International Financial Reporting Standards (IFRS) are set of standards established to bring
International Financial Reporting Standards (IFRS) are set of standards established to bring harmony among the accounting policies followed by the different countries. As such there are several customisations made by individual countries or professional bodies. However, Qatar follows IFRS in full without any exception and the financial statements are expected to be in full compliance with IFRS set by International Accounting Standards Board (IASB).
In 2018, there is a major shift in recognising, measuring, impairing and derecognising the financial assets and liabilities by introducing IFRS 9 “Financial Instruments”. In addition, IFRS 15 “Revenue from Contract with customers” became effective removing the first generation accounting standard IAS 18 Revenue and few related interpretations. As we were busy in implementing these standards, Qatar Central Bank provided certain additional framework to bring greater transparency and consistency across the banks and lenders operating in the State of Qatar.
On a different note, AAOIFI (Islamic standard setters) responded positively by making limited amendments to certain requirements of its Financial instruments standards and by kick-starting due process to draft & introduce new standards. The move is expected to immensely benefit Islamic banks and Sharia accounting businesses.
Further, in order to avoid speculative business moves, IASB, by amending IAS 40, made it conditional to transfer any property in or from Investment property classification. Such a transfer is possible only when there is “evidence of change in use” as against previous requirement of “management’s intention”.
In 2019, the major impactful standard – IFRS 16 on Leases (ending the era of IAS 17 on Leases) were made effective for any accounting period commending on or after 1 January 2019. While the impact of applying IFRS 16 could vary from an entity to another, the major impact is on the entities that are lessee (the person who uses the asset on lease). No matter how much complex the standard looks like, the business having leases need to specifically follow procedures;
- Decide on Day 1 – Full retrospective or Modified retrospective approach
- List of operating leases on Day 1 and quantify Right to Use asset and Lease liability
- Establish IRR or Incremental borrowing rates for lease contracts
- Exclusion clause: For operating leases for a period of 12 months or less – and – low value items. If you are group entity, you need to establish a set of policy across the group to avoid inconsistent accounting policy.
- Bundle or unbundle – need to assess the eligibility to account for single consideration lease contracts wherein the assets are leased out in addition to certain services (read with IFRS 15)
- Lease modifications, Contracts that contains lease element and Sale & buy back contracts entered after Day 1
The points above is inclusive and not exhaustive. Our experts are happy to guide you on any of the matters above, should your team hit the walls.
Further IFRS 3 and IFRS 11 have been amended to reflect a change in group composition involving joint operation and remeasuring of previously held interest in joint operation. IFRS 9 has modified certain classification eligibility for Financial assets Prepayment options with negative compensation.
IAS 23 on borrowing cost amended to clarify that any specific project loan taken to construct qualified asset X, will become part of general borrowing to construct another qualified asset Y, immediately after completion of construction activities for asset X. Simple and logical.
In 2020, unlike year 2018 and 2019, there are certain minimal amendments made which include
- definition of business in Appendix A of IFRS 3 now defined clearly exclude the group of assets acquisition from the business combination accounting. This is will help the management to avoid applying IFRS 3 Acquisition method accounting to purchase of group of assets.
- Definition of material information given in IAS 1 and IAS 8 are amended further to make it free from ambiguity.
We are happy to assist your finance function on any IFRS matters relating to above topics.