Adoption of New and Revised International Financial Reporting Standards (“IFRSs”) for 2019
(a). Application of new IFRS requirements
Impact of initial application of IFRS 16 Leases
In the current year, entities apply IFRS 16 (as issued by the IASB in January 2016) that is effective for annual periods that begin on or after 1 January 2019.
IFRS 16 introduces new or amended requirements with respect to lease accounting. It introduces significant changes to lessee accounting by removing the distinction between operating and finance lease and requiring the recognition of a right-of-use asset and a lease liability at commencement for all leases, except for short-term leases and leases of low value assets. In contrast to lessee accounting, the requirements for lessor accounting have remained largely unchanged. Details of these new requirements are described below. The impact of the adoption of IFRS 16 on financial statements is described below. The date of initial application of IFRS 16 is 1 January 2019.
(b). Amendments to existing Standards
(i) Amendments to IFRS 9 Prepayment Features with Negative Compensation. The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the ‘solely payments of principal and interest’ (SPPI) condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, financial assets with prepayment features with negative compensation do not automatically fail SPPI.
(ii) Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures. The amendment clarifies that IFRS 9, including its impairment requirements, applies to other financial instruments in an associate or joint venture to which the equity method is not applied. These include long-term interests that, in substance, form part of an entity’s net investment in an associate or joint venture. An entity applies IFRS 9 to such long-term interests before it applies IAS 28. In applying IFRS 9, an entity does not take account of any adjustments to the carrying amount of long-term interests required by IAS 28 (i.e., adjustments to the carrying amount of long-term interests arising from the allocation of losses of the investee or assessment of impairment in accordance with IAS 28).
(iii) Annual Improvements to IFRS Standards 2015–2017 Cycle
The Annual Improvements include amendments to four Standards:
- IAS 12 Income Taxes – The amendments clarify that an entity should recognise the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where an entity originally recognised the transactions that generated the distributable profits. This is the case irrespective of whether different tax rates apply to distributed and undistributed profits.
- IAS 23 Borrowing Costs – The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings.
- IFRS 3 Business Combinations – The amendments clarify that when an entity obtains control of a business that is a joint operation, an entity applies the requirements for a business combination achieved in stages, including re-measuring its previously held interest (PHI) in the joint operation at fair value. The PHI to be re-measured includes any unrecognised assets, liabilities and goodwill relating to the joint operation.
Download the entire IFRs document here.