1. cipfa.org What’s new on the technical accounting scene? Alan Bermingham Principal Consultant, CIPFA

2. cipfa.org

3. Session Objectives  To raise awareness of key technical issues  To highlight areas of potential impact  To look at topics for further research and understanding

4. cipfa.org New UK GAAP FRS 100 – Application of Financial Reporting Requirements FRS 101 – Reduced Disclosure Framework FRS 102 – The Financial Reporting Standard applicable in the UK and Republic of Ireland Effective for accounting period beginning on or after 1 January 2015

5. cipfa.org New Framework

6. cipfa.org What should we consider?  Impacts on SORP bodies and other Public Benefit Entities (PBE’s)  Are we involved with bodies in the scope of the new standards  Does this impact their financial position or impact financial ratios or covenants?  Are we grant giving bodies and need to be aware of changes?  Do we need to consider wider supplier issues?

7. cipfa.org IASB Projects and Developments Projects (Major IFRSs)  New standard for Financial Instruments (IFRS 9)  New Leasing Standard (replacement for IAS 17)  Rate Regulated Activities  Insurance Contracts  Revenue Recognition Other Research  Emissions Trading  Combinations under common control  Liabilities (IAS 37) and Discounting

8. cipfa.org Leases - Consumption Principle

9. cipfa.org Recognition - Lessees

10. cipfa.org Example - Lessees

11. cipfa.org Other Projects and Research  Rate regulation is a restriction in the setting of prices that can be charged to customers for services or products  Generally, it is imposed by regulatory bodies or governments when an entity has a monopoly or a dominant market position that gives it excessive market power  Revenue - the objective of this project is to clarify the principles for recognising revenue from contracts with customers  It applies to all contracts with customers except leases, financial instruments and insurance contracts

12. cipfa.org International - IPSAS  Development of IPSAS Conceptual Framework  Projects include:  Emissions Trading (also IASB)  Revisions to IPSAS 6 to 9 – Resulting from IFRS 10,11,12  Public Sector Combinations  Government Business Enterprises  Social Benefits!

13. cipfa.org Social Benefits Project  The objective of the project is to identify the circumstances and manner in which expenses and liabilities of certain social benefits of governments should be reflected in the financial statements  Why do this? – part of the issue of assessing long- term fiscal sustainability and the extent to which obligations under current frameworks can be met into the future  No real movement on this since 2012 and linked to completion of conceptual framework

14. cipfa.org Public Sector Locally  Current (2013) exposure drafts  Consolidation and Joint Ventures (IFRS 10,11 and 12)  Fair Value Measurement (IFRS 13)

15. cipfa.org IFRS 13 Fair Value Measurement  Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date – exit value  For non-financial assets the standard includes the principle of highest and best use  Fair value reflects constraints and restrictions  FReM adaptation proposed

16. cipfa.org Proposed FReM Adaptation ‘In use’ non-specialised property assets used to deliver services in a restricted geographic area as described by government policy should be valued at market value for existing use. This measure is a proxy for fair value.

17. cipfa.org Are there any constraints or restrictions on the disposal of the asset? Does the organisation have clear evidence that it is constrained by service needs to provide the asset in a particular location or is the asset’s market restricted by geographical limitations? No - Route 1 Measure in accordance with the requirements of the standard ie at highest and best use eg office accommodation Measure in accordance with the requirements of the standard ie at highest and best use eg office accommodation Do these constraints or restrictions align with the restrictions in the standard (ie either the asset has unique characteristics or there are legal restrictions)? Asset measurement at fair value limited to current or existing use Yes - Route 2 Yes - Route 3 Fair Value cost approach (or the income approach as appropriate) Measure at fair value limited to current or existing use in accordance with the (proposed) adaptation Unique Characteristics Restrictions IFRS 13 Route-map for Property, Plant and Equipment Yes No

18. cipfa.org IFRS 13 – Issues  Need to assess which assets need to be measured at ‘highest and best’ use  Revaluation required where current use is not highest and best  Also applies to liabilities  Disclosures – especially where no market evidence

19. cipfa.org Group Accounts Suite of Standards  IFRS 10 Consolidated Financial Statements  IFRS 11 Joint Arrangements  IFRS 12 Disclosures of Interests in Other Entities  IAS 27 Separate Financial Statements (2011)  IAS 28 Investments in Associates and Joint Ventures (2011)  Transitional Arrangements if there are changes in accounting policy (eg changes to consolidation decisions)

20. cipfa.org Group Accounts Standards IFRS 10 Consolidated Financial Statements  Identifies control as the single basis for consolidation  Returns include non-financial benefits and negative returns  Consolidation process unchanged IFRS 11 Joint Arrangements  Classification of joint arrangements joint ventures and joint operations  Focus no longer on legal structure but on how rights and obligations are shared by parties to the arrangement IFRS 12 Disclosure of Interests in Other Entities  New (consolidated disclosure standard) concerns about disclosures for unconsolidated structured entities

21. cipfa.org Any Questions?