Ifrs/pfrs Amendments 2003

IFRS/PFRS Amendments:
Consolidation, Joint
Arrangements, Fair Value,
Employee Benefits and
Disclosures, IFRS for SMEs
February 8, 2013
Oliver C. Bucao
Consolidation Suite of Standards

Consists of
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Arrangements
IFRS 12 Disclosures of Involvement with Other Entities
IAS 27 Separate Financial Statements (2011)
IAS 28 Investments in Associates and Joint Ventures (2011)
Published on May 2011
Each of the five new standards has an application date for accounting
periods beginning on or after 1 January 2013, (i.e. December 2013 yearends) with early adoption is permitted.
2013 Manabat Sanagustin &Co., CPAs, a Philippine partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss
entity. All rights reserved.
IFRS/PFRS Amendments PICPA
PFRS 10 Consolidated Financial Statements

May 12, 2011
Standard published
January 1, 2012
Retrospective application
Overview
PFRS 10 introduces a single control model for all
entities, including SPEs
Changes likely to impact entities are mainly around
power
De facto control over relevant activities
Substantive rights
Key relationships
How to apply the standard
January 1, 2013
Date of initial application
Identify the investee, the relevant activities of the

investee and how decisions about the relevant activities
are made
Assess whether an entity has power over the relevant
activities and is exposed to variability in returns
December 31, 2013

First annual financial
statements in which
standard would apply
Changes that may affect the consolidation assessment

include potential voting rights, de facto control and
interests in structured entities
Old vs new requirements
2008 standards
Exemptions from preparing
consolidated financial statements
Determination of investees
to be consolidated
Consolidation procedures
IFRS 10
Similar requirements
IAS 27
control model
SIC-12
R&R model
New single
control model
Similar requirements
The model in one slide
Exposure to
variability
in returns
Power
Link between
power and
returns
Consolidation
To have power, it is necessary for investor to have existing rights that give it
current ability to direct activities that significantly affect investees returns
(i.e. the relevant activities).
Power over relevant activities: Gating question
Voting rights are relevant
Rights other than voting

rights are relevant
Majority of voting rights
Less than a majority
Consider
Consider
Consider
Rights held by others
Agreements with other

vote holders
Purpose and design
Other contractual
agreements
Potential voting rights
De facto power
Evidence of practical
ability to direct
Special relationships
Exposure to variability
of returns
Consider only substantive rights
Assessing potential voting rights
Whether potential voting rights are currently

exercisable is not necessarily determinative and in
some cases may not be a necessary condition.
Whether those rights are substantive is key:
Barriers that prevent holder from exercising.

Whether several parties need to agree.
How holder would benefit from exercise.
Purpose and design of potential voting rights.
When de facto control may exist

Investor considers all facts and circumstances
STEP 1
Size of voting
rights compared
to others
Potential voting
rights
Other contractual
arrangements
Not
conclusive
Consider additional facts and circumstances
STEP 2
Number of
active voters
at previous
meetings
Evidence of
power
Special
relationships
Level of
exposure to
variable
returns
Not clear
The investor does not consolidate

When supplier relationships are considered
Of itself, economic dependence of a supplier on a customer consolidation.

But ...
Power to direct the relevant activities.
Other contractual agreements.
Exposure to variable returns.
From SIC-12 ... to IFRS 10
SIC-12 tests
Activities on behalf of the entity
according to business needs.
Entity has decision-making powers
to obtain the majority of the
benefits.
Has rights to benefits and is
exposed to risks.
IFRS 10 factors
Purpose and design.
Evidence of practical ability to
direct.
Special relationships.
Exposure to variability in returns.
Retains majority of residual or

ownership risks.
When rights other than voting rights are relevant

Purpose and design
Evidence of practical ability to direct
Involvement and decisions made at

inception.
Appointing key management

personnel (KMP).
Contractual arrangements.
Directing investee to enter into

significant transactions for investors
benefit.
Investors commitment to continued

operation of investee.
Special relationships
Exposure to variability of returns
Investees KMP are current or

previous employees.
Investees operations depend on
investor (funding, technology etc).
Relative exposure to variability of

returns due to investors involvement
in investee.
Disproportionate exposure to returns

compared to voting rights.
10
IFRS 12 might be challenging
Interests in subsidiaries.
Disclosures are much

broader.
Interests in joint arrangements

and associates.
Interests in unconsolidated
structured entities.
Consider increased disclosures and whether

systems are designed to provide such
information.
11
PFRS 11 Joint Arrangements

May 12, 2011
Standard published
Overview
PFRS 11 divides joint arrangements into two types:
Joint ventures parties have right to the net assets
of the arrangement. Equity accounting required
January 1, 2012
Retrospective application
Joint operations parties have rights to the assets

and obligations for the liabilities relating to the
arrangement. Recognises own assets and liabilities
January 1, 2013
Determine whether joint control exists

Determine the type of joint arrangement by considering:
The structure
The legal form
December 31, 2013

statements in which
The contractual arrangement

Other facts and circumstances (in-substance test)
12
Old vs new requirements
IAS 31
Line-by-line
accounting
Choice: equity
accounting or
proportionate
consolidation
IFRS 11
JCO/
JCA
JCE
No separate vehicle
A separate vehicle, but
separation overcome
by form, contract or
other facts and
Separate
vehicle
circumstances
A separate vehicle with
separation maintained
JO
JV
Line-by-line
accounting of
the underlying
assets and
liabilities
Equity
accounting
13
Joint venture vs joint operation

1
Is the arrangement structured through a vehicle

that is separate from the parties?
Structure
Does the legal form of the vehicle give the parties rights to the
assets and obligations for the liabilities of the arrangement?
Legal form
N
3 Contractual
arrangement
Do the contractual arrangements give the parties rights to the

Joint Operation
N
4 Other facts
and
circumstances
Do the parties have rights to substantially all the economic

benefits of the assets of arrangement?
Does the arrangement depend on the parties on a continuous
basis for settling its liabilities?
N
Joint Venture
14
IFRS 11: Separate vehicle
1
Structure
Is the arrangement structured through a vehicle

that is separate from the parties?
Joint Operation
A joint arrangement that is not structured through

a separate vehicle is a joint operation.
More questions
15
Mini-case 1: Separate vehicle
Entities by statute
Accounting
records
Circumscribed
area of business
Operating segment
Bank account
Q1: Which of these examples is a separate vehicle?

Solution: Separate vehicle
16
Entities by statute
Accounting
records
Circumscribed
area of business
Operating segment
Bank account
Learning points:
A separately identifiable financial structure, including entities recognised
by statute, regardless of having legal personality.
Needs at least some sort of legal form.
17
IFRS 11: Legal form
2
Legal form
Does the legal form of the vehicle give the parties rights to the
Joint Operation
A joint operation is a joint arrangement whereby the parties

that have joint control have rights to the assets,
and obligations for the liabilities, relating to the arrangement.
More questions
Mini-case 2: Legal form
18
A and B set up Unlimited Co.

A and B have unlimited liability
for the liabilities of Unlimited
Co.
Partner A
50% equity
interest
Partner B
50% equity
interest
Unlimited Co:
separate legal personality
Q2: Does the legal form of the arrangement give the parties rights to the
19
Solution: Legal form
Answer: No.
Learning points:
The separate vehicle has a separate legal personality and therefore a
primary obligation for its liabilities.
The unlimited nature of the parties is essentially a guarantee and this
does not cause the arrangement to be a joint operation.
Rights to the assets are also required for joint operation classification.
20
IFRS 11: Contractual arrangements
3 Contractual
arrangement
Do contractual arrangements give the parties rights to the

Joint Operation
the parties use the contractual arrangement to reverse or modify the

rights and obligations conferred by the legal form of the separate vehicle.
More questions
21
Mini-case 3: Contractual arrangements

A and B each sell their
defence contracting
businesses to a new,
jointly controlled, legally
separate vehicle,
Defence Co, for fair
value.
Guarantee
Partner A
Partner B
Bank
50%
equity
interest
Defence Co funds the

payment with bank debt
guaranteed by A and B.
Loan
50%
equity
interest
Defence Co
Q3: Do the contractual arrangements give A and B rights to the assets

and obligations for the liabilities of the arrangement?
Solution: Contractual arrangement
22
Answer: No.
Learning points:
A guarantee does not, in itself, determine that the parties have
obligations for the liabilities of a separate vehicle.
In this example, the recourse of the bank to the parties is only in the
event of a default of the loan by Defence Co.
Only a primary, not a secondary obligation, would meet the obligation
for the liabilities criterion.
Rights to the assets are also required for joint operation classification.
23
4 Other facts
and
circumstances
Do the parties have rights to substantially all the economic

benefits of the assets of arrangement?
Does the arrangement depend on the parties on a continuous
basis for settling its liabilities?
Joint Operation
IFRS 11: Other facts and circumstances
Joint Venture
IFRS 11: Other facts and circumstances
Asset side
JA must give parties

rights to substantially all
economic benefits relating
to arrangement
(asset side).
Liability side
24
Joint
Operation
JA must cause
arrangement to depend
on parties on a
continuous basis for
settling its liabilities
(liability side).
25
IFRS 11: Asset side requirement

When activities of arrangement are designed to provide output to the
parties:
This indicates that parties have rights to substantially all economic
benefits of the assets of the arrangement. [IFRS 11.B31]
Parties to such arrangements often ensure their access to outputs by
preventing arrangement from selling output to third parties.
[IFRS 11.B31]
Application guidance included in IFRS 11:
B32 Example 5.
Illustrative Example 3.
28
IFRS 11: Liability side requirement

If purpose and design of JA is to provide output to the parties, then
effect is that liabilities incurred by JA are, in substance, satisfied by
cash flows received from parties through their purchases of output.
[IFRS 11.B32]
When the parties are substantially the only source of cash flows
contributing to continuity of operations of JA, this indicates that the
parties have an obligation for the liabilities relating to the arrangement.
[IFRS 11.B32]
Application guidance included in IFRS 11:
B32 Example 5.
Illustrative Example 3.
29
IFRS 12 might be challenging

Significant judgements / assumptions
In determining joint control over
another entity.
In determining classification of joint
arrangements in separate vehicles.
Summarised financial information

Several new line items required.
Amounts in investees financial
statements adjusted to reflect group
measures.
Reconciliation to investors financial
statements.
Specific requirements
Aggregation
Name / place of business.
Possible aggregation of similar

entities, but JVs and associates cant
be aggregated.
Relationship with investor.

Proportion owned.
Accounting model.
30
PFRS 12 Disclosure of Interests in Other Entities

Overview
May 12, 2011

Standard published
PFRS 12 combines in a single standard the disclosure

requirements for subsidiaries, associates and joint
arrangements, as well as unconsolidated structured
entities.
January 1, 2013

Present a more detailed disclosure objectives and
requirements for the specific disclosure areas addressed
in PFRS 12.
Assess the structured entities and apply the new
disclosures.
December 31, 2013

statements in which
31
PFRS 12 Disclosures of Interests in Other Entities
Key impacts
Bottom line
Expanded disclosures about subsidiaries,

joint arrangement and associates.
First year of application is less than

12 months away
New disclosures about unconsolidated

structured entities.
Financial statements may have additional

disclosures as required
32
Consolidated Financial Statements, Joint Arrangements and Disclosure of

Interest in Other Entities: Transition Guidance (Amendments to PFRS 10, 11 &
12)
Impact of Amendments
The amendments simplify the process of adopting PFRSs 10 and 11 and provide relief from
the disclosures in respect of unconsolidated structured entities.
- Depending on the extent of comparative information provided in the financial
statements, the amendments simplify the transition and provide additional relief from
the disclosures that could have been onerous.
- The amendments limit the restatement of comparatives to the immediately preceding
period; this applies to the full suite of standards. Entities that provide comparatives for
more than one period have the option of leaving additional comparative periods
unchanged.
- In addition, the date of initial application is now defined in PFRS 10 as the beginning of
the annual reporting period in which the standard is applied for the first time. At this
date, an entity tests whether there is a change in the consolidation conclusion for its
investees. These amendments are effective for annual periods beginning on or after
January 1, 2013 with early adoption permitted.
33
PFRS 13 Fair Value Measurement

May 12, 2011
Standard published
Overview
PFRS 13 replaces existing guidance in individual IFRSs
PFRS 13 establishes:
a single definition of fair value (FV)
a framework for measuring FV
disclosure requirements for FV measurements
January 1, 2013
Date of adoption
PFRS 13 does not require additional FV measurements

in addition to those already existing
Understand guidance and principles of FV measurement
Analyse differences between current application and
new FV measurement and disclosure requirements
December 31, 2013

Earliest annual financial
statements in which
Categorise inputs and fair value measurements in the FV

hierarchy
Apply FV measurement and disclosure requirements
34
PFRS 13 Fair Value Measurement
Key impacts
FV measurement based on exit price and
market participant view
Valuation specialists may be needed
Extensive disclosures required
New systems may be required to comply
with disclosure requirements
Training required for finance, treasury
and asset management teams
Bottom line
No significant impact on the entitys
financial ratios expected
Significantly more disclosure in financial
statements
May involve significant judgement and
estimation uncertainty
35
Background
Consolidate FV measurement
guidance into single standard.
Increase convergence with
US GAAP.
Why
What
Defines FV.
Sets out single framework for FV
measurement.
Requires specific FV
measurement disclosures.
When
Annual periods beginning on or

after 1 January 2013.
Early application permitted.
36
Which of these is in the scope of IFRS 13?

Item
In scope of FV
measurement requirements
In scope of FV
disclosure requirements
Interest rate
swap
Y: Initial and subsequent

measurement
Y: Subsequent FV
measurement
Loan measured
at amortised
cost
Y: Initial measurement and

FV disclosure
Y: FV disclosure
Property plant
and equipment
Y: Subsequent measurement
based on revaluation model
N: Subsequent measurement
based on cost model
Y: Subsequent measurement
based on revaluation model
N: Subsequent measurement
based on cost model
Revenue
Y: Measurement of revenue
N: Item not recognised in the

statement of financial position
Investment
property
(cost model)
Y: FV disclosure
Y: FV disclosure
37
Other IFRS permits /requires?
General IFRS 13 requirements on scope
Initial measurement
(based on) FV
Subsequent
measurement
(based on) FV
Apply IFRS 13
FV measurement
requirements
if not explicitly
scoped out
Disclosure about
measurement (based
on) FV
Apply IFRS 13
disclosure
requirements
if not explicitly
scoped out
38
Implications of IFRS 13s FV definition

The amount for which an asset could be exchanged, or a
liability settled, between knowledgeable, willing parties
in an arms length transaction.
Pre
IFRS 13
The price that would be received to sell an asset or paid to

transfer a liability in an orderly transaction between market
participants at the measurement date.
IFRS 13
Exit price notion

Liabilities: transfer vs settlement
Market participant vs entity specific measurement
Measurement date
39
Employee Benefits (Amendments to PAS 19)

June 16, 2011
Amendment Published
Overview
No changes to fundamental measurement method under
which benefits are attributed to periods of service
January 1, 2012
January 1, 2013
Date of adoption
December 31, 2013

statements with amended
PAS 19 applied
No changes to the requirement to recognise expense on

a straight-line basis when employee service in later
years will lead to a materially higher level of benefit than
in earlier years
How to apply the amendments
All actuarial gains and losses are recognized
immediately in other comprehensive income
Revise the calculation for finance costs (net interest cost
on the net defined benefit liability (asset) calculated
based on the discount rate used to discount the
obligation)
Evaluate the classification of short-term and other longterm employee benefits based upon the amended
definitions
51
Highlights
Current IAS 19
Amended IAS 19
Defined benefit obligation
Defined benefit obligation
Less fair value of plan assets
Less fair value of plan assets
Plus/less deferred actuarial

gains and losses
Plus/less deferred actuarial

gains and losses
Less deferred past service cost
Less deferred past service cost
Effect of asset ceiling
Effect of asset ceiling
Defined benefit liability (asset)
Net defined benefit liability

(asset)
52
Highlights
Current IAS 19
Amended IAS 19
Service costs
Service costs
P&L
Interest income
and expected
return on plan
assets
Actuarial gains
and losses
P&L
Net interest
Remeasuremen
ts
Or
OCI
OCI
53
Post-employment benefits recognition

The net defined benefit liability is recognised in the statement of financial position.
This is:
The present value of the defined benefit obligation
Less the fair value of plan assets
surplus/deficit
Adjusted for the asset ceiling
Elimination of the corridor method for recognising actuarial gains and losses
Unvested past service cost is recognised immediately
54
Past service costs

Plan amendments
Introduction of a plan
Withdrawal of a plan
Curtailments
Significant reduction in the number

of employees covered by the plan
Changes to a plan
Recognised at the earlier of the following:

If plan amendment/curtailment arises as part of restructuring, when the
restructuring costs are recognised
If plan amendment/curtailment is linked to termination benefits, when the related
termination benefits are recognised
When plan amendment/curtailment occurs
55
55

Recognition of plan amendments:
Can no longer be deferred

Could be earlier than when the plan amendment occurs
Recognition of curtailments:
Demonstrable commitment is no longer relevant

Could be recognised before related restructuring costs if occurs earlier
Could be recognised earlier than when curtailment occurs if related to
termination benefits recognised
56
Post-employment benefits measurement
Current IAS 19
Amended IAS 19
Plan administration costs either reduce

the return on plan assets, or are
included in the actuarial assumptions
used to measure the defined benefit
obligation.
Only costs of managing plan assets

reduce the return on plan assets.
The current standard does not state

specifically how to deal with optionality
permitted by a plan.
Actuarial assumptions include an

assumption about the proportion of
plan members who will select each
form of settlement option available
under the plan terms.
Other plan administration costs are

recognised when the administration
services are provided but are not
deducted from the return on plan
assets.
58
58

Current IAS 19
Amended IAS 19

specifically how to deal with employee and
third party contributions.
The amended standard specifically

requires an entity to consider whether third
party contributions reduce the cost of
benefits to the entity or are instead a
reimbursement right.
Discretionary contributions by employees
or third parties reduce service cost upon
payment of the contributions to the plan.
Contributions that are set out in the formal
terms of the plan either:
Reduce service cost, if they are linked
to service, by being attributed to
periods of service as a negative
benefit, or
Reduce remeasurements of the net
defined liability (asset), if the
contributions are required to reduce a
deficit arising from losses on plan
assets or actuarial losses.
59
59
Current IAS 19
Amended IAS 19

specifically how to deal with risksharing features.
Actuarial assumptions include the best

estimate of the effect of performance
targets or other criteria.
For example, the terms of a plan may
state that it will pay reduced benefits or
require additional contributions from
employees if the plan assets are
insufficient. These kinds of criteria are
reflected in the measurement of the
defined benefit obligation.
60
60
Post-employment benefits presentation
Interest costs under current

IAS 19
Interest costs under Amended

IAS 19
Interest cost on defined benefit

obligation
Net interest cost on the net defined

benefit liability (asset)
calculated based on discount rate
used to discount the obligation:
Expected return on plan assets
Interest cost on defined benefit

obligation
Interest income on plan assets
Interest on the effect of the asset

ceiling
61
61
Post-employment benefits presentation

Actuarial gains and losses
under IAS 19, recognised in
P&L or OCI
Remeasurements under Amended

IAS 19 recognised in OCI
AGL on the defined benefit

obligation
AGL on the defined benefit

obligation
The difference between the

return on plan assets and the
expected return on plan assets
The difference between the

return on plan assets and the
amounts included in net
interest
Any change to the effect of the

asset ceiling is recognised in
P&L or OCI
Any change to the effect of the

asset ceiling, excluding
amounts included in net
interest
62
62
Post-employment benefits disclosure

Characteristics of and risks associated with defined benefit plans
For example, narrative description about the characteristics of the entitys defined benefit
plans and of the risks to which the plan exposes the entity
Amounts in the financial statements arising from the defined benefit plans
For example, a detailed numerical reconciliation from the opening balance to the closing
balance
How the defined benefit plans may affect the amount, timing and
uncertainty of the entitys future cash flows
For example, sensitivity analysis, narrative description of any asset-liability matching

strategies used by the plan or the entity, and a narrative description of any funding
arrangements and funding policy that affect future contributions
An entity shall assess whether all or some disclosures should be

disaggregated to distinguish plans or groups of plans with materially
different risks
Additional disclosure for both multi-employer plans and group plans
63
Effective date and transition

The effective date for the application of the amended standard is annual
periods beginning on or after January 1, 2013. Earlier application is
permitted, subject to making disclosure of this fact.
The amendments are generally to be applied retrospectively, with two
exceptions:
An entity need not adjust the carrying amount of assets outside the scope of IAS 19
(such as inventories and property, plant and equipment) for changes in employee benefit
costs that were included in their carrying amount before the date of initial application.
In financial statements for periods beginning before 1 January 2014, an entity need not
present comparative information for the disclosures required about the sensitivity of the
defined benefit obligation.
66
IFRS for SMEs
Stable platform
- No amendments since the time of adoption
Review after 2 years of implementation

- initial comprehensive review of the Standard to
enable the IASB to assess the first two years
experience commenced in 2012
Guidance for micro-sized entities

- The guidance for micros will be a sub-set of the
IFRS for SMEs. It will not be a separate standard.
No fixed timetable for completion of the guidance.
67
Disclaimer: The information contained herein is of a general

nature and is not intended to address the circumstances of any
particular individual or entity. Although we endeavor to provide
accurate and timely information, there can be no guarantee that
such information is accurate as of the date it is received or that it
will continue to be accurate in the future. No one should act on
such information without appropriate professional advice after a
thorough examination of the particular situation.
2013 Manabat Sanagustin & Co., CPAs, a Philippine
partnership and a member firm of the KPMG network of
independent member firms affiliated with KPMG International
Cooperative ("KPMG International"), a Swiss entity. All rights
reserved. Printed in the Philippines.
The KPMG name, logo and cutting through complexity are
registered trademarks or trademarks of KPMG International.

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IFRS/PFRS Amendments:

Consolidation Suite of Standards

IFRS/PFRS Amendments PICPA

PFRS 10 Consolidated Financial Statements

Identify the investee, the relevant activities of the

December 31, 2013

Changes that may affect the consolidation assessment

IFRS/PFRS Amendments PICPA

Old vs new requirements

IFRS/PFRS Amendments PICPA

The model in one slide

IFRS/PFRS Amendments PICPA

Power over relevant activities: Gating question

Voting rights are relevant

Rights other than voting

Majority of voting rights

Less than a majority

Rights held by others

Agreements with other

Purpose and design

Consider only substantive rights

IFRS/PFRS Amendments PICPA

Assessing potential voting rights

Whether potential voting rights are currently

Whether those rights are substantive is key:

Barriers that prevent holder from exercising.

IFRS/PFRS Amendments PICPA

When de facto control may exist

Consider additional facts and circumstances

The investor does not consolidate

IFRS/PFRS Amendments PICPA

When supplier relationships are considered

Of itself, economic dependence of a supplier on a customer consolidation.

Power to direct the relevant activities.

Other contractual agreements.

Exposure to variable returns.

IFRS/PFRS Amendments PICPA

From SIC-12 ... to IFRS 10

Retains majority of residual or

IFRS/PFRS Amendments PICPA

When rights other than voting rights are relevant

Evidence of practical ability to direct

Involvement and decisions made at

Appointing key management

Directing investee to enter into

Investors commitment to continued

Exposure to variability of returns

Investees KMP are current or

Relative exposure to variability of

Disproportionate exposure to returns

IFRS/PFRS Amendments PICPA

IFRS 12 might be challenging

Disclosures are much

Interests in joint arrangements

Consider increased disclosures and whether

IFRS/PFRS Amendments PICPA

PFRS 11 Joint Arrangements

Joint operations parties have rights to the assets

Determine whether joint control exists

December 31, 2013

The contractual arrangement

IFRS/PFRS Amendments PICPA

Old vs new requirements