Issue 37 (January 2021)
Dear members,Financial Reporting Considerations to Close Out 2020Background2020 has been a challenging year for many entities. Due to the outbreak of the COVID-19,businesses have been impacted and this has resulted in increasing difficulties inpreparation of financial statements for companies in Hong Kong and worldwide.In March 2020, the HKICPA published the Alert Issue 33 that focused on key financialreporting implications of COVID-19, including events after the reporting period, goingconcern, and disclosures about judgements and estimates in preparing financialstatements. This publication was aimed primarily at the reporting period ended on 31December 2019.In June 2020, the HKICPA published the educational guidance COVID-19-related financialreporting issues for 2020 reporting periods that further highlighted financial reportingconsiderations in light of COVID-19 that warrant specific attention.This publication is designed for reporting periods ended on or after 31 December 2020. Itfocuses on financial reporting issues that may be relevant in the current challengingenvironment, and highlights changes in financial reporting standards of which to be aware.In times of uncertainty, it is important to provide users of financial statements withappropriate information, particularly around key assumptions and judgements madeby management. Providing adequate entity-specific disclosures is of paramountimportance.Please note that this publication is not intended to be comprehensive nor does it cover allthe potential issues in financial reporting in the current period. Readers should refer to theHKFRSs in the HKICPA’s Members’ Handbook for further reference.Key financial reporting considerationsThis publication highlights key financial reporting considerations in the following areas:
1.Significant judgement and estimations
2.Going concern
3.Impairment of non-financial assets
4.Fair value measurements
5.Expected credit losses
6.Interest rate benchmark reform
7.Supplier financing arrangements
8.Leases
9.Revenue recognition
10.Breach of loan covenants
1.Significant judgement and estimationsThe impact of COVID-19 has affected entities across various jurisdictions and industries.The uncertainties brought about by the pandemic make estimations challenging. Entitiesshould consider all available information as at the balance sheet date and ensure that therelevant estimates, assumptions and judgements are applied and disclosed consistently.It will be important for management to provide disclosures of significant judgements thathave the most significant effect on the amounts recognised in the financial statements,and sources of estimation uncertainty that require management’s most difficult, subjectiveor complex judgements, in accordance with paragraphs 122 and 125 of HKAS 1Presentation of Financial Statements. To enable users to understand the judgements thatmanagement makes about the future and other sources of uncertainty, an entity may needto disclose the nature of the assumption or uncertainty, the sensitivity of carrying amountsto the methods, assumptions, and estimates underlying management’s calculation, theexpected resolution of uncertainty and the range of reasonably possible outcomes in thenext financial year, as listed in paragraph 129 of HKAS 1.
2.Going concernCOVID-19 has significantly affected some entities, and there may be doubt as to theability of some entities to continue as a going concern. Management should assess andmake a determination of the entity’s ability to continue as a going concern when preparingits financial statements.In making this assessment, management should assess the impact of COVID-19 and itsassociated events as well as other circumstances on the entity for at least 12 months afterthe reporting date (e.g. further restrictions on business operations in 2021 and beyond,etc.), and consider whether this indicates that there is a need to consider whether thegoing concern assumption is still appropriate.If, in making its assessment, management becomes aware of material uncertainties thatmay cause significant doubt on the entity’s ability to continue as a going concern, thoseuncertainties should be disclosed in accordance with paragraph 25 of HKAS 1. Furtherdisclosures are required if an entity does not prepare financial statements on a goingconcern basis.The March 2020 Alert Issue 33 provides more detail regarding going concern and theinformation that management should take into account when determining whether thegoing concern assumption is still appropriate.
3.Impairment of non-financial assetsImpairment is an ongoing area of concern for many entities. For goodwill and intangibleassets with indefinite useful lives/not yet available for use, HKAS 36 Impairment of Assetsrequires entities to carry out an impairment test at least annually or more often when anyindication of impairment exists. For other assets, HKAS 36 requires entities to assesswhether there is any indication that an asset may be impaired at the end of each reportingperiod. Due to the adverse impact of COVID-19, one or more indications in HKAS 36 mayexist for an asset or a cash-generating unit (CGU), which would require a correspondingimpairment test.Key points to consider for impairment testing include, but are not limited to:
•The value-in-use (VIU) model requires the use of pre-tax cash flows discounted usinga pre-tax discount rate, and uses management assumptions supported by externalmarket data.•The fair value model is a post-tax model that uses market participant assumptions.•The carrying value of the CGU should be determined on a consistent basis as itsrecoverable amount. For example, care should be given to consistency whenincluding or excluding working capital or recognised liabilities from a CGU.•Using multiple cash-flow scenarios and applying relative probability weightings intimes of greater uncertainty.•Do not double count the same risk in both the cash flows and the discount rate.•HKAS 36 requires disclosure of key assumptions (i.e. those to which the recoverableamount is most sensitive) and related sensitivity analyses. HKAS 1 requiresdisclosure of critical accounting judgements and of key sources of estimationuncertainty (see 1. Significant judgement and estimations).The disclosure of key assumptions is required when (1) an impairment loss has beenrecognised for an individual asset or a CGU, or (2) when a CGU contains goodwill orintangible assets with indefinite useful lives the amount of which is significant in proportionto the respective total carrying amount of these items, even when no impairment isrecognised.The disclosure of a sensitivity analysis is required for (2) above when a reasonablypossible change in a key assumption would cause the CGU’s carrying amount to exceedits recoverable amount.With the introduction of HKFRS 16 Leases, right of use assets (ROU assets) are alsosubject to HKAS 36 impairment testing. Additional considerations apply to impairmenttesting for ROU assets, and because ROU assets usually do not generate independentcash flows, they are generally tested for impairment as part of a CGU. If impairment isnoted in a CGU including a ROU asset, the impairment losses should be allocated to theROU asset in accordance with paragraphs 104 and 105 of HKAS 36, similar to otherassets within that CGU.The educational material in June 2020 provides more detail regarding how COVID-19impacts the impairment reviews, including reminders around the present valuetechniques and the disclosure requirements.
4.Fair value measurementsFair value is a market-based measurement, not an entity-specific measurement. Fairvalue is measured using assumptions that market participants would use when pricing theasset or liability, including assumptions about risk, at the measurement date under currentmarket conditions (i.e. to reflect market participants’ expectations in view of the currentconditions affected by COVID-19).HKFRS 13 Fair Value Measurement requires fair valuation techniques to maximise theuse of observable inputs and minimise the use of unobservable inputs. A quoted price inan active market provides the most reliable evidence of fair value and shall be usedwithout adjustment when it is available.A significant decrease in the volume of transactions in a market may potentially cause themarket to no longer be active and an entity may have to change the valuation technique oruse multiple valuation techniques. Some valuation techniques involve the use ofunobservable inputs and may affect the categorisation of the fair value measurementwithin the fair value hierarchy. If the unobservable inputs are significant to the fair valuemeasurement and categorised as Level 3 inputs under the fair value hierarchy, additionaldisclosures are required by HKFRS 13. To determine whether there has been a significantdecrease in the volume of transactions for an asset, an entity shall evaluate thesignificance and relevance of a number of factors, as required by paragraph B37 ofHKFRS 13.Providing appropriate disclosures on fair value measurements is crucial in enhancing theusefulness of the financial information in this unprecedented time. Entities should refer toparagraphs 91 to 99 of HKFRS 13 for disclosure requirements.The educational material in June provides more detail regarding how COVID-19impacts the fair value hierarchy, the approach adopted for valuation, and theconsiderations for the use of valuation experts.
5.Expected credit lossesThe impact of COVID-19 may affect the ability of debtors and borrowers to repay amountsoutstanding, and have a negative effect on expected credit losses (ECL). The effect ofECL could be significant as many entities have trade receivables, lease receivables, loansto associates and joint ventures, and intra-group loans and financial guarantees, whichare all subject to ECL assessment.The measurement of ECL should be unbiased and probability-weighted. As noted inHKFRS 9 Financial Instruments, entities should exercise judgement and take into accountall reasonable and supportable information available at the reporting date without unduecost or effort, including information about past events, current conditions, and forecast offuture economic conditions in measuring ECL.In light of the current uncertainty, entities may have to revisit the models and assumptionsadopted in estimating ECL. This may include revisiting the grouping of debtors,receivables and other exposures (e.g. financial guarantee contracts and loancommitments) given the potential significant changes in credit risk characteristics of theitems in the original groupings. For example, debtors in the original grouping were stablemiddle-income earners; however, they work in different industries that are affected by thepandemic to different extent. These debtors may no longer share similar credit riskcharacteristics as the employment opportunities and status, amongst other factors, willaffect their repayment abilities. The expected loss rates for these different debtors shouldthus be assessed separately, requiring revisiting of the groupings for ECL assessmentpurposes. Furthermore, an entity should also reconsider whether the originally assessedexpected loss rates reflect up-to-date forecast economic factors based on availableinformation as at the reporting date obtainable without undue cost or effort.Management overlays or other adjustments may also need to be considered when, forexample, the current ECL assessment model has limitations and is unable to reflect thepotential effects of COVID-19 on the cash flow projections. Entities should also providedisclosures of the key assumptions and estimation techniques used in estimating the ECLin order for the users of the financial statements to understand how COVID-19 affects theestimation.The educational material in June provides more detail regarding the considerations inECL estimation affected by COVID-19 and the credit risk disclosures.
6.Interest rate benchmark reformInterest rate benchmarks such as interbank offered rates (IBORs) are undergoing reformand transition to alternative benchmark rates, e.g. the London Interbank Offered Rate(LIBOR) is set to be phased out by the end of 2021 and will no longer be quoted.According to the Hong Kong Monetary Authority’s website1, while the Hong Kong DollarOvernight Index Average has been identified as an alternative to the Hong Kong InterbankOffered Rate (HIBOR), there is no plan to discontinue HIBOR.For companies with loans and other instruments that are exposed to the interest ratebenchmarks reform, there has been uncertainty about how the transition may affect theiraccounting, e.g. how to account for the modification of a LIBOR-based financial asset orliability when the interest rate is replaced; whether hedge accounting applied toLIBOR-based hedging relationships needs to be discontinued; as well as the extent of therelated disclosures.In November 2019, the HKICPA issued the phase 1 amendments related to the IBORreform to HKAS 39 Financial Instruments: Recognition and Measurement, HKFRS 7Financial Instruments: Disclosures, and HKFRS 9. The amendments modify some specifichedge accounting requirements to provide relief from potential effects of the uncertaintiescaused by the IBOR reform, and require entities to provide additional information abouttheir hedging relationships. The amendments are effective for annual reporting periodsbeginning on or after 1 January 2020 and earlier application is permitted.In October 2020, the HKICPA issued the phase 2 of IBOR reform amendments to HKAS39, HKFRS 4 Insurance Contracts, HKFRS 7, HKFRS 9 and HKFRS 16. Theamendments complement those issued in November 2019, and address issues, largelyconcerning classification and measurement, hedge accounting and disclosures, that mightaffect financial reporting when the old interest rate benchmark is replaced with analternative benchmark rate. The amendments are effective for annual reporting periodsbeginning on or after 1 January 2021 and earlier application is permitted.
7.Supplier financing arrangementsIn a supplier financing arrangement or reverse factoring arrangement, a financialinstitution agrees to pay amounts an entity owes to its supplier and the entity agrees topay the financial institution at the same date as, or a date later than, the invoice terms.Such arrangements raise the question of whether the trade payables of the supplierfinancing arrangement should be derecognised and replaced by another borrowing. This1 https://www.hkma.gov.hk/eng/key-functions/banking/banking-regulatory-and-supervisory-regime/reform-of-interest-rate-benchmarks/ accessed on 18 December 2020.affects the presentation on the balance sheet (trade payables v. borrowings) as well as onthe cash flows statement (whether the payment to the financial institution should bepresented as operating cash flows or financing cash flows).The IFRS Interpretations Committee (IFRIC) issued an agenda decision in December2020 explaining how an entity presents liabilities to pay for goods or services received inthe statement of financial position when the related invoices are part of a supplierfinancing arrangement. The agenda decision also discusses whether and how the relatedcash flows should be presented in the cash flow statement and the relevant disclosureconsiderations for liabilities that form part of supplier financing arrangements.In addition, as a result of the COVID-19 pandemic, entities may make changes to theterms of their supplier financing arrangements. Entities should reassess whether theoriginal trade payables should be derecognised applying the modification guidance onfinancial liabilities in HKFRS 9, the appropriate presentation of these payables in thestatement of financial position based on the revised terms (i.e. is it still appropriate topresent them as trade payables? Should they be reclassified or newly recognised asborrowings or as another more appropriate line item?), and provide adequate disclosureswhere material.
8.LeasesAs a result of the COVID-19 pandemic, many entities have made changes to the terms inthe lease contracts (e.g. timing and amount of lease payments, duration of a lease, and/orscope of a lease). The HKICPA issued an amendment to HKFRS 16 Covid-19-relatedRent Concessions (Amendment to HKFRS 16) in June 2020, which provides an optionalpractical expedient for lessees not to assess whether a rent concession related toCOVID-19 is a lease modification, subject to meeting all the conditions required byparagraph 46B of HKFRS 16. In many cases, applying the practical expedient wouldresult in the rent concession being accounted for by the lessee as a variable leasepayment in the period(s) in which the event or condition that triggers those paymentsoccurs. The Amendment to HKFRS 16 is effective for annual reporting periods beginningon or after 1 June 2020, and earlier application is permitted.Both lessees and lessors should provide clear disclosures about their leasing activities tomeet the disclosure objectives as specified in paragraphs 51 and 89 of HKFRS 16,respectively. Specific disclosures are required if the practical expedient under theAmendment to HKFRS 16 is applied.The educational material published in June 2020 Illustrative examples oncovid-19-related rent concessions provides examples on the application of the optionalpractical expedient under the Amendment to HKFRS 16 to COVID-19-related rentconcessions. If lessees do not elect the practical expedient for particular rentconcessions, or those rent concessions do not qualify for the application of the practicalexpedient, lessees are required to assess whether the rent concessions meet thedefinition of lease modifications under HKFRS 16.Further education material published in January 2020 Illustrative examples on rentconcessions provides examples of commonly seen rent concessions in Hong Kong thatare not covid-19-related.
9.Revenue recognitionAs a result of the COVID-19 pandemic and its related disruptions, the amount and timingof revenue recognised may be affected. For example, in order to provide incentives forcustomers to continue purchasing the entity’s goods and services, the entity may provideprice concessions, extended payment terms, or extensions of loyalty programmes.Furthermore, entities themselves may be experiencing business disruptions andchallenges to fulfil their performance obligations to customers.Entities should carefully assess their revenue recognition policies, particularly concerningthe estimations of variable consideration involving price concessions, return rates andbreakages, and how these circumstances affect the constraint on revenue recognition.Entities should also provide adequate disclosures in the financial statements to enableusers to understand the nature, amount, timing, and uncertainty of revenue and cashflows arising from contracts with customers (i.e. to reflect the implications arising fromCOVID-19 in their financial statements).The educational material in June provides more detail on how COVID-19 affects anentity’s revenue recognition policies.
10.Breach of loan covenantsThe current condition arising from COVID-19 may result in some entities breaching theirloan covenants. If the loan covenant is breached on or before the reporting date, and theloan becomes payable on demand, the loan should be classified as current (even if thelender agreed after the reporting period and before authorisation of the financialstatements not to demand payment) per paragraph 74 of HKAS 1. If a waiver of demandrepayment is obtained subsequent to the reporting date but before the issuance of thefinancial statements, this fact should be disclosed as a non-adjusting event as required byparagraph 21 of HKAS 10 Events after the Reporting Period, but does not affect theclassification of such a loan at the reporting date as current liability.An entity would classify a liability as non-current if the lender agreed by the end of thereporting period to provide a grace period ending at least twelve months after thereporting period per paragraph 75 of HKAS 1.The educational material in June highlights specific requirements from HKAS 1 on theclassification of liabilities as current or non-current.The HKICPA issued amendments to HKAS 1 Classification of Liabilities as Current orNon-current (Amendments to HKAS 1) in August 2020. The Amendments supposedlyclarify whether a liability should be classified as current or non-current; however, due tothe existing diversity in practice, these amendments will likely result in changes to existingpractice when the Amendments become mandatorily effective.Firstly, the Amendments clarify that if an entity’s right to defer settlement for at least 12months after the reporting date is subject to the entity complying with specific conditions,the right exists at the reporting date only if those conditions are met at the reporting date,even if the lender does not test compliance until a later date.The IFRIC issued a tentative agenda decision in December 2020 explaining how anentity applies the Amendments to IAS 1 to classify a loan that is subject to a workingcapital ratio covenant. The IFRIC noted that the entity’s expectation that it will meet theworking capital ratio at a future testing date is not considered in the current/non-currentassessment at the reporting date.If this tentative agenda decision is finalised, it will mean that some seasonal or cyclicalbusinesses will be affected as the testing dates and threshold for their loan covenantscould have taken the seasonal effects into account. If the entity does not meet thecovenant requirements at balance sheet date (e.g. if this is the low point in the cycle) itcould cause its debt to be classified as current (because the IFRIC decided that theentity needs to meet the covenant requirements at the reporting date).Secondly, the Amendments clarify how a counterparty conversion option affects thecurrent or non-current classification of the host liability.• If the conversion option is accounted for as equity under HKAS 32 FinancialInstruments: Presentation, the conversion option does not affect classification of thehost liability as current or non-current.For example, Entity A issued a convertible bond that is repayable in one go in fiveyears’ time (single bullet payment with no interim interest payments). The holder canconvert the bond into shares of Entity A at any time and the conversion option meetsthe definition of equity. In this case, the liability component of the convertible bondwould be classified as non-current (because it will be settled in cash only in five years’time) despite the fact that the liability component could be extinguished due toconversion into shares within the next 12 months. As the conversion option isaccounted for as equity under HKAS 32, the fact that its conversion could extinguishthe liability within 12 months is ignored when classifying the host liability as current ornon-current.• If the conversion option does not meet the definition of equity under HKAS 32, thetransfer of the entity’s equity instruments upon conversion is regarded as a settlementof the host liability. This will then affect the current or non-current classification of thehost liability.For example, Entity B issued a convertible bond that is repayable in one go in fiveyears’ time (single bullet payment with no interim interest payments). The holder canconvert the bond into shares of Entity B at any time but the conversion option does notmeet the definition of equity and is accounted for as a derivative. In this case, theliability component of the convertible bond would be classified as current despite thefact that it will be settled in cash only in five years’ time (if not converted into shares).This is because the liability component could be extinguished within the next 12months through the exercise of the conversion option. The extinguishment of theliability through the issue of shares in this case (as opposed to the example above) isconsidered to be a ‘settlement’ in terms of paragraph 69 of HKAS 1 as the conversionoption does not meet the definition of equity in HKAS 32.The Amendments to HKAS 1 is effective for annual reporting periods beginning on or after1 January 2023, and earlier application is permitted.The Amendments to HKAS 1 could result in entities reclassifying some liabilities fromnon-current to current, and vice versa, potentially affecting those entities’ compliance withloan covenants (e.g. current ratio) which may further exacerbate any borderline cases.Entities are encouraged to revisit their loan covenants and discuss with their lendersproactively to assess the potential impact of the Amendments to HKAS 1 in advance of itseffective date.TheHKICPAalsorevisedHK-InterpretationPresentationofFinancialStatements-Classification by the Borrower of a Term Loan that Contains a Repayment onDemand Clause in October 2020 as a consequence of Amendments to HKAS 1, with nochange to its conclusion. The revised HK-Interpretation 5 is to be applied at the same timewhen an entity applies the Amendments to HKAS 1.Other considerationsApart from the key considerations above, entities should also consider other financialreporting issues depending on their facts and circumstances, including, but not limited to:
•Government grants/assistance*•Measurement of inventories*•Capitalisation of interest*•Provisions for onerous contracts and restructuring plans•Employee benefits and share-based payments* The educational material in June provides further detail regarding the impact andconsiderations arising from the COVID-19 pandemic.The new and revised HKFRSs that are effective for the year ended 31 December 2020,and those that are effective in future reporting periods, together with the agenda decisionspublished by the IFRIC during the year, are summarised in the Appendix.Please also refer to the Institute’s COVID-19 – CPA Information Centre, which includesinformation and messages from the HKICPA and other bodies that you may find helpful.Sincere regards,Chris JoyExecutive DirectorHong Kong Institute of Certified Public AccountantsCPA: The Success Ingredientwww.hkicpa.org.hkConnect with usDisclaimerThis guidance was developed by the Financial Reporting Standards Committee (FRSC) of theHong Kong Institute of Certified Public Accountants (HKICPA) and is for general reference only.The HKICPA, FRSC and their staff do not accept any responsibility or liability, and disclaim allresponsibility and liability, in respect of the guidance and any consequences that may arise fromany person acting or refraining from action as a result of any materials in the guidance. Membersof the HKICPA and other users of this guidance should also read the full Standard, as found in theHKICPA Members’ Handbook(https://www.hkicpa.org.hk/en/Standards-and-regulation/Standards/Members-Handbook-and-Due-Process) for further reference, and seek professional advice where necessary when applying thereferences contained in this guidance.The HKICPA Standard Setting Department welcomes your comments and feedback, which should besent to commentletters@hkicpa.org.hk.Appendix - New and revised Hong Kong Financial Reporting Standards, andAgenda Decisions issued by the IFRICThe following new standards and amendments of HKFRS became effective as of 1January 2020:
The following new and amended standards, interpretation and accounting guideline havebeen issued but are not yet effective. They are available for early adoption:
Effective from annualperiods beginning onor after:
New and Amended Standards, Interpretation and AccountingGuidelineNew Standard1 January 2023HKFRS 17 Insurance ContractsAmended Standards, Interpretation and Accounting Guideline1 June 2020Amendment to HKFRS 16 Leases -Covid-19-related rent concessions1 January 2021Amendments to HKAS 39 Financial Instruments: Recognition andMeasurement, HKFRS 4 Insurance Contracts, HKFRS 7 FinancialInstruments: Disclosures, HKFRS 9 Financial Instruments andHKFRS 16 Leases - Interest Rate Benchmark Reform — Phase 2StandardsDescriptionAmendments to HKFRS 3 BusinessCombinations - Definition of a BusinessThe amendments provide clarification on thedefinition of a business for the purposes ofdeciding whether a transaction is an acquisitionof a business or an asset acquisition.Amendments to HKFRS 9 FinancialInstruments, HKAS 39 FinancialInstruments: Recognition andMeasurement and HKFRS 7 FinancialInstruments: Disclosures - Interest RateBenchmark ReformThe amendments provide relief for hedgeaccounting affected by the reform of interbankoffered rates (Phase I of the IBOR reform).Amendments to HKAS 1 Presentation offinancial statements and HKAS 8Accounting policies, Changes inAccounting Estimates and Errors -Definition of materialThe amendments are intended to assist entitiesto make better materiality judgements byclarifying the definition of “material” and itsapplication.Amendments to the Conceptual Frameworkfor Financial Reporting includingamendments to references to theConceptual Framework in HKFRSStandardsThe revised Conceptual Framework forFinancial Reporting includes revised definitionsof an asset and a liability as well as newguidance on measurement and derecognition,presentation and disclosure.1 January 2022Amendments to HKFRS 3 Business Combinations - Reference tothe conceptual framework1 January 2022Amendments to HKAS 16 Property, Plant and Equipment -Property, plant and equipment: proceeds before intended Use1 January 2022Amendments to HKAS 37 Provisions, Contingent Liabilities andContingent Assets - Onerous contracts — cost of fulfilling acontract1 January 2022Annual Improvements to HKFRSs 2018-2020 Cycle - Amendmentto HKFRS 1 First-time Adoption of International FinancialReporting Standards, Amendment to HKFRS 9 FinancialInstruments, Amendment to illustrative examples accompanyingHKFRS 16 Leases, Amendment to HKAS 41 AgricultureCommon controlcombinations that occuron or after the beginningof the first annualreporting periodbeginning on or after 1January 2022Revised Accounting Guideline 5 Merger Accounting for CommonControl Combinations1 January 2023Amendments to HKAS 1 Presentation of financial statements -Classification of Liabilities as Current or Non-currentHK Int 5 (2020) isapplied when an entityapplies the Amendmentsto HKAS 1.Hong Kong Interpretation 5 (2020) Presentation of FinancialStatements – Classification by the Borrower of a Term Loan thatContains a Repayment on Demand Clause (HK Int 5 (2020))
The effective date ofthese amendments wasindefinitely deferred bythe IASB in 2015; butearly adoption ispermitted.Amendments to HKFRS 10 Consolidated Financial Statementsand HKAS 28 Investments in Associates and Joint Ventures - Saleor contribution of assets between an investor and its associate orjoint ventureThe following agenda decisions were published by the IFRIC during 2020:
IFRIC UpdateAgenda Decision(s)
January 2020• Definition of a Lease-Decision-making Rights (IFRS 16Leases)
March 2020• Translation of a Hyperinflationary ForeignOperation-Presenting Exchange Differences (IAS 21 TheEffects of Changes in Foreign Exchange Rates and IAS 29Financial Reporting in Hyperinflationary Economies)
• Cumulative Exchange Differences before a Foreign Operationbecomes Hyperinflationary (IAS 21 The Effects of Changes inForeign Exchange Rates and IAS 29 Financial Reporting inHyperinflationary Economies)
• Presenting Comparative Amounts when a Foreign Operationfirst becomes Hyperinflationary (IAS 21 The Effects of Changesin Foreign Exchange Rates and IAS 29 Financial Reporting inHyperinflationary Economies)
• Training Costs to Fulfil a Contract (IFRS 15 Revenue fromContracts with Customers)
April 2020• Multiple Tax Consequences of Recovering an Asset (IAS 12Income Taxes)
June 2020• Sale and Leaseback with Variable Payments (IFRS 16 Leases)
• Deferred Tax related to an Investment in a Subsidiary (IAS 12Income Taxes)
• Player Transfer Payments (IAS 38 Intangible Assets)
December 2020• Supply Chain Financing Arrangement-Reverse Factoring
Financial reporting considerations for 2020
下载原件Issue 37 (January 2021)
Dear members,Financial Reporting Considerations to Close Out 2020Background2020 has been a challenging year for many entities. Due to the outbreak of the COVID-19,businesses have been impacted and this has resulted in increasing difficulties inpreparation of financial statements for companies in Hong Kong and worldwide.In March 2020, the HKICPA published the Alert Issue 33 that focused on key financialreporting implications of COVID-19, including events after the reporting period, goingconcern, and disclosures about judgements and estimates in preparing financialstatements. This publication was aimed primarily at the reporting period ended on 31December 2019.In June 2020, the HKICPA published the educational guidance COVID-19-related financialreporting issues for 2020 reporting periods that further highlighted financial reportingconsiderations in light of COVID-19 that warrant specific attention.This publication is designed for reporting periods ended on or after 31 December 2020. Itfocuses on financial reporting issues that may be relevant in the current challengingenvironment, and highlights changes in financial reporting standards of which to be aware.In times of uncertainty, it is important to provide users of financial statements withappropriate information, particularly around key assumptions and judgements madeby management. Providing adequate entity-specific disclosures is of paramountimportance.Please note that this publication is not intended to be comprehensive nor does it cover allthe potential issues in financial reporting in the current period. Readers should refer to theHKFRSs in the HKICPA’s Members’ Handbook for further reference.Key financial reporting considerationsThis publication highlights key financial reporting considerations in the following areas:
1.Significant judgement and estimations
2.Going concern
3.Impairment of non-financial assets
4.Fair value measurements
5.Expected credit losses
6.Interest rate benchmark reform
7.Supplier financing arrangements
8.Leases
9.Revenue recognition
10.Breach of loan covenants
1.Significant judgement and estimationsThe impact of COVID-19 has affected entities across various jurisdictions and industries.The uncertainties brought about by the pandemic make estimations challenging. Entitiesshould consider all available information as at the balance sheet date and ensure that therelevant estimates, assumptions and judgements are applied and disclosed consistently.It will be important for management to provide disclosures of significant judgements thathave the most significant effect on the amounts recognised in the financial statements,and sources of estimation uncertainty that require management’s most difficult, subjectiveor complex judgements, in accordance with paragraphs 122 and 125 of HKAS 1Presentation of Financial Statements. To enable users to understand the judgements thatmanagement makes about the future and other sources of uncertainty, an entity may needto disclose the nature of the assumption or uncertainty, the sensitivity of carrying amountsto the methods, assumptions, and estimates underlying management’s calculation, theexpected resolution of uncertainty and the range of reasonably possible outcomes in thenext financial year, as listed in paragraph 129 of HKAS 1.
2.Going concernCOVID-19 has significantly affected some entities, and there may be doubt as to theability of some entities to continue as a going concern. Management should assess andmake a determination of the entity’s ability to continue as a going concern when preparingits financial statements.In making this assessment, management should assess the impact of COVID-19 and itsassociated events as well as other circumstances on the entity for at least 12 months afterthe reporting date (e.g. further restrictions on business operations in 2021 and beyond,etc.), and consider whether this indicates that there is a need to consider whether thegoing concern assumption is still appropriate.If, in making its assessment, management becomes aware of material uncertainties thatmay cause significant doubt on the entity’s ability to continue as a going concern, thoseuncertainties should be disclosed in accordance with paragraph 25 of HKAS 1. Furtherdisclosures are required if an entity does not prepare financial statements on a goingconcern basis.The March 2020 Alert Issue 33 provides more detail regarding going concern and theinformation that management should take into account when determining whether thegoing concern assumption is still appropriate.
3.Impairment of non-financial assetsImpairment is an ongoing area of concern for many entities. For goodwill and intangibleassets with indefinite useful lives/not yet available for use, HKAS 36 Impairment of Assetsrequires entities to carry out an impairment test at least annually or more often when anyindication of impairment exists. For other assets, HKAS 36 requires entities to assesswhether there is any indication that an asset may be impaired at the end of each reportingperiod. Due to the adverse impact of COVID-19, one or more indications in HKAS 36 mayexist for an asset or a cash-generating unit (CGU), which would require a correspondingimpairment test.Key points to consider for impairment testing include, but are not limited to:
•The value-in-use (VIU) model requires the use of pre-tax cash flows discounted usinga pre-tax discount rate, and uses management assumptions supported by externalmarket data.•The fair value model is a post-tax model that uses market participant assumptions.•The carrying value of the CGU should be determined on a consistent basis as itsrecoverable amount. For example, care should be given to consistency whenincluding or excluding working capital or recognised liabilities from a CGU.•Using multiple cash-flow scenarios and applying relative probability weightings intimes of greater uncertainty.•Do not double count the same risk in both the cash flows and the discount rate.•HKAS 36 requires disclosure of key assumptions (i.e. those to which the recoverableamount is most sensitive) and related sensitivity analyses. HKAS 1 requiresdisclosure of critical accounting judgements and of key sources of estimationuncertainty (see 1. Significant judgement and estimations).The disclosure of key assumptions is required when (1) an impairment loss has beenrecognised for an individual asset or a CGU, or (2) when a CGU contains goodwill orintangible assets with indefinite useful lives the amount of which is significant in proportionto the respective total carrying amount of these items, even when no impairment isrecognised.The disclosure of a sensitivity analysis is required for (2) above when a reasonablypossible change in a key assumption would cause the CGU’s carrying amount to exceedits recoverable amount.With the introduction of HKFRS 16 Leases, right of use assets (ROU assets) are alsosubject to HKAS 36 impairment testing. Additional considerations apply to impairmenttesting for ROU assets, and because ROU assets usually do not generate independentcash flows, they are generally tested for impairment as part of a CGU. If impairment isnoted in a CGU including a ROU asset, the impairment losses should be allocated to theROU asset in accordance with paragraphs 104 and 105 of HKAS 36, similar to otherassets within that CGU.The educational material in June 2020 provides more detail regarding how COVID-19impacts the impairment reviews, including reminders around the present valuetechniques and the disclosure requirements.
4.Fair value measurementsFair value is a market-based measurement, not an entity-specific measurement. Fairvalue is measured using assumptions that market participants would use when pricing theasset or liability, including assumptions about risk, at the measurement date under currentmarket conditions (i.e. to reflect market participants’ expectations in view of the currentconditions affected by COVID-19).HKFRS 13 Fair Value Measurement requires fair valuation techniques to maximise theuse of observable inputs and minimise the use of unobservable inputs. A quoted price inan active market provides the most reliable evidence of fair value and shall be usedwithout adjustment when it is available.A significant decrease in the volume of transactions in a market may potentially cause themarket to no longer be active and an entity may have to change the valuation technique oruse multiple valuation techniques. Some valuation techniques involve the use ofunobservable inputs and may affect the categorisation of the fair value measurementwithin the fair value hierarchy. If the unobservable inputs are significant to the fair valuemeasurement and categorised as Level 3 inputs under the fair value hierarchy, additionaldisclosures are required by HKFRS 13. To determine whether there has been a significantdecrease in the volume of transactions for an asset, an entity shall evaluate thesignificance and relevance of a number of factors, as required by paragraph B37 ofHKFRS 13.Providing appropriate disclosures on fair value measurements is crucial in enhancing theusefulness of the financial information in this unprecedented time. Entities should refer toparagraphs 91 to 99 of HKFRS 13 for disclosure requirements.The educational material in June provides more detail regarding how COVID-19impacts the fair value hierarchy, the approach adopted for valuation, and theconsiderations for the use of valuation experts.
5.Expected credit lossesThe impact of COVID-19 may affect the ability of debtors and borrowers to repay amountsoutstanding, and have a negative effect on expected credit losses (ECL). The effect ofECL could be significant as many entities have trade receivables, lease receivables, loansto associates and joint ventures, and intra-group loans and financial guarantees, whichare all subject to ECL assessment.The measurement of ECL should be unbiased and probability-weighted. As noted inHKFRS 9 Financial Instruments, entities should exercise judgement and take into accountall reasonable and supportable information available at the reporting date without unduecost or effort, including information about past events, current conditions, and forecast offuture economic conditions in measuring ECL.In light of the current uncertainty, entities may have to revisit the models and assumptionsadopted in estimating ECL. This may include revisiting the grouping of debtors,receivables and other exposures (e.g. financial guarantee contracts and loancommitments) given the potential significant changes in credit risk characteristics of theitems in the original groupings. For example, debtors in the original grouping were stablemiddle-income earners; however, they work in different industries that are affected by thepandemic to different extent. These debtors may no longer share similar credit riskcharacteristics as the employment opportunities and status, amongst other factors, willaffect their repayment abilities. The expected loss rates for these different debtors shouldthus be assessed separately, requiring revisiting of the groupings for ECL assessmentpurposes. Furthermore, an entity should also reconsider whether the originally assessedexpected loss rates reflect up-to-date forecast economic factors based on availableinformation as at the reporting date obtainable without undue cost or effort.Management overlays or other adjustments may also need to be considered when, forexample, the current ECL assessment model has limitations and is unable to reflect thepotential effects of COVID-19 on the cash flow projections. Entities should also providedisclosures of the key assumptions and estimation techniques used in estimating the ECLin order for the users of the financial statements to understand how COVID-19 affects theestimation.The educational material in June provides more detail regarding the considerations inECL estimation affected by COVID-19 and the credit risk disclosures.
6.Interest rate benchmark reformInterest rate benchmarks such as interbank offered rates (IBORs) are undergoing reformand transition to alternative benchmark rates, e.g. the London Interbank Offered Rate(LIBOR) is set to be phased out by the end of 2021 and will no longer be quoted.According to the Hong Kong Monetary Authority’s website1, while the Hong Kong DollarOvernight Index Average has been identified as an alternative to the Hong Kong InterbankOffered Rate (HIBOR), there is no plan to discontinue HIBOR.For companies with loans and other instruments that are exposed to the interest ratebenchmarks reform, there has been uncertainty about how the transition may affect theiraccounting, e.g. how to account for the modification of a LIBOR-based financial asset orliability when the interest rate is replaced; whether hedge accounting applied toLIBOR-based hedging relationships needs to be discontinued; as well as the extent of therelated disclosures.In November 2019, the HKICPA issued the phase 1 amendments related to the IBORreform to HKAS 39 Financial Instruments: Recognition and Measurement, HKFRS 7Financial Instruments: Disclosures, and HKFRS 9. The amendments modify some specifichedge accounting requirements to provide relief from potential effects of the uncertaintiescaused by the IBOR reform, and require entities to provide additional information abouttheir hedging relationships. The amendments are effective for annual reporting periodsbeginning on or after 1 January 2020 and earlier application is permitted.In October 2020, the HKICPA issued the phase 2 of IBOR reform amendments to HKAS39, HKFRS 4 Insurance Contracts, HKFRS 7, HKFRS 9 and HKFRS 16. Theamendments complement those issued in November 2019, and address issues, largelyconcerning classification and measurement, hedge accounting and disclosures, that mightaffect financial reporting when the old interest rate benchmark is replaced with analternative benchmark rate. The amendments are effective for annual reporting periodsbeginning on or after 1 January 2021 and earlier application is permitted.
7.Supplier financing arrangementsIn a supplier financing arrangement or reverse factoring arrangement, a financialinstitution agrees to pay amounts an entity owes to its supplier and the entity agrees topay the financial institution at the same date as, or a date later than, the invoice terms.Such arrangements raise the question of whether the trade payables of the supplierfinancing arrangement should be derecognised and replaced by another borrowing. This1 https://www.hkma.gov.hk/eng/key-functions/banking/banking-regulatory-and-supervisory-regime/reform-of-interest-rate-benchmarks/ accessed on 18 December 2020.affects the presentation on the balance sheet (trade payables v. borrowings) as well as onthe cash flows statement (whether the payment to the financial institution should bepresented as operating cash flows or financing cash flows).The IFRS Interpretations Committee (IFRIC) issued an agenda decision in December2020 explaining how an entity presents liabilities to pay for goods or services received inthe statement of financial position when the related invoices are part of a supplierfinancing arrangement. The agenda decision also discusses whether and how the relatedcash flows should be presented in the cash flow statement and the relevant disclosureconsiderations for liabilities that form part of supplier financing arrangements.In addition, as a result of the COVID-19 pandemic, entities may make changes to theterms of their supplier financing arrangements. Entities should reassess whether theoriginal trade payables should be derecognised applying the modification guidance onfinancial liabilities in HKFRS 9, the appropriate presentation of these payables in thestatement of financial position based on the revised terms (i.e. is it still appropriate topresent them as trade payables? Should they be reclassified or newly recognised asborrowings or as another more appropriate line item?), and provide adequate disclosureswhere material.
8.LeasesAs a result of the COVID-19 pandemic, many entities have made changes to the terms inthe lease contracts (e.g. timing and amount of lease payments, duration of a lease, and/orscope of a lease). The HKICPA issued an amendment to HKFRS 16 Covid-19-relatedRent Concessions (Amendment to HKFRS 16) in June 2020, which provides an optionalpractical expedient for lessees not to assess whether a rent concession related toCOVID-19 is a lease modification, subject to meeting all the conditions required byparagraph 46B of HKFRS 16. In many cases, applying the practical expedient wouldresult in the rent concession being accounted for by the lessee as a variable leasepayment in the period(s) in which the event or condition that triggers those paymentsoccurs. The Amendment to HKFRS 16 is effective for annual reporting periods beginningon or after 1 June 2020, and earlier application is permitted.Both lessees and lessors should provide clear disclosures about their leasing activities tomeet the disclosure objectives as specified in paragraphs 51 and 89 of HKFRS 16,respectively. Specific disclosures are required if the practical expedient under theAmendment to HKFRS 16 is applied.The educational material published in June 2020 Illustrative examples oncovid-19-related rent concessions provides examples on the application of the optionalpractical expedient under the Amendment to HKFRS 16 to COVID-19-related rentconcessions. If lessees do not elect the practical expedient for particular rentconcessions, or those rent concessions do not qualify for the application of the practicalexpedient, lessees are required to assess whether the rent concessions meet thedefinition of lease modifications under HKFRS 16.Further education material published in January 2020 Illustrative examples on rentconcessions provides examples of commonly seen rent concessions in Hong Kong thatare not covid-19-related.
9.Revenue recognitionAs a result of the COVID-19 pandemic and its related disruptions, the amount and timingof revenue recognised may be affected. For example, in order to provide incentives forcustomers to continue purchasing the entity’s goods and services, the entity may provideprice concessions, extended payment terms, or extensions of loyalty programmes.Furthermore, entities themselves may be experiencing business disruptions andchallenges to fulfil their performance obligations to customers.Entities should carefully assess their revenue recognition policies, particularly concerningthe estimations of variable consideration involving price concessions, return rates andbreakages, and how these circumstances affect the constraint on revenue recognition.Entities should also provide adequate disclosures in the financial statements to enableusers to understand the nature, amount, timing, and uncertainty of revenue and cashflows arising from contracts with customers (i.e. to reflect the implications arising fromCOVID-19 in their financial statements).The educational material in June provides more detail on how COVID-19 affects anentity’s revenue recognition policies.
10.Breach of loan covenantsThe current condition arising from COVID-19 may result in some entities breaching theirloan covenants. If the loan covenant is breached on or before the reporting date, and theloan becomes payable on demand, the loan should be classified as current (even if thelender agreed after the reporting period and before authorisation of the financialstatements not to demand payment) per paragraph 74 of HKAS 1. If a waiver of demandrepayment is obtained subsequent to the reporting date but before the issuance of thefinancial statements, this fact should be disclosed as a non-adjusting event as required byparagraph 21 of HKAS 10 Events after the Reporting Period, but does not affect theclassification of such a loan at the reporting date as current liability.An entity would classify a liability as non-current if the lender agreed by the end of thereporting period to provide a grace period ending at least twelve months after thereporting period per paragraph 75 of HKAS 1.The educational material in June highlights specific requirements from HKAS 1 on theclassification of liabilities as current or non-current.The HKICPA issued amendments to HKAS 1 Classification of Liabilities as Current orNon-current (Amendments to HKAS 1) in August 2020. The Amendments supposedlyclarify whether a liability should be classified as current or non-current; however, due tothe existing diversity in practice, these amendments will likely result in changes to existingpractice when the Amendments become mandatorily effective.Firstly, the Amendments clarify that if an entity’s right to defer settlement for at least 12months after the reporting date is subject to the entity complying with specific conditions,the right exists at the reporting date only if those conditions are met at the reporting date,even if the lender does not test compliance until a later date.The IFRIC issued a tentative agenda decision in December 2020 explaining how anentity applies the Amendments to IAS 1 to classify a loan that is subject to a workingcapital ratio covenant. The IFRIC noted that the entity’s expectation that it will meet theworking capital ratio at a future testing date is not considered in the current/non-currentassessment at the reporting date.If this tentative agenda decision is finalised, it will mean that some seasonal or cyclicalbusinesses will be affected as the testing dates and threshold for their loan covenantscould have taken the seasonal effects into account. If the entity does not meet thecovenant requirements at balance sheet date (e.g. if this is the low point in the cycle) itcould cause its debt to be classified as current (because the IFRIC decided that theentity needs to meet the covenant requirements at the reporting date).Secondly, the Amendments clarify how a counterparty conversion option affects thecurrent or non-current classification of the host liability.• If the conversion option is accounted for as equity under HKAS 32 FinancialInstruments: Presentation, the conversion option does not affect classification of thehost liability as current or non-current.For example, Entity A issued a convertible bond that is repayable in one go in fiveyears’ time (single bullet payment with no interim interest payments). The holder canconvert the bond into shares of Entity A at any time and the conversion option meetsthe definition of equity. In this case, the liability component of the convertible bondwould be classified as non-current (because it will be settled in cash only in five years’time) despite the fact that the liability component could be extinguished due toconversion into shares within the next 12 months. As the conversion option isaccounted for as equity under HKAS 32, the fact that its conversion could extinguishthe liability within 12 months is ignored when classifying the host liability as current ornon-current.• If the conversion option does not meet the definition of equity under HKAS 32, thetransfer of the entity’s equity instruments upon conversion is regarded as a settlementof the host liability. This will then affect the current or non-current classification of thehost liability.For example, Entity B issued a convertible bond that is repayable in one go in fiveyears’ time (single bullet payment with no interim interest payments). The holder canconvert the bond into shares of Entity B at any time but the conversion option does notmeet the definition of equity and is accounted for as a derivative. In this case, theliability component of the convertible bond would be classified as current despite thefact that it will be settled in cash only in five years’ time (if not converted into shares).This is because the liability component could be extinguished within the next 12months through the exercise of the conversion option. The extinguishment of theliability through the issue of shares in this case (as opposed to the example above) isconsidered to be a ‘settlement’ in terms of paragraph 69 of HKAS 1 as the conversionoption does not meet the definition of equity in HKAS 32.The Amendments to HKAS 1 is effective for annual reporting periods beginning on or after1 January 2023, and earlier application is permitted.The Amendments to HKAS 1 could result in entities reclassifying some liabilities fromnon-current to current, and vice versa, potentially affecting those entities’ compliance withloan covenants (e.g. current ratio) which may further exacerbate any borderline cases.Entities are encouraged to revisit their loan covenants and discuss with their lendersproactively to assess the potential impact of the Amendments to HKAS 1 in advance of itseffective date.TheHKICPAalsorevisedHK-InterpretationPresentationofFinancialStatements-Classification by the Borrower of a Term Loan that Contains a Repayment onDemand Clause in October 2020 as a consequence of Amendments to HKAS 1, with nochange to its conclusion. The revised HK-Interpretation 5 is to be applied at the same timewhen an entity applies the Amendments to HKAS 1.Other considerationsApart from the key considerations above, entities should also consider other financialreporting issues depending on their facts and circumstances, including, but not limited to:
•Government grants/assistance*•Measurement of inventories*•Capitalisation of interest*•Provisions for onerous contracts and restructuring plans•Employee benefits and share-based payments* The educational material in June provides further detail regarding the impact andconsiderations arising from the COVID-19 pandemic.The new and revised HKFRSs that are effective for the year ended 31 December 2020,and those that are effective in future reporting periods, together with the agenda decisionspublished by the IFRIC during the year, are summarised in the Appendix.Please also refer to the Institute’s COVID-19 – CPA Information Centre, which includesinformation and messages from the HKICPA and other bodies that you may find helpful.Sincere regards,Chris JoyExecutive DirectorHong Kong Institute of Certified Public AccountantsCPA: The Success Ingredientwww.hkicpa.org.hkConnect with usDisclaimerThis guidance was developed by the Financial Reporting Standards Committee (FRSC) of theHong Kong Institute of Certified Public Accountants (HKICPA) and is for general reference only.The HKICPA, FRSC and their staff do not accept any responsibility or liability, and disclaim allresponsibility and liability, in respect of the guidance and any consequences that may arise fromany person acting or refraining from action as a result of any materials in the guidance. Membersof the HKICPA and other users of this guidance should also read the full Standard, as found in theHKICPA Members’ Handbook(https://www.hkicpa.org.hk/en/Standards-and-regulation/Standards/Members-Handbook-and-Due-Process) for further reference, and seek professional advice where necessary when applying thereferences contained in this guidance.The HKICPA Standard Setting Department welcomes your comments and feedback, which should besent to commentletters@hkicpa.org.hk.Appendix - New and revised Hong Kong Financial Reporting Standards, andAgenda Decisions issued by the IFRICThe following new standards and amendments of HKFRS became effective as of 1January 2020:
The following new and amended standards, interpretation and accounting guideline havebeen issued but are not yet effective. They are available for early adoption:
Effective from annualperiods beginning onor after:
New and Amended Standards, Interpretation and AccountingGuidelineNew Standard1 January 2023HKFRS 17 Insurance ContractsAmended Standards, Interpretation and Accounting Guideline1 June 2020Amendment to HKFRS 16 Leases -Covid-19-related rent concessions1 January 2021Amendments to HKAS 39 Financial Instruments: Recognition andMeasurement, HKFRS 4 Insurance Contracts, HKFRS 7 FinancialInstruments: Disclosures, HKFRS 9 Financial Instruments andHKFRS 16 Leases - Interest Rate Benchmark Reform — Phase 2StandardsDescriptionAmendments to HKFRS 3 BusinessCombinations - Definition of a BusinessThe amendments provide clarification on thedefinition of a business for the purposes ofdeciding whether a transaction is an acquisitionof a business or an asset acquisition.Amendments to HKFRS 9 FinancialInstruments, HKAS 39 FinancialInstruments: Recognition andMeasurement and HKFRS 7 FinancialInstruments: Disclosures - Interest RateBenchmark ReformThe amendments provide relief for hedgeaccounting affected by the reform of interbankoffered rates (Phase I of the IBOR reform).Amendments to HKAS 1 Presentation offinancial statements and HKAS 8Accounting policies, Changes inAccounting Estimates and Errors -Definition of materialThe amendments are intended to assist entitiesto make better materiality judgements byclarifying the definition of “material” and itsapplication.Amendments to the Conceptual Frameworkfor Financial Reporting includingamendments to references to theConceptual Framework in HKFRSStandardsThe revised Conceptual Framework forFinancial Reporting includes revised definitionsof an asset and a liability as well as newguidance on measurement and derecognition,presentation and disclosure.1 January 2022Amendments to HKFRS 3 Business Combinations - Reference tothe conceptual framework1 January 2022Amendments to HKAS 16 Property, Plant and Equipment -Property, plant and equipment: proceeds before intended Use1 January 2022Amendments to HKAS 37 Provisions, Contingent Liabilities andContingent Assets - Onerous contracts — cost of fulfilling acontract1 January 2022Annual Improvements to HKFRSs 2018-2020 Cycle - Amendmentto HKFRS 1 First-time Adoption of International FinancialReporting Standards, Amendment to HKFRS 9 FinancialInstruments, Amendment to illustrative examples accompanyingHKFRS 16 Leases, Amendment to HKAS 41 AgricultureCommon controlcombinations that occuron or after the beginningof the first annualreporting periodbeginning on or after 1January 2022Revised Accounting Guideline 5 Merger Accounting for CommonControl Combinations1 January 2023Amendments to HKAS 1 Presentation of financial statements -Classification of Liabilities as Current or Non-currentHK Int 5 (2020) isapplied when an entityapplies the Amendmentsto HKAS 1.Hong Kong Interpretation 5 (2020) Presentation of FinancialStatements – Classification by the Borrower of a Term Loan thatContains a Repayment on Demand Clause (HK Int 5 (2020))
The effective date ofthese amendments wasindefinitely deferred bythe IASB in 2015; butearly adoption ispermitted.Amendments to HKFRS 10 Consolidated Financial Statementsand HKAS 28 Investments in Associates and Joint Ventures - Saleor contribution of assets between an investor and its associate orjoint ventureThe following agenda decisions were published by the IFRIC during 2020:
IFRIC UpdateAgenda Decision(s)
January 2020• Definition of a Lease-Decision-making Rights (IFRS 16Leases)
March 2020• Translation of a Hyperinflationary ForeignOperation-Presenting Exchange Differences (IAS 21 TheEffects of Changes in Foreign Exchange Rates and IAS 29Financial Reporting in Hyperinflationary Economies)
• Cumulative Exchange Differences before a Foreign Operationbecomes Hyperinflationary (IAS 21 The Effects of Changes inForeign Exchange Rates and IAS 29 Financial Reporting inHyperinflationary Economies)
• Presenting Comparative Amounts when a Foreign Operationfirst becomes Hyperinflationary (IAS 21 The Effects of Changesin Foreign Exchange Rates and IAS 29 Financial Reporting inHyperinflationary Economies)
• Training Costs to Fulfil a Contract (IFRS 15 Revenue fromContracts with Customers)
April 2020• Multiple Tax Consequences of Recovering an Asset (IAS 12Income Taxes)
June 2020• Sale and Leaseback with Variable Payments (IFRS 16 Leases)
• Deferred Tax related to an Investment in a Subsidiary (IAS 12Income Taxes)
• Player Transfer Payments (IAS 38 Intangible Assets)
December 2020• Supply Chain Financing Arrangement-Reverse Factoring