Illustrative IFRS financial statements 2016 – Private equity funds

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This publication provides an illustrative set of financial statements, prepared in accordance with International Financial Reporting Standards (IFRS), for a fictional private equity limited partnership, ABC Private Equity LP. This is based on the requirements of IFRS standards and interpretations for the financial year beginning on 1 January 2016.

ABC Private Equity LP is not traded in a public market. ABC Private Equity LP’s investment objectives are to seek medium- to long-term growth by investing directly in private unlisted companies with high growth potential. It classifies all of its investments as ‘fair value through profit or loss’ (FVTPL) and does not apply hedge accounting.

The Partnership is presented as an Investment Entity in accordance with IFRS 10. As a result, the Partnership does not consolidate any subsidiaries unless they provide investment related services. No portfolio companies are consolidated, regardless of the level of holding as the Partnership meets the definition of an Investment Entity and instead, fair values these portfolio companies through its holdings in its investment holding subsidiary companies. There is only one controlled portfolio company (‘controlled subsidiary investment’) as at the period-end date of these financial statements.

The illustrative disclosures should not be considered the only acceptable form of presentation. The form and content of each reporting entity’s financial statements are the responsibility of the entity’s management. Alternative presentations to those proposed in this publication may be equally acceptable if they comply with the specific disclosure requirements prescribed in IFRS. These illustrative financial statements are not a substitute for reading the standards and interpretations themselves or for professional judgement as to fairness of presentation. They do not cover all possible disclosures that IFRS requires, nor do they take account of any specific legal framework. We recommend that readers also refer to the most recent IFRS disclosure checklist publication.

 

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News on IFRS: December 2016 / January 2017

Our latest IFRS News provides perspectives on key considerations for impairment tests, current IC rejections and the PwC leases lab.

Pension Disclosures – Remain silent and be thought a fool or speak and remove all doubt?

Pension deficits are increasing. Brian Peters, Partner, and Paul Allen, Senior Manager, leaders of the UK PwC’s pension accounting business, explain the importance of pension disclosure.

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IFRS 9 Disclosure – It’s time to tell your own Story

IFRS 9 disclosures in 2016 annual are unlikely to begin ‘once upon a time…’ or make for light bedtime reading. The effective date of 1 January 2018 is approaching fast, banks need to start to tell their story. What will applying IFRS 9 in 2018 mean to them?

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The IFRS 15 Mole

In the first of this series, John Chan, PwC revenue specialist and the IFRS 15 mole, investigates some of the things you need to think about when looking at a contract with a customer.

Suspects: Unidentified contracts
Incident description: There are a 2 potential incidents;

  • Is the contract in the scope of IFRS 15?
  • Are all the contract terms understood?Facts: Is it a contract?

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Cannon Street Press

  • Insurance Contracts
  • Disclosure Initiative: Materiality Practice Statement
  • Conceptual Framework
  • FICE

Read more…

The PwC leases lab

IFRS 16 gives rise to many challenges, so Professor Lee Singh starts a new experiment – this time with his assistant Derek Carmichael

Read more…

Demystifying IFRS 9

In the IFRS 9 expected credit loss (ECL) model, a significant increase in credit risk of a financial asset marks a clear change. If there has been a significant increase in credit risk, the asset is in ‘stage 2’ and lifetime ECL is booked. Lifetime ECL is equal to the expected credit losses that result from all possible default events over the expected life of a financial instrument.

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IFRIC Rejections in short – IAS 27

Tatiana Geykhman of Accounting Consulting Services examines the practical implications of IFRIC rejections related to IAS 27.

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In brief – A look at current financial reporting issues

  • Annual Improvements to IFRS Standards 2014: PwC In brief INT2016-19
    Read more…
  • Amendment to IAS 40, ‘Investment property’: PwC In brief INT2016-18
    Read more…
  • Foreign currency transactions and advance consideration: PwC In brief INT2016-17
    Read more…

News on IFRS: November 2016

Our latest IFRS News provides perspectives on key considerations for impairment tests, current IC rejections and the PwC leases lab.

IFRS 15 – Time is running out

Companies are facing the adoption of several major new accounting standards in the next few years. For many it will be the most significant change in accounting since the adoption of IFRS.

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Beware of Value in Use

Mary Dolson talks through the common pitfalls of using value in use (VIU) in an impairment review.

Impairment of non-financial assets under IAS 36 remains a hot topic with regulators and users. Six years past the start of the financial crisis, slow or no growth and low commodity prices continue to challenge companies. These issues and new ‘unknowns’ such as Brexit are working their way through into impairment testing.

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Cannon Street Press

  • Disclosure initiative
  • Conceptual Framework
  • Clarifications to IFRS 8 Operating Segments arising from the Post implementation Review
  • IFRS Implementation issues
  • Financial Instruments with Characteristics of Equity

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The PwC leases lab

Contracts for the use of an asset in a predetermined manner will not meet the definition of a lease and result in fewer leases recognised on the balance sheet.

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Demystifying IFRS 9

Credit risk management sits at the core of banking and IFRS 9’s new expected credit loss (ECL) requirements go straight to the heart of this. This first column in our series looks at how to understand and apply IFRS 9’s new impairment requirements for financial assets.

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In brief – A look at current financial reporting issues

  • More flexibility in the application of IFRS 9 – the IASB publishes an amendment to IFRS 4: PwC In brief INT2016-16

    Read more…

The wait is nearly over – IFRS 17 is coming, are you prepared for it?

We are close to a new IFRS insurance contracts accounting standard. IFRS 17 (previously referred to as IFRS 4 Phase II) is expected to be issued in early 2017 with an effective date of 2021.

IFRS 17 applies to all insurance contracts. The general model is the Building Blocks Approach (BBA) and is based on a discounted cash flow model with a risk adjustment and deferral of up-front profits through the Contractual Service Margin (CSM) which cannot be negative.

  • Changes in the initial building blocks are treated in different ways thus determining Profit recognition:
  • Changes in cash flows and risk adjustment related to future services are recognised by adjusting the CSM, whereas those related to past and current services flow to the P&L
  • The CMS amortisation pattern is based on the passage of time and drives the Profit recognition Profile
  • The effect of changes in Discount rates can either be recognised in OCI or P&L

The IASB has recognised the diversity in insurance contracts and have introduced alternative approaches to address particular features, subject to eligibility criteria as illustrated.

Download the full report here.

News on IFRS: September-October 2016

Our latest IFRS News provides perspectives on key considerations for impairment tests, current IC rejections and the PwC leases lab.

IFRS 4 Phase II – an opportunity to shine a light on value creation in the insurance industry

The insurance industry’s long wait for a comprehensive standard for insurance contracts is nearly over. IFRS 17 has been a long time in development but is expected in late 2016 or early 2017. Chris Hancorn and Matt Donnery outline some of the key implications for the industry.

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IFRS9 – Myth Buster

IFRS 9, the new financial instruments standard, is well recognised as being a big change in accounting by banks. This is largely due to IFRS 9’s requirements in the area of loan loss impairment and the introduction of the expected loss model. The new rules will generally result in earlier recognition of losses compared to today’s incurred loss model.

There are a number of common misconceptions over the expected loss model. The following table busts some of the more significant myths!

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Cannon Street Press

  • Change in accounting policy and accounting estimates
  • Draft Interpretation on long-term interests in an associate or joint venture
  • Financial Instruments with Characteristics of Equity (FICE)
  • Conceptual Framework

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The PwC leases lab

Lease contracts denominated in a foreign currency under IFRS 16 will create a lot of additional volatility in profit or loss for lessees.

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IFRIC Rejections in short – IAS 24

IIAS 24 Related party disclosures is a disclosure standard. It sets out how related party relationships, transactions and balances, including commitments, should be identified and what disclosures should be made, and when.

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In brief – A look at current financial reporting issues

  • More flexibility in the application of IFRS 9 – the IASB publishes an amendment to IFRS 4: PwC In brief INT2016-16

    Read more…

News on IFRS: July 2016

Our latest IFRS News provides perspectives on key considerations for impairment tests, current IC rejections and the PwC leases lab.

Alternative Performance Measures – Under scrutiny by regulators

Companies using Alternative Performance Measures (APMs) should understand the new guidance issued by the European Securities and Markets Authority (ESMA) and the International Organization of Securities Commissions (IOSCO) as well as applicable amendments to IAS 1. Annette Malsch from Accounting Consulting Services summarises the dos and don’ts and adds some practical examples.

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What is a business?

The IASB has proposed clarifications to the definition of a business in IFRS 3 Business Combinations.

The definition of a business affects the accounting not only for acquisitions but also for disposals, consolidation and other areas.

  • Why change the existing requirements?
  • What is going to change?
  • Why is this important?
  • What’s next?

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Ten reminders for interim reporting

The interim reporting season has arrived for many. Saad Siddique from Accounting Consulting Services summarises the key items to consider for 2016 interim financial statements.

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Amendments to IFRS 2

The IASB issued amendments to IFRS 2 on 20 June 2016. The amendments provide additional guidance on the accounting for cash-settled share-based payments and add an exception that provides equity-settled accounting where the settlement of share-based payment awards is split between equity instruments issued to the employee and a cash payment to the tax authorities.

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Cannon Street Press

  • Insurance contracts
  • Previously held interests
  • IAS 12 Income Taxes: Presentation of income tax consequences arising from dividends
  • Conceptual Framework

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The PwC leases lab

For lessees, IFRS 16 is just an accounting change; it will not require major changes to systems or processes.

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IFRIC Rejections in short – IAS 21

IAS 21 is applied on the accounting for foreign currency transactions, on the conversion of profit and loss and financial position of foreign businesses and the conversion of the entity’s profit and loss and financial position to presentation currency.

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In brief – A look at current financial reporting issues

  • Impact of UK referendum result on financial reports: PwC In brief INT2016-12
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  • IASB issues amendment to IFRS 2: PwC In brief INT2016-11
  • GPPC paper on IFRS 9 impairment considerations for systemically important banks: PwC In brief INT2016-10

 

News on IFRS: May 2016

Our latest IFRS News provides perspectives on key considerations for impairment tests, current IC rejections and the PwC leases lab.

IFRS 15: final amendments to the new revenue standard issued

The IASB has amended IFRS 15 to clarify the guidance on identifying performance obligations, licences of IP and principal versus agent. The amendments also provide additional practical expedients on transition. These amendments differ from those being made by the FASB. Sallie Deysel looks into the details for us.

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Regulator focus: What can we learn from the ESMA report?

ESMA (the European Securities and Markets Authority) has recently issued its Report on Enforcement and Regulatory activities of accounting enforcers in 2015.

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Key things to look out for with Operating Segments

An operating segment is defined as a component of an entity:

  • that engages in business activities from which it can earn revenues and incur expenses;
  • whose operating results are regularly reviewed by the entity’s chief operating decision maker (CODM) to assess performance and allocate resources; and
  • for which discrete financial information is available.

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The PwC leases lab

The new leasing standard leaves lessor accounting substantially unchanged. Given that the vast majority of entities in the real estate industry are lessors in leasing transactions, you might think they have little to worry about.

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Cannon Street Press

  • Insurance and IFRS 9
  • Conceptual Framework
  • Disclosure Initiative: changes in accounting policies
    and accounting estimates
  • Further discussions

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IFRIC Rejections in short – IAS 18

IAS 18, Revenue deals with revenue arising from sales of goods, rendering of services, interest, royalties and dividends. It is one of the standards that requires the highest degree of judgement. Thus it is not surprising that many matters have been raised with the IC over the last 13 years.

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In brief – A look at current financial reporting issues

IFRS in brief

    • South Sudan enters hyperinflation: In brief INT2016-09
      Read more…
    • Immediate impact on cash pooling arrangements of IFRS IC decision: In brief INT2016-08
      Read more…

News on IFRS: April 2016

Our latest IFRS News provides perspectives on key considerations for impairment tests, current IC rejections and leases lab.

Valuation: Key considerations for impairment tests

ESMA (the European Securities and Markets Authority) has identified the following enforcement priorities that they, together with national bodies in Europe, will examine within listed companies’ 2015 financial statements:

  • the impact of financial market conditions on financial statements, particularly the current interest rate environment, country and FX risk, and volatility in the price of commodities,
  • fair value measurement and related disclosures, and
  • statement of cash flows and related disclosures.

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Current IC rejections

The IC observed that when accounting for net investment hedges, an entity should apply the ‘lower of’ test in determining the effective portion of the gains or losses arising from the hedging instrument.

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The PwC leases lab

Pharma companies typically lease buildings, company cars and computers. Many of these arrangements are currently accounted for as operating leases. Under the new standard, almost all leases will be moved onto the balance sheet.

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Cannon Street Press

Applying IFRS 9 Financial instruments with IFRS 4 Insurance contracts

  • Definition of a business
  • Goodwill and Impairment
  • Agenda Consultation

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IFRIC Rejections in short – IAS 17

In January, the IASB issued the new leasing standard, IFRS 16. Nevertheless, the guidance in IAS 17 remains applicable for almost three years, making this an opportune moment to review how the IC addressed the questions raised on IAS 17.

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Cryptic IFRS word seek

Give your brain a workout and keep it buzzing for your next accounting term!

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In brief – A look at current financial reporting issues

IFRS in brief

    • Immediate impact on cash pooling arrangements of IFRS IC decision
      Read more…
    • IASB issues amendment to IFRS 15 ‘Revenue from contracts with customers’
      Read more…
    • IASB issues a narrow scope amendment to IAS 7, ‘Statement of cash flows’
      Read more…

IFRS 16 leasing standard effective 1 January 2019 announced by IASB

Leasing is an important financial solution that many companies resort to so that they can use property, plant and equipment without incurring major initial cash outflows. Under the existing rules, lessees generally usually recognise lease transactions either as off-balance-sheet operating leases or on-balance-sheet finance leases. Under the new standard, lessees will have to account for just about all leases on the balance sheet. This will reflect their right to use the asset for a period of time and the associated liability to pay the lease instalments. The accounting model for the lessor remains more or less unchanged.

What’s the issue?

Since just about all companies use rentals or leasing to get access to assets, most will be affected by the new standard. Balance sheets will grow, leverage ratios will be eroded, and capital ratios will decline. Both the expense character and the recognition pattern will change. The new standard will impact almost all common financial metrics such as gearing ratio, current ratio, asset turnover, interest cover, EBIT, operating profit, net income, EPS, ROCE, ROE and operating cash flows. This may have knock-on effects on an entity’s arrangements with different stakeholders such as banks and lenders, investors and analysts and employees, and prompt them to reassess certain lease versus buy decisions in the future. The impact on the accounting and financial levels is only the tip of the iceberg. These rules are so pervasive that they may require organisations to transform their business processes in many areas including finance and accounting, IT, procurement, tax, treasury, legal, operations, corporate real estate and HR.

How can we help?

The accounting literature is sometimes form-driven and often complex, and applying it to the specific facts and circumstances of your business can be a challenge. We have a team of leasing specialist across the world who can help with:

  • ‘As is’ analysis: We’ll help you understand how the standard is likely to impact you, how to raise awareness, what you need to do, and who you need to get involved to implement it.
  • Building a roadmap: We can help you project manage the implementation process and ensure that you have a robust governance structure in place.
  • Advice on technical accounting: The new standard requires an in-depth grasp of leasing, the applicable guidance, and new interpretations and judgments. We have the expertise and tools to help you get it right.
  • Gathering and analysing lease data: We have automated extraction tools to help you gather relevant data, plus the analysis capabilities and modelling tools to help you understand the impact of leases and make the right decisions.
  • Changing your business and lease strategy: You might realise that the changes in lease accounting and greater transparency mean changes in your contracts or the way you decide on leasing versus buying. We can help you evaluate the risks, areas where you could save costs, and ways for you to optimise your lease portfolio.
  • Selecting and implementing software vendors: Complying with the new lease standard may require you to implement new systems, business processes and controls. We’re familiar with the lease software vendors and can help you assess, choose and implement the right vendors and software applications.

Get in touch with us to find out how we can help you make your financial reporting compliant with the leasing standard – and manage your lease business and process transformation in an efficient and measured way.

Contacts

Capital Markets and Accounting
Advisory Services (CMAAS)
Assurance IFRS Technical Office
Christophe Bourgoin
Partner
+41 58 792 25 37
christophe.d.bourgoin@ch.pwc.com
David Mason
Partner
+41 58 792 94 90
david.mason@ch.pwc.com
Christian Witte
Senior Manager
+41 58 792 25 67
christian.witte@ch.pwc.com
Gesa Mannigel
Director
+41 58 792 24 54
gesa.mannigel@ch.pwc.com
Daniel Knechtli
Senior Manager
+41 58 792 26 41
daniel.knechtli@ch.pwc.com

Our recent publications on IFRS 16

News on IFRS: March 2016

Our latest IFRS News provides perspectives on Alternative Performance Measures, IFRS 9 impairment and IAS 7 amendment.

Alternative Performance Measures

The use of Alternative Performance Measures (APMs) is widespread. A recent analysis of reporting practices in the UK FTSE 100 revealed a need for more transparency, especially under the light of the ESMA guidance applicable for all announcements after 3 July 2016. Jennifer Lau and Anna Schweizer from Accounting Consulting Services look into the details.

Read more…

IFRS 9 impairment

IFRS 9 introduces a new expected credit loss (ECL) approach to impairment provisioning for financial instruments: a radical move away from the current incurred loss model in IAS 39. Following the issue of IFRS 9, two bodies – the Basel Committee on Banking Supervision (the Committee) and the Enhanced Disclosure Task Force (EDTF) – have recently published guidance in respect of the ECL requirements in IFRS 9.

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IAS 7 amendment

Borrowings form a major part of nearly every business and operation. Information about changes in borrowings helps users of financial statements evaluate the financial health of an entity.

Read more…

Cannon Street Press

  • Insurance contracts
  • Goodwill and Impairment
  • Measurement of interests in associates and joint ventures
  • Non-current liabilities: conditions that are tested after the end of the reporting period
  • Financial Instruments with characteristics of equity

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IC rejections

IAS 16 covers recognition, measurement, and disclosure of property, plant and equipment (PPE). Nine matters related to IAS 16 have resulted in an agenda rejection by the IC.

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In brief – A look at current financial reporting issues

IFRS in brief

  • Accounting considerations for Venezuelan entities – update as of February 2016
    Read more…
  • IAASB issues Invitation to Comment on Enhancing Audit Quality in the Public Interest
    Read more…
  • IASB issues a narrow scope amendment to IAS 7, ‘Statement of cash flows’
    Read more…