PML Advisory IFRS JAMBOREE 1 www.pml.com.ng Overview of IFRS and - - PowerPoint PPT Presentation

IFRS JAMBOREE

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PML Advisory

Overview of IFRS and its adoption in Nigeria

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Nigeria IFRS road map

On 28 July 2010, Federal Executive Council approved 1 January 2012 as the effective date to transit to International Financial Reporting Standards Other public interest entities Small and medium size entities FRC(formerly NASB) announced a 3- phase implementation: Public interest entities 1 January 2012 1 January 2013 1 January 2014 3

Public Interest Entities

Ni Nigeri geria a IFRS RS ro road map

• Equities or debt instruments

listed and traded in a public market

• Required by law to file returns

with regulatory authorities excluding routine returns filed with CAC and FIRS

Other Public Interest Entities

• Unquoted/private

companies which are of significant public interest because of their nature

• f business, size, or number of

employees or their corporate status which require wide range

• f stakeholders.

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FRC’s definition of an SME

No public accountability Debt or equity instrument not traded in public market Annual turnover < N500 million, Total asset < 200 million Do not hold assets in a fiduciary capacity for a broad group of

• utsiders as one of their primary businesses.

No alien as board member No government agent as board member

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Nigeria regulators are being proactive on IFRS adoption

Regulating IFRS Adoption

–FRC requires evidence of project planning and update from entities with respect to project progress plus supporting IFRS project documentations. Deadline of 15 January 2014 was fixed for phase 2. –FRC has also said “NO” to auditor working as IFRS Consultant to their clients –FRC has warned that auditors must not audit NGAAP financial statements

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Accounting Standards

Commonly referred to as Generally Accepted Accounting Principles (GAAP), these set of standards/guidelines provide basis for the preparation

• f

financial statements and accountants must comply with them. They are just like laws to the accountant.

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International Financial Reporting Standards (IFRS) is an international accounting standards issued by and its predecessor’s bodies ‘International Accounting Standards Committee’. Before adoption of IFRS, Nigeria was using Statement of Accounting Standards popularly refer to as the Nigeria GAAP issued by Nigeria Accounting Standards Board.

What is IFRS?

International Accounting Standards Board

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International Accounting Standard Board

IAS ASB was founded nded on Ap April il 1, 2001 1 as the successor cessor to the Inter ernati national

• nal Ac

Accoun

• untin

ting g St Standar dards ds Committ mmittee ee (I (IAS ASC). C). It is responsible ponsible for r deve velo loping ping International ernational Financi ancial al Reporti

• rting

ng St Standards dards (the new name for Intern rnatio tional nal Ac Accoun

• unting

ting St Standar dards issued ued after er 2001) 1), , and promotin

• moting

g the use and applica lication tion of these standar dards. ds..

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IFRS comprises of:

• IFRSs
• IASs
• IFRIC
• SIC

IFRS IFRICs IASs IFRS SIC

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Composition of IFRS

IFRS IFRICs IASs IFRS SIC IFRSs refers to set of standards issued by the International Accounting Standards Board successor’s to IASC IFRICs refers to set of standards issued by the International Financial Reporting Interpretation Committee of IASB. SICs refers to set of standards issued by the Standard Interpretation Committee of IASC IASs refers to set

• f standards issued

by the International Accounting Standards Committee, the predecessor’s of IASB

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Countrie ries that require or permit IFRS or have fixed d dates to implement Countrie ries seeking g converg rgence with the IASB or pursuin ing g adopt ption ion of IFRS

IFRS is used in over 120 countries IFRS adoption globally

• China
• Hong Kong
• Russia
• EU countries
• UK
• Germany
• Spain
• Netherland etc
• Africa
• Kenya
• Zimbabwe
• South Africa
• Zambia
• Ghana
• Sierra Leone
• Canada
• Nigeria 2012

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IFRS is used in over 120 countries

Top 10 global capital market US US GAAP but IFRS allowed Japan Converting to IFRS UK IFRS France IFRS Canada IFRS Germany IFRS Hong Kong IFRS Spain IFRS Switzerland IFRS or US GAAP Australia IFRS

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IFRS RS adoptio ption n globally ally

Opening IFRS Statement of Financial Position

Transition Date (IFRS/SAS) 1 January 2012

IFRS Comparative period First IFRS Annual financial statements

31 December 2013 31 December 2012

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First time adoption of IFRS

• Present financial information in one language;
• Facilitate greater access to world capital markets;
• IFRS bring more transparency
• Attract acquisitions and divestments through greater certainty and

consistency of accounting information and interpretation.

• Financial statements presented with the eye of the management.
• Increase portability of skills across jurisdictions;
• Provide a level playing field for multinational corporations to apply

common accounting methods across their subsidiaries

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Wh Why IF IFRS? S?

• Extensive training required for employees, investors and

Board members.

• Complexity of the new requirements
• Concern about consistency of application.
• Lack of internal knowledge
• Cost of IFRS project, quite expensive to implement.

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Ch Challe llenge nges s of IFRS S ado doption ption

Lessons learnt from implementing IFRS and key issues

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Delay in starting IFRS projects: due to

• Non availability of funds to kick start the project
• Bureaucratic bottleneck in some organisation

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Lessons learnt from implementing IFRS

Express conversion of IFRS

• Converting the financial statements on the face of it
• The trial balance still report NGAAP figures
• Annual conversion of the financial statements will be required
• Management account still continue to report NGAAP figures
• Budget will continue to report NGAAP figures
• Express conversion less expense but more costly
• No general IFRS training for accounts/finance staff

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Lessons learnt from implementing IFRS

Systems and processes are not IFRS complaint

• IFRS conversion is more than just financial statements
• IFRS conversion have systems impact
• IFRS conversion have process impact
• IFRS conversion have business impact
• IFRS conversion have overall impact on the organization including

those charged with governance (TCWG)

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Lessons learnt from implementing IFRS

Managing IFRS Reporting post implementation

• A lot of accountants still presents NGAAP management account to

their management.

• In some instances, NGAAP management accounts are still

prepared for auditors

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Lessons learnt from implementing IFRS

Evolving a framework to monitors changes in IFRS.

• Being abreast of amendment to the existing standards
• Being abreast of new IFRS standards

The above can be achieved via Continious training Subscribe to ifrs.org and ias.com

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Lessons learnt from implementing IFRS

Non availability of project team to supervise and manage IFRS transition

• Project steering committee
• IFRS project manager

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Lessons learnt from implementing IFRS

Creating policies to support business decisions

• Most organisation do not have a documented risk management

framework

• Most organisation do not have a documented capital management

framework

• Lack of documented process manual document in some
• rganisation
• Corporate governance document is not always available in some
• rganisation

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Lessons learnt from implementing IFRS

• Customizing accounting system to be IFRS complaint/acquiring

IFRS complaint system

• The end process of IFRS conversion is the preparation of an IFRS

compliance financial statement

• Automate IFRS financial statements
• Acquire an IFRS reporting tool

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Lessons learnt from implementing IFRS

• Reconciliation of equity from previous GAAP to IFRS at transition

and comparative year end

• Reconciliation of comparative year’s net profit under previous

GAAP to IFRS

• Sufficient detail to understand adjustments to each line item
• Information on optional exemption and mandatory exception

applied

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IFRS 1: FIRST TIME ADOPTION OF IFRS

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• Setting up of statement of changes in equity
• Rename balance sheet and profit and loss statement
• Identifying other comprehensive income items.
• Information on new standards adopted during the year and

standards issued but not earlier adopted or yet effective.

• Other regulatory requirements outside IFRS
• Whether the operating expenses will be presented based on nature
• r function and reconciliation of presented numbers

IAS 1: Presentation of financial statements

• Estimation of useful life and residual value, and the method of

depreciation

• Componentization of items of property plant and equipment
• Subsequent expenditure is capitalized only when it is probable

that it will give rise to future economic benefits.

• Subsequent measurement at cost or revalued amount.
• Accounting for revaluation surplus or deficit

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IAS 16: Property, Plant and Equipment

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• Recognised investment property at cost initially
• Subsequent recognition at
• Fair value model
• Cost model

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IAS 40: Investment Property

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• Determining when the risk and reward has been transferred
• Determination of effective interest for income recognition
• Recognition of income as services are being rendered
• Recognition of dividend at point of declaration

IAS 18: Revenue Recognition

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Each category of financial asset is measured and classified as summarised below:

• Held-to-maturity - amortised cost
• Available-for-sale - fair value through equity.
• Held for trading – fair value through profit or loss
• Loan and receivables - amortised cost
• Other financial liabilities - amortised cost

Impairment is based on statistical estimation.

IAS 39 Financial Instruments

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• Recognition of software cost separately from PPE
• Annual review of useful life, residual value and amortization

method

IAS 38: Intangible Assets

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• Recognition of deferred tax assets.
• Annual reassessment of deferred tax assets

IAS 12: Income Taxes

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Consolidation is based on control rather than % holding

• Control has been redefined
• Disclosure of information when controlling power varies from

the % holding

• Consolidation is compulsory excepts when the criteria set out

in the standard are met

IFRS 10: Consolidated financial statement

IAS 24: Related Party Disclosures

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• Determine the key management personnel to the firm
• Identifying the related parties to the firm
• Obtaining information from key managements personnel and the

related companies in which they exercise control and significant influence.

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• Liabilities for employee benefits are recognised on the basis of a

legal or constructive obligation.

• Liabilities and expenses for employee benefits generally are

recognised in the period in which the services are rendered.

• Details and key assumptions used for valuation of the gratuity will

be disclosed in the financial statement.

IAS 19: Employee benefits

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IFRS Tools and Templates

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Resources to make your IFRS reporting very easy

• IFRS books
• Illustrative financial statements
• ifrs.org
• Customised IFRS tools and templates from PML

Advisory.

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Give away for the Jamboree

Amortised cost and fair value tools – Loan, borrowing and bonds Staff loan computation tool

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Amortised cost

CASE STUDY 1: TERM LOAN In order to meet the requirements of the growing customer base, JAMBOREE NIG. LIMITED, approached CLOUD BANK PLC to obtain a term loan worth N200,000,000 to build a new plant in FUJI ISLAND on . Commencement date 1 January 2013 Terms Bullet repayment of principal and quarterly repayment of interest. Interest 17.5%/annum Tenor 4 years Processing fee N5 million Management fee 0.25 % of loan amount payable at inception In line with the provision of IFRS, how will be above transactions be treated at origination and as at 31 December 2013?

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Amortised cost

CASE STUDY 2: TERM LOAN ELECTION MICRO FINACE BANK agreed to offer INEC Enterprise credit facilities under the following terms and conditions: Commencement date 1 April 2011 Amount: N 150,000,000 Purpose: To build a warehouse for keeping election materials for sell Tenor: 48 months Repayment: Principal and interest will be repaid in 60 equal monthly instalments . Loan Structuring fee: 1.75 % flat payable upon acceptance of offer Management fee: 1.25 % flat payable upon acceptance of offer Interest rate: 18 % per annum. Determine the expected balance in the books as at 31 December 2013 and the effective interest rate of the contract? Assuming a market borrowing rate of 21% determine the fair value of the borrowings at reporting date?

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Federal Government Bonds

Green Lagos Nigeria Limited purchased the Federal Government Bond Series 4 issued 1 January 2012 and maturing 31 December 2032 with a coupon rate of 10 %. The Face value

• f the bond was N100 million at a discounted price of N95million. The coupon and principal

are repaid 30 June and 31 December every year. Calculate the effective interest and the amortised cost as at 31 December 2013. Assuming that the average bond yield at year end was 11.5%. Determine the fair value of the bond.

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How to convert your financial statements to IFRS.

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• 1. Familiarize yourself with IFRS

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• 2. Determine applicable IFRS

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• 3. Identify key areas of differences between local

accounting rules and IFRS

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• 4. Select IFRS accounting policies

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• 5. Determine IFRS adjustments and put them into the transition note
• Derecognize local balances and recognize IFRS balances
• Prepare IFRS accounting entries
• Post accounting entries to the transition note.
• Verify consistency of equity

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6: Produce IFRS trial balance and work out IFRS financial statements

STATEMENT OF FINANCIAL POSITION AT 31 MARCH, 2014 2014 2013 Notes N`000 N`000 ASSETS Cash and cash equivalent 7 5,528,060 341,734 Available for sale instruments 8 29,680,343 22,019,535 Loans and other receivables 9 29,021,029 10,756,600 Prepayment 22,755 36,184 Investment in subsidiary 10 17,417,781 17,417,781 Investment property 7,000,000 7,000,000 Property, plant and equipment 11 188,120 225,573 Intangible assets 12 5,785

• Total assets

88,863,873 57,797,407 Liabilities Trade and other payables 13 13,126,210 3,817,443 Borrowings 14 30,689,966 6,675,419 Taxation 15 1,165

• Total liabilities

43,817,341 10,492,862 Group

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Practical demonstration

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How to manage your IFRS post implementation

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• Make your trial balance IFRS complaint

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• Stream line your people, processes and

business activities

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• Automate as many processes as possible

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• Improve on the book closure process

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• Leverage technology in handling the financial statements

preparation

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AccountsMate for IFRS reporting

Customized IFRS reporting solutions to all organizations of different sizes Integrated with ledger system and necessary disclosures automatically updated. IFRS financial statements are prepared by press of a button

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Tha Thank nk You You