Updates and Application of New and Revised HKFRSs for …

1 24/10/20171 2013 2017 Nelson Consulting Limited1 Updates and Application of New and Revised HKFRSs for 2017 24 October 2017 LAM Chi Yuen Nelson CFA Charter Holder, FCPA(Practising)MBA MSc BBA CPA( ) FCA FCCA FCPA(Aust.) 2013 2017 Nelson Consulting Limited2 Photo taken by Stephanie and Nelson 2016 Wall Painting in Tomb of Nebamun(Egypt) @ The British Museum, UK 24/10/20172 2013 2017 Nelson Consulting Limited3 Effective for 2017 Dec. Year End Amendments to HKAS 7 Disclosure Initiative (Statement of Cash Flows) Amendments to HKAS 12 Recognition of Deferred Tax Assets for Unrealised Losses Annual Improvements to HKFRSs 2014-2016 Cycle (Amendments to HKFRS 12) Amendments to HKFRS for Private Entities 1 Jan. 2017 1 Jan. 2017 1 Jan. 2017 1 Jan. 2017 Selected new interpretations and amendments to HKFRSsEffective for periods beginning on/afterUpdated to HKICPA update No. 206 of September 2017 2013 2017 Nelson Consulting Limited4 Effective for 2018 Dec. Year End HKFRS 9 (2014)Financial Instruments HKFRS 15 Revenue from Contracts with Customers Amendments to HKFRS 15 Effective Date of HKFRS 15 Revenue from Contracts with Customers Amendments to HKFRS 15 Clarifications to HKFRS 15 Revenue from Contracts with Customers Amendments to HKFRS 2 Classification and Measurement of Share-based Payment Transactions Amendments to HKFRS 4 Applying HKFRS 9 and HKFRS 4 Amendments to HKAS 40 Transfers of Investment Property Annual Improvements to HKFRSs 2014-2016 Cycle (Amendments to HKFRS 1 and HKAS 28) Hong Kong (IFRIC) Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 Jan.

2 2018 1 Jan. 2017 1 Jan. 2018 1 Jan. 2018 1 Jan. 2018 1 Jan. 2018 1 Jan. 2018 1 Jan. 2018 1 Jan. 2018 Selected new interpretations and amendments to HKFRSsEffective for periods beginning on/afterUpdated to HKICPA update No. 206 of September 201724/10/20173 2013 2017 Nelson Consulting Limited5 Effective after 2018 Dec. Year End HKFRS 16 Leases Hong Kong (IFRIC) Interpretation 23 Uncertainty over Income Tax Treatments Amendments to HKFRS 10 and HKAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 1 Jan. 2019 1 Jan. 2019 1 Jan. 2016 (a date to be determined by the IASB)Selected new interpretations and amendments to HKFRSsEffective for periods beginning on/afterUpdated to HKICPA update No. 206 of September 2017 2013 2017 Nelson Consulting Limited6 New or Revised HKFRS Effective for 2017 Today s AgendaNew or Revised HKFRS Effective for 2018 Full presentation can be found or Revised HKFRS Effective for and after 2019 Recap and UpdateComprehensive ExamplesFlowchart24/10/20174 2013 2017 Nelson Consulting Limited7 New or Revised HKFRS Effective for 2017 Today s AgendaFull presentation can be found 2013 2017 Nelson Consulting Limited8 Photo taken by Stephanie and Nelson 2008 Abu Simbel @ Egypt24/10/20175 2013 2017 Nelson Consulting Limited9 Disclosure Initiative (Amendments to HKAS 7 Statement of Cash Flows)

3 2013 2017 Nelson Consulting Limited10 Amendments to HKAS 7 In 2016, the IASB amended IAS 7, and the HKICPA then followed to amend HKAS 7, as part of the IASB s Disclosure Initiativeproject HKAS 7 then requires entities to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non cash changes (HKAS )24/10/20176 2013 2017 Nelson Consulting Limited11 Amendments to HKAS 7 To the extent necessary to satisfy the new requirement, an entity is required to disclose the following changes in liabilities arising from financing activities:1. changes from financing cash flows;2. changes arising from obtaining or losing control of subsidiaries or other businesses;3. the effect of changes in foreign exchange rates;4. changes in fair values; and5. other changes. To fulfil the disclosure requirement, an entity can provide a reconciliationbetween the opening and closing balances in the statement of financial position for liabilities arising from financing activities, including the changes as identified above.

4 2013 2017 Nelson Consulting Limited12 Amendments to HKAS 72015 Cash flows Non cash changes 2016 AcquisitionNew leases$ $$$$Long term borrowings 1,040 250 200 1,490 Lease liabilities (90) 900 810 Long term debt 1,040 160 200 900 2,300 Example Reconciliation of liabilities arising from financing activities24/10/20177 2013 2017 Nelson Consulting Limited13 Deferred Tax Assets for Unrealised Losses(Amendments to HKAS 12 Income Taxes) 2013 2017 Nelson Consulting Limited14 Amendments to HKAS 12 In 2016, the IASB issued amendments to IAS 12, and then HKICPA followed the same, to clarify the requirements on recognition of deferred assets for unrealised losses,including the deferred tax assets related to debt instruments measured at fair 2013 2017 Nelson Consulting Limited15 Amendments to HKAS 12 When an entity assesses whether taxable profitswill be available against which it can utilise a deductible temporary difference, it considers whether tax law restrictsthe sources of taxable profits against which it may make deductions on the reversal of that deductible temporary difference.

5 If tax law imposes no such restrictions, an entity assessesa deductible temporary difference in combination with all of its other deductible temporary differences. However, if tax law restricts the utilisation of lossesto deduction against income of a specific type, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type(HKAS ) 2013 2017 Nelson Consulting Limited16 Amendments to HKAS 12 In estimating probable future taxable profit, the estimate may include the recovery of some of an entity s assets for more than their carrying amountif there is sufficient evidence that it is probable that the entity will achieve this. (HKAS )24/10/20179 2013 2017 Nelson Consulting Limited17 Amendments to HKAS 12 Happy Limited measures a fixed rate debt instrument at fair value (which is lower than the maturity value). HKAS 12 requires Happy to consider whether there is sufficient evidence to conclude that it is probable that Happy will recover the instrument for more than its carrying amount.

6 When Happy expects to hold a fixed rate debt instrument until maturityand collect all the contractual cash flows, this may be the case that it is probable that Happy will recover the instrument for more than its carrying 2013 2017 Nelson Consulting Limited18 Photo taken by Stephanie and Nelson 2016 Stonehenge @ 2013 2017 Nelson Consulting Limited19 Today s AgendaNew or Revised HKFRS Effective for 2018 Full presentation can be found 2013 2017 Nelson Consulting Limited20 HKFRS 9 Financial Instruments24/10/201711 2013 2017 Nelson Consulting Limited21 HKFRS 9 Financial Instruments1. Objective2. Scope3. Recognition and Derecognition4. Classification5. Measurement6. Hedge Accounting7. Effective Date and Transition 2013 2017 Nelson Consulting Limited22 Chapter Classification of FA Unless para. of HKFRS 9 (so called fair value option ) applies, an entity shall classify financial assets as subsequently measured at either amortisedcost, fair value through other comprehensive income, or fair value through profit or losson the basis of both:a)the entity s business modelfor managing the financial assets; andb)the contractual cash flow characteristicsof the financial asset.

7 (para. )Amortised CostFair Value Through Other Comprehensive incomeFair Value Through Profit or Loss24/10/201712 2013 2017 Nelson Consulting Limited23 NoChapter Classification of FAAmortised CostFair Value Through Other Comprehensive incomeFair Value Through Profit or LossContractual cash flowsare solely principal and interest?Determine the category of a financial asset for subsequent measurementNoChoose fair value option (designate at fair value through profit or loss)?NoYesYesHeld within a business model to collect contractual cash flow?YesNoHeld within a business model to collect contractual cash flow and selling FA?Contractual cash flowsare solely principal and interest?YesYesNoNoEntitle and elect to present fair value changes in other comprehensive incomeYesSource: Advanced Financial Reporting (2016) by Nelson Lam, KP Yuen and Jasmine Kwong 2013 2017 Nelson Consulting Limited24 Chapter Classification of FA Even the common understanding views that there are three categories in HKFRS 9 for the classification and subsequent measurement of a financial asset, a financial asset can be classified into the following five categories or sub asset at amortised cost; asset (not being investment in equity instrument) at fair value through other comprehensive income; asset, being investment in an equity instrument, irrevocable elected to measure at fair value through other comprehensive asset at fair value through profit or loss; to designate a financial asset at fair value through profit or loss.

8 Amortised CostFair Value Through Other Comprehensive incomeFair Value Through Profit or Loss1234524/10/201713 2013 2017 Nelson Consulting Limited25 Chapter Classification of FA A financial asset shall be measured at amortised costif both of the following conditions are met: the financial asset is held within a business modelwhose objective is to hold financial assets in order to collect contractual cash flows, and the contractual termsof the financial asset give rise on a specified date to cash flowsthat are solely payments of principal and interest on the principal amount outstanding. (para. ) Para. provide guidance on how to apply these the category of a financial asset for subsequent measurementChoose fair value option (designate at fair value through profit or loss)?NoHeld within a business model to collect contractual cash flow?YesContractual cash flowsare solely principal and interest?Amortised CostYes 2013 2017 Nelson Consulting Limited26 Chapter Classification of FAFair Value Through Other Comprehensive incomeDetermine the category of a financial asset for subsequent measurementChoose fair value option (designate at fair value through profit or loss)?

9 NoHeld within a business model to collect contractual cash flow?NoHeld within a business model to collect contractual cash flow and selling FA?Contractual cash flowsare solely principal and interest?YesYesContractual cash flowsare solely principal and interest?Yes24/10/201714 2013 2017 Nelson Consulting Limited27 Chapter Classification of FA A financial asset shall be measured at fair value through other comprehensive incomeif both of the following conditions are met:a. the financial asset is held within a business modelwhose objective is achieved by both collecting contractual cash flowsandselling financial assets, andb. the contractual termsof the financial asset give rise on specified dates to cash flowsthat are solely payments of principal and intereston the principal amount outstanding. Para. provide guidance on how to apply these conditions. (para. )Held within a business model to collect contractual cash flow and selling FA?Fair Value Through Other Comprehensive income 2013 2017 Nelson Consulting Limited28 Chapter Classification of FA A financial asset shall be measured at fair value through profit or lossunless it is measured at amortised costin accordance with para.

10 Or at fair value through other comprehensive incomein accordance with parag. However an entity may make an irrevocable electionat initial recognitionfor particular investments in equity instrumentsthat would otherwise be measured at fair value through profit or loss to presentsubsequent changes in fair value in other comprehensive income(see para. ). (para. )Amortised CostFair Value Through Other Comprehensive incomeFair Value Through Profit or LossNoEntitle and elect to present fair value changes in other comprehensive incomeYes24/10/201715 2013 2017 Nelson Consulting Limited29 Chapter Gains and Losses At initial recognition, an entity may make an irrevocable electionto present in other comprehensive incomesubsequent changes in the fair value of an investment in an equity instrumentwithin the scope of HKFRS 9 that is neither held for tradingnor contingent considerationrecognised by an acquirer in a business combination to which HKFRS 3 applies. (para.)