Control
A parent loses control of a subsidiary and the subsidiary has the following assets
Example
The parent shall reclassify togndash The subsidiary has available-for-
sale financial assets
The parent shall reclassify to profit or loss the gain or loss previously recognised in other comprehensive income in relation to those assets
ndash The subsidiary has property plant and equipment with
l ti l i l
The parent transfers the revaluation surplus directly to retained earnings when it loses
copy 2008-10 Nelson Consulting Limited 46
revaluation surplus previously recognised in other comprehensive income
retained earnings when it loses control of the subsidiarybull since the revaluation surplus
would be transferred directly to retained earnings on the disposal of the asset
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
24
Loss of Control
Think about 2 different cases with similar figures
Example
HK$ Sub A Sub B
What if helliphellip
Representing- Revalued amount of available-for-sale 100
Sale proceeds 100 100
Carrying amount of the subsidiaryrsquos net assets in consolidated financial statements 100 100
copy 2008-10 Nelson Consulting Limited 47
- Revalued amount of PPE 100Revaluation reserves 20 20
Revaluation reserves relating to available-for-sale reclassified to profit or loss
Revaluation reserves relating to PPE transferred directly to retained earnings
Business Combinations(HKFRS 3 Revised in 2008)
copy 2008-10 Nelson Consulting Limited 48
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
25
Introduction
bull The objective of HKFRS 3 (revised 2008) is ndash to improve the relevance reliability and comparability of
the information that a reporting entity provides in its
Scopethe information that a reporting entity provides in its financial statements about a business combination and its effects
bull To accomplish that HKFRS 3 establishes principles and requirements for how the acquirer a) recognises and measures in its financial statements the
identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Application of the method
Method of accounting
copy 2008-10 Nelson Consulting Limited 49
b) recognises and measuresbull the goodwill acquired in the business combination or bull a gain from a bargain purchase and
c) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination
What is it
The Acquisition Method
Scope
Application of the method
bull An entity shall account for each business combination by applying the acquisition method (HKFRS 34)
Method of accounting
bull Applying the acquisition method requires a) identifying the acquirer b) determining the acquisition date c) recognising and measuring
copy 2008-10 Nelson Consulting Limited 50
) g g gbull the identifiable assets acquired bull the liabilities assumed and bull any non-controlling interest in the acquiree and
d) recognising and measuring bull goodwill or bull a gain from a bargain purchase (HKFRS 35)
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
26
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirerrsquos application of the recognition principle and conditions may result inndash recognising some assets and liabilities that the
acquiree had not previously recognised as assets and liabilities in its financial statements
copy 2008-10 Nelson Consulting Limited 51
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
Example
bull An operating lease in which the acquiree is the lessee is normally not recognised as assets or liabilities except for
ndash if the terms of an operating lease are favourable relative to market termsthe acquirer shall recognise an intangible asset
ndash if the terms are unfavourable relative to market termsthe acquirer shall recognise a liability (HKFRS 3B29)
copy 2008-10 Nelson Consulting Limited 52
bull If the terms of an operating lease in which the acquiree is the lessor are either favourable or unfavourable when compared with market terms
ndash The acquirer does not recognise a separate asset or liability(HKFRS 3B42)
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
27
The Acquisition Method
bull Recognising and measuring the identifiable assets acquired the liabilities assumed and any non-controlling interest in the acquiree
bull The acquirer shall measure the identifiable assets acquiredand the liabilities assumed
ndash at their acquisition-date fair values (HKFRS 318)
bull For each business combination the acquirer shall measureany non-controlling interest in the acquiree either
ndash at fair value or
Affect acquisition in stages
New alternative (ldquofull goodwill methodrdquo)
copy 2008-10 Nelson Consulting Limited 53
ndash at the non-controlling interestrsquos proportionate share of the acquireersquos identifiable net assets (HKFRS 319) Existing practice
( g )
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value f id tifi bl t t $ 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A as a whole ($120 divide 75) 160
copy 2008-10 Nelson Consulting Limited 54
Goodwill ($120 - $75) 45
of identifiable net assets ($100 times 75) 75Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160 ndash $100) 60
NCI ($160 times 25)(at fair value)
40
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
28
The Acquisition Method
bull Recognising and measuring goodwill or a gain from a bargain purchase
Critical Amendment
bull The acquirer shall recognise goodwill as of the acquisition date measured as the excess of (a) over (b) below a) the aggregate of
i) the consideration transferred measured in accordance with HKFRS 3 which generally requires acquisition-date fair value
ii) the amount of any non-controlling interest in the acquireeIf fair value is adopted it will
Application of the method
copy 2008-10 Nelson Consulting Limited 55
ii) the amount of any non controlling interest in the acquiree measured in accordance with HKFRS 3 and
iii) in a business combination achieved in stages the acquisition-date fair value of the acquirerrsquos previously held equity interest in the acquiree
b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with HKFRS 3 (HKFRS 3 32)
If fair value is adopted it will affect the amount of goodwill
Practices changed
The Acquisition MethodExample
Existing practice
HK$Parentrsquos interest ndash 75 of fairfidentifiable net assets
HK$Fair value of identifiable net a
100Purchase 75 interest in Entit(consideration is $120) 120HK$
Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 a(i)
b
copy 2008-10 Nelson Consulting Limited 56
Goodwill 45
de t ab e et assetsNon-controlling interest 25
145
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
$$(120 + 25) ndash $100
= $45
a(ii)
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
29
The Acquisition MethodExample
Existing practice New alternative(ldquoFull goodwill methodrdquo)
HK$Parentrsquos interest ndash 75 of fair value of identifiable net assets ($100 times 75) 75
HK$Fair value of identifiable net assets of Entity A 100Purchase 75 interest in Entity A (consideration is $120) 120 HK$
HK$
Fair value of Entity A ($120 divide 75) 160a(i)
b
copy 2008-10 Nelson Consulting Limited 57
Goodwill ($120 - $75) 45
o de t ab e et assets ($ 00 5) 5Non-controlling interest ($100 times 25)
(at its proportionate share of Entity Arsquos identifiable net assets)
25
Goodwill ($160ndash$100) 60
NCI ($160 times 25)(at fair value)
40 a(ii)
$$(120 + 25) ndash $100
= $45 $$(120 + 40) ndash $100
= $60
a(ii)
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In a business combination achieved in stages the acquirer shall
ndash remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and
ndash recognise the resulting gain or loss if any in profit or loss (HKFRS 342)
copy 2008-10 Nelson Consulting Limited 58
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
30
The Acquisition Method
bull Additional guidancendash Amended practices on business combination achieved in stages
bull In prior reporting periods the acquirer may have recognised changes in the value of its equity interest in the acquiree in other comprehensive income (for example because the investment was classified as available for sale)
ndash If so the amount that was recognised in other comprehensive income shall be recognised on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest (HKFRS 342)In other words ldquothe amount recognised directly in other comprehensive
copy 2008-10 Nelson Consulting Limited 59
ndash In other words the amount recognised directly in other comprehensive income is reclassified and included in the calculation of the gain or loss recognised in profit or lossrdquo (KPMG-UK 200801)
Improvements to HKFRSs 2009
copy 2008-10 Nelson Consulting Limited 60
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
31
Introduction
bull Annual Improvement Project ndash A vehicle for making non-urgent but necessary
amendments to IFRS (and consequentially HKFRSs)amendments to IFRS (and consequentially HKFRSs)ndash Introduced by the IASB in 2007 and issued each yearndash Improvement to HKFRSs 2009 is the one finalised in
2009bull The project has amended
ndash 10 HKFRSs and 2 HK(IFRIC) Interpretations
copy 2008-10 Nelson Consulting Limited 61
Summary
Amendments toHKFRS 2 Share-based PaymentHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 5 Non-current Assets Held for Sale and Discontinued OperationsHKFRS 8 Operating SegmentsHKAS 1 Presentation of Financial StatementsHKAS 7 Statement of Cash FlowsHKAS 17 LeasesHKAS 18 RevenueHKAS 36 Impairment of Assets
copy 2008-10 Nelson Consulting Limited 62
HKAS 38 Intangible AssetsHKAS 39 Financial Instruments Recognition and MeasurementHK(IFRIC)-Int 9 Reassessment of Embedded DerivativesHK(IFRIC)-Int 16 Hedges of a Net Investment in a Foreign Operation
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
32
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull An entity shall classify a liability as current when
a) it expects to settle the liability in its normal operating cyclea) it expects to settle the liability in its normal operating cycleb) it hold the liability primarily for the purpose of tradingc) The liability is due to be settled within 12 months after the reporting
period ord) It does not have an unconditional right to defer settlement of the
liability for at least 12 months after the reporting period (see HKAS 173)
copy 2008-10 Nelson Consulting Limited 63
bull All other liabilities shall be classified as non-current
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
Amendments to HKAS 1
HKAS 1 Presentation of Financial Statementsbull The IASB concluded that classifying the liability
th b i f th i t t t f h th tndash on the basis of the requirements to transfer cash or other assets ndash rather than on settlement better reflects the liquidity and solvency
position of an entity and therefore it decided to amend IAS 1 (HKAS 1) accordingly
copy 2008-10 Nelson Consulting Limited 64
Terms of a liability that could at the option of the counterparty result in its settlement by the issue of equity instruments do not affect its classification
New requirements
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
33
Amendments to HKAS 1
Transition and Effective Datebull HKAS 169 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 65
Amendments to HKAS 7
HKAS 7 Statements of Cash Flowsbull HKAS 716 is amended by adding the following underlined
sentencesentencendash The separate disclosure of cash flows arising from investing
activities is important because the cash flows represent the extent to which expenditures have been made for resources intended to generate future income and cash flows
ndash Only expenditures that result in a recognised asset in the statement of financial position are eligible for classification as investing activities
copy 2008-10 Nelson Consulting Limited 66
as investing activities helliphellip
p
bull Examples of such expenditures arethose for exploration and evaluation activities which HKFRS 6 permits to be recognised as either an asset or an expense depending on the entityrsquos previous accounting policies for those expendituresexpenditures on advertising and promotional activities staff training and research and development could also raise the same issue
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
34
Amendments to HKAS 7
Effective Datebull HKAS 716 was amended by Improvements to
HKFRSs issued in May 2009
No specific transition stated
HKFRSs issued in May 2009 bull An entity shall apply that amendment for annual
periods beginning on or after 1 January 2010 bull Earlier application is permitted bull If an entity applies the amendment for an earlier
period it shall disclose that fact
Imply Imply RetrospectivelyRetrospectively
Comparatives should be reclassified
copy 2008-10 Nelson Consulting Limited 67
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
copy 2008-10 Nelson Consulting Limited 68
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
35
Amendments to HKAS 17
HKAS 17 Leasesbull Leases of land and of buildings are classified as operating or finance leases in
the same way as leases of other assets However a characteristic of land is that
Do you remember these 2 paragraphs in HKAS 17
the same way as leases of other assets However a characteristic of land is that it normally has an indefinite economic life and if title is not expected to pass to the lessee by the end of the lease term the lessee normally does not receive substantially all of the risks and rewards incidental to ownership in which case the lease of land will be an operating lease A payment made on entering into or acquiring a leasehold that is accounted for as an operating lease represents prepaid lease payments hellip
bull The land and buildings elements of a lease of land and buildings are considered separately for the purposes of lease classification If title to both elements is
bull As part of its annual improvements project in 2007 the IASB reconsidered the decisions it made in 2003 specifically the perceived inconsistency between ‒ the general lease classification guidance in HKAS
177ndash13 and‒ the specific lease classification guidance in HKAS
17 14 and 15 related to long-term leases of land and
copy 2008-10 Nelson Consulting Limited 69
p y p pexpected to pass to the lessee by the end of the lease term both elements are classified as a finance lease helliphellip When the land has an indefinite economic life the land element is normally classified as an operating lease unless title is expected to pass to the lessee by the end of the lease term in accordance with para 14 The buildings element is classified as a finance or operating lease in accordance with para 7ndash13
1714 and 15 related to long-term leases of land and buildings
bull The IASB concluded that the guidance in HKAS 1714 and 15 might lead to a conclusion on the classification of land leases that does not reflect the substance of the transaction
Amendments to HKAS 17
HKAS 17 Leasesbull HKAS 1714 and 15 are deleted and HKAS 1715A is added as follows
Wh l i l d b th l d d b ildi l t titndash When a lease includes both land and buildings elements an entity assesses the classification of each element as a finance or an operating lease separately in accordance with HKAS 177ndash13
ndash In determining whether the land element is an operating or a finance lease an important consideration is that land normally has an indefinite economic life
copy 2008-10 Nelson Consulting Limited 70
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
36
Amendments to HKAS 17Example
bull IASB describes in HKAS 17BC8B and BC8C thatndash For example consider a 999-year lease of land and buildings
bull In this situation significant risks and rewards associated with the landIn this situation significant risks and rewards associated with the land during the lease term would have been transferred to the lessee despite there being no transfer of title
bull The Board noted that the lessee in leases of this type will typically be in a position economically similar to an entity that purchased the land and buildings
bull The present value of the residual value of the property in a lease with a term of several decades would be negligible
bull The Board concluded that the accounting for the land element as a
copy 2008-10 Nelson Consulting Limited 71
bull The Board concluded that the accounting for the land element as a finance lease in such circumstances would be consistent with the economic position of the lessee
Unclear how long the lease term must Unclear how long the lease term must be for the IASB to conclude that a be for the IASB to conclude that a
lessee and a purchaser are in the same lessee and a purchaser are in the same economic positioneconomic position
Amendments to HKAS 17
Transitional Provisionsbull An entity shall reassess the classification of land
elements of unexpired leases at the date it adoptsApplied Applied
RetrospectivelyRetrospectivelyelements of unexpired leases at the date it adopts the amendments referred to in HKAS 1769A (the current amendment) on the basis of information existing at the inception of those leases
bull It shall recognise a lease newly classified as a finance lease retrospectively in accordance with HKAS 8
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 72
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
37
Amendments to HKAS 17
Transitional Provisionsbull However if an entity does not have the
information necessary to apply the amendmentsApplied Applied
RetrospectivelyRetrospectivelyinformation necessary to apply the amendments retrospectively it shalla apply the amendments to those leases on the basis
of the facts and circumstances existing on the date it adopts the amendments and
b recognise the asset and liability related to a land lease newly classified as a finance lease at their fair values on that date any difference between those fair values is recognised in retained earnings
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 73
fair values is recognised in retained earnings
Amendments to HKAS 17
Effective Datebull HKAS 1714 and 15 were deleted and HKAS
17 15A and 68A were added as part ofApplied Applied
RetrospectivelyRetrospectively1715A and 68A were added as part of Improvements to HKFRSs issued in May 2009
bull An entity shall apply those amendments for annual periods beginning on or after 1 January 2010
bull Earlier application is permitted bull If an entity applies the amendments for an earlier
period it shall disclose that fact
RetrospectivelyRetrospectively
copy 2008-10 Nelson Consulting Limited 74
period it shall disclose that fact
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
38
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease
a) the lease transfers ownership of the asset to the lessee by the end of the lease term
b) the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain at the inception of the lease that the option will be exercised
copy 2008-10 Nelson Consulting Limited 75
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at leastsubstantially all of the fair value of the leased asset and
e) the leased assets are of such a specialised nature that only the lessee can use them without major modifications
HKAS 17 Classification of Leases
bull Whether a lease is a finance lease or an operating lease depends on the substance of the transaction rather than the form of the contract
bull Indicators of a finance lease includeIndicators of a finance lease include
FinanceLease Major part
What isLease term Economic lifeInception of a leaseMinimum lease payment helliphellip
copy 2008-10 Nelson Consulting Limited 76
Operating Lease
c) the lease term is for the major part of the economic life of the asset even if title is not transferred
d) at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset and
Substantially all
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
39
Amendments to HKAS 17
Galaxy Entertainment Group Limited(2009 Annual Report)
Case
( p )ndash The Group has early adopted HKAS 17
(Amendment) Leases which is mandatory for accounting periods beginning on and after 1 January 2010 hellip
ndash HKAS 17 (Amendment) requires the Group to reassess the classification of leasehold land as finance or operating lease
copy 2008-10 Nelson Consulting Limited 77
p gbull Upon adoption the opening balances have
been assessed and classified accordingly bull Current year addition to leasehold land has
been classified based on the underlying criteria of HKAS 17
Amendments to HKAS 17Case
bull Note 2 states (for early adoption of Amendment to HKAS 17 in 2009)
Financial Statements 2009
ndash The early adoption of the amendment to HKAS 17 has resulted in a change in accounting policy for the classification of leasehold land of the Group
ndash Previously leasehold land was classified as an operating lease and stated at cost less accumulated amortisation
ndash In accordance with the amendment leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group bull As the present value of the minimum lease payments (ie the transaction
copy 2008-10 Nelson Consulting Limited 78
As the present value of the minimum lease payments (ie the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold
the leasehold land of the Group has been classified as a finance lease The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases The amendment does not apply to the leasehold land disposed of by the Group in prior years
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
40
Amendments to HKAS 18
HKAS 18 Revenuebull Appendix to HKAS 18 is added with Example 21 Determining whether
an entity is acting as a principal or as an agent (2009 amendment)an entity is acting as a principal or as an agent (2009 amendment)bull HKAS 188 states that
ndash ldquoin an agency relationship the gross inflows of economic benefits include amounts collected on behalf of the principal and which do not result in increases in equity for the entity
ndash The amounts collected on behalf of the principal are not revenue ndash Instead revenue is the amount of commissionrdquo
D t i i h th tit i ti i i l t
copy 2008-10 Nelson Consulting Limited 79
bull Determining whether an entity is acting as a principal or as an agent requires judgement and consideration of all relevant facts and circumstances
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as a principal when it has exposure to the significant
risks and rewards associated with the sale of goods or the rendering ofrisks and rewards associated with the sale of goods or the rendering of services
bull Features that indicate that an entity is acting as a principal includea the entity has the primary responsibility
bull for providing the goods or services to the customer or bull for fulfilling the order
for example by being responsible for the acceptability of the products or i d d h d b th t
copy 2008-10 Nelson Consulting Limited 80
services ordered or purchased by the customerb the entity has inventory risk before or after the customer order during
shipping or on returnc the entity has latitude in establishing prices either directly or indirectly for
example by providing additional goods or services andd the entity bears the customerrsquos credit risk for the amount receivable from the
customer
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
41
Amendments to HKAS 18
HKAS 18 Revenuebull An entity is acting as an agent when
it d t h t th i ifi t i k d dndash it does not have exposure to the significant risks and rewards associated with the sale of goods or the rendering of services
bull One feature indicating that an entity is acting as an agent is that ndash the amount the entity earns is predetermined being either
bull a fixed fee per transaction or bull a stated percentage of the amount billed to the customer
copy 2008-10 Nelson Consulting Limited 81
As it is an additional example As it is an additional example no transition and effective no transition and effective
date are stateddate are stated
Todayrsquos Agenda
copy 2008-10 Nelson Consulting Limited 82
Update of Amendments to HKFRS effective after 201011
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
42
Effective Effective after 2010after 2010--12 Year12 Year--EndEndSelected new interpretations and amendments to HKFRSs
bull Amendments to HKAS 32 Classification of Rights Issues
Effective for periods beginning onafter
1 Feb2010
Selected new interpretations and amendments to HKFRSs
Effective for periods beginning onafter
bull HKAS 24(Revised) Related Party Disclosuresbull HKFRS 9 Financial Instrumentsbull Amendments to HK(IFRIC) 14 HKAS 19 mdashThe Limit on a
Defined Benefit Asset Minimum Funding Requirements and their Interaction
bull Amendment to HKFRS 1 First-time Adoption of Hong Kong Financial Reporting Standards ndash Limited Exemption from Comparative HKFRS 7 Disclosures for First-time Adopters
bull Annual Improvements to HKFRSs 2010
1 Jan 20111 Jan 20131 Jan 2011
1 Jul 2010
1 Jan 2011
copy 2008-10 Nelson Consulting Limited 83
bull Annual Improvements to HKFRSs 2010 1 Jan 2011(unless specified)
Updated from HKICPA ldquoHKFRS Updaterdquo 6 Nov 2009
Related Party Disclosures (HKAS 24)
copy 2008-10 Nelson Consulting Limited 84
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
43
Key Amendments
bull Related party ndash Definition changebull Government-related entities ndash Definition and Exemptionbull Commitment is included for disclosurebull Commitment is included for disclosure
copy 2008-10 Nelson Consulting Limited 85
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)a) A person or a close member of that personrsquos family is related to a reportinga) A person or a close member of that person s family is related to a reporting
entity if that personi has control or joint control over the reporting entityii has significant influence over the reporting entity oriii is a member of the key management personnel of the reporting entity or
of a parent of the reporting entity
copy 2008-10 Nelson Consulting Limited 86
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
44
Definition of a Related Party
bull A related party is a person or entity that is related to the entity that is preparing its financial statements (ie reporting entity)b) An entity is related to a reporting entity if any of the following conditionsb) An entity is related to a reporting entity if any of the following conditions
appliesi The entity and the reporting entity are members of the same group (which means
that each parent sub and fellow sub is related to the others)ii One entity is an associate or JV of the other entity (or an associate or JV of a
member of a group of which the other entity is a member)iii Both entities are JV of the same third partyiv One entity is a JV of a third entity and the other entity is an associate of the third
entity
copy 2008-10 Nelson Consulting Limited 87
yv The entity is a post-employment benefit plan for the benefit of employees of either
the reporting entity or an entity related to the reporting entity If the reporting entity is itself such a plan the sponsoring employers are also related to the reporting entity
vi The entity is controlled or jointly controlled by a person identified in (a)vii A person identified in (a)(i) has significant influence over the entity or is a member
of the key management personnel of the entity (or of a parent of the entity)
Definition of a Related Party ndash Key Changes
bull Clearly separate the related party to 2 angles 1) Person (replaced ldquoindividualrdquo as well) and 2) Entity2) Entity
bull Eliminate inconsistencies in the definition and make it symmetricalndash When Entity A is identified as a related party in Entity Brsquos financial
statements Entity B will also be identified as related party in Entity Arsquos financial statements
bull Entities with only ldquocommon significant influencerdquo (no matter from an entity or a person) are not related to each otherH h tit h b th
copy 2008-10 Nelson Consulting Limited 88
bull However whenever a person or entity has both ndash joint control over Entity X and ndash joint control or significant influence over Entity Y
Entity X and Y are related to each other
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
45
Definition of a Related Party ndash Key ChangesExample
Owner X
Entity B
Owner X
Entity A
Significant influence
Control or joint control
copy 2008-10 Nelson Consulting Limited 89
bull Entity A and B are related to each other in both Entity Arsquos and Brsquos financial statements
bull Previously they are not regarded as related parties
Definition of a Related Party ndash Key Changes
bull Remove the term ldquosignificant voting powerrdquo in the definition of a related party
bull Clarify thatClarify that ndash An associate includes subsidiaries of the associate and ndash A joint venture includes subsidiaries of the joint venturendash Two entities are not related parties simply because a member of key
management personnel of one entity has significant influence over the other entity
bull Amended that ndash Close members of the family of an individual are (not may those family
copy 2008-10 Nelson Consulting Limited 90
Close members of the family of an individual are (not may those family members who may be expected to influence or be influenced by that person in their dealings with the entity and include(not ldquomay includerdquo as in previous HKAS 24)a) the personrsquos children and spouse or domestic partnerb) children of the personrsquos spouse or domestic partner andc) dependants of that person or that personrsquos spouse or domestic partner
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
46
Definitions for Other New Terms
bull Governmentndash refers to government government agencies and similar bodies
whether local national or internationalwhether local national or internationalbull A government-related entity
ndash is an entity that is controlled jointly controlled or significantly influenced by a government
copy 2008-10 Nelson Consulting Limited 91
Disclosures ndash Government
bull A reporting entity is exempt from the disclosure requirements of HKAS 2418 (next slide) in relation to related party transactions and outstanding balances including commitments witha) a government that has control joint control
or significant influence over the reporting
copy 2008-10 Nelson Consulting Limited 92
or significant influence over the reporting entity and
b) another entity that is a related party because the same government has control joint control or significant influence over both the reporting entity and the other entity (HKAS 2425)
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
47
Disclosures ndash Government
bull HKAS 2418 disclosures includea) the amount of the transactionsb) the amount of outstanding balances including
Exempt from the following disclosure
b) the amount of outstanding balances including commitments andi) their terms and conditions including whether they
are secured and the nature of the consideration to be provided in settlement and
ii) details of any guarantees given or receivedc) provisions for doubtful debts related to the
amount of outstanding balances and
copy 2008-10 Nelson Consulting Limited 93
amount of outstanding balances andd) the expense recognised during the period in
respect of bad or doubtful debts due from related parties (HKAS 2418)
Disclosures ndash Government
bull If a reporting entity applies the exemption in HKAS 2425 (last slide) it shall disclose the following about the transactions and related outstanding balances referred to in HKAS 2425ga) the name of the government and the nature of its relationship with the
reporting entity (ie control joint control or significant influence)b) the following information in sufficient detail to enable users of the entityrsquos
financial statements to understand the effect of related party transactions on its financial statementsi the nature and amount of each individually
significant transaction andii f th t ti th t ll ti l
Significant
copy 2008-10 Nelson Consulting Limited 94
ii for other transactions that are collectivelybut not individually significantndash a qualitative or quantitative indication of their extent
Types of transactions include those listed in HKAS 2421 (HKAS 2426)
Not significant
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
48
Disclosures ndash Government
bull In using its judgement to determine the level of detail to be disclosed in accordance with the requirements in HKAS 2426(b) the reporting entity shall consider the closeness of the related party relationship and y p y pother factors relevant in establishing the level of significance of the transaction such as whether it is
a) significant in terms of sizeb) carried out on non-market termsc) outside normal day-to-day business operations such as the purchase and
sale of businessesd) disclosed to regulatory or supervisory authorities
copy 2008-10 Nelson Consulting Limited 95
e) reported to senior managementf) subject to shareholder approval (HKAS 2427)
Effective Date and Transition
bull An entity shall apply HKAS 24 retrospectively for annual periods beginning on or after 1 January 2011
bull Earlier application is permitted either ndash of the whole HKAS 24 or ndash of the partial exemption in paragraphs 25-27 for
government-related entities bull If an entity applies either the whole HKAS 24 or that
partial exemption for a period beginning before 1 J 2011
copy 2008-10 Nelson Consulting Limited 96
January 2011 ndash it shall disclose that fact
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
49
Financial Instruments(HKFRS 9)
copy 2008-10 Nelson Consulting Limited 97
Background
bull In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leaders and the recommendations of international bodies ndash the IASB announced an accelerated timetable for
replacing IAS 39 in April 2009 andndash finally IFRS 9 Financial Instruments in Nov 2009
bull HKFRS 9 was issued to maintain international convergence with the issuance of IFRS 9
copy 2008-10 Nelson Consulting Limited 98
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
50
Background
bull HKFRS 9 issued so far includes only the chapters relating to the classification and measurement of financial assets
Financial Assets Financial Assets OnlyOnly
ndash HKFRS 9 addressed those matters first because they form the foundation of a standard on reporting financial instruments
ndash Moreover many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in HKAS 39
copy 2008-10 Nelson Consulting Limited 99
Structure of HKFRS 9
Chapters1 Objective2 S2 Scope3 Recognition and Derecognition4 Classification5 Measurement6 Hedge Accounting (not used yet)7 Disclosures (not used yet)8 Eff ti D t d T iti
copy 2008-10 Nelson Consulting Limited 100
8 Effective Date and Transition
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
51
Chapter 1 and 2
Objectivebull The objective of HKFRS 9 is to establish principles for
the financial reporting of financial assets that willthe financial reporting of financial assets that will present relevant and useful information to users of financial statements for their assessment of the amounts timing and uncertainty of the entityrsquos future cash flows (para 11)
Scopebull An entity shall apply HKFRS 9 to all assets within the
scope of HKAS 39 Financial Instruments Recognition
copy 2008-10 Nelson Consulting Limited 101
scope of HKAS 39 Financial Instruments Recognition and Measurement (para 21)
Chapter 3 Recognition amp Derecognition
Recognition and Derecognitionbull An entity shall recognise a financial asset in its
statement of financial position when and onlystatement of financial position when and only when ndash the entity becomes party to the contractual
provisions of the instrument bull When an entity first recognises a financial asset
it shall ndash classify it in accordance with paragraphs 41-45
and
Amended(Ch 4 of HKFRS 9)
Same as before
copy 2008-10 Nelson Consulting Limited 102
andndash measure it in accordance with paragraph 511
bull A regular way purchase or sale of a financial assetndash shall be recognised and derecognised in
accordance with paragraphs 38 and AG53ndashAG56 of HKAS 39 (para 311 to 312)
Same as before
Amended(Ch 5 of HKFRS 9)
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
52
Chapter 4 Classification
bull Unless para 45 of HKFRS 9 (so-called ldquofair value optionrdquo) applies an entity shall classify financial assets as subsequently measured at either ndash amortised cost orndash fair value
on the basis of botha) the entityrsquos business model for managing the financial assets andb) the contractual cash flow characteristics of the financial asset
(para 41)
copy 2008-10 Nelson Consulting Limited 103
Amortised cost Fair value
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 104
Through other comprehensive income
Amortised cost Fair value
No
Through profit or loss
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
53
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A financial asset shall be measured at amortised cost if both of the following conditions are met
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
ga the asset is held within a business
model whose objective is to hold assets in order to collect contractual cash flows
b the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the
copy 2008-10 Nelson Consulting Limited 105
Amortised cost
of principal and interest on the principal amount outstanding (para 42)
Chapter 4 Classification
Held within a business model whose
bull Assesses the basis of the objective of the business model as determined by the entityrsquos key management
objective is to hold assets in order to collect contractual cash flows
bull The entityrsquos business model does not depend on managementrsquos intentions for an individual instrument ndash Accordingly this condition is not an instrument-by-instrument approach to
classification and should be determined on a higher level of aggregation
y y y gpersonnel (as defined in HKAS 24 Related Party Disclosures)(para B41)
copy 2008-10 Nelson Consulting Limited 106
classification and should be determined on a higher level of aggregation ndash However a single entity may have more than one business model for
managing its financial instruments ndash Therefore classification need not be determined at the reporting entity level
(paraB42)
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
54
Chapter 4 Classification
Held within a business model whose
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
bull Interest is consideration ndash for the time value of money and ndash for the credit risk associated with the
principal amount outstanding during a particular period of time (para 43)
objective is to hold assets in order to collect contractual cash flows
Yes
copy 2008-10 Nelson Consulting Limited 107
bull Contractual cash flows are assessed on the currency in which the financial asset is denominated (para B48)
Chapter 4 Classification
bull Financial assets including leveragedo not meet this condition and cannot be subsequently measured at
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
q yamortised costndash Leverage increases the variability of
the contractual cash flows with the result that they do not have the economic characteristics of interest
ndash Stand-alone option forward and swap contracts are examples of financial assets that include leverage
copy 2008-10 Nelson Consulting Limited 108
assets that include leverage (para B49)
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
55
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose Noobjective is to hold assets in order to
collect contractual cash flowsYes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
No
bull A financial asset shall be measured at fair value
copy 2008-10 Nelson Consulting Limited 109
Fair value
ndash unless it is measured at amortised cost in accordance with para 42(para 44)
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull Notwithstanding para 41-44 an entity may at initial recognition designate a financial asset as
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
gmeasured at fair value through profit or loss ndash if doing so eliminates or significantly
reduces a measurement or recognition inconsistency (ie an ldquoaccounting mismatchrdquo) (para 45)
copy 2008-10 Nelson Consulting Limited 110
Amortised cost Fair value
No
Through profit or loss
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
56
Chapter 4 ClassificationAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose No
Reclassification Reclassification restricted to change in restricted to change in
business modelbusiness model
Fair value optionYes
objective is to hold assets in order to collect contractual cash flows
Yes
No
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
No
copy 2008-10 Nelson Consulting Limited 111
Amortised cost Fair value
No
bull When and only when an entity changes its business model for managing financial assets it shall reclassify all affected financial assets in accordance with para 41ndash44 (para 49)
Chapter 4 Classification
bull HKFRS 9 requires an entity to reclassify financial assets if the objective of the entityrsquos business model for managing those financial assets changes gndash Such changes are expected to be very infrequent ndash Such changes
bull must be determined by the entityrsquos senior management as a result of external or internal changes and
bull must be significant to the entityrsquos operations and demonstrable to external parties (para B59)
copy 2008-10 Nelson Consulting Limited 112
Amortised cost Fair value
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
57
Chapter 4 ClassificationCase
Financial statements 2009 states thatbull In the fourth quarter of 2009 the Group early adopted all newrevised HKFRSsIn the fourth quarter of 2009 the Group early adopted all newrevised HKFRSs
issued up to 31 December 2009 which were pertinent to its operations where early adoption is permitted
bull The applicable HKFRSs are set out below‒ HKFRS 9 Financial Instruments helliphellip
bull HKFRS 9 is the first part of a project to replace HKAS 39 Financial Instruments Recognition and Measurement and it replaces the classification and measurement requirements in HKAS 39 for financial assets
copy 2008-10 Nelson Consulting Limited 113
Amortised cost Fair value
Chapter 4 ClassificationCase
bull Previously financial assets of the Group were classified as financial assets atFinancial statements 2009 states that
Previously financial assets of the Group were classified as financial assets atndash fair value through profit or loss ndash available-for-sale financial assets or ndash loans and receivables (which included bank deposits) helliphellip
bull The early adoption of HKFRS 9 has resulted in a change in accounting policy and financial assets are classified into ndash financial assets measured at fair value through profit or loss or
fi i l t d t ti d t
copy 2008-10 Nelson Consulting Limited 114
ndash financial assets measured at amortised cost
Amortised cost Fair value
Through profit or loss
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
58
Chapter 4 ClassificationCase
copy 2008-10 Nelson Consulting Limited 115
Chapter 5 Measurement
Initial measurement (same as HKAS 39)bull At initial recognition an entity shall measure a financial asset at
it f i l lndash its fair value plusndash in the case of a financial asset not at fair value through profit or loss
transaction costs that are directly attributable to the acquisition of the financial asset (para 511)
copy 2008-10 Nelson Consulting Limited 116
Initial MeasurementFair Value
Transaction Cost+
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
59
Chapter 5 Measurement
Subsequent Measurementbull After initial recognition an entity shall measure financial assets in
accordance with para 4 1 -4 5 (as discussed above) ataccordance with para 41 -45 (as discussed above) at ndash fair value or ndash amortised cost (para 521)
bull An entity shall apply the impairment requirements of HKAS 39 to all financial assets measured at amortised cost (para 522)
No impairment requirements on financial assets measured at fair valuebull An entity shall apply the hedge accounting requirements of HKAS 39 to
copy 2008-10 Nelson Consulting Limited 117
financial assets that are designated as hedged items (para 523)
Amortised cost Fair value
Through other comprehensive income Through profit or loss
Chapter 5 MeasurementAssets within the scope of HKAS 39
classified on initial recognition
Held within a business model whose
bull A gain or loss on a financial asset that is measured at amortised cost and is not part of a hedging relationship
Fair value option
objective is to hold assets in order to collect contractual cash flows
Yes
Assetrsquos terms give rise on specified dates to cash flows that are solely payments of principal and interest
Yes
p g g pndash shall be recognised in profit or loss
bull when the financial asset is derecognised impaired or reclassified and through the amortisation process (para 542)
copy 2008-10 Nelson Consulting Limited 118
Amortised cost
No
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
60
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationshipYes Hedge accounting
Fair value optionYes
Equity instrument
Elected to present gains and losses in
No
Yes
No
No
Part of hedging relationship
No(IAS 3989 to 102)
copy 2008-10 Nelson Consulting Limited 119
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
For those classified as measured at fair value
Chapter 5 Measurement
Part of hedging relationship
bull A gain or loss on a financial asset that is measured at fair value and is not part of a hedging relationship
Fair value option
Equity instrument
Elected to present gains and losses in
Yes
No
Part of hedging relationship
No
p g g pndash shall be recognised in profit or lossndash unless
bull the financial asset is an investment in an equity instrument and
bull the entity has elected to presentgains and losses on that investment in other comprehensive
copy 2008-10 Nelson Consulting Limited 120
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
income (para 541)
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
61
Chapter 5 Measurement
bull At initial recognition an entity may make an irrevocable election tondash present in other comprehensive income subsequent changes in the fair value
of an investment in an equity instrument within the scope of HKFRS 9 that
Equity instrument
Elected to present gains and losses in
Yes
q y pare not held for trading (para 544)
bull If an entity makes such election it shall recognise in profit or loss dividends from that investment when the entityrsquos right to receive payment of the dividend is established in accordance with HKAS 18 Revenue (para 545)
No
No
copy 2008-10 Nelson Consulting Limited 121
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value throughprofit or loss
Fair value through other comprehensive income
No
Yes
No
Chapter 5 Measurement
bull Such irrevocable election (presenting fair value changes in other comprehensive income)
Equity instrument
Elected to present gains and losses in
Yes
ndash is made on an instrument-by-instrument (ie share-by-share) basis
bull Amounts presented in other comprehensive income shall not be subsequently transferred to profit or loss ndash However the entity may transfer the
cumulative gain or loss within equity (e g transfer between reserves)
copy 2008-10 Nelson Consulting Limited 122
Elected to present gains and losses in other comprehensive income
Held for trading
Yes
Fair value through other comprehensive income
No
(eg transfer between reserves)bull Dividends on such investments are
recognised in profit or loss in accordance with HKAS 18 Revenue ndash unless the dividend clearly represents
a recovery of part of the cost of the investment (para B512)
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
62
Chapter 5 Measurement
bull Under HKFRS 9 amount presented in other comprehensive income shall not be subsequently transferred to profit or lossndash Implies that
Equity instrument
pbull no recycling of any fair value change on those financial assets measured at fair
value through other comprehensive income to profit or loss (or income statement)bull no gain or loss will be recognised in profit or loss (or income statement) on
derecognition of such investments in equity instruments
copy 2008-10 Nelson Consulting Limited 123
Fair value throughprofit or loss
Fair value through other comprehensive income
Chapter 6 and 7
bull Chapter 6 and 7 not yet usedndash As hedge accounting and disclosure not yet
introducedintroduced
copy 2008-10 Nelson Consulting Limited 124
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
63
Chapter 8 Effective Date amp Transition
Effective datebull An entity shall apply HKFRS 9 for annual periods
beginning on or after 1 January 2013beginning on or after 1 January 2013 bull Earlier application is permitted bull If an entity applies HKFRS 9 in its financial
statements for a period beginning before 1 January 2013 ndash it shall disclose that fact and at the same time apply
the amendments in Appendix C (ie Amendments to other HKFRSs) (para 8 1 1)
copy 2008-10 Nelson Consulting Limited 125
other HKFRSs) (para 811)
Chapter 8 Effective Date amp Transition
Transitionbull An entity shall apply HKFRS 9 retrospectively in
accordance with HKAS 8 except as specified inaccordance with HKAS 8 except as specified in paragraphs 824ndash8213
bull HKFRS 9 shall not be applied to financial assets that have already been derecognised at the date of initial application (para 821)
copy 2008-10 Nelson Consulting Limited 126
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
64
Chapter 8 Effective Date amp Transition
bull The date of initial application is the date when an entity first applies the requirements of HKFRS 9
Transition
requirements of HKFRS 9 bull The date of initial application may be
a For entities initially applying HKFRS 9 before 1 January 2011any date between the issue of HKFRS 9 and 31 December 2010 or
b For entities initially applying HKFRS 9 on or after 1 January 2011the beginning of the first reporting period in which the entity adopts HKFRS 9 (para 822)
copy 2008-10 Nelson Consulting Limited 127
bull If the date of initial application is not at the beginningof a reporting period ndash the entity shall disclose
bull that fact andbull the reasons for using that date of initial application
Chapter 8 Effective Date amp Transition
bull Notwithstanding the requirement in paragraph 821 an entity that adopts HKFRS 9 for reporting periods
Transition
an entity that adopts HKFRS 9 for reporting periods beginning before 1 January 2012
need not restate prior periodsbull If an entity does not restate prior periods the entity
shall recognise any difference between ndash the previous carrying amount and ndash the carrying amount at the beginning of the
copy 2008-10 Nelson Consulting Limited 128
annual reporting period that includes the date of initial application
in the opening retained earnings (or other component of equity as appropriate) of the reporting period that includes the date of initial application (para 8212)
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
65
Chapter 8 Effective Date amp TransitionCase
bull As HKFRS 9 was only issued in November 2009 the Group first applied theFinancial statements 2009 states that
As HKFRS 9 was only issued in November 2009 the Group first applied the requirements of HKFRS 9 on 31 December 2009 which was not at the beginning of the reporting period helliphellip
bull Under the transitional provisions HKFRS 9 was applied to financial assets extant at the date of initial application (ie 31 December 2009) and comparative figures were not restated
bull No adjustments to retained earnings or revaluation reserves were required as at 1 January 2009 because the available-for-sale financial assets as at 31 December 2009 solely comprised those assets purchased during 2009 and
copy 2008-10 Nelson Consulting Limited 129
December 2009 solely comprised those assets purchased during 2009 and ndash there was no reclassification from financial assets at fair value through profit
or loss to financial assets measured at amortised cost or from loans and receivables to financial assets measured at fair value through profit or loss at that date
bull There are consequential amendments to certain provisions of HKFRS 7 which the Group has also early adopted in the accounts
Financial Instruments(HKFRS 9)
Consequential Amendments to HKFRS 7Consequential Amendments to HKFRS 7 Financial Instruments Disclosure
copy 2008-10 Nelson Consulting Limited 130
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
66
Additional Disclosures in HKFRS 7
bull In addition to the amended disclosures resulted from the amended classification of financial assets in HKFRS 9 ndash HKFRS 7 is mainly amended to require
additional disclosure in respect of 1 Financial assets measured at fair value
through other comprehensive income (OCI)
2 Reclassification
copy 2008-10 Nelson Consulting Limited 131
Additional Disclosures in HKFRS 7
bull If an entity has designated investments in equity instruments to be measured at fair value through other comprehensive income as
For Financial Assets Measured at Fair Value Through OCI
measured at fair value through other comprehensive income as permitted by para 544 of HKFRS 9 it shall disclosea which investments in equity instruments have been designated to be
measured at fair value through other comprehensive incomeb the reasons for using this presentation alternativec the fair value of each such investment at the end of the reporting periodd dividends recognised during the period showing separately
those related to investments derecognised during the reporting period
copy 2008-10 Nelson Consulting Limited 132
bull those related to investments derecognised during the reporting period and
bull those related to investments held at the end of the reporting periode any transfers of the cumulative gain or loss within equity during the period
including the reason for such transfers (HKFRS 711A)Fair value through
other comprehensive income
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
67
Additional Disclosures in HKFRS 7
bull If an entity derecognised investments in equity instruments measured at fair value through other comprehensive income during the reporting
For Financial Assets Measured at Fair Value Through OCI
at fair value through other comprehensive income during the reporting period it shall disclosea the reasons for disposing of the investmentsb the fair value of the investments at the date of derecognitionc the cumulative gain or loss on disposal (HKFRS 711B)
copy 2008-10 Nelson Consulting Limited 133
Fair value through other comprehensive income
Additional Disclosures in HKFRS 7
bull An entity shall disclose if in the current or previous reporting periods it has reclassified any financial assets in accordance with para 4 9 of
For Reclassification
has reclassified any financial assets in accordance with para 49 of HKFRS 9
bull For each such event an entity shall disclosea the date of reclassificationb a detailed explanation of the change in business model and a qualitative
description of its effect on the entityrsquos financial statementsc the amount reclassified into and out of each category (HKFRS 712B)
copy 2008-10 Nelson Consulting Limited 134
Amortised cost Fair value
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
68
Additional Disclosures in HKFRS 7
bull For each reporting period following reclassification until derecognition an entity shall disclose for assets reclassified so that they are
For Reclassification
an entity shall disclose for assets reclassified so that they are measured at amortised cost in accordance with para 49 of HKFRS 9a the effective interest rate determined on the date of reclassification andb the interest income or expense recognised (HKFRS 712C)
copy 2008-10 Nelson Consulting Limited 135
Amortised cost Fair value
Additional Disclosures in HKFRS 7
bull If an entity has reclassified financial assets so that they are measured at amortised cost since its last annual reporting date it shall disclose
For Reclassification
at amortised cost since its last annual reporting date it shall disclosea the fair value of the financial assets at the end of the reporting period andb the fair value gain or loss that would have been recognised in profit or loss
during the reporting period if the financial assets had not been reclassified(HKFRS 712D)
copy 2008-10 Nelson Consulting Limited 136
Amortised cost Fair value
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
69
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
copy 2008-10 Nelson Consulting Limited 137
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
Financial Reporting Update5 June 2010
Full version of slides in PDF can be found in wwwNelsonCPAcomhk
QampA SessionQampA SessionQampA SessionQampA Session
copy 2008-10 Nelson Consulting Limited 138
Nelson LamNelson Lam 林智遠林智遠nelsonnelsoncpacomhkwwwNelsonCPAcomhkwwwFacebookcomNelsonCPA
top related