4. NEW ACCOUNTING STANDARDS

Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2014 or later, and that the Group has not early adopted.

IFRS 9, Financial Instruments Part 1: Classification and Measurement. IFRS 9, issued in November 2009, replaces those parts of IAS 39 relating to the classification and measurement of financial assets. IFRS 9 was further amended in October 2010 and November 2013 to address the classification and measurement of financial liabilities. Key features of the standard:

  • Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification depends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.
  • An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only (that is, it has only “basic loan features”). All other debt instruments are to be measured at fair value through profit or loss.
  • All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is no recycling of fair value gains and losses to profit or loss. This election may be made on an instrument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment.
  • Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. The amendment made to IFRS 9 in November 2013 allows an entity to continue to measure its financial instruments in accordance with IAS 39 but at the same time to benefit from the improved accounting for own credit in IFRS 9.
  • A substantial overhaul of hedge accounting was introduced that will enable entities to better reflect their risk management activities in their financial statements. In particular amendments to IFRS 9 increase the scope of hedged items eligible for hedge accounting (risk components of non-financial items may be designated provided they are separately identifiable and reliable measurable; derivatives may be included as part of the hedged item; groups and net positions may be designated hedged items, etc). The amendments to IFRS 9 also increase eligibility of hedging instruments allowing financial instruments at fair value through profit or loss to be designated as hedging instruments. Ay considering its rights fundamental difference to the IAS 39 hedge accounting model is the lack of the 80–125 per cent bright line threshold for effective hedges and the requirement to perform retrospective hedge effectiveness testing. Under the IFRS 9 model, it is necessary for there to be an economic relationship between the hedged item and hedging instrument, with no quantitative threshold.
  • Increased disclosures about an entity’s risk management strategy, cash flows from hedging activities and the impact of hedge accounting on the financial statements.

The mandatory effective date of IFRS 9 is to be determined once the standard is complete. The standard is available for early adoption. The Group does not plan to adopt the standard before the mandatory effective date and is currently assessing the impact of the new standard on its Consolidated Financial Statements.

IAS 32, Financial Instruments (issued in December 2011 and effective for annual periods beginning or after January 1, 2014), clarifies certain aspects because of diversity in application of the requirements on offsetting, focused on the following main areas: the meaning of ‘currently has a legal enforceable right to set-off’; the application of simultaneous realization and settlements; the offsetting of collateral amounts; the unit of account for applying the offsetting requirements.

Investment Entities (amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other entities and IAS 27 Separate Financial Statements, issued in October 2012 and effective to annual periods beginning on or after 1 January 2014). The key changes are the following:

  • Introduce a definition of an investment entity that (i) obtains funds from investors for the purpose of providing them with investment management services; (ii) commits to its investors that its business purpose is to invest funds solely for capital appreciation or investment income and (iii) measures and evaluates its investments on a fair value basis;
  • Provide ‘investment entities’ (as defined) an exemption from the consolidation of particular subsidiaries and instead require that an investment entity measure the investment in each eligible subsidiary at fair value through profit or loss in accordance with IFRS 9 Financial Instruments or IAS 39 Financial Instruments: Recognition and Measurement;
  • Require additional disclosure about why the entity is considered an investment entity, details of the entity’s unconsolidated subsidiaries, and the nature of relationship and certain transactions between the investment entity and its subsidiaries;
  • Require an investment entity to account for its investment in a relevant subsidiary in the same way in its consolidated and separate financial statements (or to only provide separate financial statements if all subsidiaries are unconsolidated).

Amendments to IAS 36 – Impairment of Assets (issued in May 2013 and effective for annual periods beginning on or after 1 January 2014) on required disclosures when recoverable amount is determined based on fair value less costs of disposal. IAS 36 was amended as follows:

  • To remove the requirement to disclose recoverable amount when a cash generating unit (CGU) contains goodwill or indefinite lived intangible assets but there has been no impairment;
  • To require disclosure of the recoverable amount of an asset or CGU when an impairment loss has been recognised or reversed; and
  • To require detailed disclosure of how the fair value less costs of disposal has been measured when an impairment loss has been recognised or reversed.

IFRIC 21 – Levies (issued in May 2013 and effective to annual periods beginning on or after 1 January 2014). Provides guidance on when to recognise a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the levy is certain. The Interpretation identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. It provides the following guidance on recognition of a liability to pay levies:

  • The liability is recognised progressively if the obligating event occurs over a period of time;
  • If an obligation is triggered on reaching a minimum threshold, the liability is recognised when that minimum threshold is reached.

The Group is currently assessing the impact of the amendments on its Consolidated Financial Statements.

Amendment to IAS 39 - Financial Instruments: Recognition and Measurement (issued in June 2013 and effective for annual periods beginning on or after 1 January 2014) on novation of derivatives and hedge accounting. IAS 39 was amended to provide relief from discontinuing hedge accounting when novation of a hedging instrument to a CCP meets specified criteria. The amendments will not result in the expiration or termination of the hedging instrument if:

  • As a consequence of laws or regulations, the parties to the hedging instrument agree that a CCP, or an entity (or entities) acting as a counterparty in order to effect clearing by a CCP (‘the clearing counterparty’), replaces their original counterparty; and
  • Other changes, if any, to the hedging instrument are limited to those that are necessary to effect such replacement of the counterparty. These changes include changes in the contractual collateral requirements, rights to offset receivables and payables balances, and charges levied.

The Group is currently assessing the impact of the amendments on its Consolidated Financial Statements.

Improvements to International Financial Reporting Standards (issued in December 2013, effective for annual periods beginning on or after 1 January 2013). The improvements consist of changes to nine standards. Basis for Conclusions of IFRS 1 was amended to clarify the meaning of ‘each IFRS effective at the end of an entity’s first IFRS reporting period’ as used in paragraph 7 of IFRS 1. The clarification suggested that if a new IFRS is not yet mandatory but permits early application, that IFRS is permitted, but not required, to be applied in the entity’s first IFRS financial statements. IFRS 2 was amended to separate the definitions of a ‘performance condition’ and a ‘service condition’ from the definition of a ‘vesting condition’ and thus make the description of each condition clearer. IFRS 3 was amended to: (i) clarify that contingent consideration is a financial asset or financial liability that can only be measured at fair value, with changes in fair value being presented in either profit or loss or other comprehensive income depending on the requirements of IFRS 9; (ii) exclude all types of joint arrangements from the scope of IFRS 3 and clarify that it only excludes the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself from the scope of IFRS 3. IFRS 8 was amended to clearly that the reconciliation of the total of the reportable segments’ assets to the entity’s assets should be reported if such amounts are regularly provided to the chief operating decision maker. IFRS 13 was amended to clarify that the portfolio exception applies to all contracts within the scope of IAS 39 or IFRS 9, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32. The amendment to IFRS 13 Basis for Conclusions was intended to clarify that short-term receivables and payables with no stated interest rate should still be measured at invoice amounts despite deleting relevant paragraphs from IFRS 9 and IAS 39. IAS 16 and IAS 38 were amended clarifying that (i) the determination of the accumulated depreciation does not depend on the selection of the valuation technique; and (ii) the accumulated depreciation is calculated as the difference between the gross and the net carrying amounts. IAS 24 was amended to clarify that an entity providing key management personnel services to the reporting entity is a related party of the reporting entity. IAS 40 was amended to state explicitly that judgement is needed to determine whether the transaction is solely the acquisition of an investment property or whether it is the acquisition of a group of assets or a business combination in the scope of IFRS 3 that includes an investment property. That judgement is based on the guidance in IFRS 3.

The Group is currently assessing the impact of the amendments on its Consolidated Financial Statements.

Other amendments: The amendment to IAS 19 – Employee Benefits (issued in November 2013 and effective for annual periods beginning on or after 1 July 2014) on contributions from employees or third parties to defined benefit plans. The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee service. This amendment will not have any impact on Group’s Consolidated Financial Statements as the Group does not apply IAS 19.

Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s Consolidated Financial Statements.