Circular 2012/2

ALL MEMBERS OF THE INSTITUTE

Dear Member

COMMENTS INVITED ON “IFRS 10 CONSOLIDATED FINANCIAL STATEMENTS”; “IFRS 12 DISCLOSURE OF INTERESTS IN OTHER ENTITIES” AND “IFRS 13 FAIR VALUE MEASUREMENT”

The Professional Standards & Technical Advisory Committee of the Institute in its 66th meeting held on August 30, 2012 has approved and decided to expose the following IFRS to general membership for their comments, before recommending for adoption to the Council:

  • IFRS 10 Consolidated Financial Statements;
  • IFRS 12 Disclosure of Interests in Other Entities and
  • IFRS 13 Fair Value Measurement

Background
The IASB issued IFRS 10, IFRS 12 and IFRS 13 on May, 2011.

Following consequential amendments have been made in the other Standards:

  • IAS 27 has been renamed ‘Separate financial statements’. The guidance on accounting for separate financial statements has been retained in IAS

Effective Date

These are applicable to annual reporting periods beginning on or after 1 January 2013. Early application is permitted.

Recommendation of Accounting Standards Committee (AcSC)

AcSC deliberated the matter at length and in its 13th meeting held on July 24, 2012, decided to recommend the adoption of IFRS 10, IFRS 12 and IFRS 13 to the PS&TAC.

1.    IFRS 10 ‘Consolidated Financial Statements’

IFRS 10 has introduced a single consolidation model for all entities based on control, irrespective of the nature of the investee (i.e., whether an entity is controlled through voting rights of investors or through other contractual arrangements as is common in special purpose entities. Following are the key changes:

  • IFRS 10 supersedes SIC-12 ‘Consolidation – Special Purpose Entities’, and that IAS 27 ‘Consolidated and Separate Financial Statements ’has been renamed ‘Separate financial statements’ retaining existing guidance on accounting for separate financial statements.
  • A single definition of control eliminating the voting rights model in IAS 27 and the risks and rewards approach of SIC 12.
  • Guidance on principal and agent roles in control i.e. when assessing control, an investor should consider whether it has the current ability to direct the relevant activities of an investee that it manages to affect the returns it receives, or whether it uses its decision-making authority for the benefit of others.

2.    IFRS 12 ‘Disclosure of Interests in Other Entities’

IFRS 12 combines certain existing disclosures that were previously included in IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures.

The IFRS introduces new disclosure requirements related to unconsolidated structured entities where a lack of transparency about entities’ exposures to related risks was highlighted by the global financial crisis.

3.    IFRS 13 ‘Fair Value Measurement’

IFRS 13 does not introduce new fair value measurements, nor does it eliminate the practicability exceptions to fair value measurements that currently exist in certain standards. In fact it establishes a single framework for all fair value measurements when fair value is required or permitted by IFRS.

The full text of the standards can be downloaded from the Institute’s website

Members are requested to send their valued comments to the Directorate of Technical Services at dtscomments@icap.org.pk latest by November 15, 2012. It would be helpful if the specific paragraph or group of paragraphs which is/are being commented upon is/are mentioned and that the matter is explained succinctly along with the proposed recommendation and the rationale for doing so.


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