New disclosures for corporates

New disclosures for corporates

Are you prepared to tell all?

1 March 2018

Sanel Tomlinson Partner KPMG in China

Disclosure requirements more detailed than ever before

Your first annual disclosures under the new standards may feel a long way off ? but have you thought of the time and effort required to get everyone comfortable with the detail that you'll need to provide? And if you're required to publish interims, time is running out even faster. The volume may be less, but even your interims will require some demanding disclosures.

If you haven't started yet, there'll be no rest after you've done your 2017 accounts. You'll need to start planning the disclosures under the new revenue and financial instruments standards. Even if your headline numbers aren't impacted, you'll still need to make the disclosures. No one is exempt.

The requirements are more detailed than ever before and may force you to display your organisation's `inner workings' in new and uncomfortable ways ? so getting to grips with the exact requirements of each standard and how they affect you will be essential.

Revenue ? Revealing sensitive information behind your topline

While revenue has always been a KPI, companies haven't had to provide detailed information about what lies behind the revenue number until now. Saying that information is "commercially sensitive" isn't an acceptable excuse for omitting a disclosure.

Disaggregating your revenue streams, linking them to your segment note, giving information on payment terms, being explicit about the amount and when you expect to receive the revenue from open contracts ? none of these things will come naturally. But that is what the disclosures require you to do. And this will provide others ? including your competitors ? with greater insight into how you run your business.

It's a big change from the old revenue standard, where entities typically gave one number broken down into a few line items in the notes.

Now, disclosure requirements could run across several pages ? and will need to tie through to other disclosures inside and outside the financial statements. There will be many qualitative statements to make with judgements and estimates involved, particularly where contracts have variability built in.

It will be crucial to get it right in year one, because that will set expectations for future years.

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

2 | New disclosures for corporates ? Are you prepared to tell all?

About the author

Sanel provides training and technical accounting advice to companies in Mainland China and Hong Kong on the application of the new standards and other aspects of corporate reporting.

ifrs

And, as I've said, even if your reported revenues are not greatly affected by the new standard, you'll still have to make all the new disclosures. It's like a maths exam question where it's not enough to just write the answer ? you have to show your full workings.

The first big challenge is already fast approaching ? in the interim statements, you'll need to provide a big-picture view of the impact of the new standard and how it will affect revenue going forward. Given that IFRS 15 is already effective, analysts will want to understand your transition adjustment and new accounting policies.

In addition, you'll need to disaggregate revenue and show the relationship to your segment reporting. This could be a sensitive matter. So put the new disclosures in front of the audit committee and the board and start the discussion in earnest.

I strongly recommend beginning this as soon as the 2017 accounts are finished. If you leave it too late, you could seriously struggle to get the disclosures through the multiple layers of sign-offs.

Financial instruments ? Extent of new disclosures depends on relevance

Then there's IFRS 9. For banks, the task will be considerable, adding many pages to the notes. But for corporates, the additional information needed will vary depending on the relevance of the different requirements to your business. So it's important to assess the additional requirements carefully.

For example, the new standard has extensive disclosure requirements about the effect of credit risk on the amount, timing and uncertainty of future cash flows, as well as about the effect of hedge accounting and related risk management strategies.

Leases ? Beware the `sleeper' disclosure

And don't forget about leases. In some respects, the disclosure requirements are relatively straightforward. The volume of disclosures may be high, but you'll need to gather most of the information anyway, to do the accounting. It's a case of following the disclosure checklist and working through it.

It shouldn't be a surprise that the operating lease commitment note in your 2018 financial statements will be subject to greater scrutiny, given that it will provide an indication of your lease liability going forward. However, what may be surprising to some is the requirement to reconcile your operating lease commitment note under the old standard with your opening liabilities under the new one. This applies to companies that don't apply the standard retrospectively ? by far the simpler approach for most.

Your operating lease commitment note may be tucked away at the back of your financial statements, but that doesn't mean you can ignore it until the last minute! Get onto it soon so you are not left regretting it later.

Data retrieval

Across all three standards, there will be the challenge that some of the data needed won't sit in the general ledger. You may need workarounds to locate and pull it through. It's important to capture the information and find a way of keeping it up to date. Disclosures won't `roll over' from one year to the next. They will change each year, so you will need to be able to access current information each time.

Words, not just numbers!

Finally, remember that the disclosures are not just about numbers. There will be lots of narrative and descriptions ? so getting the wording right in how you define things will be very important. Think carefully about the language ? loose descriptions could come back to bite you.

You can make a start by taking a look at our quick guides for IFRS 9, IFRS 15 and IFRS 16.

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

Disclosures under IFRS 9

Disclosures under IFRS 9 | 1

February 2018

IFRS 9 Financial Instruments introduces extensive new disclosure requirements for classification and measurement, impairment of financial assets and hedge accounting.

What's the aim?

The objective of the disclosure requirements is for an entity to disclose information to enable users of financial statements to evaluate:

-- the significance of financial instruments for the entity's financial position and performance;

-- the nature and extent of risks arising from those financial instruments, both during the period and at the reporting date; and

-- how the entity manages those risks.

What's new?

Additional disclosure requirements arise principally in the following areas, all of which are highlighted in the following tables.

-- Investments in equity instruments designated at fair value through other comprehensive income (FVOCI).

-- Impairment, including:

- credit risk management practices;

- quantitative and qualitative information about amounts arising from expected credit losses (ECLs); and

- credit risk exposure.

-- Hedge accounting.

What organisations are impacted?

The requirements apply to all entities but will be most significant for banks. The disclosures for even the most simple corporates ? i.e. non-financial institutions ? will be impacted.

How will this publication help you?

The tables do not provide a complete list of the disclosure requirements under IFRS 9. Instead, they set out the principal changes to the disclosure requirements from those under IFRS 7 Financial Instruments: Disclosures under each of classification and measurement, impairment and hedging.

A separate section sets out the disclosures that an entity is required to make on transition to IFRS 9.

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

2 | Disclosures under IFRS 9

Classification and measurement

Disclose the carrying amounts for:

-- financial assets measured at fair value through profit or loss (FVTPL), distinguishing between those designated into that category and those mandatorily measured at FVTPL.

-- financial liabilities measured at fair value through profit or loss (FVTPL), distinguishing between those designated into that category and those meeting the definition of held for trading.

-- financial assets and, separately, financial liabilities measured at amortised cost; and

-- financial assets measured at FVOCI, distinguishing between those mandatorily measured at FVOCI and investments in equity instruments designated as such on initial recognition.

Financial liabilities designated as at FVTPL

If an entity is required to present the effects of changes in that financial liability's credit risk in other comprehensive income (OCI), then disclose:

-- any transfers of the cumulative gain or loss within equity during the period, including the reason for the transfer; and

-- if the liability is derecognised during the period, then the amount (if any) presented in OCI that was realised at derecognition.

Provide a detailed description of the methodologies used to determine whether presenting the effects of changes in a liability's credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.

If the effects of changes in a liability's credit risk are presented in profit or loss, then provide a detailed description of the economic relationship that it expects will result in the effects of changes in the liability's credit risk being offset in profit or loss by a change in the fair value of another financial instrument measured at FVTPL.

Investments in equity instruments designated as at FVOCI

Disclose:

-- which investments in equity instruments have been designated as at FVOCI;

-- the reasons for the designation;

-- the fair value of each investment at the reporting date;

-- dividends recognised during the period, separately for investments derecognised during the reporting period and those held at the reporting date; and

-- any transfers of the cumulative gain or loss within equity during the period and the reason for those transfers.

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

Disclosures under IFRS 9 | 3

If investments in equity instruments measured at FVOCI are derecognised during the reporting period, then disclose: -- the reasons for disposing of the investments; -- the fair value of the investments at the date of derecognition; and -- the cumulative gain or loss on disposal. Reclassifications of financial assets For all reclassifications of financial assets in the current or previous reporting period, disclose: -- the date of reclassification; -- a detailed explanation of the change in the business model and a qualitative

description of its effect on the financial statements; and -- the amount reclassified into and out of each category. Note that these disclosures are required in the period of reclassification and the period following reclassification. For reclassifications from FVTPL to amortised cost or FVOCI, disclose: -- the effective interest rate (EIR) determined on the date of reclassification;

and -- the interest revenue recognised. Note that these disclosures are required for each period following reclassification until derecognition. For reclassifications from FVOCI to amortised cost, or from FVTPL to amortised cost or FVOCI, disclose: -- the fair value of the financial assets at the reporting date; and -- the fair value gain or loss that would have been recognised in profit or

loss or OCI during the reporting period if the financial assets had not been reclassified. Other disclosures For items of income and expense and gains or losses, provide: -- an analysis of the gain or loss recognised in the statement of profit or loss and OCI arising from the derecognition of financial assets measured at amortised cost, showing separately gains and losses arising from derecognition of those financial assets; and -- the reasons for derecognising those financial assets.

? 2018 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

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