“All things are difficult before they are easy.”
Thomas Fuller, English churchman and historian
Many companies have their financial year-end tied to the calendar year. As the fourth quarter is coming soon it is time to start getting ready for the annual audit of financial statements. Staying up to date with changes in financial reporting standards has never been easy, therefore My Best CFO Team decided to do a quick refresher of changes that took effect or will be posted this year.
Amendments to IFRS 3 clarify the definition of a business by providing a new framework for determining whether transactions should be accounted for as acquisitions or disposals of assets or businesses.
Amendments to IAS 1 and IAS 8 clarify the definition of ‘materiality’ and how it should be applied. The amendments also improve the explanations of the definition and ensure consistency across all IFRS Standards. The new definition is: “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.”
Disclosures to IFRS 9 and 7 provide temporary, but mandatory relief from specific hedge accounting requirements to address potential effects of the uncertainly in the lead up to IBOR reform.
IBOR reform is transition away from the London Interbank Offered Rate (LIBOR), and other IBORs. It represents one of the biggest challenges: successful management will require significant change and strategic risk management – from adjusting risk profiles and models to navigating an uncertain regulatory landscape.
New proposals have been issued to provide additional relief post-IBOR reform, including relief related to debt and lease modifications, hedge accounting documentation, and disclosure requirements. The final amendments are expected in Q3, 2020.
Amendments to IFRS 16 permit lessees not to assess whether eligible COVID-19 related rent concessions are lease modifications, and account for them as if they were not lease modifications.
Eligible rent concessions are those arising as a ‘direct consequence’ of COVID-19 and for which:
• The revised consideration for the lease remains ‘substantially the same’ or is less than the consideration for the lease before the concession;
• Any reduced payments were originally due on or before June 30, 2021; and
• There are no other ‘substantive’ changes to the lease.
For lessees, this is an optional practical expedient to be applied consistently to all lease contracts with similar characteristics and in similar circumstances. The practical expedient is not available to lessors.
Should you need any help with financial statements or reporting standards, My Best CFO Team is always happy to help. Stay up-to-date with us!
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