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TECHNICAL: ACCOUNTING

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2009The IASB has revised IAS 24 – Related Party Disclosures, to provide a partial exemption from the disclosure requirements for government-related entities and to clarify the definition of a related party. The IASB did not change the fundamental approach to related party disclosures contained in previous versionS of IAS 24(AC 126), which requires entities to disclose information about related party relationships and transactions. The revisions respond to concerns that the previous disclosure requirements and the definition of a related party, were too complex and difficult to apply in practice, especially in environments where government control is pervasive. The revised standard addresses those concerns by:

• Providing a partial exemption for government-related entities.

Until now, if a government controlled or significantly influenced an entity, the entity was required to disclose information about all transactions with other entities controlled, or significantly influenced by the same government. The revised standard still requires disclosures that are important to users of financial statements, but eliminates requirements to disclose information that is costly to gather and of less value to users. It achieves this balance by requiring disclosure about these transactions only if they are individually or collectively significant.

• Providing a revised definition of a related party.

The IASB has simplified the definition and removed inconsistencies.

The revised standard is effective for annual periods beginning on or after 1 January 2011, with earlier application permitted. This will be issued as a revised Statement of GAAP once considered by the Accounting Practices Board at their meeting in January 2010.

For the IASB press release, please log onto:
http://www.iasb.org/News/Press+Releases/IASB+simplifies+requirements++for+disclosure+of+related+party+transactions.htm

For access to the on-line handbook and to download the revised IAS 24 from the international section, please log onto:
http://handbook.saica.co.za/nxt/gateway.dll?f=templates&fn=default.htm&vid=SAICA:10.1048/enu

IFRS 9 – FINANCIAL INSTRUMENTS

In response to the input received on its work responding to the financial crisis and following the conclusions of the G20 leader, the recommendations of the Financial Stability Board, and the report from the Financial Crisis Advisory Group published in July 2009, the IASB has published IFRS 9.

The IASB intends that IFRS 9 will ultimately replace IAS 39 – Financial Instruments: Recognition and Measurement, in its entirety. However, in response to requests from interested parties that the accounting for financial instruments should be improved, the IASB divided its project to replace IAS 39 into three main phases. As the IASB completes each phase, as well as its separate project on the derecognition of financial instruments, it will delete the relevant portions of IAS 39 and create chapters in IFRS 9 that replace the requirements in IAS 39. The Board aims to replace IAS 39 in its entirety by the end of 2010.

On 12 November 2009 the IASB issued the chapters of IFRS 9 relating to the classification and measurement of financial assets. The IASB addressed those matters first because they form the foundation of a standard on reporting financial instruments. Moreover, many of the concerns expressed during the financial crisis arose from the classification and measurement requirements for financial assets in IAS 39.
Chapters 4 and 5 of IFRS 9, issued on 12 November 2009, specify how an entity should classify and measure financial assets, including some hybrid contracts. They require all financial assets to be:

a. classified on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial asset.

b. subsequently measured at amortised cost or fair value.

These requirements improve and simplify the approach for classification and measurement of financial assets compared with the requirements of IAS 39. They apply a consistent approach to classifying financial assets and replace the numerous categories of financial assets in IAS 39, each of which had its own classification criteria. They also result in one impairment method, replacing the numerous impairment methods in IAS 39 that arise from the different classification categories.

The effective date of the Standard is 1 January 2013, with early adoption permitted. If the standard is adopted before 1 January 2011 the standard allows certain exemptions for comparative figures.

IFRS 9 will be considered for issue as a Statement of GAAP by the Accounting Practices Board at their meeting in January 2010.

To view the IASB press release, please log onto;
http://www.iasb.org/News/International+Accounting+Standards+Board+-+News.htm

To access the on-line handbook and to download the IFRS 9 from the international section, please log onto:
http://handbook.saica.co.za/nxt/gateway.dll?f=templates&fn=default.htm&vid=SAICA:10.1048/enu

PROPOSALS ON THE IMPAIRMENT OF FINANCIAL ASSETS

The IASB has issued an exposure draft (ED) proposing to amend IAS 39 – Financial Instruments: Recognition and Measurement, to modify the way impairment losses are recognised on financial assets measured at amortised cost. This has been issued in South Africa as ED 274. Consistent with requests from the G20 and others, the IASB has issued these proposals on the impairment of financial assets measured at amortised cost which form the second part of the project to replace IAS 39.

• The existing incurred loss model. Currently, IAS 39 recognises impairment of financial assets using an ‘incurred loss model’. An incurred loss model assumes that all loans will be repaid until evidence to the contrary (known as a loss or trigger event) is identified. Only at that point is the impaired loan (or portfolio of loans) written down to a lower value.

• IASB’s proposed expected loss model. The model proposed in the new ED is an ‘expected loss model’. Under that model, expected losses are recognised throughout the life of a loan or other financial asset measured at amortised cost, not just after a loss event has been identified. The expected loss model avoids what many see as a mismatch under the incurred loss model – front-loading of interest revenue (which includes an amount to cover the lender’s expected loan loss) while the impairment loss is recognised only after a loss event occurs. Proponents of the expected loss model believe it better reflects the lending decision. Under the IASB’s proposed expected loss model, a provision against credit losses would be built up over the life of the financial asset based on the expected cash flows of the instrument (including expected credit losses), not market values. Extensive disclosure requirements would provide investors with an understanding of the loss estimates that an entity judges necessary.

The IASB is aware of the significant practical challenges of moving to an expected loss model. For this reason an Expert Advisory Panel (EAP) comprising experts in credit risk management is being established to advise the board. An eight-month comment period has been provided to allow adequate time for entities to consider the impact of such a change within their organisation.

Deadline for comments on the ED to SAICA is 28 May 2010.

SAICA will be hosting a panel discussion on this ED in the first few months of 2010 to raise an awareness of the issue.

To read the IASB press release, a high level summary of the proposals in the form of the IASB’s Snapshot, as well as the ED, please log onto: http://www.iasb.org/News/Press+Releases/IASB+publishes+proposals+on+the+impairment+of+financial+assets.htm

REGULATED INDUSTRIES

EXCHANGE CONTROL

The Exchange Control department of the South African Reserve Bank (EXCON) has issued the following Exchange Control Circulars:

No. 10/2009 – The Withdrawal of an Authorised Dealer in foreign exchange

The EXCON advises that the appointment of Commerzbank Aktiengesellschaft as an Authorised Dealer in foreign exchange has been withdrawn with immediate effect. As a result, the attention of Authorised Dealers is drawn to Government Notice No. R.918 published in Government Gazette No. 32582 of 2009-09-25 in terms of which Commerzbank Aktiengesellschaft is deleted from the list of Authorised Dealers in foreign exchange.

Section A.2 (A) of the Exchange Control Rulings has been amended accordingly.

No 11/2009 – Nominated branches to transact insurance business

Authorised Dealers are advised of amendments to the list of names contained in Section B.10 (K) of the Exchange Control Rulings under the headings of ABSA Bank Limited and The Standard Bank of South Africa Limited. As a general approach, residents are not allowed to enter into any insurance contracts with foreign insurance companies. Only those branches of the Authorised Dealers referred to in subsection (K), may effect payments in foreign currency in terms of Section B.10.

Section B.10 (K) of the Exchange Control Rulings has been amended accordingly.

Replacement pages of the amended Exchange Control Rulings, can be requested from SAICA through our query system on www.saica.co.za.

TAXATION

SARS GRANTS MORE TIME FOR PROVISIONAL TAXPAYERS TO FILE

SARS will allow additional time for all provisional taxpayers (including but not limited to individuals and trusts that are provisional taxpayers) who are in good standing with SARS (i.e. no outstanding returns except for the current 2009 return) and who file via eFiling to submit their 2009 returns.

Those provisional taxpayers who choose to make use of the additional time have until 28 February 2010 to submit their returns.

Payment of assessed tax is due within seven calendar days after the assessment.
SARS had decided to allow more time for provisional taxpayers to submit their returns as their returns are generally more complex and since they have a higher administrative burden of having to submit three returns per year.

SAICA previously requested through a formal submission that differentiated dates be accommodated for tax practitioners. SAICA welcomes this approach as this differentiated date will significantly assist tax practitioners and taxpayers alike.