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Proposed Annual Improvements to IFRS

Proposed Annual Improvements to IFRS

Amendments proposed to IAS 12, IAS 23, IAS 28 and IFRS 9


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As part of its process to make non-urgent but necessary amendments to IFRS, the IASB has issued an exposure draft – Annual Improvements to IFRS Standards 2015–2017 Cycle (AIP).

Proposed amendments  KPMG insight 
IAS 12 Income Taxes  
  • Clarify that all income tax consequences of distribution of profits are recognised in profit or loss, including payments on financial instruments classified as equity. 
Although the amendments provide some clarifications, they don’t attempt to address the underlying question – i.e. how to determine if a payment represents a distribution of profits. Therefore, challenges are likely to remain when determining whether to recognise the income tax on some instruments in profit or loss or in equity. 
IAS 23 Borrowing Costs  
  • Specific borrowings – i.e. funds borrowed specifically to finance the construction of a qualifying asset – should be transferred to the general borrowings pool once the construction of the qualifying asset has been completed.

The Board’s stated rationale is to clarify the requirements of IAS 23. However, if a borrowing is taken out for the purpose of obtaining a qualifying asset, it does not cease to have that purpose just because the entity has completed the activities needed to prepare the qualifying asset for its intended use or sale. 

Completion may require that interest capitalisation ceases but it does not necessarily and immediately generate cash proceeds that could be used to repay the specific borrowings. 

The proposed amendment instead appears to reflect a different notion that borrowing costs are attributed to projects for which capitalisation is applicable in priority to other purposes.

IFRS 9 Financial Instruments and IAS 28 Investments in Associates and Joint Ventures  
  • Long-term interests that, in substance, form part of the investor’s net investment in an associate or a joint venture are in the scope of IAS 28’s requirements on loss recognition and impairment.
  • The IASB proposes to clarify that those long-term interests are also in the scope of IFRS 9, including its impairment requirements.
The IASB’s initiative to clarify the applicable standards for long-term interests is welcome. However, as the proposals do not provide guidance on the interaction between the measurement requirements of IFRS 9 and IAS 28, there might still be complexities around the accounting for such interests.

Some of the issues that these minor amendments aim to address are complex, and so we would encourage you to consider whether the proposals would resolve the issues in a practical way.

Comments are due to the IASB by 12 April 2017.

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