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CAACM - IFRS WORKSHOP

CAACM - IFRS WORKSHOP. Presented by Andrea St. Rose & Associates. Bay Gardens Hotel – June -23, 2008. Presenter. Andrea St. Rose – LL.B(Hons),FCIS,CFE, MBA, CGA, CA. IFRS PRESENTATION. ISSUE OF CREDITS/Acknowledgements Deloitt’s IAS Plus PricewaterhouseCoopers Other Sources :

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CAACM - IFRS WORKSHOP

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  1. CAACM - IFRS WORKSHOP Presented by Andrea St. Rose & Associates Bay Gardens Hotel – June -23, 2008 Andrea St. Rose & Associates

  2. Presenter • Andrea St. Rose – LL.B(Hons),FCIS,CFE, MBA, CGA, CA

  3. IFRS PRESENTATION ISSUE OF CREDITS/Acknowledgements • Deloitt’s IAS Plus • PricewaterhouseCoopers Other Sources: • Reference is made to the 2008 IFRS manual issued by the IASB • ECFH Annual Report

  4. IFRS Workshop Agenda 1. Introduction 2. IFRS 7 3. IAS 1 4. IAS 39

  5. IFRS Training Seminar Agenda cont’d 5. IAS 32 6. Overview of IFRS 4 7. Practical Issues 4. Questions and Answers

  6. CAACM IFRS Worshop INTRODUCTION

  7. Introduction LEARNING OBJECTIVES • Highlight critical aspects of the standards • Enhance general understanding

  8. Introduction Quick Recap • Why International Financial reporting Standards? • Status of Application globally • Role of Audit Committee regarding IFRS

  9. Introduction – Quick Recap • Why IFRS ? Consistency/global • Comparability • High quality /inv

  10. Introduction Quick Recap Status of Application Globally Total IFRSs permitted 25 IFRSs required 81 (for all domestic companies) IFRS required 3 (for some domestic companies) ____ 109 Source: Sir David Tweedie, IASB Chairman

  11. Quick Recap Role of Audit Committee Regarding IFRS • Ensure the accuracy and reliability of financial reporting – implies ….. • For this reason – at least on financial expert on committee

  12. Financial Instruments : Disclosures IFRS 7

  13. IFRS 7 History: • July 22, 2004 - Exposure Draft issued • August 18, 2005 - IFRS 7 issued • Jan 1, 2007 - Effective date of application (source:IASB and Deloittes - IAS Plus )

  14. IFRS 7 How did it Evolve? • Replaced Disclosures Require by IAS 30 – Disclosure in Financial Statements of Banks and Similar FI’s • Added some new disclosures to those required by IAS 32 – simplified some disclosures about risk – credit etc • Placed all those disclosures in one new standard - IFRS 7 – Financial Instruments : Disclosures.

  15. IFRS 7 THE END RESULT • IAS 32 now deal only with financial instruments presentation matters – disclosures are now dealt with under IFRS 7. • IFRS 7 now supersedes IAS 30.

  16. IFRS 7 The Reasons for Isssuing IFRS 7 • IASB believes that users of FS need info about an entity’s exposure to risk and how those risks are managed. • info can influence a users assessement of Fin Pos and Performance of entity or the amt, timing and certain of future cah flows • Greater transparancy regarding those risks allows users to make informed judgements about risk and return.

  17. IFRS 7 SCOPE OF APPLICATION • Applies to all financial instruments with certain exceptions – covered by other stds e.g. rights and obligations for pension – IAS 19. • Applies to all entities – e.g. a manufacturer whose only FI’s are accounts receivable and accounts payable – Financial Institutions most of whose assets and liabilities are FI’s.

  18. IFRS 7 The two main disclosures required by IFRS7: • Information about the significance of financial instruments. (Many of the requirements previously in IAS 32). • Information about the nature and extent of risks arising from financial instruments – Qualitatve and Quantitative.

  19. IFRS 7 Risk Management Disclosures • Attempts to “Look at risk through the eyes of Management”. • The extent of disclosures will be depend to some extent on the way mangement manages financial risks. • It will also depend on the extent to which the entity utilises financial instruments

  20. IFRS 7 • A look at some of the Disclosures ( No Change in Balance Sheet /P&L Presentation)

  21. IFRS 7 Balance Sheet • Categories of Financial Assets and Laibilities • Carrying amounts of: • Financial assets measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition. • Held-to-maturity investments. • Loans and receivables. • Available-for-sale assets. • Financial liabilities at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition. • Financial liabilities measured at amortised cost.

  22. IFRS 7 Balance Sheet – cont’d • Additional disclosures about financial assets and financial liabilities designated to be measured at fair value through profit and loss, including disclosures about credit risk and market risk and changes in fair values [IFRS 7.9-10] (source: IASB and Deloittes IAS Plus)

  23. IFRS 7 FV through Profit and Loss: • If an entity has designated a loan or receivable as at fair value through profit and loss it shall disclose – • the maximum exposure to credit risk of the loan or receivable at the reporting date • The amount by which any related credit derivatives or similar instruments mitigate that maximum exposure to credit risk

  24. IFRS 7 • FV through Profit and Loss: cont’d • The amount of change during the period and cumulatively , in FV of the loan or receivable that is attributable to changes in the credit risk of the financial asset.

  25. IFRS 7 Balance Sheet – cont’d • Reclassifications of financial instruments from fair value to amortised cost or vice versa [IFRS 7.12] – disclose amounts and reasons for that reclassification. • Information about financial assets pledged as collateral and about financial or non-financial assets held as collateral [IFRS 7.14-15] – disclose terms and conditions of the pledge

  26. IFRS 7 Balance Sheet – cont’d • Reconciliation of the allowance account for credit losses (bad debts). [IFRS 7.16] – for each class of financial assets. • If compound financial instruments with multiple embedded derivatives are held [IFRS 7.17] – whose values are interdependent e.g. callable convertible debt instrument. Disclose the existence of those features.

  27. IFRS 7 Balance Sheet – Cont’d • Breaches of terms of loan agreements. [IFRS 7.18-19] – payable at reorting date • Details of any defaults during the period of principal, interest, sinking fund or redemption terms • Carrying amount of the loans payable in default at the end of the reporting period • Whether the default terms of the loans were remedied or the terms of the loans payable renegotiated before the financial statements were authorised for issue.

  28. IFRS 7 Income Statement and Equity • Items of income, expense, gains, and losses, with separate disclosure of net gains or net losses from: [IFRS 7.20(a)] • Financial assets measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition. • Held-to-maturity investments. • Loans and receivables. • Available-for-sale assets. • Financial liabilities measured at fair value through profit and loss, showing separately those held for trading and those designated at initial recognition. • Financial liabilities measured at amortised cost.

  29. IFRS 7 Income Statemant and Equity – cont’d • Total interest income and total interest expense for those financial instruments ( assets and liabilities) that are not measured at fair value through profit and loss [IFRS 7.20(b)] – calculated using the effective interest method

  30. IFRS 7 Income Statement and Equity – cont’d • Fee income and expense arising from FA and FL that are not at fair value though profit or loss[IFRS 7.20(c)] • Amount of impairment losses for each class of financial assets [IFRS 7.20(e)] • Interest income on impaired financial assets accrued in accordance with IAS 39 [IFRS 7.20(d)] – using interest rate used to discount future cash flows for measuring impairment loss.

  31. IFRS 7 Other Disclosures • Disclosure of accounting policies as required by IAS 1 • Information about hedge accounting, including: [IFRS 7.22] • Description of each hedge, hedging instrument, and fair values of those instruments, and nature of risks being hedged.

  32. IFRS 7 Other Disclosures – cont’d • Information about the fair values of each class of financial asset and financial liability, along with: [IFRS 7.25-30] • Comparable carrying amounts. • Description of how fair value was determined. – methods ; if valuation techniques are used, the assumptions applied in determining FV for each class. • Detailed information if fair value cannot be reliably measured.

  33. IFRS 7 • Other Disclosures- Cont’d • Disclosures of Fair Value not required when : • the carrying amount is a reasonable approximation of fair value, e.g. short-term trade receivables and payables, • fair value cannot be measured reliably. e.g. equity instruments that do not have a quoted or active market[IFRS 7.29]

  34. Nature and Extent of Risks Arising from Financial Instruments (Qualitative and Quantative) IFRS 7

  35. IFRS 7 QUALITATIVE DISCLOSURES • The qualitative disclosures describe: • The exposures to risk and how they arise - for each type of financial instrument. • Management's objectives, policies, and processes for managing those risks and the methods used to measure the risk. • Changes ( in the above) from the previous period.

  36. IFRS 7 • QUANTITATIVE DISCLOSURES • The quantitative disclosures provide information about the extent to which the entity is exposed to risk, based on information provided internally to the entity's key management personnel. These disclosures include: [IFRS 7.34] • Summary quantitative data about exposure to each risk at the reporting period. • Disclosures about credit risk, liquidity risk, and market risk • Concentrations of risk – if not apparent from above.

  37. IFRS 7 Credit Risk • Disclosures about credit risk include: [IFRS 7.36-38] • Maximum amount of exposure at the end of the period without taking account of value of any collateral held ( on and off balance sheet amounts) • description of collateral, • information about credit quality of financial assets that are neither past due nor impaired, and • The carrying amount of financial assets that would otherwise be past due or impaired whose terms have been renegotiated. [IFRS 7.36]

  38. IFRS 7 • Credit Risk – Cont’d • Financial Assets that are either past due or impaired: • Aging analysis of financial assets that are past due but not impaired • Analysis of financial assets that are impaired and impairment factors • For the above amounts, a description of collateral held as security and unless impracticable, an estimate of fair value.

  39. IFRS 7 CREDIT RISK – Cont’d • Information about collateral or other credit enhancements obtained or called e.g. guarantees [IFRS 7.38] • The nature and carrying amount of the assets obtained • When assets are not readily convertible nto cash. Its policies for disposing of such assets or for using them in operations.

  40. IFRS 7 LIQUIDITY RISK • Disclosures • Maturity analysis of contractual liabilities that shows the remaning contractual maturities • A description of how the entity manages the liquidity risk inherent in the above.

  41. IFRS 7 MARKET RISK • Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices. Market risk comprises : interest rate risk, currency risk, and other price risks.

  42. IFRS 7 • MARKET RISK • Disclosures about market risk include: • A sensitivity analysis of each type of market risk to which the entity is exposed. • IFRS 7 provides that if an entity prepares a sensitivity analysis for management purposes that reflects interdependencies between risk variables – and it uses same to manage those risks (for instance, interest risk and foreign currency risk combined), it may disclose that analysis instead of a separate sensitivity analysis for each type of market risk.

  43. IFRS 7 • SENSITIVITY ANALYSES • Show effect on P&L and equity of reasonably possible changes in the relevant risk variable – e.g. prevailing market interest rates, currency rates, equity prices etc. • Assumes the change occurred at the end of the reporting period and applied to the risk exposure at that date. • Effect of the change applied at the limits of the reasonably possible range , e.g. a 50 basis point increase or decrease in interest rates.

  44. IFRS 7 MARKET RISK Sensitivity Analyses: • Sensitivity of profit or loss from instruments classified at fair value through profit and loss is disclosed separately from the sensitivity of equity, that arises for example from instruments classified as available for sale. • Financial instruments that are classified as equity instruments are not remeasured –nil impact on P& L or equity – hence no sensitivity analysis is required. • For currency risk - disclose for each currency to which an entity has a significant exposure.

  45. IFRS 7 • What are the application issues?

  46. IAS 1

  47. IAS 1 HISTORY OF IAS 1 • Exposure draft first issued 1974 • IAS 1 (1997) issued 1997 Sept • Effective date of IAS 1(1997) 1998 July 1 • Revised IAS 1 issued 2003 Dec • Effective date of IAS1( rev 2003) 2005 Jan1 • Amend – disclosures about Capital 2005 Aug • Effective date of amendments 2007 Jan • Revised IAS 1 issued 2007 Sept • Effective date of IAS 1 revised 2009 Jan (Source: Deloittes IAS Plus)

  48. IAS 1 Presentation of financial Statements • The application of IFRS is presumed to result in fair presentation of financial statements. • Financial statements shall not be described as being in compliance with IFRS unless they comply with all the requirements.

  49. IAS 1 IAS 1 amendments (relating to IFRS 7 - Aug 2005) • the entity's objectives, policies and processes for managing capital; • quantitative data about what the entity regards as capital; • whether the entity has complied with any capital requirements; and • if it has not complied, the consequences of such non-compliance.

  50. IAS 1 Objectives of Revising IAS 1 ( Effective 2009) • To present all owner changes in equity separately from non –owner changes in equity • To improve and reorder sections of IAS 1 to make it easier to read

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