Transportation & logistics Transportation & logistics

Impacts of the annual improvements project

The International Accounting Standards Board (IASB) published its second annual improvements project in April 2009
and its third round of improvements in May 2010.
The annual improvements process is a timely and efficient way to make amendments to IFRS and address
inconsistencies within or between standards and areas where the standards are unclear. In most cases the improvements
do not change the meaning of the standards, but some may result in changes to the way particular transactions or
balances are accounted for by entities. These entities may well find themselves with changes in accounting policy
resulting from the improvements project, as described in the table below.
Second annual improvements project
Moderate impact on the transportation & logistics industry
Standard Amendment Impact of the amendment Effective date
IAS 7 Cash flow
statements

Clarifies that only expenditure
resulting in a recognised asset can
be categorised as a cash flow from
investing activities.
Expenditure incurred that does not result in a
recognised asset will be categorised as a cash flow
from operating activities.
This will more closely align the classification of cash
flows from investing activities in the statement of
cash flows with the presentation of recognised
assets in the statement of financial position.
Annual periods beginning
on or after 1 January
2010. Early application
permitted.
IAS 18 Revenue

Clarifies the distinction between
when an entity is acting as a
principal and an agent.

Entities will have more guidance to follow when
determining whether they are acting as a principal
or as an agent.
The entity is acting as a principal when it is exposed
to the significant risks and rewards associated with
the sale of goods or rendering of service (such as
when the entity has responsibility for providing the
goods or services or fulfilling the order). In all other
cases, the entity will be acting as an agent.
No specific effective date
because the amendment
affects the Appendix to
IAS 18.
IAS 36 Impairment of
assets
Clarifies that entities must assess
their goodwill impairment within
cash-generating units at or below
the operating segment level.
Entities must assess their goodwill impairment at or
below the operating segment level before
aggregation. Any subsequent aggregation of
operating segments for disclosure purposes will not
change the entitys assessment of the recoverable
amount of goodwill.
This may mean that some entities will need to
reallocate the goodwill on their balance sheet to a
lower level cash generating unit (CGU) or group of
CGUs for the purposes of impairment testing. This
may trigger more impairment of goodwill.
For example, assume Entity A acquired Entity B and
recognised goodwill that related to Entity Bs retail
and wholesale activities. Under the previous
segment reporting standard (IAS 14), these two
components or CGUs were identified within the
same business segment and the goodwill was tested
for impairment at the segment level. Under IFRS 8
Operating segments, if each of these two business
units are regularly reviewed by the entitys chief
operating decision-maker (such as the entitys CEO,
chief operating officer, senior management team, or
board of directors) they will need to be split into two
operating segments. The goodwill in these segments
will need to be reallocated to the relevant CGUs and
tested for impairment on that basis.
Annual periods beginning
on or after 1 January
2010. Early application
permitted.



October 2010 2 of 6
Low impact on the transportation & logistics industry
Standard Amendment Impact of the amendment Effective date
IAS 1 Presentation of
financial statements

Clarifies how to classify the liability
component of a convertible
instrument.

If an entity has a convertible instrument under which
the holder can request conversion into shares at
anytime within 12 months, the liability component of
the convertible instrument is still classified as non-
current provided the issuer does not have an
obligation to settle the liability with cash or other
assets within 12 months. The obligation to settle the
liability must be in cash or other assets.
Annual periods beginning
on or after 1 January
2010. Early application
permitted.
IFRS 2 Share-based
payment
Clarifies that the following
transactions are outside the scope
of IFRS 2 and IFRS 3 (revised)
Business combinations:
contributions of a business on
the formation of joint ventures in
return for shares in that joint
venture; and
common control transactions
Removes the current uncertainty about whether
IFRS 2 applies to contributions of a business to a
joint venture and common control transactions.
Annual periods beginning
on or after 1 July 2009.

IFRS 5 Non-current
assets held for sale

Clarifies the disclosures required
when accounting for non-current
assets (or disposal groups) that are
classified as held for sale and
discontinued operations.
Only the disclosures in IFRS 5 apply to non-current
assets or disposal groups that are classified as held
for sale and discontinued operations, unless:
another standard specifically states otherwise; or
disclosures about the measurement of assets
and liabilities within a disposal group is not within
the scope of IFRS 5 (such as deferred tax assets
and investment property that is carried at fair
value) and the disclosures are not already
provided in the financial statements.
Prospectively for annual
periods beginning on or
after 1 January 2010.
Early application
permitted.

IFRS 8 Operating
segments
Clarifies that entities will only need
to disclose information about
segment assets if that information is
regularly reviewed by the chief
operating decision-maker.
Entities that do not provide information about
segment assets to the chief operating decision-
maker (which may be the entitys CEO, chief
operating officer, senior management team, or the
board of directors) will no longer need to report this
information.
Annual periods beginning
on or after 1 January
2010. Early application
permitted. Prior year
comparatives must be
restated in accordance
with this amendment.
IAS 17 Leases

Requires entities with existing
leases of land and buildings
(combined) to reassess the
classification of land as a finance or
operating lease.

The default classification of the land element in a
land and building lease is no longer an operating
lease.
This means that it is possible for the land element to
be classified as a finance lease. Entities will need to
ensure their leases have the appropriate
classification.
Entities must apply this amendment retrospectively
based on the information existing at the inception of
the lease. Where this is impractical, entities will have
to assess the land element of their land and building
leases using information available at the time of
applying the amendment.
Annual periods beginning
on or after 1 January
2010. Early application
permitted.
IAS 38 Intangible
assets
Clarifies that if two intangible assets
which cannot be separated for
valuation purposes are acquired in a
business combination, the entity
should recognise them as one asset
and measure them using a
combined fair value. It also clarifies
how to determine the fair value of
intangible assets acquired in a
business combination.
Intangible assets acquired in a business combination
should usually be recognised separately. However,
intangible assets with similar useful lives that are
only identifiable with another intangible asset can be
recognised together.
This amendment also provides additional guidance
on how to measure intangible assets at fair value in
an inactive market. For example, entities can
measure the fair value of their intangible assets by
considering recent transactions for similar assets.
Prospectively for annual
periods beginning on or
after 1 July 2009.
IAS 39 Financial
instruments:
Recognition and
measurement
Clarifies that a pre-payment option
is considered to be closely related to
the loan if it has an exercise price
that effectively reimburses the
lender for the loss of interest income
if the loan is repaid earlier than
contracted.
Clarifies that entities do not need to separately
account for an option to pre-pay a loan as an
embedded derivative if the amount of the pre-
payment penalty is no more than the approximate
present value of the interest income lost by the
lender.
Annual periods beginning
on or after 1 January
2010.
IAS 39 Financial
instruments:
Recognition and
measurement
Clarifies that hedge accounting may
still be applied to transactions
between entities in the same group
in individual or separate financial
statements. This is not allowed for
transactions between segments.
This is unlikely to have a significant impact on
current practice many entities do not apply hedge
accounting to transactions between segments.
Annual periods beginning
on or after 1 January
2009.


October 2010 3 of 6
Standard Amendment Impact of the amendment Effective date
IAS 39 Financial
instruments:
Recognition and
measurement
Clarifies the scope exemption in IAS
39 para 2(g). Only forward contracts
between an acquirer and a selling
shareholder to buy or sell an
acquiree that will result in a
business combination at a future
date will be exempt from IAS 39.
The scope exemption in IAS 39 2(g) only applies to
entities forward contracts for business combinations
that are firmly committed to being completed within a
reasonable timeframe (ie, the forward contract will
result in a business combination and is not
dependent on further actions of either party). A
reasonable timeframe might include the time taken
for an entity to obtain any required approvals
concerning the business combination.
On the other hand, options to acquire a business
that are not currently exercisable are within the
scope of IAS 39. These would be treated as
derivatives and remeasured at fair value through
profit and loss. For example, take an entity that has
an option to acquire a business. Prior to the
proposed clarification, some entities might have
considered the option to be outside the scope of IAS
39 and measured the option at amortised cost. This
amendment clarifies that the option would be
measured at fair value with any changes in value
taken directly to the entitys income statement.
Prospectively applies to
all unexpired forward
contracts for annual
periods beginning on or
after 1 January 2010.

IAS 39 Financial
instruments:
Recognition and
measurement
Gains or losses on hedging
instruments should be recognised in
equity over the period of the hedged
forecast cash flows, which may not
be the same period as the hedged
items life (e.g. the life of a loan).
This is unlikely to have a significant impact on
current practice many entities are already
accounting for gains or losses on hedging
instruments on this basis.
Prospectively applies to
all unexpired contracts for
annual periods beginning
on or after 1 January
2010.
IFRIC Interpretation 9
Reassessment of
embedded derivatives
Clarifies which standard (IFRS 3
(revised) or IAS 39) applies to
contracts with embedded
derivatives.
Entities do not need to reassess embedded
derivatives in contracts that were initially acquired:
in a business combination;
by a combination of entities or businesses under
common control; or
under the formation of a joint venture
as these embedded derivatives will not have to be
separately accounted for under IAS 39. Instead,
these contracts are accounted for under IFRS 3
(revised).
Prospectively for annual
periods beginning on or
after 1 July 2009.
IFRIC Interpretation 16
Hedges of a net
investment in a foreign
operation
Clarifies that hedging instruments
may be held anywhere within a
group of entities.
An entity that is the foreign operation whose net
investment is being hedged by the parent entity in a
group can hold the hedging instrument. Previously,
the foreign operation being hedged could not hold
the hedging instrument.
Annual periods beginning
on or after 1 July 2009.

Third annual improvements project
Moderate impact on the transportation & logistics industry
Standard Amendment Impact of the amendment Effective date
IFRS 3 (revised)
Business combinations
IFRS 3 (para 19) allows the acquirer
to measure the non-controlling
interest at either fair value or the
non-controlling interests
proportionate share of the acquirees
identifiable net assets. However,
questions have arisen about which
components of equity qualify for this
choice.
Clarifies that only entities with present ownership
instruments that entitle their holders to a pro rata
share of the entitys net assets in the event of
liquidation can choose to measure the non-controlling
interest at fair value or the non-controlling interests
proportionate share of the acquirees identifiable net
assets. Other components of non-controlling interest
that are not entitled to a proportionate share of net
assets would be measured on an alternative basis.
For example:
The equity component of a convertible note would
be measured in accordance with IAS 32 (that is,
at the fair value of the instrument less the fair
value of the liability component).
The share-based payment reserve that is
classified in equity would be measured in
accordance with IFRS 2 Share-based payment
(that is, at the fair value at grant date).
Annual periods beginning
on or after 1 July 2010.
Early application
permitted.



October 2010 4 of 6
Standard Amendment Impact of the amendment Effective date
IFRS 3 (revised)
Business combinations
Upon issue of IFRS 3 (revised),
amendments were made to IFRS 7
Financial instruments: Disclosure,
IAS 32 Financial instruments:
Presentation and IAS 39 Financial
instruments: Recognition and
measurement to remove contracts
for contingent consideration from the
scope of those standards.
However, questions have arisen
about which guidance entities should
turn to when accounting for
contingent consideration that arises
from business combinations with
acquisition dates that precede the
application of IFRS 3 (revised).
Clarifies that entities should apply the rules in IFRS 3
(not IFRS 7, IAS 32 or IAS 39) to contingent
consideration that arises from a business combination
with acquisition dates that precede the application of
IFRS 3 (revised).
Removes diversity in practice all entities would
apply the requirements in IFRS 3 (revised) to
contingent consideration that arises from business
combinations that occur on or after 1 July 2010.
Annual periods beginning
on or after 1 July 2010.
Early application
permitted.
IFRS 3 (revised)
Business combinations

IFRS 3 (revised) provides
application guidance for the acquirer
in scenarios where the acquirer
replaces an acquirees share-based
payment award as part of a business
combination. The guidance confirms
that either all or a portion of a
market-based measure of the
replacement award should be
included when measuring the cost of
the business combination. However,
questions have arisen about whether
that guidance applies to unexpired
share-based payment awards that
form part of a business combination.
Clarifies that the application guidance in IFRS 3
(revised) applies to all unexpired share-based
payment awards that form part of a business
combination, regardless of whether the acquirer is
obliged to replace the award.
Entities that are acquirers in a business combination
would include all or a portion of a market-based
measure of the replacement award when measuring
the cost of the business combination.
Annual periods beginning
on or after 1 July 2010.
Early application
permitted.

IFRS 7 Financial
instruments:
Disclosures

The global financial crisis has
increased the focus on entities
financial risk disclosures.
The financial risk disclosure
requirements have been in place for
several reporting periods, however,
questions have recently arisen about
the meaning of some of the specific
requirements.
Clarifies seven disclosure requirements for financial
instruments, with a particular focus on the qualitative
disclosures and credit risk disclosures.
Entities would be expected to disclose, by class of
financial asset, their maximum exposure to credit risk:
without taking account of any collateral held; and
taking account of how any collateral held might
mitigate the credit risk.
The narrative disclosures included in the financial
statements about the nature and extent of the risks
arising from financial instruments would enhance the
existing relevant quantitative disclosures on financial
instruments.
Entities would disclose the nature and carrying
amount of only the collateral and other credit
enhancements they have taken possession of or have
called on at reporting date. They would no longer
need to disclose the carrying amount of the financial
assets whose terms have been renegotiated, where
without the renegotiation those financial assets would
have been past due or impaired.
Annual periods beginning
on or after 1 January
2011. Early application
permitted.
IAS 34 Interim financial
reporting

IAS 34 requires disclosure of events
and transactions that are significant
in order for users of the financial
statements to understand the
changes of financial position and
performance of the entity since the
end of the last annual reporting
period.
However, questions have arisen
about what sorts of events and
transactions are considered
significant.
Clarifies the meaning of significant events and
transactions by providing examples of the events or
transactions that would require disclosure.
Helps entities apply the disclosure principles in IAS
34, particularly in relation to financial instruments and
their fair values.

Annual periods beginning
on or after 1 January
2011. Early application
permitted.

Low impact on the transportation & logistics industry
Standard Amendment Impact of the amendment Effective date
IAS 1 Presentation of
financial statements
Currently entities present the
components of changes in equity in
the statement of changes in equity.
However, questions have arisen
about whether this information
could be disclosed in the notes to
the financial statements
Confirms that certain elements of the statement of
changes in equity, including the reconciliation from the
opening to closing balance for each component of
equity, can be presented in the statement of changes
in equity or in the notes.
Entities would have a choice about how to present the
reconciliation between the opening / closing balances.
Annual periods
beginning on or after 1
January 2011. Early
application permitted.


October 2010 5 of 6
Standard Amendment Impact of the amendment Effective date
IFRS 1 First time
adoption of
International Financial
Reporting Standards

A first-time adopter of IFRS that
makes changes to its accounting
policies is exempt from the
requirements of IAS 8 Accounting
policies, changes in accounting
estimates and errors in its first
IFRS financial statements.
However, questions have arisen
about instances when IAS 8 does
not apply. In particular, what (if
any) requirements apply if an entity
changes its accounting policies
between the first interim financial
statements it presents in
accordance with IFRS and the first
annual financial statements?
Amends IFRS 1 to state that IAS 8 does not apply both
to the entitys selection of accounting policies at the
date of transition to IFRS and to any changes to those
policies made to the first annual IFRS financial
statements.
Further, the reconciliations required in IFRS 1 must be
updated for changes the entity makes during the year
of first time adoption in accounting policies and in
transitional choices made in accordance with IFRS.
Only impacts entities transitioning to IFRS.
Annual periods
beginning on or after 1
January 2011. Early
application permitted.
IFRS 1 First time
adoption of
International Financial
Reporting Standards
IFRS 1 allows a first time adopter
of IFRS to use a revaluation as
deemed cost when a privatisation
triggers a revaluation at or before
the transition to IFRS.
However, questions have arisen
about whether the deemed cost
revaluation is measured during the
first IFRS reporting period.
Clarifies that entities may employ the deemed cost
exemption not only when the deemed cost is
measured before the date of transition to IFRS, but
also if the deemed cost is measured during the first
IFRS reporting period.
Only impacts entities transitioning to IFRS. However,
there is a special provision for existing IFRS preparers
to apply this exemption retrospectively or early adopt.
Annual periods
beginning on or after 1
January 2011. Early
application permitted.

IAS 8 Accounting
policies, changes in
accounting estimates
and errors

When selecting an accounting
policy in the absence of IFRS
guidance, management should use
judgement to develop a policy that
results in financial information that
is relevant and reliable.
However, questions have arisen
about whether this guidance is
consistent with the conceptual
framework being jointly developed
by the IASB and US FASB.
Updates the terminology in IAS 8 to achieve
consistency with the new conceptual framework on
financial reporting.
Would not affect current practice terminology change
only.
Annual periods
beginning on or after 1
January 2011. Early
application permitted.

IAS 28 Investments in
associates
IAS 28 does not apply to
investments that would otherwise
be associates or interests of joint
venturers in jointly controlled
entities held by venture capitalist
organisations, mutual funds, unit
trusts and similar entities when
those investments are held for
trading and accounted for under
IAS 39. Those investments are
measured at fair value, with
changes in fair value recognised in
the income statement.
However, questions have arisen
about whether the scope exclusion
in IAS 28 could also apply to
portions of an investment in an
associate.
Clarifies that different measurement bases can be
applied to a portion of an investment in an associate if,
on initial recognition:
part of it was designated at fair value through profit
or loss; or
the investment is held by a venture capitalist
organisation.
Clarifies the accounting by entities that possess
significant influence over another entity through direct
and indirect ownership of that entity.
Where some of the entitys ownership is held via their
interest in venture capital organisations, mutual funds,
unit trusts or similar entities, entities would account for
their direct investment in the associate under IAS 28.
The indirect investment in the associate would be
accounted for under IAS 39.
Annual periods
beginning on or after 1
January 2011. Early
application permitted.

IFRIC Interpretation 13
Customer loyalty
programmes
IFRIC Interpretation 13 requires
entities customer award credits to
be measured at fair value.
However, questions have arisen
about whether the fair value of
award credits includes the
proportion of the award credit that
would not be redeemed by
customers.
Clarifies that when measuring the fair value of an
award credit, entities should take into account both the
value of the award that would be offered to customers
and the proportion of the award credit that is not
expected to be redeemed by customers.
The impact of this amendment is best described by
way of an example. Presume Entity A grants 100
award credits to customers. Entity A estimates the
value of each award credit to be $1.25 and anticipates
that 80 of the award credits will be redeemed by
customers. The fair value of each award credit is $1
[being $1.25 x (80/100)].
Using the same example, the deferred revenue
recognised would be $100. Revenue would be
recognised (and the deferred revenue reversed) based
on the number of award credits redeemed each period.
Annual periods
beginning on or after 1
January 2011. Early
application permitted.







































































































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