6 New/amended standards Effective dateIFRS 10Consolidated financial statements1 Jan 2013IFRS 11Joint arrangementsIFRS 12Disclosure of interests in other entitiesIAS 27Separate financial statementsIAS 28Investments in associates and joint venturesIFRS 13Fair value measurement
11 Ability of the investor to affect its returns through its power Definition of controlAn investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investeePowerSubstantive rights to direct « relevant activities »Exposure (rights) tovariable returnsPotential variability to positive or negative returns (broad definition of returns)Ability of the investor to affect its returns through its powerNeed to determine whether the « decision-maker » is an agent of another investor
33 IFRS 13 - Fair value measurement Final standard issued May 2011Aims to replace all FV measurement guidance in IFRSGlobal crisis – importance of consistency between IFRS and US GAAPSame objective and very similar to FAS 157 in US GAAPScope: very broad (both financial & non-financial assets)Transactions within IFRS 2 and IAS 17 scoped outTiming: Applies for periods beginning on or after 1 January 2013 (prospectively)No need to restate comparativesDefines fair value, provides guidance on how to measure fair value and requires disclosure about fair value, it doesn’t change what is measured or disclosed at fair value33
34 Definition of fair value “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”Market based measurement – not entity specificNot between related parties, or forced, e.g. involuntary liquidation, fire sale etcNot settlement amounts, i.e. original liability remains outstandingExit price based model - may be hypothetical34
35 Fair value measurement – framework The price in the principal market for the asset or liability. In the absence of this – the most advantageous marketMarket participant is not a related party, must be knowledgeable, able and willing to transactFair value is the number within bid-ask spread that is most appropriate – as a practical expedient may use mid-pricesAssets specifically:Assumes highest and best use – even if entity’s use differsWhether used in combination with other assetsLiabilities specifically:Where no observable market for a liability – assume it is equal to the fair value in the hands of the counterpartyInclude own credit riskValuation technique:Market approachIncome approachCost approach (i.e. current replacement cost)35
36 Disclosures Same disclosures as IFRS 7. Use of 3-level hierarchy. Scope is much broader than IFRS 7 – applies for all assets and liabilities measured, at fair value (e.g. investment property).Extent of disclosure depends on whether fair valued on a recurring or non-recurring basisDisclosures include:analysis of fair value between levels 1, 2 and 3significant transfers between levels 1 and 2 (recurring only)Valuation techniques and inputs used for fair value measurementlevel 3 reconciliation from opening to closing balances (recurring only)total gains or losses relating to assets/liabilities held at reporting dateQuantitative sensitivity analysis for level 3 items (recurring only)Description of valuation processfor assets, where current use is not highest and best, analysis between value for current use and incremental value for highest and best use, and reason for current use36
37 Impact of IFRS 13Will not change the extent to which transactions are measured at fair valueMakes measurement objective explicit – exit priceDifferent guidance re. use of bid and ask pricesExplicit about market in which transactions take placeExtensive disclosuresFinancial and non-financialRequired even if fair value disclosed not reflected in balance sheetFair values determined in business combination/ initial recognition not in scope37
39 Background Objectives Convergence IFRS – US GAAP Provide a single, principle-based revenue recognition standard for use across various industries and capital marketsDecember2008June2010October2010November2011???DPEDComment period endsSecond EDEffective dateCore principleTo depict the transfer of goods or services to customers in an amount that reflects the consideration the entity receives or expects to receive
40 Application of the core principle Step 1: Identify contract(s) with customerStep 2: Identify separate performance obligations in contract(s)Step 3: Determine transaction priceStep 4: Allocate transaction price to separate performance obligationStep 5: Recognise revenue when entity satisfies each performance obligation
42 Background Objectives Convergence IFRS – US GAAP Eliminate the subjective distinction between operating and capital leases All lease contracts on balance sheetMarch2009DPAugust2010EDDecemberComment period endedQ12012Second ED???Effective date
46 Example – IFRS 10Agent A manages vessels on behalf of the principals under a pool management agreement as follows:Agent A markets the vessels and negotiates on time charters, voyages and contracts of affreightment.Agent A is responsible for commercial operation of the vessels including bunkering and appointing sub-agents.Each principal shall pay to the agent (1) a flat fee of $300 per day per vessels and (2) 1.25% of gross freight, demurrage, misc revenue and/or charter hireA pool committee (comprised one representative of each principal) meets twice a year to review performance of the pool. The agent attends these meetings but has no voting powerThe pool will monitor and supervise the Agent’s services as well as review financial accounts and budgetsEach vessel is registered as a company.Question: Should agent A consolidate the results of the each vessel?
47 Examples – IFRS 11 Example 1 Two companies A and B form a 50/50 ‘joint venture through a new legal entity Company C. C leases containers of various shapes/sizes to shipping companies.Each of Company A and B contributed equal number of containers into the joint venture and after 5 years (useful life of 20 years) these containers are returned to either company A or BCompany C in addition buys its own containers from revenue generated from operations. These containers belong to Company CRights (e.g. profits) and obligations(e.g. taxes, costs) shall be shared in proportion to shareholdingA and B have 5 directors each on board, unanimous consent requiredQuestion: Joint venture or Joint operation?Example 2Company D and E contributes equal amount of money to buy a vessel from a shipyardOn completion Company E will provide dive- support computer equipment to enable diving support vessel capabilities.Company E will then bare-boat charter the vessel on a 10 year contract followed by 3 year rolling renewal contracts for a total period of 21 years.At the end of its useful life the vessel will be sold and the proceeds proportionally distributed to Companies D and E.Rights (e.g. profits) and obligations(e.g. taxes, costs) shall be shared in proportion to shareholdingQuestion: Joint venture or joint operation?
48 Contact details:David Paterson Audit Partner – Energy & Resources Tel: +44 (0) David is an audit partner with 20 years’ experience specialising in multi-national organisations in both the shipping and extractive industry sectors. David is responsible for the audit of Scorpio Tankers Inc and until recently he also coordinated the global audit of Stolt- Nielsen S.A giving him a sound understanding of the global shipping sector. From 2002 to 2006 David was also a senior audit partner for Acergy, an oilfield services company which owns and operates a fleet of specialised deepwater construction and pipelay ships. During this period he played a leading role in the acceleration of their year end reporting timetable and implementation of Sarbanes Oxley. David’s other major clients include Vedanta, OMV, Kuwait Petroleum, Salamander Energy, SOCO, and Afren.Bheki Chatira Audit Senior Manager – Energy & Resources Tel: +44 (0) Bheki is a senior manager in Deloitte’s Energy & Resources audit practice and has worked within Deloitte’s shipping sector in the UK, USA and Southern Africa for over ten. He has significant experience in leading large engagements, working closely with teams to deliver a coordinated, multi-disciplinary approach. He has also worked on a number of specialist projects including due diligence and transaction support. His major clients include Subsea 7, Scorpio Tankers Inc, Ge SeaCo Srl, and Eclipse Shipping.
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