Recently Adopted Accounting Pronouncements
The following are those accounting pronouncements which are relevant to the Group and which have been adopted during 2012 in the preparation of these consolidated financial statements.
In October 2010, the IASB issued amendments to IFRS 7, “Disclosures – Transfers of Financial Assets”. The amendments comprise additional disclosures on transfer transactions of financial assets (for example, securitizations), including possible effects of any risks and rewards that may remain with the transferor of the assets. Additional disclosures are also required if a disproportionate amount of transfer transactions are undertaken around the end of a reporting period. The amendments were effective for annual periods beginning on or after July 1, 2011. The adoption of the amendments in the 2012 year-end financial statements did not have a material impact on the Group’s consolidated financial statements.
New Accounting Pronouncements
The following accounting pronouncements were not effective as of December 31, 2012 and therefore have not been applied in preparing these financial statements.
In June 2011, the IASB issued amendments to IAS 1, “Presentation of Financial Statements” to require companies to group together items within other comprehensive income (“OCI”) that may be reclassified to the statement of income. The amendments also reaffirm existing requirements that items in OCI and profit or loss should be presented as either a single statement or two separate statements. The amendments are effective for annual periods beginning on or after July 1, 2012. The standard has been endorsed by the EU. The adoption of the amendments is not expected to have a material impact on the presentation of other comprehensive income in the Group’s consolidated financial statements.
IFRS 10, IFRS 11, IFRS 12, IAS 27 and IAS 28
In May 2011, the IASB issued IFRS 10, “Consolidated Financial Statements”, IFRS 11, “Joint Arrangements”, IFRS 12, “Disclosure of Interests in Other Entities”, a revised version of IAS 27, “Separate Financial Statements”, and a revised version of IAS 28, “Investment in Associates and Joint Ventures” which have been amended for conforming changes based on the issuance of IFRS 10 and IFRS 11. In June 2012, the IASB issued amendments to the transition guidance for IFRS 10-12 which provides relief from all but the prior year comparative periods which need to be restated. Additionally, for IFRS 12, no comparatives are required for disclosures relating to unconsolidated structured entities.
IFRS 10 replaces IAS 27, “Consolidated and Separate Financial Statements” and SIC-12, “Consolidation – Special Purpose Entities”, and establishes a single control model that applies to all entities, including those that were previously considered special purpose entities under SIC-12. An investor controls an investee when it has power over the relevant activities, exposure to variable returns from the investee, and the ability to affect those returns through its power over the investee. The assessment of control is based on all facts and circumstances and the conclusion is reassessed if there is an indication that there are changes in facts and circumstances.
IFRS 11 supersedes IAS 31, “Interests in Joint Ventures” and SIC-13, “Jointly-controlled Entities – Nonmonetary Contributions by Venturers”. IFRS 11 classifies joint arrangements as either joint operations or joint ventures and focuses on the nature of the rights and obligations of the arrangement. IFRS 11 requires the use of the equity method of accounting for joint arrangements by eliminating the option to use the proportionate consolidation method, which is not applied by the Group.
IFRS 12 requires an entity to disclose the nature, associated risks, and financial effects of interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRS 12 requires more comprehensive disclosure in comparison to IAS 27 or SIC-12.
Each of the standards are effective for annual periods beginning on or after January 1, 2013, with earlier application permitted as long as each of the other standards are also applied early. However, entities are permitted to include any of the disclosure requirements in IFRS 12 into their consolidated financial statements without early adoption of IFRS 12. According to the EU endorsement entities shall apply each of the standards , at the latest, for annual periods beginning on or after January 1, 2014. The Group will apply each of the standards in 2013. While approved by the IASB, the transition guidance for IFRS 10-12 has yet to be endorsed by the EU. The adoption of IFRS 10, IFRS 11 and IFRS 12 is not expected to have a material impact on the Group’s consolidated financial statements.
In June 2011, the IASB issued amendments to IAS 19, “Employee Benefits” (“IAS 19 R”) effective for annual periods beginning on or after January 1, 2013. IAS 19 R introduces the net interest approach which is based on the discount rate used to measure the defined benefit obligation multiplied by the net defined benefit asset/liability recognized on the balance sheet, both as determined at the start of the reporting period and adjusted for expected changes in the net defined benefit asset/liability due to contributions and benefit payments during the year. This measure of net interest cost replaces the interest cost on the defined benefit obligation and the expected return on plan assets. The standard also requires immediate recognition of re-measurement effects associated with all post-employment benefits through other comprehensive income such as actuarial gains and losses and any deviations between the actual return on plan assets and the return implied by the net interest cost, which is already consistent with the Group’s existing accounting policy. In addition, IAS 19 R requires immediate recognition of any past service cost and will enhance the disclosure requirements for defined benefit plans. The standard has been endorsed by the EU. As required, the Group will adopt the new standard retrospectively for annual periods beginning on or after January 1, 2013. The adoption of the amendments to IAS 19 R is not expected to have a material impact on the consolidated financial statements.
In May 2011, the IASB issued IFRS 13, “Fair Value Measurement” which establishes a single source of guidance for fair value measurement under IFRS. IFRS 13 provides a revised definition of fair value and guidance on how it should be applied where its use is already required or permitted by other standards within IFRS and introduces more comprehensive disclosure requirements on fair value measurement. IFRS 13 is effective for annual periods beginning on or after January 1, 2013. The standard has been endorsed by the EU. The impact of IFRS 13 is not material to the Group.
Improvements to IFRS 2009-2011 Cycle
In May 2012, the IASB issued amendments to IFRS, which resulted from the IASB’s annual improvement project. They comprise amendments that result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual IFRS standards. The amendments are effective for annual periods beginning on or after January 1, 2013. The amendments been endorsed by the EU. The adoption of the amendments will not have a material impact on the Group’s consolidated financial statements.
IAS 32 and IFRS 7
In December 2011, the IASB issued amendments to IAS 32, “Offsetting Financial Assets and Financial Liabilities” (“IAS 32 R”) to clarify the requirements for offsetting financial instruments. IAS 32 R clarifies (a) the meaning of an entity’s current legally enforceable right of set-off; and (b) when gross settlement systems may be considered equivalent to net settlement. The amendments are effective for annual periods beginning on or after January 1, 2014, with earlier application permitted.
In December 2011, the IASB also issued amendments to IFRS 7, “Disclosures – Offsetting Financial Assets and Financial Liabilities” (“IFRS 7 R”) requiring extended disclosures to allow investors to better compare financial statements prepared in accordance with IFRS or U.S. GAAP. The amendments are effective for annual periods beginning on or after January 1, 2013 but also interim periods thereafter.
The Group is currently evaluating the potential impact that the adoption of the amendments will have on its consolidated financial statements.
IFRS 9 (2009) and IFRS 9 (2010)
IFRS 9 (2009) – In November 2009, the IASB issued IFRS 9, “Financial Instruments”, as a first step in its project to replace IAS 39, “Financial Instruments: Recognition and Measurement”. IFRS 9 (2009) introduces new requirements for how an entity should classify and measure financial assets that are in the scope of IAS 39. The standard requires all financial assets to be classified on the basis of the entity’s business model for managing the financial assets, and the contractual cash flow characteristics of the financial asset. A financial asset is measured at amortized cost if two criteria are met: (a) the objective of the business model is to hold the financial asset for the collection of the contractual cash flows, and (b) the contractual cash flows under the instrument solely represent payments of principal and interest. Even if a financial asset meets the criteria to be measured at amortized cost, it can be designated at fair value through profit or loss under the fair value option, if doing so would significantly reduce or eliminate an accounting mismatch. If a financial asset does not meet the business model and contractual terms criteria to be measured at amortized cost, then it is subsequently measured at fair value. IFRS 9 (2009) also removes the requirement to separate embedded derivatives from financial asset hosts. It requires a hybrid contract with a financial asset host to be classified in its entirety at either amortized cost or fair value. IFRS 9 (2009) requires reclassifications when the entity’s business model changes, which is expected to be an infrequent occurrence; in this case, the entity is required to reclassify affected financial assets prospectively. There is specific guidance for contractually linked instruments that create concentrations of credit risk, which is often the case with investment tranches in a securitization. In addition to assessing the instrument itself against the IFRS 9 (2009) classification criteria, management should also ‘look through’ to the underlying pool of instruments that generate cash flows to assess their characteristics. To qualify for amortized cost, the investment must have equal or lower credit risk than the weighted-average credit risk in the underlying pool of instruments, and those instruments must meet certain criteria. If a ‘look through’ is impracticable, the tranche must be classified at fair value through profit or loss. Under IFRS 9 (2009), all equity investments should be measured at fair value. However, management has an option to present in other comprehensive income unrealized and realized fair value gains and losses on equity investments that are not held for trading. Such designation is available on initial recognition on an instrument-by-instrument basis and is irrevocable. There is no subsequent recycling of fair value gains and losses to profit or loss; however, dividends from such investments will continue to be recognized in profit or loss.
IFRS 9 (2010) – In October 2010, the IASB issued a revised version of IFRS 9, “Financial Instruments” (“IFRS 9 (2010)”). The revised standard adds guidance on the classification and measurement of financial liabilities. IFRS 9 (2010) requires entities with financial liabilities designated at fair value through profit or loss to recognize changes in the fair value due to changes in the liability’s credit risk in other comprehensive income. However, if recognizing these changes in other comprehensive income creates an accounting mismatch, an entity would present the entire change in fair value within profit or loss. There is no subsequent recycling of the amounts recorded in other comprehensive income to profit or loss, but accumulated gains or losses may be transferred within equity.
Based on the amendments to IFRS 9 (2009), IFRS 9 (2010) and IFRS 7, “Mandatory Effective Date and Transition Guidance” issued by the IASB in December 2011, IFRS 9 (2009) and IFRS 9 (2010) are effective for annual periods beginning on or after January 1, 2015, with earlier application permitted. Once adopted, IFRS 9 should be applied to all financial instruments outstanding as of the effective date, as if the classification and measurement under IFRS 9 had always applied, but comparative periods do not need to be restated.
For annual periods beginning before January 1, 2015, an entity may elect to apply either IFRS 9 (2009) or IFRS 9 (2010). While approved by the IASB, both IFRS 9 (2009) and IFRS 9 (2010) have yet to be endorsed by the EU.
In November 2012, the IASB issued an Exposure Draft proposing limited modifications to IFRS 9 (2009) and IFRS 9 (2010). It is unclear at this time what modifications will actually be adopted or if this could impact the effective date and EU endorsement.