practical issues in new hkfrs and co - nelson … · practical issues in new hkfrs and co ......

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20132016NelsonConsultingLimited 1

PracticalIssuesinNewHKFRSandCO2June2016

LAMChiYuenNelsonCFACharterHolder,FCPA(Practising)MBAMScBBAACISACSCGMACPA(U.S.)CTAFCAFCCAFCPA(Aust.)FHKIoD FSCAFTIHKMHKSI


Effectivefor2015Dec.YearEnd

AmendmentstoHKAS19(2011) EmployeeBenefits DefinedBenefitPlans:EmployeeContributions

AnnualImprovements20102012Cycle AnnualImprovements20112013Cycle SMEFRFandSMEFRS(Revised2014)(pursuanttotheNew

CompaniesOrdinance(Cap.622)effectivefrom3Mar.2014)

AccountingBulletin5GuidanceforthePreparationofaBusinessReviewundertheHongKongCompaniesOrdinanceCap.622

AccountingBulletin6GuidanceontheRequirementsofSection436oftheHongKongCompaniesOrdinanceCap.622

1Jul. 2014

1Jul. 2014(orother) 1Jul. 2014(orother) 3Mar. 2014(early

applicationnotallowed)

Selected new interpretations and amendments to HKFRSs

Effective for periods beginning on/after

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Effectivefor2016Dec.YearEnd

Amendments to HKFRS 11 Accounting for Acquisitions of Interests in Joint Operations

Amendments to HKAS 16 and HKAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation

Amendments to HKAS 16 and HKAS 41 Agriculture: Bearer Plants

Amendments to HKAS 27 Equity Method in Separate Financial Statements

Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

Annual Improvements to HKFRSs 2012-2014 Cycle Amendments to HKAS 1 Disclosure Initiative Amendments to HKFRS 10 and 12 and HKAS 28 Investment

Entities: Applying the Consolidation Exception HKFRS 14 Regulatory Deferral Accounts

1 Jan.2016

1 Jan.2016

1 Jan.2016

1 Jan.2016

1 Jan.2016

1 Jan.2016 (or other) 1 Jan.2016 1 Jan.2016

1 Jan.2016



UpdatedtoHKICPAUpdateNo.184of24May2016


Effectiveafter2016Dec.YearEnd

HKFRS 9 (2014) Financial Instruments HKFRS 15 Revenue from Contracts with Customers Amendments to HKFRS 15 Effective Date of HKFRS 15 Revenue

from Contracts with Customers Amendments to HKFRS for Private Entities HKFRS 16 Leases

1 Jan. 2018 1 Jan. 2017 1 Jan. 2018

1 Jan. 2017 1 Jan. 2019



UpdatedtoHKICPAUpdateNo.184of24May2016

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PracticalIssuesonNewCORelevanttoFinancialReporting

TodaysAgenda

PracticalIssuesonNewHKFRS


TodaysAgenda

Full Presentation and Sample Financial Statements can be found in:

www.Facebook.com/NelsonCFA



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TodaysAgenda


PracticalIssuesonNewCo.Ordinance

ImpactonFinancialStatements AdoptionofSMEFRS Section379:Directorsmustpreparefinancialstatements

(andconsolidationexemption) Section380:Generalrequirementsforfinancialstatements Section383:Disclosureofemolumentsandothermattersrelatingto

directors Schedule4andSection387

ImpactonDirectorsReport BusinessReviewandAG5 Section436andAG6

ImpactonFinancialStatements

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AdoptionofSMEFRS:CriteriaCompany Qualifying ConditionsA. Aprivateco.isasmallprivate co.,

orAprivateco.isthe holdingco.ofagroupofsmallprivatecompanies

Sizetest, meetingany2ofthefollowing:i. Revenuelessthan$100M,ii. Assetslessthan $100M,iii. Employeelessthan100

B. Aneligible privateco.,orAneligibleprivateco.istheholdingco.ofagroupofeligibleprivatecompanies

Sizetest, meetingany2ofthefollowing:i. Revenuelessthan$200M,ii. Assetslessthan$200M,iii. Employeelessthan100

75%membersapprovalwithoutanymemberobjection

C. A"smallguaranteeco.,orAguaranteeco. istheholdingco.ofa"groupofsmallguaranteecompanies"

Sizetest, revenuelessthan$25M

D. Optionsimilartos.141DofCap.32 S.359(1)(b)


AdoptionofSMEFRS:Criteria

ShareholderApproval TheNewCOFAQQ7 oftheCompanies

Registryalsoclarifiesthat: Sections360(1)and(2)requirea

resolutionpassedbythemembersholdingatleast75%ofthevotingrightsinthecompany,i.e.75%ofthevotingrightsofallmembersofthecompany.

Source:CRwebsite(Lastrevisiondate:27April2016)

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Source:CRwebsiteasat23October2015

Isitcorrect?



ThenewCO(CAP622),Section2:bodycorporate ()

(a)includes(i)acompany;and(ii)acompanyincorporatedoutsideHongKong;but

(b)excludesacorporationsole;company ()means

(a)acompanyformedandregisteredunderthisOrdinance;or(b)anexistingcompany;

existingcompany ()meansacompanyformedandregisteredunderaformerCompaniesOrdinance

Isitcorrect?

Youmakeyourowndecision

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Isthereanyrequirementtodeliveracopyoftheagreement(Section359(1)(b)(iii))ortheresolution(Sections360(1)and(2))totheRegistrarofCompaniesforregistration? TheNewCOFAQQ8oftheCompaniesRegistryclarifiesthat:

Yes.Acompanymustdeliver acopyof anagreementmade forthepurposesofsection359(1)(b)(iii) or aresolutionpassed forthepurposesofsection360(1)or(2)totheRegistrarforregistrationrespectivelywithin15daysafteritismadeorpassed pursuanttosections622(1)(e)and(f) ofthenewCO.




Noparornonominalvalueregime(effectiveon3March2014) TerminologyupdatedtoHKFRSs

Financialstatements,consolidatedfinancialstatements,statementofcomprehensiveincome,statementoffinancialposition

Section379.Directormustpreparefinancialstatements Section379(1):Acompanysdirectorsmustprepareforeachfinancialyear

statements thatcomplywithsections380and383. Section379(2):Despitesubsection(1),ifthecompanyisaholding

companyattheendofthefinancialyear,thedirectorsmustinsteadprepareforthefinancialyearconsolidatedstatements thatcomplywithsections380,381and383.


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Exemptions frompreparingconsolidatedfinancialstatements Section379(3)(a):awhollyownedsubsidiary ofanotherbodycorporate Section379(3)(b):if

apartiallyownedsubsidiary ofanotherbodycorporate; atleast6monthsbeforeyearend,notifythemembersinwriting ofthe

intentionnottoprepareconsolidatedstatementsforthatyearonly;and 3monthsbeforeyearend,nomemberhasrespondedawrittenrequest

forthepreparationofconsolidatedstatementsforthatyear




Section379.Directormustpreparefinancialstatements Section379(4):If,asrespectsanyfinancialstatementsacopyofwhichis

laidbeforeacompanyingeneralmeetingundersection429,orsenttoamemberundersection430orotherwisecirculated,publishedorissuedbythecompany,adirectorofthecompanyfailstotakeallreasonablestepstosecurecompliancewithsubsection(1)or(2),thedirector commitsanoffence and isliabletoafineof$300,000.


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Section379.Directormustpreparefinancialstatements Section379(5):If,asrespectsanyfinancialstatementsacopyofwhichis

laidbeforeacompanyingeneralmeetingundersection429,orsenttoamemberundersection430orotherwisecirculated,publishedorissuedbythecompany,adirectorofthecompanywilfully failstotakeallreasonablestepstosecurecompliancewithsubsection(1)or(2),thedirector commitsanoffence and isliable

toafineof$300,000 and toimprisonmentfor12months.




Section380.Generalrequirementsforfinancialstatements LegalbackingtoHKFRSs(withprosandcons) LengthylistofdisclosureinTenthScheduleoftheoldCO(Cap.32)fully

deleted


SFSPage5

SFSPage6

Example

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Section380.Generalrequirementsforfinancialstatements LegalbackingtoHKFRSs(withprosandcons) LengthylistofdisclosureinTenthScheduleoftheoldCO(Cap.32)fully

deleted


SFSPage20

Example




SFSPage4

Section380.Generalrequirementsforfinancialstatements(4) Thefinancialstatementsforafinancialyearmustalsocomplywith

(a) anyotherrequirementsofthisOrdinanceinrelationtothefinancialstatements;and

(b) theaccountingstandards applicabletothefinancialstatements.

Example

SFSPage4

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Q&Arelatingtoconsol.andco.levelfinancialstatementspreparedunderPart9ofthenewCO(dated25.1.16byHKICPA) Topic1Applicationofsection379 Question1.5:Identifyingtherelevant

accountingstandardswhenaholdingcompanypreparescompanylevelfinancialstatementsinaccordancewithsection379(3) Theholdingcompanycanexemptfrompreparationofconsolidatedfinancialstatementsundersection379(3),butforexample,thecriteriainHKFRS10.4(a)(iv)wouldnotbemetinthefollowingsituations:(a)theholdingco.isawhollyownedsubsidiaryofaprivateHKincorporatedco.

whichisnotrequiredtofileitsfinancialstatementsonpublicrecord;or(b)theholdingco.isawhollyownedsubsidiaryofaUSparentwhichissuesUS

GAAPfinancialstatementsbutdoesnotissueIFRSfinancialstatements. Insuchcaseswhichaccountingstandardsaretheapplicable

accountingstandardsforthepurposesofcomplyingwiths380(4)(b) oftheCOifthecompanyfollowstherequirementsofs379(3)?

Source:HKICPAwebsiteasat12April2016



Summaryofanswers: s379 determineswhichtypeoffinancialstatementsneedtobeprepared

(companylevelorconsolidated)and s380 thencontainsthegeneralrequirementsforfinancialstatements

beingtherequirementsforthecontentsofthosefinancialstatements(companylevelorconsolidated)asarerequiredtobepreparedunders379

(asaresult)thecompany,asaholdingcompany,shallaccountforinvestmentsinsubsidiarieseitheratcostorinaccordancewithHKFRS9initscompanylevelfinancialstatements ifthecompanydoesnotelecttoaccountfortheinvestmentsusingtheequitymethodaspermittedbyparagraph10(c)ofHKAS27SeparateFinancialstatements.

Inaddition,asthefinancialstatementsarepreparedinrespectoftheholdingcompanyonly,thedisclosuresrequiredbyHKFRS12DisclosuresofInterestsinOtherEntities arenotapplicable

Fordetails,pleaserefertooriginalQ&AinHKICPAswebsite

Summaryofanswers: s379 determineswhichtypeoffinancialstatementsneedtobeprepared

(companylevelorconsolidated)and s380 thencontainsthegeneralrequirementsforfinancialstatements

beingtherequirementsforthecontentsofthosefinancialstatements(companylevelorconsolidated)asarerequiredtobepreparedunders379

(asaresult)thecompany,asaholdingcompany,shallaccountforinvestmentsinsubsidiarieseitheratcostorinaccordancewithHKFRS9initscompanylevelfinancialstatements ifthecompanydoesnotelecttoaccountfortheinvestmentsusingtheequitymethodaspermittedbyparagraph10(c)ofHKAS27SeparateFinancialstatements.

Inaddition,asthefinancialstatementsarepreparedinrespectoftheholdingcompanyonly,thedisclosuresrequiredbyHKFRS12DisclosuresofInterestsinOtherEntities arenotapplicable

Fordetails,pleaserefertooriginalQ&AinHKICPAswebsite

Source:HKICPAwebsiteasat12April2016

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However,pleasenotethat HKAS1.16states:

AnentitywhosefinancialstatementscomplywithHKFRSsshallmakeanexplicitandunreservedstatementofsuchcomplianceinthenotes.

AnentityshallnotdescribefinancialstatementsascomplyingwithHKFRSsunlesstheycomplywithalltherequirementsofHKFRSs.

HKFRSforPEparagraph3.3states AnentitywhosefinancialstatementscomplywiththeHKFRSfor

PrivateEntitiesshallmakeanexplicitandunreservedstatementofsuchcomplianceinthenotes.

FinancialstatementsshallnotbedescribedascomplyingwiththeHKFRSforPrivateEntitiesunlesstheycomplywithalltherequirementsofthisHKFRS.

Youmakeyourowndecision




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Section381.Subsidiaryundertakingstobeincludedinannualconsolidatedfinancialstatements Section381(1):Subjecttosubsections(2)and(3),theannualconsolidated

financialstatementsforafinancialyearmustincludeallthesubsidiaryundertakingsofthecompany.

Section381(2):Wherethecompanyfallswithinthereportingexemptionforthefinancialyear,oneormoresubsidiaryundertakingsmaybeexcludedfromtheannualconsolidatedfinancialstatementsincompliancewiththeaccountingstandardsapplicabletothestatements.




Section381.Subsidiaryundertakingstobeincludedinannualconsolidatedfinancialstatements Section381(3):Wherethecompanydoesnotfallwithinthereporting

exemptionforthefinancialyear(a) onesubsidiaryundertakingmaybeexcluded fromtheannual

consolidatedfinancialstatementsiftheinclusionofthesubsidiaryundertakingisnotmaterial forthepurposeofgivingatrueandfairviewofthefinancialposition,andofthefinancialperformance,mentionedinsection380(2)(a)and(b);and

(b) morethanonesubsidiaryundertakingmaybeexcluded fromtheannualconsolidatedfinancialstatementsiftheinclusionofthosesubsidiaryundertakingstakentogetherisnotmaterial forthepurposeofgivingatrueandfairviewofthefinancialposition,andofthefinancialperformance,mentionedinsection380(2)(a)and(b).


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Disclosureofemolumentsandothermattersrelatingtodirectors Section383(1) requirestheinformationprescribedbytherelevant

Regulationaboutthefollowingitemstobedisclosedinthenotes:a. thedirectors'emoluments;b. thedirectors'retirementbenefits;c. paymentsmadeorbenefitprovidedinrespectoftheterminationofthe

serviceofdirectors (inthedirectorsorothercapacitywhiledirectors);d. loans,quasiloansandotherdealings infavourof(i)directorsofthe

companyandaholdingcompanyofthecompany;(ii)bodiescorporatecontrolledbysuchdirectors;(iii)entitiesconnectedwithsuchdirectors;

e. materialinterestsofdirectorsintransactions,arrangementsorcontracts enteredintobythecompanyoranothercompanyinthesamegroupofcompanies;

f. considerationprovidedtoorreceivablebythirdparties formakingavailabletheservicesofapersonasadirectororinanyothercapacitywhiledirector.


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ImpactonFinancialStatementsCaseCase

LenovoGroupLimited(incorporatedinHK)Note11a(extract)toAnnualReportasat31March2015



ChinaMotorBusCompany,Limited(incorporatedinHK)Note6a(extract)toAnnualReportasat30June2015

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SFSPage34

Example

SFSPage22



IntroduceSchedule4totheNewCO(Cap.622) Part1(forallcompanies,asalsorelevanttoanddiscussedintherevised

SMEFRS) Part2(forcompanieswithoutReportingExemptions)


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Schedule4 AccountingDisclosures Part1 DisclosuresforCompanieswhetherornotFallingwithinReportingExemption1. Aggregateamountofauthorizedloans

Thefinancialstatementsforafinancialyearmustcontain,underseparateheadings,theaggregateamountofanyoutstandingloansmadeundertheauthorityofsections 280(i.e.exceptionforemployeeshareschemes,blanketadded) and 281(i.e.exceptionforloanstoemployees,blanketadded)duringthefinancialyear.



Schedule4 AccountingDisclosures Part1 DisclosuresforCompanieswhetherornotFallingwithinReportingExemption2.Statementoffinancialpositiontobecontainedinnotestoannual

consolidatedfinancialstatements(1) Theannualconsolidatedfinancialstatementsforafinancialyear

(a) mustcontain,inthenotestothestatements,theholdingcompanysstatementoffinancialposition forthefinancialyear;and

(b) mustincludeanotedisclosingthemovementintheholdingcompanysreserves.

(2) Despitesection380(4),theholdingcompanysstatementoffinancialpositiontobecontainedinthenotestotheannualconsolidatedfin.statementsforafinancialyearisnotrequiredtocontainanynotes.

(3) Thatstatementoffinancialpositionmustbeintheformatinwhichthatstatementwouldhavebeenpreparediftheholdingcompanyhadnotbeenrequiredtoprepareanyannualconsolidatedfinancialstatements forthefinancialyear.

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ChinaMotorBusCompany,Limited(incorporatedinHK)Note23(extract)toAnnualReportasat30June2015

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Schedule4 AccountingDisclosures Part1 DisclosuresforCompanieswhetherornotFallingwithinReportingExemption3.Subsidiarysfinancialstatementsmustcontainparticularsofultimate

parentundertaking(1)Thissectionappliesif,attheendofafinancialyear,acompanyisthe

subsidiaryofanotherundertaking.(2)Thecompanysfinancialstatementsforthefinancialyearmustcontain,inthe

notestothestatements(a) thenameoftheundertaking regardedbythedirectorsasbeingthe

companysultimateparentundertaking;and(b) thefollowinginformationrelatingtothatundertaking asknowntothe

directors(i)ifthatundertakingisabodycorporate,thecountryinwhichitis

incorporated;(ii)ifthatundertakingisnotabodycorporate,theaddressofitsprincipal

placeofbusiness.

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Schedule4 AccountingDisclosures Part1 DisclosuresforCompanieswhetherornotFallingwithinReportingExemption4.Compliancewithapplicableaccountingstandards

Thefinancialstatementsforafinancialyearmuststate(a) whethertheyhavebeenpreparedinaccordancewiththeapplicable

accountingstandards withinthemeaningofsection380;and(b) iftheyhavenotbeensoprepared,the

particularsof,andthereasonsfor,anymaterialdeparturefromthosestandards.



Schedule4 AccountingDisclosures Part2 DisclosuresforCompaniesnotFallingwithinReportingExemption1.Remunerationofauditor

(1) Acompanysfinancialstatementsforafinancialyearmuststate,underaseparateheading,theamountoftheremunerationoftheauditor.

(2) Inthissectionremuneration (),inrelationtoanauditorofacompany,includesanysumpaidbythecompanyinrespectoftheauditorsexpenses.

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ChinaMotorBusCompany,Limited(incorporatedinHK)Note5b(extract)toAnnualReportasat30June2015

OPERATINGPROFITOperatingprofitisarrivedat

2015 2014$000s $000s

aftercharging:

(b)Otheritems:Auditorsremuneration auditservices 3,680 3,393 taxservices 552 460 otherauditrelatedservices 1,750 450



SFSPage21

ExampleExample

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Section387.Statementoffinancialpositiontobeapprovedandsigned(1) Astatementoffinancialpositionthatformspartofanyfinancial

statements(a) mustbeapproved bythedirectors;and(b) mustbesigned

(i) by2directors onthedirectorsbehalf;or(ii) inthecaseofacompanyhavingonlyonedirector,bythedirector.

(2) Everycopyofastatementoffinancialpositionthatformspartofanyfinancialstatementslaidbeforeacompanyingeneralmeetingundersection429,orsenttoamemberundersection430orotherwisecirculated,publishedorissuedbythecompany,muststatethename ofthepersonwhosignedthestatementonthedirectorsbehalf.





SFSPage6

Example

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Section387.Statementoffinancialpositiontobeapprovedandsigned(3) If,asrespectsanyfinancialstatementsacopyofwhichiscirculated,

publishedorissuedbythecompany,subsection(1)iscontravened, thecompany,andeveryresponsiblepersonofthecompany,commit

anoffence,and eachisliabletoafineatlevel4 (i.e.HK$25,000,blanketadded).

(4) Ifsubsection(2)iscontravened, thecompany,andeveryresponsiblepersonofthecompany,commit




ImpactonDirectorsReport

Section391.Directorsreporttobeapprovedandsigned(1) Adirectorsreport

(a)mustbeapproved bythedirectors;and(b)mustbesigned onthedirectorsbehalfbyadirector orbythe

companysecretary.(2) Everycopyofadirectorsreportlaidbeforeacompanyingeneralmeeting

undersection429,orsenttoamemberundersection430orotherwisecirculated,publishedorissuedbythecompany,muststatethename ofthepersonwhosignedthereportonthedirectorsbehalf.



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Section391.Directorsreporttobeapprovedandsigned(3)If,asrespectsanydirectorsreportacopyofwhichiscirculated,published

orissuedbythecompany,subsection(1)iscontravened, thecompany,andeveryresponsiblepersonofthecompany,commit


(4)Ifsubsection(2)iscontravened, thecompany,andeveryresponsiblepersonofthecompany,commit





Inadditiontosection391,whichsetsouttherequirementsrelatingtotheapprovalandsignatureofthedirectorsreport,thedisclosurerequirementsforthedirectorsreport underthenewCO(Cap.622)arecontainedinthefollowinglocations:a. Sections388to391and543(2)b. Schedule5ContentsofDirectors'Report:BusinessReview

(unlessexemptundersection388(3));andc. Companies(DirectorsReport)Regulation(Cap.622D)


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Changesinthedirectorsreportsummarisedasfollows: Therearenewprovisionsrequiringthedirectorsreporttocontainthe

followinginformation abusinessreview (discussedlater); equitylinkedagreements enteredintobythecompany(section6of

Cap.622D),ifany; asummaryofthereasons relatingtotheaffairsofthecompany given

byadirectorwhohasresignedorrefusedtostandforreelection(section8ofCap.622D)(exceptforcompaniesfallingwithinthereportingexemption),ifany;and

permittedindemnityprovision forthebenefitofdirectors(section470andsection9ofCap.622D),ifany.




CAP622DCompanies(DirectorsReport)Regulationcontains Section1 Commencement Section2 Interpretation Section3 Directorsinterests Section4 Donations Section5 Sharesissued Section5ADebenturesissued Section6 Equitylinkedagreements Section7 Recommendeddividend Section8 Reasonsforresignation,etc. Section9 Permittedindemnityprovision Section10 Materialinterestsintransaction,arrangementorcontract


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ImpactonDirectorsReportCaseCase

LenovoGroupLimited(incorporatedinHK)DirectorsReportasat31March2015 EQUITYLINKEDAGREEMENTS

Noequitylinkedagreementswereenteredintoduringtheyear,savefortheshareoptionswhichwereoutstandingundertheShareOptionSchemeandtheLongTermIncentiveProgramdescribedinthisreport.


ImpactonDirectorsReportCaseCase

LenovoGroupLimited(incorporatedinHK)DirectorsReportasat31March2015 DIRECTORSINDEMNITIESANDINSURANCE

AspermittedbythearticlesofassociationoftheCompany,adirectororaformerdirectoroftheCompanymaybeindemnifiedoutoftheCompanysassetsagainstanyliabilityincurredbythedirectortoapersonotherthantheCompanyoranassociatedcompanyoftheCompanythatattachestosuchdirectorinhisorhercapacityasadirectoroftheCompany,totheextentpermittedbylaw.

SuchpermittedindemnityprovisionhasbeeninforcesincetheadoptionofthenewarticlesofassociationoftheCompanyonJuly2,2014andiscurrentlyinforceatthetimeofapprovalofthisreport.

TheCompanyhasalsotakenoutandmaintaineddirectorsandofficersliabilityinsurancethroughouttheyear,whichprovidesappropriatecoverforcertainlegalactionsbroughtagainstitsdirectorsandofficers.

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Indemnityofdirectors Apermittedindemnityprovision(asdefinedinsection469oftheHK

CompaniesOrdinance)forthebenefitofthedirectorsofthecompanyiscurrentlyinforceandwasinforcethroughouttheyear.[KPMG(2015)]

Indemnityofdirectors Apermittedindemnityprovision(asdefinedinsection469oftheHK

CompaniesOrdinance)forthebenefitofthedirectorsofthecompanyiscurrentlyinforceandwasinforcethroughouttheyear.[KPMG(2015)]

ExampleExample



Changesinthedirectorsreportsummarisedasfollows: Theamountofdonationsmadebythecompanyanditssubsidiary

undertakingswhichareexemptedfromdisclosureisraisedto$10,000from$1,000insection129D(3)(e)oftheoldCompaniesOrdinance(Cap.32)(theoldOrdinance)(section4ofCap.622D);and

Therequirementundersection129D(3)(j)oftheoldOrdinanceismodified,(refertothefollowingslides).


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Changesinthedirectorsreportsummarisedasfollows: Thedisclosureofinformationonmaterialinterestsofdirectorsincontracts

ofsignificanceenteredintobyacompany oraspecifiedundertaking ofthecompanyisexpandedtocover transactionsandarrangements inadditiontocontracts and, wherethecompanyisapubliccompany,materialinterestsofa

connectedentity ofadirectorofthecompany. Specifiedundertakingmeans

aparentcompanyorsubsidiaryundertakingofthecompany,or asubsidiaryundertakingofthecompanysparentcompany.




Changesinthedirectorsreportsummarisedasfollows: Formaterialinterestsofdirectorsintransactions,arrangementsand

contractsenteredintobyaspecifiedundertaking ofacompany, theinformationmustbecontainedinthedirectorsreport ofthe

company. Fortransactions,arrangementsandcontractsenteredintobythe

company, disclosureoftheinformationisrequiredtobemadeinthenotesto

financialstatementsinstead (section383andsection22ofCap.622G). Disclosureofsignificanttransactions,arrangementsorcontracts

enteredintobythecompany,whereadirectorhasamaterialinterest,hasbeenmovedtothefinancialstatementsandwillthereforebesubjecttoaudit


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Changesinthedirectorsreportsummarisedasfollows: Thenamesofallthedirectorsinthegroup mustbedisclosedina

consolidateddirectorsreport,andthedisclosureshouldextendtothedateofapprovingthedirectorsreport

Foracompanywhichisaholdingcompany andanannualconsolidatedfinancialstatements andaconsolidateddirectorsreportarepreparedundersection388(2),theconsolidateddirectorsreportmustcontain thename ofeverypersonwhowasadirector ofthecompany or ofthesubsidiaryundertakings includedinthefinancialstatements

(i) duringthefinancialyear;or(ii) duringtheperiodbeginningwiththeendofthefinancialyearand

endingonthedateofthereport.ImpactonDirectors

Report




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Changesinthedirectorsreportsummarisedasfollows: Certaindisclosurerequirementshavebeendroppedfromthedirectors

report(asmovedtonotestofinancialstatements) Unlessthecompanyisexempt,anewbusinessreviewsection mustbe

includedinthedirectorsreport


BusinessReview

SFSPage3

Example


BusinessReview Exemption

Section388(3)setsout3situationsunderwhichacompanyisexemptfromincludingabusinessreview inthedirectors'reportincompliancewithSchedule5.Theseare:a. thecompanyfallswithinthereportingexemption;b. thecompanyisawhollyownedsubsidiaryofanotherbodycorporate in

thefinancialyear;orc. thecompanyisaprivatecompany thatdoesnotfallwithinthereporting

exemptionforthefinancialyear,andaspecialresolution ispassedbymemberstotheeffectthatthecompanyisnottoprepareabusinessreviewrequiredbythatScheduleforthefinancialyear. Section388(4)requiresthattheresolutionmustbepassedatleast6

monthsbefore theyearend Section622(2)requiresthedeliveryofacopy

oftheresolutiontotheCompaniesRegistrarforregistrationwithin15daysafteritismadeorpassed

BusinessReview

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BusinessReview Contents

Schedule5ContentsofDirectorsReport:BusinessReview:1. Adirectorsreportforafinancialyearmustcontainabusinessreviewthat

consistsofa. afairreviewofthecompanysbusiness;b. adescriptionoftheprincipalrisksanduncertainties facingthe

company;c. particularsofimportantevents affectingthecompanythathave

occurredsincetheendofthefinancialyear;andd. anindicationoflikelyfuturedevelopment inthecompanysbusiness.

BusinessReview


BusinessReview Contents

Schedule5ContentsofDirectorsReport:BusinessReview:2. Totheextentnecessaryforanunderstandingofthedevelopment,

performance orposition ofthecompanysbusiness,abusinessreviewmustincludea. ananalysisusingfinancialkeyperformanceindicators;

keyperformanceindicators(,KPIs)meansfactors byreferencetowhichthedevelopment,performance orposition ofthecompanysbusinesscanbemeasuredeffectively.

b. adiscussiononi. thecompanysenvironmentalpoliciesandperformance;andii. thecompanyscompliancewiththerelevantlawsandregulations

thathaveasignificantimpactonthecompany;andc. anaccountofthecompanyskeyrelationshipswithitsemployees,

customersandsuppliersandothers thathaveasignificantimpact onthecompanyandonwhichthecompanyssuccessdepends.

BusinessReview

32


BusinessReviewandAG5

AG5.15GuidingPrinciples: Businessreviewspreparedandpresentedforthepurposesofcompliance

withSchedule5shouldbeconsistentwiththefollowingguidingprinciples:(a) Thereviewshouldsetoutananalysisofthebusiness throughtheeyes

oftheboardofdirectors(b) Thescopeofthereviewshouldbeconsistentwiththescopeofthe

financialstatements(c) Thereviewshouldcomplementaswellassupplementthefinancial

statements,inordertoenhancetheoverallcorporatedisclosure(d) Thereviewshouldbeunderstandable(e) Thereviewshouldbebalancedandneutral,dealingevenhandedly

withbothgoodandbadaspects

BusinessReview



AG5.31Afairreviewofthereportingentitysbusiness: Inordertosatisfytheminimumrequirements forafairreviewofthe

reportingentitysbusiness,thereviewshouldincludeasaminimum:(a) adescriptionofthebusinessandtheexternalenvironment inwhichthe

reportingentityoperates,ascontextforthedirectorsdiscussionandanalysis;(b) ananalysis oftheperformance ofthereportingentityfortheyearunder

reviewandthefinancialposition ofthereportingentityasattheendofthatperiodusingfinancialKPIs whichcomplementorsupplementthefinancialstatements;

(c) adiscussionofthereportingentitysenvironmentalpoliciesandperformanceandthereportingentityscompliance withtherelevantlawsandregulationsthathaveasignificantimpactontheentity;and

(d) anaccountofthereportingentityskeyrelationships withitsemployees,customers andsuppliers andothers thathaveasignificantimpactontheentityandonwhichtheentityssuccessdepends.

BusinessReview

33



AG5.41KPIs(KeyPerformanceIndicators): TheKPIsdisclosedshouldbethosethatthedirectorsjudgeareeffectivein

measuringthedeliveryoftheirstrategiesandmanagingtheirbusiness. RegularmeasurementusingKPIsenablesareportingentitytosetand

communicateitsperformancetargetsandtomeasurewhetheritisachievingthem.

BusinessReview



AG5.42KPIs(KeyPerformanceIndicators): KPIsshouldbepresentedinawaywhichisunderstandabletotheuser. Toachievethisobjectiveitmaybenecessary forthebusinessreviewto

includeinformationwhich: explainsthecalculationmethods; disclosesthesourceofunderlyingdataand,whererelevant,explainsthe

assumptions; highlightswhereinformationfromthefinancialstatementshasbeen

adjustedforthepurposesofcomputingaKPI,andprovidesareconciliation;

disclosescorrespondingamountsforthefinancialyearimmediatelyprecedingthecurrentyearwhereavailable;and/or

identifiesandexplainsanysignificantchangestothecalculationmethodusedtocomputetheKPIscomparedtopreviousfinancialyears,includingsignificantchangesintheunderlyingaccountingpoliciesadoptedinthefinancialstatements.

BusinessReview

34



AG6.IG7:Anumberofeconomicmeasuresexistthatarecommonlyusedbycompaniesinordertoassessacompanysabilitytocreatevalueovertime,andwhicharelikelytobeconsideredaKPI.Theseincludethefollowingexample: IGExample1:Returnoncapitalemployed(ROCE)

AG6.IG8:Inaddition,directorsoftensupplementthesewithothermeasurescommontotheirindustrytomonitortheirlongtermobjectives aroundmarketpositioning andprogresstowardsstatedobjectives.ThefollowingexamplesareillustratedinthisImplementationGuidance: IGExample2:Marketshare IGExample3:Averagerevenueperuser(customer) IGExample4:Salespersquarefoot IGExample5:Percentageofrevenuefromnewproducts IGExample6:Costperunitsold IGExample7:Economiccapital IGExample8:Cashconversionrate

AG6.IG7:Anumberofeconomicmeasuresexistthatarecommonlyusedbycompaniesinordertoassessacompanysabilitytocreatevalueovertime,andwhicharelikelytobeconsideredaKPI.Theseincludethefollowingexample: IGExample1:Returnoncapitalemployed(ROCE)

AG6.IG8:Inaddition,directorsoftensupplementthesewithothermeasurescommontotheirindustrytomonitortheirlongtermobjectives aroundmarketpositioning andprogresstowardsstatedobjectives.ThefollowingexamplesareillustratedinthisImplementationGuidance: IGExample2:Marketshare IGExample3:Averagerevenueperuser(customer) IGExample4:Salespersquarefoot IGExample5:Percentageofrevenuefromnewproducts IGExample6:Costperunitsold IGExample7:Economiccapital IGExample8:Cashconversionrate

ExampleExample


COSection436andAG6

Section436.Requirementinconnectionwithpublicationoffinancialstatementsetc.(1)Thissectionappliesifacompany

(a) circulates,publishesorissues(i) anyspecifiedfinancialstatements inrelationtothecompany;or(ii) anynonstatutoryaccounts inrelationtothecompany;or

(b)otherwisemakessuchfinancialstatementsoraccountsavailableforpublicinspection inamannercalculatedtoinvitemembersofthepublicgenerally,oranyclassofthem,toreadthefinancialstatementsoraccounts.

NonStatutoryAccounts

SpecifiedFinancialStatements

AG6.26:Section436sscopeispotentiallyawideone.

35


COSection436andAG6

Section436(5)states: Ifsubsection(2),(3)or(4)iscontravened,thecompany,and

everyresponsiblepersonofthecompany,commitanoffence,andeachisliabletoafineof$150,000.




COSection436andAG6 Specifiedfinancialstatements (),inrelationtoacompany,meansanyfinancialstatementspreparedbythedirectors(a) acopyofwhichisrequiredbysection429(1) to

belaidbeforethecompanyingeneralmeeting;or

(b) acopyofwhichisrequiredbysection430(3) tobesenttoeverymemberorisotherwisecirculated,publishedorissuedbythecompany.

Section429.Directorsmustlayfinancialstatementsetc.beforecompanyingeneralmeeting

Section430.Companymustsendcopiesoffinancialstatementsetc.tomembersbeforegeneralmeeting


36


COSection436andAG6SpecifiedFinancial

Statements

AG6.18:Sections429(1)and430(3)inturnrefertoreportingdocuments,whichinclude acompanysannualfinancialstatements or, ifthecompanyisaholdingcompany,itsannualconsolidatedfinancial

statements. AG6.19:Consequently,acompanysspecifiedfinancialstatementsareineffectitsannualauditedfinancialstatementspreparedforthestatutorypurposeofreportingtoitsmembers. Theseareoftenreferredtoasstatutoryfinancialstatementsandmaybe

companylevelorconsolidatedfinancialstatementsdependingonwhetherornotthecompanypreparesconsolidatedfinancialstatementsundersection379(2).



Statements

AG6.20:Itshouldalsobenotedthatsection436appliesirrespectiveofwhetheracompanyiseligibleforthereportingexemptionundersection359. Thereforeacompanysspecifiedfinancialstatementsmayhavebeen

prepared underthefulltrueandfairreportingregime(i.e.inaccordancewith

HKFRSissuedbytheHKICPA),or underthesimplifiedreportingregime(i.e.inaccordancewiththeSME

FRFandFRS(Revised2014)issuedbytheHKICPA).

37


AG6.29:ForspecifiedfinancialstatementsunderS.436(1)(b): publiclydisplayingacopyofanannualreport,forexample,inthe

receptionareaofacompanyorthepublicareaofabankeitherinhardcopyoronscreenthroughadigitaldisplaydevice;

displayingthesoftcopyoftheannualreport onapartofthecompany'swebsitewhichisbroadlyaccessible,eithertothepublicatlargeortoageneralgroupofemployees;

includingthefinancialstatementsinotherpublications,forexample,publicitybrochures;

inthecaseofalistedcompany, makingthemavailablethroughtheSEHKwebsite orthatofastockexchangeoutsideofHongKong;and

filingthemonpublicrecordwiththeHKCompaniesRegistryorequivalentoverseasbody.


Statements

Example



Statements Section436(2)requiresthat: Thespecifiedfinancialstatementsmustbe

accompaniedbytheauditorsreport onthosestatements.

38


COSection436andAG6 Nonstatutoryaccounts (),inrelationtoacompany,means(a) anystatementoffinancialposition orstatement

ofcomprehensiveincome,otherwisethanaspartofanyfinancialstatements preparedbythedirectors,relatingto,orpurportingtodealwith,afinancialyear ofthecompany;or

(b) accountsinanyform,otherwisethanaspartofanyfinancialstatements preparedbythedirectors,purportingtobe astatementoffinancialposition orstatementofcomprehensiveincome foragroupofcompanies consistingofthecompanyanditssubsidiaryundertakingsrelatingto,orpurportingtodealwith,afinancialyear ofthecompany



AG6.30:ExamplesofnonstatutoryaccountswithinS.436(1)(b): Prospectuses,ListingDocuments,orStockExchangeCirculars (seepara.31); PreliminaryannouncementsofResultsforafinancialyear ofcompanieslistedontheMainBoard/GEMoftheSEHKcomplyingwithListingRules13.49(1)orGEMRules18.49respectively;

FinancialstatementspreparedinaccordancewithHKAS3410,suchas: Preliminaryannouncementsofinterimresultsofcompanies listedontheMainBoard/GEMoftheSEHKcomplyingwithListingRules13.49(6)orGEMRules18.78respectively;

Halfyearlyinterimreportsorsummaryinterimreports ofcompanieslistedontheMainBoard/GEMoftheSEHKcomplyingwithListingRule13.48(1)orGEMRule18.53respectively;

VoluntaryquarterlyFinancialandBusinessReviewsorquarterlyinterimreportsorquarterlysummaryinterimreportsofcompanies listedontheMainBoardoftheSEHKorQuarterlyreportsofGEMcompaniescomplyingwithGEMRule18.66;

COSection436andAG6Example


39


AG6.30:ExamplesofnonstatutoryaccountswithinS.436(1)(b): Specialpurposefinancialstatementsifmadepubliclyavailable; Financialinformationpublishedonapartofthecompanyswebsite whichisbroadlyaccessible,eithertothepublicatlargeortoageneralgroupofemployees;

Companycommunicationdocuments,suchas: Briefingmaterialsprovidedtoanalystsand/orinvestors (includingroadshowmaterials);

Newspaperadvertisements; Pressreleases; Companypublicitybrochures.

Thislistisnotexhaustive.




COSection436andAG6

AG6.25:Accountsdonotqualifyasnonstatutoryaccounts andareoutsidethescopeofsection436 iftheyonlycontain astatementoffinancialpositiondrawnupatadatethatisnotthe

companysfinancialyearend or astatementofcomprehensiveincomethatcoversonlypartofa

companysfinancialyear


40


Forexample(notwithinSection436): iftheaccountsonlyinclude

astatementofcomprehensiveincomedealingwithjustthefirstthreemonthsofafinancialyear and/or

astatementoffinancialpositionasattheendofthatthreemonthperiod, thenthesewouldnotberegardedasnonstatutoryaccounts;

However, iftheaccountsalsoinclude,forexampleascomparativeinformation,

astatementofcomprehensiveincomedealingwithafullfinancialyear,and/or

astatementoffinancialpositionasattheendofafullfinancialyear, thentheseaccountswouldberegardedasnonstatutoryaccountsforthepurposesofsection436.




COSection436andAG6

Section436(3)requiresthat: Thenonstatutoryaccountsmustbe accompanied

byastatement indicating(a) thatthoseaccountsarenotspecifiedfinancialstatements inrelation

tothecompany;(b) whether thespecifiedfinancialstatements forthefinancialyearwith

whichthoseaccountspurporttodealhavebeendeliveredtotheRegistrar;

(c) whether anauditorsreport hasbeenpreparedonthespecifiedfinancialstatements forthefinancialyear;and

(d) whether theauditorsreport(i) wasqualified orotherwisemodified;(ii) referredtoanymattertowhichtheauditor drewattentionby

wayofemphasis withoutqualifyingthereport;or(iii) containedastatementundersection406(2)or407(2)or(3).


41


COSection436andAG6

Section436(4)requiresthat: Thenonstatutoryaccountsmustnotbe

accompaniedbyanyauditorsreport onthespecifiedfinancialstatements.



COSection436andAG6

TheListingRulesrequirethatcertainstockexchangecirculars(forexample,notifiabletransactions)includethecompanyorgroupsfinancialinformation.



Thiscanbedoneinoneofthreeways:a. Incorporationbycrossreference:crossreferencetowheretheco.s

annualreportsareavailableonthecompanysandtheSEHKswebsites. Nottriggersection436

b. Reproductioninfull:reproducingthecompanysfullauditedstatutoryfinancialstatements(withtheauditorsreports) wouldfallwithinsection436(1) asspecifiedfinancialstatements

triggeringtheneedtomeettherequirementofsection436(2).c. Extractedinformation:extractingtherequiredinformationfromthe

companysauditedstatutoryfinancialstatements. maymeetthedefinitionofnonstatutoryaccounts andtherefore

therequirementsofsection436(3)mustbemet

Example

42



TodaysAgenda


HKFRS9FinancialInstruments

43


HKFRS9Issuedin2014

EffectiveDate AnentityshallapplyHKFRS9forannualperiodsbeginningonorafter1January2018.

Earlierapplicationispermitted. IfanentityelectstoapplyHKFRS9early,itmustdisclosethatfactandapplyalloftherequirementsinHKFRS9atthesametime(butseealsoparagraphs7.1.2,7.2.21and7.3.2).

Itshallalso,atthesametime,applytheamendmentsinAppendixC.(para.7.1.1)


HKFRS9Issuedin2014

1. Objective2. Scope3. RecognitionandDerecognition4. Classification5. Measurement6. HedgeAccounting7. EffectiveDateandTransition

TransferredfromHKAS39TransferredfromHKAS39

Debtinstrumentscannowbemeasuredatfairvaluethroughothercomprehensiveincome

Debtinstrumentscannowbemeasuredatfairvaluethroughothercomprehensiveincome

InitialmeasurementoftradereceivableNewimpairmentrequirementsInitialmeasurementoftradereceivableNewimpairmentrequirementsChangesmainlyonhedgeconditionsChangesmainlyonhedgeconditions

Todays update

44


HKFRS9Issuedin2014



Chapter4.1ClassificationofFA

Unlesspara.4.1.5ofHKFRS9(socalledfairvalueoption)applies,anentityshallclassifyfinancialassetsassubsequentlymeasuredateither amortised cost, fairvaluethroughothercomprehensiveincome,or fairvaluethroughprofitorloss

onthebasisofboth:a) theentitysbusinessmodel formanagingthefinancialassets;andb) thecontractualcashflowcharacteristics ofthefinancialasset.

(para.4.1.1)

AmortisedCost FairValueThroughOtherComprehensiveincomeFairValueThrough

ProfitorLoss

45


No



ProfitorLoss

Contractualcashflowsaresolelyprincipaland

interest?

Determinethecategoryofafinancialassetforsubsequent

measurement

No

Choosefairvalueoption(designateatfairvaluethroughprofitorloss)?

No

Yes

Yes

Heldwithinabusinessmodeltocollectcontractual

cashflow?Yes

No HeldwithinabusinessmodeltocollectcontractualcashflowandsellingFA?

Contractualcashflowsaresolelyprincipaland

interest?

Yes

Yes

No

No

Entitleandelecttopresentfairvaluechangesinothercomprehensiveincome

Yes



Afinancialassetshallbemeasuredatfairvaluethroughothercomprehensiveincome ifbothofthefollowingconditionsaremet:a. thefinancialassetisheldwithinabusinessmodel whoseobjectiveis

achievedbyboth collecting

contractualcashflows and sellingfinancialassets,and

b. thecontractualterms ofthefinancialassetgiveriseonspecifieddatestocashflows thataresolelypaymentsofprincipalandinterest ontheprincipalamountoutstanding. Para.B4.1.1B4.1.26provideguidanceonhowtoapplytheseconditions.(para.4.1.2A)

HeldwithinabusinessmodeltocollectcontractualcashflowandsellingFA?

FairValueThroughOtherComprehensiveincome

46


HKFRS9Issuedin2014



Chapter5Measurement

Initialmeasurement Exceptfortradereceivableswithinthescopeofpara.5.1.3, atinitialrecognition,anentityshallmeasurea

financialassetorfinancialliability atitsfairvalue plusorminus,inthecaseofafinancialassetorfinancialliabilitynotatfairvaluethroughprofitorloss,transactioncosts thataredirectlyattributabletotheacquisitionorissueofthefinancialassetorfinancialliability.(para.5.1.1)

However,ifthefairvalue ofthefinancialassetorfinancialliabilityatinitialrecognition differsfromthetransactionprice,anentityshallapplypara.B5.1.2A.(para.5.1.1A)

InitialMeasurementFairValue

TransactionCost+

47


Chapter5Measurement

SubsequentMeasurementofFinancialAssets Afterinitialrecognition,anentityshallmeasureafinancialassetinaccordancewithpara.4.1.14.1.5at:a. amortisedcost;b. fairvaluethroughothercomprehensiveincome;orc. fairvaluethroughprofitorloss.(para.5.2.1)


ProfitorLoss


Chapter5Measurement

Anentityshallapplytheimpairmentrequirements inSection5.5 tofinancialassetsthataremeasuredatamortisedcost inaccordancewith

para.4.1.2(i.e.undertheholdtocollectbusinessmodel)and tofinancialassetsthataremeasuredatfairvaluethroughother

comprehensiveincome inaccordancewithpara.4.1.2A(i.e.undertheholdtocollectandsellbusinessmodel).(para.5.2.2)


ProfitorLoss

SubsequentMeasurementofFinancialAssets

No

EntitleandelecttopresentfairvaluechangesinothercomprehensiveincomeYes

Impairmentrequirementsappliedtothesetwocategoriesonly(impliedthatequityinstrumentsarenotsubjectto

impairmentrequirements)

48


Chapter5.5Impairment

Anentityshallrecognise alossallowanceforexpectedcreditlosseson afinancialasset thatismeasuredinaccordancewithpara.4.1.2or4.1.2A, aleasereceivable, acontractasset or aloancommitment andafinancialguarantee

contract towhichtheimpairmentrequirementsapplyinaccordancewithpara.2.1(g),4.2.1(c)or4.2.1(d).(para.5.5.1)

RecognitionofExpectedCreditLosses GeneralApproach

HKFRS9definesexpectedcreditlosses as: Theweightedaverage ofcreditlosseswiththe

respectiverisksofadefaultoccurringastheweights.



Tounderstandandapplytheserequirements,anentityhastoascertain thescopeoftheimpairmentinHKFRS9, theconceptofexpectedcreditlosses, theapproachinrecognitionofexpectedcreditlosses, thefinancialinstrumentswiththescopeinrecognitionofexpectedcredit

lossesbutnotfallingwithinthethreestagemodel, theassessmentofthecreditriskonafinancialinstrumentsinceinitial

recognition, thedeterminationoffinancialinstrumentsbeingcreditimpaired,and thethreestagemodelinsuchrecognition.

49


Chapter5.5Impairment Alwaysrecognisealossallowanceforchangesinlifetimeexpectedcreditlosses,and

Calculateacreditadjustedeffectiveinterestrate

Calculateinterestrevenueongrosscarryingamount

Hastherebeenasignificantincreaseincreditrisksince

initialrecognition?

No

Issimplifiedapproachfortradereceivables,contractassetsandlease

receivablesapplicable?No

Yes

No

Isthelowcreditrisksimplification

applied?

Yes

Yes

Isthefinancialinstrumentacreditimpairedfinancialasset?(Section16.5.1.6)

Yes

Yes

No

No


YesNo

Calculateinterestrevenueonamortisedcost

RecogniselifetimeexpectedcreditlossesRecognise12monthexpectedcreditlosses

Stage1 Stage2 Stage3

Doesthefinancialinstrumenthavelowcreditriskatthereportingdate?

Isthefinancialinstrumentapurchasedororiginatedcreditimpairedfinancialasset?



ScopeinRecognitionofExpectedCreditLosses InHKFRS9,notonlyfinancialassetsbutalsosomefinancialinstrumentsmayfallwithinthescopeinrecognitionofexpectedcreditlosses.

HKFRS9specificallyrequirestoanentitytorecognisealossallowanceforexpectedcreditlossesonthefollowingfinancialassets:1. Financialassetatamortisedcost;2. Financialasset(notbeinginvestmentinequityinstrument)atfairvalue

throughothercomprehensiveincome;3. Leasereceivable,4. Contractasset,or5. Loancommitmentandfinancialguaranteecontracttowhichthe

impairmentrequirementsapplyinaccordancewithHKFRS9

50



TheConceptofExpectedCreditLosses ThemainchangeoftheimpairmentrequirementsinHKFRS9istheintroductionoftheexpectcreditlosstoreplacetheincurredlossmodel.

TheIASBconsideredthat,forthosefinancialassetsbeingthedebtinstruments,theeffectofchangesincreditriskaremorerelevanttoaninvestorsunderstandingofthelikelihoodofthecollectionoffuturecontractualcashflowsthantheeffectsofotherchanges,forexamplechangesinmarketinterestrates.

Theexpectedcreditlossescanbefurtherdividedintotwotypes: 12monthexpectedcreditlosses(recognisedinStage1oftheimpairment

stages);and lifetimeexpectedcreditlosses(recognisedinStage2and3ofthe

impairmentstagesandforspecificfinancialinstruments)



ApproachinRecognitionofExpectedCreditLosses ToachievetheobjectiveandcomplytheimpairmentrequirementsinHKFRS9,anentityisrequiredtohavethefollowing3kindsofassessment:1. Assettypeassessment toassessthetypeofthefinancialassetand

determinewhetheritisa) purchaseororiginatedcreditimpairedfinancialassets;b) tradereceivables,contractassetsandleasereceivablesforwhichthe

entityappliessimplifiedapproach;orc) otherfinancialassets.

2. Creditriskassessment Toassessthecreditriskonthefinancialasset;and

3. CreditimpairedassessmentTodeterminewhetherthefinancialassetiscreditimpaired.

51



Assettypeassessment

Creditriskassessment

Creditimpairedassessment


initialrecognition?


receivablesapplicable?


applied?






Assettypeassessment Thefinancialinstrumentswiththescopeinrecognitionofexpectedcreditlossesbutnotfallingwithinthethreestagemodel

Beforehavingcreditriskassessment,anentityisrequiredtodirectlyrecogniselifetimeexpectedcreditlossesfortwotypesoffinancialinstruments:1. Purchaseororiginatedcreditimpairedfinancialassets;and2. Tradereceivables,contractassetsandleasereceivablesforwhichtheentity

appliessimplifiedapproach;or



AssettypeassessmentNo


52






Yes



Yes

No


YesNo


Recogniselifetimeexpectedcreditlosses

Stage2 Stage3





Example

BonnieCorporationisamanufacturerandhasaportfoliooftradereceivablesof$30millionin2015andoperatesonlyinSingapore.Bonniesdeterminesthat: Thecustomerbaseconsistsofalargenumberofsmallclients. Thetradereceivablesarecategorisedbycommonriskcharacteristicsthatarerepresentativeofthecustomersabilitiestopayallamountsdueinaccordancewiththecontractualterms.

ThetradereceivablesdonothaveasignificantfinancingcomponentinaccordancewithHKFRS15.

53





Example

InaccordancewithIFRS9,thelossallowanceforsuchtradereceivablesisalwaysmeasuredatanamountequaltolifetimetimeexpectedcreditlosses.

Todeterminetheexpectedcreditlossesfortheportfolio,Bonnieusesaprovisionmatrix.

Theprovisionmatrixisbasedonitshistoricalobserveddefaultratesovertheexpectedlifeofthetradereceivablesandisadjustedforforwardlookingestimates.

Ateveryreportingdate,thehistoricalobserveddefaultratesareupdatedandchangesintheforwardlookingestimatesareanalysed.Inthiscase,itisforecastthateconomicconditionswilldeteriorateoverthenextyear.





Example

Onthatbasis,Bonnieestimatesthefollowingprovisionmatrix:130days 3160days 6190days Over90days

Current pastdue pastdue pastdue pastdueDefaultrate 1% 3% 5% 10% 15%

Tradereceivablesfromthelargenumberofsmallcustomersamountto$30millionandaremeasuredusingtheprovisionmatrixasfollows:

Grosscarrying Default Lifetimeexpectedamount rate creditlossallowance

Current $15,000,000 1% $150,000130dayspastdue 7,500,000 3% 225,0003160dayspastdue 4,000,000 5% 200,0006190dayspastdue 2,500,000 10% 250,000Over90dayspastdue 1,000,000 15% 150,000

$30,000,000 $975,000

54



Creditriskassessment Ateachreportingdate,forallfinancialinstruments,otherthanpurchased

ororiginatedcreditimpairedfinancialassets,orfinancialassetsthatsimplificationapproachisapplied, anentityisrequiredtoassesswhetherthecreditrisk onafinancialinstrumenthasincreasedsignificantlysinceinitialrecognition.


initialrecognition?


applied?





Creditriskassessment RiskofDefaultandPastDueInformation

HKFRS9incorporatestworebuttablepresumptionsinassessingsignificantincreasesincreditriskandriskofdefault:i. 30Dayspastduerebuttableresumption inrespectofsignificantincreasesincreditrisk Regardlessofthewayinwhichanentityassessessignificantincreasesin

creditrisk,thereisarebuttablepresumptionthatthecreditrisk onafinancialassethasincreasedsignificantlysinceinitialrecognition whencontractualpaymentsaremorethan30dayspastdue(HKFRS9.5.5.11).

ii. 90Dayspastduerebuttableresumption inrespectofdefaultoccurred Indefiningdefault,thereisarebuttablepresumptionthatdefaultdoesnot

occurlaterthanwhenafinancialassetis90dayspastdue unlessanentityhasreasonableandsupportableinformationtodemonstratethatamorelaggingdefaultcriterionismoreappropriate.

55



Creditimpairedassessment thedeterminationoffinancialinstrumentsbeingcreditimpaired, InHKFRS9,afterassessingcreditriskandascertainingpastdueinformation,anentityhastodeterminewhetherthefinancialinstrumentiscreditimpaired.





ThreeStageModel ByapplyingsuchimpairmentapproachinHKFRS9toafinancialinstrumentandbasedontheresultofcreditriskassessment,anentitymay,asexplainedbytheIASB,dividetheimpairmentrequirementsintothreeimpairmentstages:Stage1 Performingfinancialinstrumentstage;Stage2 Underperformingfinancialinstrumentstage;andStage3 Nonperformingfinancialinstrumentstage.

56


Stage1 Performing Stage2 Underperforming Stage3 NonPerformingIncrease in credit risk since initial recognition

Impairmentrecognition

Interestrevenue

12monthexpectedcreditlosses

Effectiveinterestongrosscarryingamount

Lifetimeexpectedcreditlosses

Effectiveinterestonamortisedcost

AdaptedfromProjectSummaryofIFSR9(July2014)

Assettypeassessment



Otherfinancialassetsonly

Creditimpaired

Significantincreaseincreditrisk

Otherfinancialassetsandthosesimplificationapproachapplied

Notcreditimpaired

Nosignificantincreasein(orlow)creditrisk







initialrecognition?

No


receivablesapplicable?No

Yes

No


applied?

Yes

Yes


Yes

Yes

No

No


YesNo


RecogniselifetimeexpectedcreditlossesRecognise12monthexpectedcreditlosses

Stage1 Stage2 Stage3



57


TodaysAgenda

HKFRS15RevenuefromContractswithCustomers


HKFRS15Issuedin2014

HKFRS15establishesacomprehensiveframeworkfordetermining when torecogniserevenueand howmuch revenuetorecognise.

Thecoreprincipleisthatanentityrecognisesrevenue todepictthetransferofpromisedgoodsorservicestocustomers inanamountthatreflectstheconsiderationtowhichtheentityexpectstobeentitledinexchangeforthosegoodsorservices

UnderHKFRS15,anentityappliesa5stepapproach inrecognisingrevenue

Step5:Recognise

revenuewhenorasperformanceobligationissatisfied

Step4:Allocatethetransaction

price

Step3:Determine

thetransaction

price

Step2:Identifytheperformanceobligations

Step1:Identifythe

contractwithacustomer

58


HKFRS15Issuedin2014

EffectiveDate AnentityshallapplyHKFRS15forannualreportingperiodsbeginningonorafter1January2017 2018.(HKICPAUpdateNo.174)

Earlierapplicationispermitted. IfanentityappliesHKFRS15,itshalldisclosethatfact.

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe



HKFRS15Issuedin2014

HKFRS15supersedesthefollowingStandards:a. HKAS11ConstructionContractsb. HKAS18Revenuec. HK(IFRIC)Int 13CustomerLoyaltyProgrammesd. HK(IFRIC)Int 15Agreementsforthe

ConstructionofRealEstatee. HK(IFRIC)Int 18TransfersofAssetsfromCustomersf. HK(SIC)Int 31Revenue BarterTransactions

InvolvingAdvertisingServices

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


59


ContentsinHKFRS15Issuedin2014

A. ObjectiveB. ScopeC. Recognition

Identifyingthecontract(Step1) Identifyingperformanceobligations(Step2) Satisfactionofperformanceobligations(Step5)

D. Measurement Determiningthetransactionprice(Step4) Allocatingthetransactionpricetoperformanceobligations(Step5)

E. ContractcostsF. PresentationG. Disclosure

Todays update


BriefSummaryofChangesExistingPractice HKFRS15 UsingIAS11 and 18,IFRIC Int.13,

15,and18,andSIC31 UsingHKFRS15,onestandardonly

Inconsistentanddiversifiedpractices

Single andunified5step revenuerecognitionmodel

Riskandrewardapproachinsatisfying recognition

Controlapproachinsatisfying theperformanceobligation

Limitedguidanceon multipleelementarrangements,variableconsideration,licencesandetc.

Moreguidance onseparatingelements,allocatingthetransactionprice,licences,andetc.

Newestimatesandjudgementsrequired

Newsetofdisclosurerequirements

60


Step1:IdentifytheContract(s)Step5:

Recogniserevenuewhenorasperformanceobligationissatisfied


price

Step3:Determine

thetransaction

price


Step1:Identifythe


Step1:IdentifyingtheContract(s) Acontractisanagreementbetweentwoormorepartiesthatcreates

enforceablerightsandobligations. TherequirementsofHKFRS15applytoeachcontract thathasbeenagreed

uponwithacustomerandmeetsspecifiedcriteria. Insomecases,HKFRS15requiresanentitytocombinecontracts and

accountforthemasonecontract. HKFRS15alsoprovidesrequirementsfortheaccountingforcontract

modifications.(HKFRS15.IN7)


Step1:IdentifytheContract(s)

Anentityshallaccountforacontractwithacustomer thatiswithinthescopeofHKFRS15onlywhenallofthefollowingcriteria(i.e.contractcriteria)aremet:a. thepartiestothecontracthaveapprovedthecontract (inwriting,orally

orinaccordancewithothercustomarybusinesspractices)andarecommittedtoperformtheirrespectiveobligations;

b. theentitycanidentifyeachpartysrights regardingthegoodsorservicestobetransferred;

c. theentitycanidentifythepaymentterms forthegoodsorservicestobetransferred;

d. thecontracthascommercialsubstance(i.e.therisk,timingoramountoftheentitysfuturecashflowsisexpectedtochangeasaresultofthecontract);and

61


Step1:IdentifytheContract(s)

Anentityshallaccountforacontractwithacustomer thatiswithinthescopeofHKFRS15onlywhenall ofthefollowingcriteria(i.e.contractcriteria)aremet:e. itisprobable thattheentitywillcollecttheconsideration towhichitwill

beentitledinexchangeforthegoodsorservicesthatwillbetransferredtothecustomer. Inevaluatingwhethercollectabilityofanamountofconsiderationis

probable,anentityshallconsideronlythecustomersabilityandintentiontopay thatamountofconsiderationwhenitisdue.

Theamountofconsiderationtowhichtheentitywillbeentitledmaybelessthanthepricestatedinthecontractiftheconsiderationisvariablebecausetheentitymayofferthecustomerapriceconcession(seeHKFRS15.52)(HKFRS15.9)


Step2:IdentifyPerformanceObligations

Step2:IdentifyingthePerformanceObligationsintheContract Acontractincludespromisestotransfergoodsorservicestoacustomer. Ifthosegoodsorservicesaredistinct,thepromises

areperformanceobligations andareaccountedforseparately Agoodorserviceisdistinct if

thecustomercanbenefit fromthegoodorserviceonitsownortogetherwithotherresourcesthatarereadilyavailabletothecustomerand

theentityspromisetotransferthegoodorservicetothecustomerisseparatelyidentifiable fromotherpromisesinthecontract.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


62



Atcontractinception,anentityshall assessthegoodsorservicespromised inacontractwithacustomer,and identifyasaperformanceobligation eachpromisetotransfer tothe

customereither:a. agoodorservice (orabundleofgoodsorservices)thatisdistinct;orb. aseriesofdistinctgoodsorservices thataresubstantiallythesame

andthathavethesamepatternoftransfertothecustomer(seeHKFRS15.23)(HKFRS15.22)

PerformanceobligationsHKFRS15definesperformanceobligation as:Apromiseinacontractwithacustomertotransfertothecustomereither:

a. agoodorservice(orabundleofgoodsorservices)thatisdistinct;orb. aseriesofdistinctgoodsorservicesthataresubstantiallythesame

andthathavethesamepatternoftransfertothecustomer.



Agoodorservicethatispromisedtoacustomerisdistinct ifbothofthefollowingcriteriaaremet:a. thecustomercanbenefitfromthegoodorservice eitheronitsownor

togetherwithotherresourcesthatarereadilyavailabletothecustomer(i.e.thegoodorserviceiscapableofbeingdistinct);and

b. theentityspromisetotransferthegoodorservicetothecustomerisseparatelyidentifiablefromotherpromises inthecontract(i.e.thegoodorserviceisdistinctwithinthecontextofthecontract).(HKFRS15.27)

Performanceobligations

63


ExistingPracticevsHKFRS15ExistingPractice HKFRS15IncidentalObligationsandSalesIncentives(seemorein Step 2) Somecompaniesmaynotseparately

recogniserevenue forthetransfertothecustomerofgoodsorservicesthatsomeconsidertobesalesincentives orotherwiseincidentalorancillarytotheotherpromisedgoodsorservicesinthecontract.

Thatpracticeresultsinacompanyrecognisingallofthetransactionprice asrevenue eventhoughithasremainingperformanceobligationstosatisfy.

Thissometimesoccursintheautomotiveindustrywhenamanufacturersellsacaralongwithanincentivesuchasmaintenancethatwillbeprovidedatalaterdate.

Acompanywillassess whetherthepromisedgoodsorservicesarisingfromincidentalobligationsandsalesincentivesaregoodsorservicesthataredistinct.

Ifthegoodsorservicesaredistinct,thecompanywillrecogniserevenuewhen(oras)eachdistinctgoodorserviceistransferredtothecustomer.

AdaptedfromtheIASBsProjectSummaryissuedinMay2014


ExistingPracticevsHKFRS15

Sourcefromhttp://www.teslamotors.com/en_HK/

CaseCase

64


Step3:DetermineTransactionPrice

Step3:DeterminingtheTransactionPrices Thetransactionprice

istheamountofconsiderationinacontracttowhichanentityexpectstobeentitled inexchangefortransferringpromisedgoodsorservicestoacustomer

canbeafixedamountofcustomerconsideration,butitmaysometimesinclude variableconsiderationor considerationinaformotherthancash

isalsoadjustedfortheeffectsofthetimevalueofmoney ifthecontractincludesasignificantfinancingcomponentandforanyconsiderationpayabletothecustomer.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe




Step3:DeterminingtheTransactionPrices Iftheconsiderationisvariable,anentityestimates theamountof

considerationtowhichitwillbeentitledinexchangeforthepromisedgoodsorservices.

Theestimatedamountofvariableconsiderationwillbeincludedinthetransactionprice onlytotheextentthatitishighlyprobable thatasignificantreversal inthe

amountofcumulativerevenuerecognisedwillnotoccur whentheuncertaintyassociatedwiththevariableconsiderationissubsequentlyresolved.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


65



Thenature,timing andamount ofconsiderationpromisedbyacustomeraffecttheestimateofthetransactionprice.

Whendeterminingthetransactionprice,anentityshallconsidertheeffectsofallofthefollowing:a. variableconsideration (seeHKFRS15.5055and59);b. constrainingestimates ofvariableconsideration

(seeHKFRS15.5658);c. theexistenceofasignificantfinancingcomponent

inthecontract(seeHKFRS15.6065);d. noncashconsideration (seeHKFRS15.6669);ande. considerationpayabletoacustomer

(seeHKFRS15.7072).(HKFRS15.48)

VariableConsideration

ConstrainingEstimatesofVariableCon.

SignificantFinancingComponentNoncash

ConsiderationConsiderationPayable

toCustomer


Step3:DetermineTransactionPrice Anentityshallestimate anamountofvariableconsiderationbyusingeither

ofthefollowingmethods,dependingonwhichmethodtheentityexpectstobetterpredicttheamountofconsideration towhichitwillbeentitled:a. Theexpectedvalue theexpectedvalueisthesumofprobability

weightedamounts inarangeofpossibleconsiderationamounts. Anexpectedvaluemaybeanappropriateestimateoftheamountof

variableconsiderationifanentityhasalargeno.ofcontractswithsimilarcharacteristics.

b. Themostlikelyamount themostlikelyamountisthesinglemostlikelyamountinarangeofpossibleconsiderationamounts (i.e.thesinglemostlikelyoutcomeofthecontract). Themostlikelyamountmaybeanappropriate

estimateoftheamountofvariableconsiderationifthecontracthasonlytwopossibleoutcomes (e.g.anentityeitherachievesaperformancebonusordoesnot).(HKFRS15.53)

VariableConsideration

ExpectedValue

MostLikelyAmount

66


ExistingPracticevsHKFRS15ExistingPractice HKFRS15EstimatesofVariableConsideration(seemoreinStep 3) Revenuerequirementsdonotinclude

detailedguidance formeasuringtheamountofrevenuethatshouldberecognisedwhentheconsiderationisvariable

Iftheconsiderationpromisedbyacustomerisvariable,acompanywillestimateit usingeithertheexpectedvalueorthemostlikelyamount,dependingonwhichamountbetterpredictstheamountofconsiderationtowhichthecompanywillbeentitled.

Someoralloftheestimatedamountofvariableconsiderationisincludedinthetransactionpriceonlytotheextentthatitishighlyprobablethatasignificantreversalintheamountofcumulativerevenuerecognisedwillnotoccurwhentheuncertaintyassociatedwiththevariableconsiderationissubsequentlyresolved.



ExistingPracticevsHKFRS15ExistingPractice HKFRS15SignificantFinancingComponents(see moreonStep 3) Ifacustomerpaysforgoodsorservices

inadvanceorinarrears,somecompaniesmaynotconsidertheeffectsofanyfinancingcomponents inthecontractwhendeterminingtheamountofrevenuetoberecognised.

Acompanyisrequiredtoconsidertheeffectsofanysignificantfinancingcomponents inthedeterminationofthetransactionprice(andthustheamountofrevenuerecognised).

Thismayaffectlongtermcontracts inwhichpaymentbythecustomerandperformancebythecompanyoccuratsignificantlydifferenttimes.


67


Step4:AllocateTransactionPricetoPO

Step4:AllocatingtheTransactionPricetoPerformanceObligations Anentitytypicallyallocatesthetransactionpricetoeachperformance

obligationonthebasisoftherelativestandalonesellingpricesofeachdistinctgoodorservicepromised inthecontract. Ifastandalonesellingpriceisnotobservable,anentityestimatesit.

HKFRS15specifywhen anentityallocatesthediscountorvariableconsiderationtooneormore,butnotall,performanceobligations (ordistinctgoodsorservices)inthecontract.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe




Theobjectivewhenallocatingthetransactionprice is foranentitytoallocatethetransactionpriceto

eachperformanceobligation (ordistinctgoodorservice)inanamountthatdepictstheamountofconsideration towhichtheentityexpectstobeentitledinexchangefortransferringthepromisedgoodsorservicestothecustomer.(HKFRS15.73)

BasedonStandaloneSellingPrice(SASP)Allocationofa

DiscountAllocationofVariable

Consideration

68



Tomeettheallocationobjective,anentityshallallocatethetransactionpricetoeachperformanceobligationidentifiedinthecontractonarelativestandalonesellingpricebasis inaccordancewithHKFRS15.7680,exceptasspecifiedin HKFRS15.8183(forallocatingdiscounts)and HKFRS15.8486(forallocating

considerationthatincludesvariableamounts).(HKFRS15.74)

BasedonStandaloneSellingPrice(SASP)Allocationofa

DiscountAllocationofVariable

Consideration



SuitablemethodsforestimatingSASPofagoodorserviceinclude(notlimitedto):a. Adjustedmarketassessmentapproachb. Expectedcostplusamarginapproachc. Residualapproachd. Combinationoftheabove

BasedonStandaloneSellingPrice(SASP)

69


ExistingPracticevsHKFRS15ExistingPractice HKFRS15ContingentRevenueCap(seemoreinStep 4) Somepracticesforallocatingthe

transactionpricelimittheamountofconsiderationallocatedtoasatisfiedperformanceobligation totheamountthatisnotcontingentonthesatisfactionofperformanceobligationsinthefuture.

Thatpracticeiscommonlyusedtoaccountfortelecommunicationscontracts thatbundlethesaleofamobilephonewiththeprovisionofnetworkservicesforaspecifiedperiod(oftenforoneortwoyears).

HKFRS15doesnotpermit thetransactionpricetobeallocatedtoperformanceobligationsonabasisthatisconsistentwiththecontingentrevenuecap.

Instead,HKFRS15requiresacompanytoallocatethetransactionpricewhichwouldbeanyamountthatthecustomerpaysonenteringintothecontractandthemonthlypaymentsforthenetworkservicestothemobilephoneandthenetworkservicesonthebasisoftherelativestandalonesellingpricesofeachitem.



ExistingPracticevsHKFRS15ExistingPractice HKFRS15NoObservableSellingPrice(seemore inStep4) Forsomecontracts,revenue

requirementsprecludeacompanyfromrecognisingrevenue onthetransferofagoodorservicetoacustomerifthereisnoobservableevidenceofthestandalonesellingprices ofeachofthegoodsorservicespromisedinthecontract.

Thisoftenresultsinthedeferralofrevenuerecognition becauserevenuecouldnotberecognisedwhenthefirstofthepromisedgoodsorservicestransferstothecustomer.

Thisregularlyoccursinthesoftwareindustry whenobservablepricesarenotavailableforupgradesandadditionalfunctionalityforcomputersoftware.

Ifobservablepricesofthepromisedgoodsorservicesarenotavailable,acompanywouldallocatethetransactionpriceonthebasisofestimatedstandalonesellingpricesofthosegoodsorservices.

Thecompanywillrecogniserevenueaseachdistinctgoodorserviceistransferredtothecustomer.


70


ExistingPracticevsHKFRS15

Sourcefromhttp://www.teslamotors.com/en_HK/

CaseCase


Step5:SatisfyPerformanceObligations

Step5:Satisfactionofperformanceobligations Aanentityrecognisesrevenuewhen(oras)itsatisfiesaperformance

obligation bytransferringapromisedgoodorservicetoacustomer whichiswhenthecustomerobtainscontrolofthatgoodorservice.

Theamountofrevenuerecognisedistheamountallocatedtothesatisfiedperformanceobligation.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


71



Step5:Satisfactionofperformanceobligations Aperformanceobligationmaybesatisfied

atapointintime (typicallyforpromisestotransfergoodstoacustomer)or

overtime (typicallyforpromisestotransferservicestoacustomer). Forperformanceobligationssatisfiedovertime,anentityrecognises

revenueovertimebyselectinganappropriatemethodformeasuringtheentitysprogress towardscompletesatisfactionofthatperformanceobligation.(HKFRS15.IN7)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe




Anentityshallrecogniserevenue when(oras)theentitysatisfiesaperformanceobligation bytransferring a

promisedgoodorservice (i.e.anasset)toacustomer.

Anassetistransferred when(oras)thecustomerobtainscontrol ofthatasset(HKFRS15.31)

72



ForeachperformanceobligationidentifiedinaccordancewithHKFRS15.2230, anentityshalldetermineatcontractinception whetherit

satisfiestheperformanceobligationovertime(inaccordancewithHKFRS15.3537)or

satisfiestheperformanceobligationatapointintime (inaccordancewithHKFRS15.38). Ifanentitydoesnotsatisfyaperformanceobligationovertime,theperformanceobligationissatisfiedatapointintime.(HKFRS15.32)

OverTime

AtaPointinTime



Goodsandservicesareassets,evenifonlymomentarily,whentheyarereceivedandused(asinthecaseofmanyservices).

Control ofanasset referstotheabilitytodirect theuseof,andobtain

substantiallyalloftheremainingbenefits from,theasset.

includestheabilitytopreventotherentitiesfromdirecting theuseof,andobtainingthebenefitsfrom,anasset.

Whenevaluatingwhetheracustomerobtainscontrolofanasset, anentityshallconsideranyagreement

torepurchasetheasset (seeHKFRS15.B64B76).(HKFRS15.33)

OverTime

AtaPointinTime

73



Anentitytransferscontrol ofagoodorserviceovertime and,therefore,satisfiesaperformanceobligationandrecognisesrevenueovertime,ifoneofthefollowingcriteriaismet:a. thecustomersimultaneouslyreceivesandconsumes

thebenefits providedbytheentitysperformanceastheentityperforms(seeHKFRS15.B3B4);

b. theentitysperformancecreatesorenhancesanasset (e.g.workinprogress)thatthecustomercontrols astheassetiscreatedorenhanced(seeHKFRS15.B5);or

c. theentitysperformancedoesnotcreateanassetwithanalternativeusetotheentity (seeHKFRS15.36)andtheentityhasanenforceablerighttopaymentforperformancecompletedtodate (seeHKFRS15.37).(HKFRS15.35)

OverTime



No

No

Doesthecustomerreceiveandconsumethebenefitsprovidedbytheentityastheentityperforms?

Doesthecustomercontroltheassetbeingcreatedorenhancedbytheentity?

Doestheentitysperformancecreateanassetwithanalternativeusetotheentity?

Yes

Performanceobligationssatisfiedatapointintime

Performanceobligationsatisfiedovertime

Doestheentityhaveanenforceablerighttopaymentforperformancecompletedtodate?

No

Yes

YesNo

Yes

Measuringprogresstowardscompletesatisfactionofthatperformance

74



MethodsforMeasuringProgress Appropriatemethodsofmeasuringprogressinclude

outputmethods andinputmethods (HKFRS15.B14B19provideguidance)

Indeterminingtheappropriatemethodformeasuringprogress,anentityshallconsiderthenatureofthegoodorservice thattheentitypromisedtotransfertothecustomer.(HKFRS15.41)

Whenapplyingamethodformeasuringprogress,anentityshallexcludefromthemeasureofprogress anygoodsorservicesforwhichtheentitydoesnottransfercontroltoacustomer.

Conversely,anentityshallincludeinthemeasureofprogress anygoodsorservicesforwhichtheentitydoestransfercontroltoacustomer whensatisfyingthatperformanceobligation.(HKFRS15.42)

OverTime

MeasuringProgress



Ifaperformanceobligationisnotsatisfiedovertime inaccordancewithHKFRS15.3537,anentitysatisfiestheperformanceobligationatapointintime.

Todeterminethepointintimeatwhichacustomerobtainscontrol ofapromisedassetandtheentitysatisfiesaperformanceobligation, theentityshallconsidertherequirementsfor

control inHKFRS15.3134.(HKFRS15.38)

AtaPointinTime

75



Inaddition,anentityshallconsiderindicatorsofthetransferofcontrol,whichinclude,butarenotlimitedto,thefollowing:a. Theentityhasapresentrighttopayment fortheassetb. Thecustomerhaslegaltitletotheassetc. Theentityhastransferredphysicalpossession oftheassetd. Thecustomerhasthesignificantrisksand

rewardsofownership oftheassete. Thecustomerhasacceptedtheasset

AtaPointinTime


C.RecognitionandD.Measurement

When(oras)aperformanceobligationissatisfied, anentityshallrecogniseasrevenue

theamountofthetransactionprice (whichexcludesestimatesofvariableconsiderationthatareconstrained inaccordancewithHKFRS15.5658)thatisallocatedtothatperformanceobligation.(HKFRS15.46)

Step5:Recognise



price

Step3:Determine

thetransaction

price


Step1:Identifythe


76


ExistingPracticevsHKFRS15ExistingPractice HKFRS15Timingof RevenueRecognition(seemoreinStep5) Becauseofalackofclearand

comprehensiveguidance,thereissomediversityinpractice indeterminingwhetheracompanyshouldrecogniserevenueforsomegoodsorservicesatapointintimeorovertime.

Somecompaniessellingresidentialrealestateinmultiunitdevelopments havedifficultydeterminingwhethertheconstructionofsuchassetsis aservicethatisprovidedovertime(revenueisrecognisedovertime)or

agoodthatistransferredtothecustomerwhenconstructioniscomplete(revenueisrecognisedatthatpointintime)

AcompanywillbeabletorecogniserevenueovertimeonlyifthecriteriaspecifiedinHKFRS15aremet.