Guidebook to IAS 23 Borrowing Costs

The International Accounting Standards Board (IASB) issued a revised version of IAS 23 Borrowing Costs (IAS 23) in March 2007. In the revised standard, the previous benchmark treatment of recognising borrowing costs as an expense has been eliminated. Instead, borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset will form part of the cost of that asset. The revised IAS 23 is effective for annual periods beginning on or after 1 January 2009 with earlier application permitted.

The new standard will represent a change in accounting policy for entities that applied the benchmark treatment under the previous standard. These entities will now need to develop procedures to calculate the amount of borrowing costs to be capitalised. Although the concept of capitalising borrowing costs is simple and familiar to many, putting that concept into practice frequently leads to questions.

Issues that often take up management time, and may therefore need to be considered early, include :

• which of the entity’s loans are specific borrowings?
• how does an entity reflect the fluctuation of borrowings and interest rates during the period when calculating the borrowing costs to capitalise?
• how does an entity take into account the effect of exchange differences in determining the amount of borrowing costs to capitalise?

These and many other common questions are considered in : Grant Thornton – Capitalisation of Borrowing Costs, from theory to practice.

This guidebook is available to be downloaded in here.  Another valuable guidebook published by PWC also available in here. 

Deloitte published a revised Guide to IFRS 1 First-time Adoption of IFRSs

Deloitte's IFRS Global Office has published a revised Guide to IFRS 1 First-time Adoption of International Financial Reporting Standards.  The guide was first published in 2004 with the aim of providing first-time adopters with helpful insights for the application of IFRS 1.  This second edition has the same objective.  The content has been updated to reflect the lessons learned from the first major wave of IFRS adoption in 2005, as well as for the changes to IFRS 1 since 2004.  We have structured the guide to provide users with an accessible reference manual:

• An executive summary explains the most important features of IFRS 1;
• Section 2 provides an overview of the requirements of the Standard;
• Sections 3 and 4 cover the specific exceptions and exemptions from IFRS 1's general principle of retrospective application of IFRSs, focusing on key implementation issues;
• Section 5 addresses other components of financial statements where implementation issues frequently arise in practice;
• Section 6 sets out Q&As dealing with specific fact patterns that users may encounter in practice; and
• Section 7 discusses some of the practical implementation decisions faced by first-time adopters.

Link to Deloitte's Guide to IFRS 1

IASB issued IFRS 9 Financial Instruments

The International Accounting Standards Board (IASB) issued today a new International Financial Reporting Standard (IFRS) on the classification and measurement of financial assets. Publication of the IFRS represents the completion of the first part of a three-part project to replace IAS 39Financial Instruments: Recognition and Measurement with a new standard - IFRS 9Financial Instruments. Proposals addressing the second part, the impairment methodology for financial assets were published for public comment at the beginning of November, while proposals on the third part, on hedge accounting, continue to be developed.

he new standard enhances the ability of investors and other users of financial information to understand the accounting of financial assets and reduces complexity – an objective endorsed by the Group of 20 leaders (G20) and other stakeholders internationally. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value, replacing the many different rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. The new standard also requires a single impairment method to be used, replacing the many different impairment methods in IAS 39. Thus IFRS 9 improves comparability and makes financial statements easier to understand for investors and other users.

The IASB has received broad support for its approach. This became evident during the unprecedented global scale of consultation and outreach activity it undertook in order to refine proposals contained within the exposure draft published in July 2009. Round table discussions were held in Asia, Europe and the United States. Interactive webcasts, each attracting thousands of registered participants, have been held, often on a weekly basis. In addition, more than a hundred meetings have been held with interested parties around the world during the past four months.

The views expressed to the IASB during its consultations resulted in the proposals being modified to address concerns raised and to improve the standard. For example, IFRS 9 requires the business model of an entity to be assessed first to avoid the need to consider the contractual cash flow characteristics of every individual asset. It requires reclassification of assets if the business model of an entity changes. The IASB changed the accounting that was proposed for structured credit-linked investments and for purchases of distressed debt. The IASB also addressed concerns expressed about the problems created by the mismatch in timings between the mandatory effective date of IFRS 9 and the likely effective date of a new standard on insurance contracts.

Furthermore, in response to suggestions made by some respondents, the IASB decided not to finalise requirements for financial liabilities in IFRS 9. The IASB has begun the process of giving further consideration to the classification and measurement of financial liabilities and it expects to issue final requirements during 2010.

A feedback statement providing comprehensive details of how the IASB has responded to comments received through the consultation process is available for download by clicking here.

The effective date for mandatory adoption of IFRS 9 Financial Instruments is 1 January 2013. Consistent with requests by the G20 leaders and others, early adoption is permitted for 2009 year-end financial statements.

Commenting on IFRS 9, Sir David Tweedie, Chairman of the IASB, said:

We have delivered on our commitment to the G20 and stakeholders internationally to provide an improved financial instrument standard for the classification and measurement of financial assets for use in 2009. Benefiting from unprecedented levels of consultation with stakeholders around the world, the IASB has made significant changes in its initial proposals to improve the standard, provide enhanced transparency and respond to stakeholder concerns.

IFRS 9 Financial Instruments is available for eIFRS subscribers from today.

Source : www.IASB.org