Updates On PFRS

UPDATES ON PHILIPPINE FINANCIAL REPORTING STANDARDS
(PFRS)
PFRS 1 - First-time Adoption of Philippine Financial Reporting Standards
The Financial Reporting Standards Council (FRSC) has approved on August 19, 2020
the adoption of Annual Improvements to IFRS Standards 2018–2020 issued by the
International Accounting Standards Board (IASB) in May 2020 as Annual Improvements
to PFRS Standards 2018–2020.
The amendments to IFRS 1 (PFRS 1) are all effective for annual periods beginning on
or after January 1, 2022. Early application is permitted.
● Amendments to PFRS 1, Subsidiary as a first-time adopter
This amendment is adopted as part of the annual improvements to financial reporting

standards in the 2018-2020 Cycle.
The amendments provides:
a. That a subsidiary that becomes a first-time adopter later than its parent with an
exemption relating to the measurement of its assets and liabilities. Paragraphs
BC59–BC60 explain that the Board provided this exemption so that a subsidiary
would not have to keep two parallel sets of accounting records based on different
dates of transition to IFRSs (paragraph D16(a)).
b. The exemption in the above paragraph does not apply to components of equity.
Accordingly, before the amendment that added paragraph D13A, a subsidiary
that became a first-time adopter later than its parent might have been required to
keep two parallel sets of accounting records for cumulative translation
differences based on different dates of transition to IFRSs. Following the
rationale in paragraphs BC59–BC60, the Board decided to extend the exemption
in paragraph D16(a) to cumulative translation differences to reduce costs for first-
time adopters. The Board noted that IFRS 1 already provides an exemption
relating to cumulative translation differences. Extending the exemption in
paragraph D16(a) would therefore not diminish the relevance of information
reported by a subsidiary that becomes a first time adopter later than its parent.
c. Entities that apply paragraph D16(a) could in some situations find it burdensome
to measure cumulative translation differences using the amount reported by the
parent. The Board therefore decided to permit, but not require, a subsidiary
applying paragraph D16(a) to use that exemption for cumulative translation
differences. The amendment also applies to an associate or joint venture that
uses the exemption in paragraph D16(a).
PFRS 2 - Share-based Payment
● Amendments to PFRS 2, Classification and Measurement of Share-based

Payment Transactions (effective 1 January 2018)
Issued in June 2016, amended paragraphs 19, 30–31, 33, 52 and 63 and added
paragraphs 33A–33H, 59A–59B, 63D and B44A–B44C and their related headings, an
entity shall apply these amendments for annual periods beginning on or after 1 January
2018. Earlier application is permitted. If an entity applies the amendments for an earlier
period, it shall disclose that fact
This amendment clarifies the measurement basis for cash-settled, share-based

payments, and the accounting for modifications that change an award from cash-settled
to equity-settled. It also introduces an exception to the principles in PFRS 2 that will
require an award to be treated as if it was wholly equity-settled, where an employer is
obliged to withhold an amount for the employee’s tax obligation associated with a share-
based payment and pay that amount to the tax authority.
The project under construction in 2016 has considered four issues identified by the
IFRS Interpretations Committee:
➔ Accounting for cash-settled share-based payment transactions that include a

performance condition
➔ Share-based payments in which the manner of settlement is contingent on future
events
➔ Share-based payments settled net of tax withholdings
➔ Modification of share-based payment transactions from cash-settled to equity-
settled.
However, after implementation of the new pronouncements, IFRS 2 did not specifically
address situations where a cash-settled share-based payment changes to an equity-
settled share-based payment because of modifications of the terms and conditions.
Nonetheless, the IASB has introduced the following clarifications:
➔ On such modifications, the original liability recognised in respect of the cash-

settled share-based payment is derecognised and the equity-settled share-based
payment is recognised at the modification date fair value to the extent services
have been rendered up to the modification date.
➔ Any difference between the carrying amount of the liability as at the modification
date and the amount recognised in equity at the same date would be recognised
in profit and loss immediately.
● Price difference between the institutional offer price and the retail offer
price for shares in an initial public offering
The amendment involves accounting for a price difference between the institutional
offer price and the retail offer price for shares issued in an initial public offering (IPO)
within the scope of PFRS 2, Share-based Payment.
In an IPO, the final retail price could be different from the institutional price because of:
a. an unintentional difference arising from the book-building process; or
b. an intentional difference arising from a discount given to retail investors by the

issuer of the equity instruments as indicated in the prospectus.
There are situations in which the issuer needs to fulfill a minimum number of
shareholders to qualify for a listing under the stock exchange’s regulations in its
jurisdiction. In achieving this minimum number, the issuer may offer shares to retail
investors at a discount from the price at which shares are sold to institutional investors.
To consider whether the transaction is a share-based payment transaction within the

scope of PFRS 2, it must involve the receipt of identifiable or unidentifiable goods or
services from the retail shareholder group.
Paragraph 13A of PFRS 2 requires that if consideration received by the entity appears
to be less than the fair value of the equity instruments granted or liability incurred, then
this situation typically indicates that other consideration (i.e. unidentified goods or
services) has been (or will be) received by the entity.
Applying this guidance requires judgment and consideration of the specific facts and
circumstances of each transaction.
In the circumstances underlying the transaction, the entity issues shares at different
prices to two different groups of investors (retail and institutional) for the purpose of
raising funds, and that the difference, if any, between the retail price and the institutional
price of the shares in the fact pattern appears to relate to the existence of different
markets (one that is accessible to retail investors only and another one accessible to
institutional investors only) instead of the receipt of additional goods or services,
because the only relationship between the entity and the parties to whom the shares are
issued is that of investee-investors.
Consequently, the guidance in PFRS 2 is not applicable because there is no share-
based payment transaction.
In the fact pattern considered, the listing is not received from the institutional or retail
shareholders. The fact that a regulatory requirement is met by virtue of issuing the retail
shares does not indicate that unidentifiable goods or services were received from the
purchasers.
References for PFRS 1 and 2 Updates:
1. https://picpa.com.ph/wp-content/uploads/2021/12/FRSC_Guidance-on-Financial-
Reporting_June-2021.pdf
2. https://www.pwc.com/ph/en/accounting-buzz/accounting-client-advisory-letters/
new-pfrs-standards-effective-after-1-january-2018.html
3. https://picpa.com.ph/frsc/#1637249620214-4e7470d6-7663
4. https://www.prc.gov.ph/sites/default/files/FRSC-PIC%20Pronouncements/Annual
%20Improvements%202018-2020_Preface.pdf
5. https://www.iasplus.com/en/standards/ifrs/ifrs2
6. https://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing
%2FProject%20Documents%2F307%2FIFRS%202%20-%20Published
%20Amendments%20-%20Classification%20and%20Measurement.pdf
PFRS 3 - Business Combination
Definition of a Business (Amendments to PFRS 3)

● The Financial Reporting Standard Council (FRSC) has approved on
November 14, 2018 the adoption of amendments to IFRS 3 Business
Combinations, Definition of a Business issued by the International Accounting
Standards Board (IASB) in October 2018 as amendments to PFRS 3, Business
Combinations, Definition of a Business.
● The amendments improve the definition of a business in response to the
feedback from the post-implementation review of IFRS 3. The new definition
emphasizes that the output of a business is to provide goods and services
to customers, whereas the previous definition focused on returns in the form of
dividends, lower costs or other economic benefits to investors and others.
Supplementary guidance were also provided.
● The amendments clarify the definition of a business, with the objective of
assisting entities to determine whether a transaction should be accounted for as
a business combination or as an asset acquisition. The amendments:
○ clarify the minimum attributes that the acquired set of activities and assets
must have to be considered a business;
○ remove the assessment of whether market participants are able to replace
missing inputs or process and continue to produce outputs;
○ Add guidance and illustrative examples to help entities assess whether a
substantive process has been acquired;
○ narrow the definition of a business and the definition of outputs by
focusing on goods and services provided to customers and by removing
reference to an ability to reduce costs; and
○ add an optional concentration test that allows a simplified assessment of
whether an acquired set of activities and assets is not a business.
● An entity shall apply these amendments to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting period
beginning on or after January 1, 2020 and to asset acquisitions that occur on or
after the beginning of that period. Earlier application of these amendments is
permitted.
Old Definition New Definition
An integrated set of activities and An integrated set of activities and

assets that is capable of being assets that is capable of being
conducted and managed for the conducted and managed for the
purpose of providing a return in the purpose of providing goods or
form of dividends, lower costs or other services
economic benefits directly to investors to customers, generating investment
or other owners, members or income (such as dividends or interest)
participants. or generating other income from
ordinary activities.
Sources:
https://www.prc.gov.ph/sites/default/files/2019%20BOA/2019-06.pdf
https://www.bdo.global/getmedia/0da36a79-a298-4d77-b733-0920c12efe69/IFRB-
2018-07-Definition-of-a-Business.aspx
PFRS 4 - Insurance Contracts
Applying IFRS 9 ‘Financial Instruments” with IFRs 4 ‘Insurance Contracts”

(Amendments to IFRS 4)
Effective Date: January 1, 2018
Amends IFRS 4 Insurance Contracts provide two-options for entities that issue
insurance contracts within the scope of IFRS 4;
● An option that permits entities to reclassify, from profit or loss to other
comprehensive income, some of the income or expenses arising from designated
financial assets; this is the so-called overlay approach;
● An optional temporary exemption from applying IFRS 9 for entities whose
predominant activity is issuing contracts within the scope of IFRS 4; this is the
so-called deferral approach.
The application of both approaches is optional and an entity is permitted to stop

applying them before the new insurance contracts standard is applied.
Sourced From:
https://www.iasplus.com/en/othernews/new-and-revised/2020/march#summary
PFRS 5 - Non-current Assets Held for Sale and Discontinued Operations
Amendments
https://www.iasplus.com/en-ca/projects/ifrs/completed-projects-2/aip/annual-
improvements-2012-2014
https://www.ifrs.org/projects/completed-projects/2014/change-in-methods-of-disposal-
amendments-to-ifrs-5/
On 25 September 2014, the International Accounting Standards Board issued Annual

Improvements to IFRSs 2012–2014 Cycle. The revised standard has an effective date
of 1 January 2016.
The amendments introduce specific guidance for when an entity reclassifies an asset
(or disposal group) from being held-for- sale to held-for-distribution to owners (or vice
versa), and for when held-for-distribution accounting is discontinued.
Changes in methods of disposal
The Board amended IFRS 5 to introduce specific guidance in IFRS 5 for when an entity
reclassifies an asset (or disposal group) from held for sale to held for distribution to
owners (or vice versa), or when held-for-distribution accounting is discontinued. The
amendments state that:
● Such reclassifications should not be considered changes to a plan of sale or a

plan of distribution to owners and that classification, presentation and
measurement requirements applicable to the new method of disposal should be
applied; and
● Assets that no longer meet the criteria for held for distribution to owners (and do
not meet the criteria for held for sale) should be treated in the same way as
assets that cease to be classified as held for sale.
PFRS 6 - Exploration and Evaluation Mineral Resource
No further Updates and Amendments
PFRS 6 or Exploration for and evaluation of mineral resources means the search
for mineral resources, including minerals, oil, natural gas and similar non-regenerative
resources after the entity has obtained legal rights to explore in a specific area, as well
as the determination of the technical feasibility and commercial viability of extracting the
mineral resource.
Exploration and evaluation expenditures are expenditures incurred in connection
with the exploration and evaluation of mineral resources before the technical feasibility
and commercial viability of extracting a mineral resource is demonstrable.
PFRS 7 - Financial Instruments: Disclosures
Timeline of PFRS 7 Amendment
Date Amendment
January 1, 2007 Financial Instruments: Disclosures
January 1, 2007 Transition
July 1, 2008 Reclassification of Financial Assets

(PAS 39 and PFRS 7)
July 1, 2008 Reclassification of Financial Assets - Effective

Date and Transition
(PAS 39 and PFRS 7)
January 1, 2009 Improving Disclosures about Financial

Instruments
July 1, 2011 Disclosures - Transfers of Financial Assets
January 1, 2016 Servicing Contracts

January 1, 2016 Interim Financial Statements
Effective Date : January 1, 2007

Amendment : Definition of Financial Instruments: Disclosures
Description:
This Standard requires entities to provide disclosures in their financial statements
that enable users to evaluate:
a) the significance of financial instruments for the entity's financial position and
performance; and
b) the nature and extent of risks arising from financial instruments to which the
entity is exposed during the period and at the end of the reporting period, and
how the entity manages those risks.
The principles in this Standard complement the principles for recognizing,
measuring and presenting financial assets and financial liabilities in PAS 32 Financial
Instruments: Presentation and PAS 39 Financial Instruments: Recognition and
Measurement.

Amendment : Transition
Description:
PFRS 7 consolidates the existing disclosure requirements of PAS 30,
Disclosures in the Financial Statements of Banks and Similar Financial Institution, and
PAS 32, Financial Instruments: Disclosure and Presentation and adds some significant
and challenging new disclosures. Concerns were raised on the requirement to present
comparative information for the disclosures required by PFRS 7. PFRS 7 was approved
in December 2005 and is effective for annual periods beginning on or after January 1,
2007. The Council acknowledged that entities may not have sufficient time to gather the
required information to be presented for comparative purposes. New systems and
processes to capture the required data particularly for some of the more complex
disclosures may not yet be in place, requiring more time for information gathering.
In response to these concerns, a transition relief was given with respect to the
presentation of comparative information for the new risk disclosures about the nature
and extent of risks arising from financial instruments in paragraphs 31–42 of PFRS 7.
Accordingly, an entity that applies PFRS 7 for annual periods beginning on or after
January 1, 2007 need not present comparative information for the disclosures required
by paragraphs 31-42, unless the disclosure was previously required under PAS 30 or
PAS 32.
Effective Date : July 1, 2008
Amendments : Reclassification of Financial Assets (PAS 39 and PFRS 7)
Description:
The amendments to PAS 39 permit an entity to:
● reclassify non-derivative financial assets (other than those designated at fair
value through profit or loss by the entity upon initial recognition) out of the fair
value through profit or loss category if the financial asset is no longer held for the
purpose of selling or repurchasing it in the near term in particular circumstances.
● transfer from the available-for-sale category to the loans and receivables
category a financial asset that would have met the definition of loans and
receivables (if the financial asset had not been designated as available for sale),
if the entity has the intention and ability to hold that financial asset for the
foreseeable future.
For Philippine financial reporting purposes, the amendments to PAS 39 are

effective from July 1, 2008. Entities are not permitted to reclassify financial assets in
accordance with the amendments before July 1, 2008. Any reclassification of a financial
asset made in periods beginning on or after November 15, 2008 will take effect only
from the date the reclassification is made.
The amendments to PAS 39 differ from the amendments to IAS 39 which uses a
November 1, 2008 “cut-off date.” Since the FRSC only adopted the amendments on
October 29, 2008, the Council decided to change the “cut-off date” for Philippine
financial reporting purposes to November 15, 2008. The November 15, 2008 “cut-off
date” approximates the period between October 13, 2008, the date when IASB
amendments were issued, and November 1, 2008.
Philippine reporting entities should note that use of the November 15, 2008 “cut-
off date” would not be in accordance with IFRSs. Accordingly, a Philippine entity that will
present financial statements in accordance with IFRSs (e.g., for IPO purposes) would
have to use the November 1, 2008 “cut-off date” in the IAS 39 amendments to be in
compliance with IFRSs.

Amendment : Reclassification of Financial Assets - Effective Date and
Transition (PAS 39 and PFRS 7)
Description:
Reclassification of Financial Assets (Amendments to PAS 39 and IFRS 7),
issued in October 2008, amended paragraphs 50 and AG8, and added paragraphs 50B-
50F. An entity shall apply those amendments from 1 July 2008. An entity shall not
reclassify a financial asset in accordance with paragraph 50B, 50D or 50E before 1 July
2008. Any reclassification of a financial asset made in periods beginning on or after 1
November 2008 shall take effect only from the date when the reclassification is made.
Any reclassification of a financial asset in accordance with paragraph 50B, 50D or 50E
shall not be applied retrospectively to reporting periods ended before the effective date
set out in this paragraph.

Amendment : Improving Disclosures about Financial Instruments
Description:
The amendments introduce a three-level hierarchy for fair value measurement
disclosures and require entities to provide additional disclosures about the relative
reliability of fair value measurements. These disclosures will help to improve
comparability between entities about the effects of fair value measurements.
In addition, the amendments clarify and enhance the existing requirements for
the disclosure of liquidity risk. This is aimed at ensuring that the information disclosed
enables users of an entity’s financial statements to evaluate the nature and extent of
liquidity risk arising from financial instruments and how the entity manages that risk.
The amendments to PFRS 7 apply for annual periods beginning on or after 1
January 2009. However, an entity will not be required to provide comparative
disclosures in the first year of application.

Amendment : Disclosures - Transfers of Financial Assets
Description:
The amendments allow users of financial statements to improve their
understanding of transfer transactions of financial assets (for example, securitizations),
including understanding the possible effects of any risks that may remain with the entity
that transferred the assets. The amendments also require additional disclosures if a
disproportionate amount of transfer transactions are undertaken around the end of a
reporting period.
New PFRS for 2016

Amendment : Servicing Contracts
Description:
If an entity transfers a financial asset to a third party under conditions which allow
the transferor to derecognize the asset, PFRS 7 requires disclosure of all types of
continuing involvement that the entity might still have in the transferred assets. PFRS 7
provides guidance on what is meant by continuing involvement in this context. The
amendment adds specific guidance to help management determine whether the terms
of an arrangement to service a financial asset which has been transferred constitute
continuing involvement. The amendment is prospective with an option to apply
retrospectively. A consequential amendment to PFRS 1 is included to give the same
relief to first-time adopters.

Amendment : Interim Financial Statements
Description:
The amendment clarifies that the additional disclosure required by the
amendments to PFRS 7, ‘Disclosure - Offsetting financial assets and financial liabilities’
is not specifically required for all interim periods, unless required by PAS 34. The
amendment is retrospective.
Sources:
https://www.sec.gov.ph/wp-content/uploads/2019/11/2011PFRS_December31.pdf
https://www.pwc.com/ph/en/accounting-buzz/accounting-client-advisory-letters/new-
pfrs-for-2016.html?
fbclid=IwAR2n6fnYPwo0o9g4cQESczZuev_rYyPLLVSppBObv52k6aeXWzrdzcDwrmw
PFRS 8 - Operating Segments
Effective date: The IASB decided not to proceed with the amendments proposed
in the ED. Therefore, the project summary concludes this project.
Last updated: February 2019
PFRS 8 with the application of IFRS 8, requires an entity whose debt or equity
securities are publicly traded to disclose information to enable users of its financial
statements to evaluate the nature and financial effects of the different business activities
in which it engages and the different economic environments in which it operates.
It specifies how an entity should report information about its operating segments
in annual financial statements and in interim financial reports. It also sets out
requirements for related disclosures about products and services, geographical areas
and major customers.
IFRS 8- Operating Segments requires particular classes of entities (essentially

those with publicly traded securities) to disclose information about their operating
segments, products and services, the geographical areas in which they operate, and
their major customers. Information is based on internal management reports, both in the
identification of operating segments and measurement of disclosed segment
information.
IFRS 8 was issued in November 2006 and applies to annual periods beginning
on or after 1 January 2009.
Standard History
In April 2001 the International Accounting Standards Board (Board) adopted IAS
14 Segment Reporting, which had originally been issued by the International Accounting
Standards Committee in August 1997. IAS 14 Segment Reporting replaced IAS 14
Reporting Financial Information by Segment, issued in August 1981.
In November 2006 the Board issued IFRS 8 Operating Segments to replace IAS 14. IAS
1 Presentation of Financial Statements (as revised in 2007) amended the terminology
used throughout the Standards, including IFRS 8.
Other Standards have made minor consequential amendments to IFRS 8. They include
IAS 19 Employee Benefits (issued June 2011), Annual Improvements to IFRSs 2010–
2012 Cycle (issued December 2013) and Amendments to References to the Conceptual
Framework in IFRS Standards (issued March 2018).
Scope
IFRS 8 applies to the separate or individual financial statements of an entity (and to the
consolidated financial statements of a group with a parent):
● whose debt or equity instruments are traded in a public market or
● that files, or is in the process of filing, its (consolidated) financial statements with
a securities commission or other regulatory organization for the purpose of
issuing any class of instruments in a public market [IFRS 8.2]
However, when both separate and consolidated financial statements for the
parent are presented in a single financial report, segment information need be
presented only on the basis of the consolidated financial statements [IFRS 8.4]
Operating segments
IFRS 8 defines an operating segment as follows. An operating segment is a component

of an entity: [IFRS 8.2]
● that engages in business activities from which it may earn revenues and incur
expenses (including revenues and expenses relating to transactions with other
components of the same entity)
● whose operating results are reviewed regularly by the entity's chief operating
decision maker to make decisions about resources to be allocated to the
segment and assess its performance; and
● for which discrete financial information is available
Reportable segments
IFRS 8 requires an entity to report financial and descriptive information about its
reportable segments. Reportable segments are operating segments or aggregations of
operating segments that meet specified criteria: [IFRS 8.13]
● its reported revenue, from both external customers and intersegment sales or
transfers, is 10 per cent or more of the combined revenue, internal and external,
of all operating segments, or
● the absolute measure of its reported profit or loss is 10 per cent or more of the
greater, in absolute amount, of (i) the combined reported profit of all operating
segments that did not report a loss and (ii) the combined reported loss of all
operating segments that reported a loss, or
● its assets are 10 per cent or more of the combined assets of all operating
segments.
Two or more operating segments may be aggregated into a single operating segment if
aggregation is consistent with the core principles of the standard, the segments have
similar economic characteristics and are similar in various prescribed respects. [IFRS
8.12]
If the total external revenue reported by operating segments constitutes less than 75
percent of the entity's revenue, additional operating segments must be identified as
reportable segments (even if they do not meet the quantitative thresholds set out above)
until at least 75 per cent of the entity's revenue is included in reportable segments.
[IFRS 8.15]
Disclosure requirements
Required disclosures include:
● general information about how the entity identified its operating segments and
the types of products and services from which each operating segment derives
its revenues [IFRS 8.22]
● judgements made by management in applying the aggregation criteria to allow
two or more operating segments to be aggregated [IFRS 8.22(aa)] #
● information about the profit or loss for each reportable segment, including certain
specified revenues* and expenses* such as revenue from external customers
and from transactions with other segments, interest revenue and expense,
depreciation and amortization, income tax expense or income and material non-
cash items [IFRS 8.21(b) and 23]
● a measure of total assets* and total liabilities* for each reportable segment, and
the amount of investments in associates and joint ventures and the amounts of
additions to certain non-current assets ('capital expenditure') [IFRS 8.23-24]
● an explanation of the measurements of segment profit or loss, segment assets
and segment liabilities, including certain minimum disclosures, e.g. how
transactions between segments are measured, the nature of measurement
differences between segment information and other information included in the
financial statements, and asymmetrical allocations to reportable segments [IFRS
8.27]
● reconciliations of the totals of segment revenues, reported segment profit or loss,
segment assets*, segment liabilities* and other material items to corresponding
items in the entity's financial statements [IFRS 8.21(b) and 28]
● some entity-wide disclosures that are required even when an entity has only one
reportable segment, including information about each product and service or
groups of products and services [IFRS 8.32]
● analyses of revenues and certain non-current assets by geographical area – with
an expanded requirement to disclose revenues/assets by individual foreign
country (if material), irrespective of the identification of operating segments [IFRS
8.33]
● information about transactions with major customers [IFRS 8.34]
# This disclosure requirement was added by Annual Improvements to IFRSs 2010–

2012 Cycle, effective for annual periods beginning on or after 1 July 2014.
* This disclosure is required only if such amounts are regularly provided to the chief
operating decision maker, or in the case of specific items of revenue and expense or
asset-related items, if those specified amounts are included in the relevant measure
(segment profit or loss or segment assets).
Considerable segment information is required at interim reporting dates by IAS 34.
Source:
a. https://www.iasplus.com/en-ca/projects/ifrs/completed-projects-2/pir-ifrs-8-follow-up
b. https://www.iasplus.com/en/standards/ifrs/ifrs8
c. https://www.ifrs.org/issued-standards/list-of-standards/ifrs-8-operating-segments/
PFRS 9 - FINANCIAL INSTRUMENTS
(PURELY COPIED FROM https://www.iasplus.com/en/othernews/new-and-revised/2021/march)
The International Accounting Standards Board (IASB) has published 'Applying

IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts''. The amendments
are intended to address concerns about the different effective dates of IFRS 9 and the
forthcoming new insurance contracts standard (expected as IFRS 17 within the next six
months).
Background
As it has become obvious that the effective date of IFRS 17 can no longer be aligned
with the effective date of IFRS 9 Financial Instruments there have been calls for the
IASB to delay application of IFRS 9 for insurance activities and align the effective date
of IFRS 9 for those activities with the effective date of the new insurance contracts
standard. Proponents of a deferral argued that:
● The different effective dates would lead to accounting mismatches and volatility
in profit or loss that users of financial statements might find difficult to
understand.
● Making decisions about applying the new classification and measurement
requirements in IFRS 9 before the new insurance contracts standard is finalized
would be difficult as the decisions might differ from those companies would have
made had all details of the new standard been known.
● Having to cope with two major accounting changes in a relatively short time
would bear the potential of significantly increased costs and efforts (for preparers
and for users).
The IASB has acknowledged these concerns and is therefore amending IFRS 4
Insurance Contracts to address the concerns expressed about the different effective
dates of IFRS 9 and IFRS 17.
CHANGES
The amendments in Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance

Contracts' (Amendments to IFRS 4) provide two options for entities that issue insurance
contracts within the scope of IFRS 4:
● ·an option that permits entities to reclassify, from profit or loss to other
comprehensive income, some of the income or expenses arising from designated
financial assets; this is the so-called overlay approach;
● an optional temporary exemption from applying IFRS 9 for entities whose
predominant activity is issuing contracts within the scope of IFRS 4; this is the
so-called deferral approach.
The application of both approaches is OPTIONAL and an entity is permitted to stop

applying them before the new insurance contracts standard is applied.
Overlay approach. The amendments that form the overlay approach permit an entity to
exclude from profit or loss and recognise in other comprehensive income the difference
between the amounts that would be recognised in profit or loss in accordance with IFRS
9 and the amounts recognised in profit or loss in accordance with IAS 39 Financial
Instruments: Recognition and Measurement provided that the entity issues contracts
accounted for under IFRS 4, applies IFRS 9 in conjunction with IFRS 4, and classifies
financial assets as fair value through profit or loss in accordance with IFRS 9 when
those assets were previously classified at amortized cost or as available-for-sale in
accordance with IAS 39.
Deferral approach. Under the amendments that make up the deferral approach, an
entity is permitted to apply IAS 39 rather than IFRS 9 for annual reporting periods
beginning before 1 January 2021 if it has not previously applied any version of IFRS 9
and if its predominant activity is issuing contracts within the scope of IFRS 4. An entity
determines whether its predominant activity is issuing contracts within the scope of
IFRS 4 by comparing the carrying amount of its liabilities arising from contracts within
the scope of IFRS 4 with the total carrying amount of its liabilities. An insurer’s activities
are predominantly connected with insurance if (a) the carrying amount of its liabilities
arising from contracts within the scope of IFRS 4 is significant compared to the total
carrying amount of all its liabilities and (b) the percentage of the total carrying amount of
its liabilities connected with insurance relative to the total carrying amount of all its
liabilities is either greater than 90 per cent or less than or equal to 90 per cent but
greater than 80 per cent, and the insurer does not engage in a significant activity
unconnected with insurance. In connection with the deferral approach there is also a
temporary exemption from specific requirements in IAS 28 regarding uniform accounting
policies when using the equity method.
When Effective Application at 31 March 2021 to
1st 2nd 3rd Full

● Overlay approach to be applied Quarters Quarters Quarter Years
when IFRS 9 is first applied. s
● Deferral approach effective for
annual periods beginning on or Optional Optional Optional Optiona
after 1 January 2018 and only l
available for five years after that
date.
(PURELY COPIED FROM https://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-9/

amendments-to-ifrs-9-prepayment-features.pdf)
Amendments to IFRS 9: Prepayment Features with Negative Compensation and

modifications of financial liabilities (Amendments to IFRS 9) At a glance The IASB
(‘Board’) has issued a narrow-scope amendment to IFRS 9.
The amendment covers two issues:
● What financial assets may be measured at amortized cost. The amendment

permits more assets to be measured at amortized cost than under the previous
version of IFRS 9, in particular some prepayable financial assets. It is likely to
have the biggest impact on banks and other financial services entities and be
broadly welcomed by companies.
● How to account for the modification of a financial liability. The amendment
confirms that most such modifications will result in immediate recognition of a
gain or loss. This is a change from common practice under IAS 39 today and will
affect all kinds of entities that have renegotiated borrowings.
All companies should ensure that their projects to implement IFRS 9 identify what
assets and transactions are or may be affected. Significant judgment may be required to
apply the amendment, so early identification of the issues is advised.
Prepayment Features with Negative Compensation
Issue. The Board has issued a narrow-scope amendment to IFRS 9 to enable

companies to measure at amortized cost some prepayable financial assets with
negative compensation. The assets affected, that include some loans and debt
securities, would otherwise have been measured at fair value through profit or loss
(FVTPL). Negative compensation arises where the contractual terms permit the
borrower to prepay the instrument before its contractual maturity, but the prepayment
amount could be less than unpaid amounts of principal and interest. However, to qualify
for amortized cost measurement, the negative compensation1 must be “reasonable
compensation for early termination of the contract”.
An example of such reasonable compensation is an amount that reflects the effect of

the change in the relevant benchmark rate of interest. However, the standard does not
define ‘reasonable compensation’ and significant judgment may be required to assess if
this test is met. In addition, to qualify for amortized cost measurement, the asset must
be held within a ‘held to collect’ business model.
Impact. The amendment is likely to be welcomed by preparers. In practice, there is a

broad range of prepayment features with potentially negative compensation in many
kinds of debt instruments:
● The prepayment option may be contingent on the occurrence of a trigger event

(for example, sale or fall in value of collateral to a loan).
● The prepayment option may be held by only one party to the contract or both
parties.
● Prepayment may be permitted or required (in particular circumstances).
● The compensation formula may differ. In many cases judgment will be required
to assess whether the compensation meets the test of being “reasonable
compensation for early termination of the contract”.
Effective date. The amendment is effective for annual periods beginning on or after 1
January 2019, that is, one year later than the effective date of IFRS 9. Early adoption is
permitted. This will enable companies to adopt the amendment when they first apply
IFRS 9, though for companies in the EU early adoption will be subject to endorsement.
PFRS 9 - Financial instruments
This standard replaces the guidance in PAS 39. It includes requirements on the
classification and measurement of financial assets and liabilities; it also includes an
expected credit losses model that replaces the current incurred loss impairment model.
Effective annual periods beginning on or after 1 January 2018.
Amendment to PFRS 9, ‘Financial instruments’, on prepayment features with

negative compensation
This amendment confirms that when a financial liability measured at amortized

cost is modified without this resulting in de-recognition, a gain or loss should be
recognized immediately in profit or loss. The gain or loss is calculated as the difference
between the original contractual cash flows and the modified cash flows discounted at
the original effective interest rate. This means that the difference cannot be spread over
the remaining life of the instrument which may be a change in practice from PAS 39.
Effective annual periods beginning on or after 1 January 2019.
PFRS 10 - Consolidated Financial Statements

[NO RECENT UPDATES]
PFRS 13 - Fair Value Measurement
What are Other Significant Effects on Accounting and Reporting to Evaluate?

Throughout 2020, companies will need to review all areas of the accounts that
are subject to judgment and estimation uncertainty. The use of forecast information is
pervasive in assessing a range of effects in addition to going concern including the
impairment of financial and non-financial assets, expected credit losses, and the
recoverability of deferred tax assets.
Fair value measurements (IFRS 13 Fair Value Measurement - FVM)

A change in the fair value measurement affects the disclosures required by IFRS
13, which requires companies to disclose the valuation techniques and the inputs used
in the FVM as well as the sensitivity of the valuation to changes in assumptions.
Disclosures are needed to enable users to understand whether COVID-19 has been
considered for the purpose of FVM. A key question is what conditions and the
corresponding assumptions were known or knowable to market participants at the
reporting date.
For 2020, fair value measurements, particularly of financial instruments and

investment property, will need to be reviewed to ensure the values reflect the conditions
at the balance sheet date. This will involve measurement based on unobservable inputs
that reflect how market participants would consider the effect of COVID-19 in their
expectations of future cash flows related to the asset or liability at the reporting date.
During the current environment, the volatility of prices on various markets has also
increased. This affects the FVM either directly - if fair value is determined based on
market prices (for example, in case of shares or debt securities traded on an active
market), or indirectly - for example, if a valuation technique is based on inputs that are
derived from volatile markets. Consequently, special attention will be needed on the
commodity price forecasting that’s used in developing fair value conclusions.
Sourced from: https://www.ifac.org/knowledge-gateway/supporting-international-
standards/discussion/financial-reporting-implications-covid-19
PFRS 15 - Revenue from Contracts with Customers
A New Revenue Recognition Standard

One of the standards under IFRS is the IFRS 15. IFRS 15 governs the revenue
recognition on contracts. IFRS 15 as defined Revenue from Contracts with Customers
establishes principles for reporting useful information to users of financial statements
about the nature, amount, timing, and uncertainty of revenue and cash flows arising
from an entity’s contract with customers. IFRS 15 is effective for annual periods
beginning on or after January 1, 2017. Earlier application is permitted. It supersedes
IAS 11, IAS 18, IFRIC 13, IFRIC 15, IFRIC 18 and SIC 31. IFRS 15 helps to reduce the
bias of non-comparability and inconsistencies that could exist previously, due to the
adoption of different criteria for accounting of revenues on construction contracts. In
addition, organizations that voluntarily adopt the rule in an attempt to account for and
properly recognize customer contracts revenue have greater informational relevance
and meet market expectations. Thus, it can be said that the early adoption of
information on revenue from construction contracts have relevance to the capital
market, impacting the stock price after the publication of financial reports (Deloitte
Global Services Limited).
PFRS 15 Revenue from Contracts with Customers:
Revenue from Contracts with Customers PFRS 15 is the Philippine Adoption of

IFRS 15. This was approved by the Securities and Exchange Commission (SEC) and
effective to be mandatory applied on or after January 1, 2018 but prior application is
permitted. PFRS 15 contains guidelines for transactions not previously addressed. It
also improves guidance for multiple-element arrangements and requires enhanced
disclosure about revenue. It uses a five-step model.
● The first step is to identify contracts with customers wherein the criteria set under
the standard must be met in order to recognize the contract under PFRS 15.
● The second step is to identify performance obligations which may either be

distinct goods or series of distinct goods and services.
● The third step is the determination of transaction price.
● The fourth step is the allocation of this price to separate performance obligations.
● The last step is recognizing revenue when satisfied overtime or at a point in time.
This newly implemented revenue recognition standard which was adopted earlier
by other countries gained criticisms and compliments (Deloitte Global Services Limited).
http://119.92.172.179/papers/abar/abar_vol5_s2018_p3.pdf?
fbclid=IwAR3xE3lLvFcoWRE5EO12gh8GNykpaLeFtG-tXLVu4_llUWexjS5WC3dc6qE
Comparison of IFRS 15 and previous revenue standards
IAS 18 based revenue recognition around an analysis of the transfer of risks and
rewards. In contrast, under IFRS 15 revenue is recognised by a vendor when control
over the goods or services is transferred to the customer.
There are other differences between the previous (IAS 18, IAS 11 Construction
Contracts, IFRIC 13 Customer Loyalty Programmes, IFRIC 15, IFRIC 18 Transfers of
Assets from Customers, SIC 31 Barter Transactions Involving Advertising Services) and
the new revenue standard regarding scope, disclosures in financial statements and the
presentation of assets and liabilities related to contracts.
The table below sets out a summary of the main differences between the new
standard and previous revenue standards:
Scope • Scope exemptions: The new standard does not include scope
exemptions regarding changes in the fair value of biological
assets, the initial recognition of agricultural produce, the
extraction of mineral ores and changes in the value of other
current assets. Nevertheless, these items are out of the scope
of IFRS 15 because they do not arise from contracts with
customers.
• Dividends: IFRS 15 does not include guidance on the

accounting for dividend income. Instead, guidance that is
consistent with existing requirements has been incorporated into
the financial instruments standards.
• Financial services fees: Illustrative examples addressing

financial services fees have been transferred to the financial
instruments standards
Step 1: • Combination of contracts: IAS 11 required an entity to

Identify the consider combining a group of contracts as a single contract
contract when the contracts are performed concurrently or in a
continuous sequence. IFRS 15 states that contracts are
combined when the goods or services promised in the contract
are a single performance obligation.
Step 2:
Identify
• Separate components in the contract: Unlike previous
separate
standards, IFRS 15 introduces comprehensive guidance on
performance
identifying separate components. This might result in combining
obligations
or separating goods or services more frequently than currently.
(POs) in the
contract
Step 3: • Variable consideration: Under previous IFRS an entity

Determine recognises revenue only if it can estimate the amount reliably
the (uncertainty over the outcome may preclude revenue
transaction recognition). In IFRS 15 the constraint sets a ceiling (limiting
price after rather than precluding revenue recognition).
contract
inception • Advance payments: Previous IFRS does not consider
whether an entity adjusts consideration for a financing
component when payment is received in advance. IFRS 15
requires an adjustment to be made for significant financing
components.
• Noncash consideration measurement: Under previous

IFRS, when the fair value of the goods or services received
cannot be measured reliably, the revenue is measured at the
fair value of the goods given up. Under the new standard, the
entity measures the transaction price at the stand-alone selling
price of the goods or services transferred if it cannot reasonably
estimate the fair value of the non-cash consideration.
Additionally, the threshold for using the fair value of the noncash
consideration as the measurement basis is that the entity can
‘reliably measure’ (previous IFRS) the fair value, rather than
‘reasonably estimate’ the amount (IFRS 15).
• Barter transactions: SIC 31 set out guidance to be applied for

barter transactions involving advertising services. IFRS 15 does
not contain any specific guidance on the accounting for barter
transactions. Thus, the general principles for measuring
consideration apply.
• Transfer of assets from customers: IFRIC 18 contained

guidance on transfers of property, plant and equipment received
from customers. IFRS 15 does not contain specific guidance. If
an entity recognises revenue on the transfer it applies the
general requirements in IFRS 15 and measures revenue at the
fair value of the item transferred to the customer.
• Customer incentives: Customer incentives include cash

incentives, discounts, volume rebates, free or discounted goods
or services, customer loyalty programmes, loyalty cards and
vouchers. Other than IFRIC 13 which covered customer loyalty
programmes, existing IFRSs contain limited guidance for these
transactions. The new standard is designed to reduce diversity
in practice with specific accounting requirements (reduction in
revenue, expense, separate deliverable).
Step 4: • Allocation of consideration: IFRS 15 introduces detailed
Allocate the guidance applicable to all contracts with customers. Previous
transaction standards did not contain any guidance in this respect, except
price to the for several recent interpretations (service concession
POs arrangements, customer loyalty programs, agreements for the
sale of real estate).
• Observable inputs: The new standard emphasizes the use of

available market inputs when allocating the transaction price to
performance obligations.
• Residual approach: Unlike previous guidance, IFRS 15

requires specific conditions to be met for an entity to use the
residual approach when there are multiple deliverables that are
accounted for separately.
• Discounts: Specific guidance has been introduced by the new

revenue standard regarding how discounts must be allocated.
Discounts are allocated proportionately to all performance
obligations in a contract, unless there is observable evidence
that the discount relates to only one or more, but not all,
performance obligations in the contract. The proportionate
allocation of discounts links to the allocation of the transaction
price to performance obligations on the basis of stand-alone
selling prices.
• Variable consideration allocation: There is no specific

guidance in previous IFRS. In contrast, IFRS 15 provides
specific guidance on variable consideration together with a
constraint on revenue recognition and an exception for some
sales- or usage-based royalties. Additionally, the new standard
requires alternative approaches in specific circumstances.
• Reallocation of revenue: Unlike in the previous standards, if

some of the performance obligations to which the transaction
price was initially allocated have already been satisfied when
the change in transaction price takes place, then this can result
in a cumulative adjustment to the amount of revenue recognised
to date (including revenue on completed performance
obligations).
Step 5: • Risk and reward approach versus transfer of control:

Recognise Under IAS 18 revenue was recognised when the entity has
revenue transferred to the buyer the significant risks and rewards of
when each ownership. Under an IFRS 15 approach revenue is recognised
PO is when control of goods or services is transferred to the customer.
satisfied
• Over time recognition: IFRS 15 introduces new criteria to
determine when revenue should be recognised over time. Thus,
some contracts that are currently accounted for under the
percentage-of-completion method may now require revenue to
be recognised on contract completion. However, for other
contracts over-time recognition may be required under the new
model. Under previous IFRS revenue is recognised over time if:
a) the contract is a construction contract in the scope of IAS 11;
or b) the contract is for the sales of goods and the conditions for
revenue recognition are met progressively; or c) the contract is
for the rendering of services.
• Real estate arrangements: The new standard replaces IFRIC

15. The difficulty in determining when control of real estate is
transferred to the customer makes this area challenging in
practice, particularly for certain multi-unit residential
developments.
• Stage of completion: Under IAS 11 an entity was required to

use a method for estimating the stage of completion of work that
reliably measures the work performed. When determining the
amount of revenue to be recognised in accordance with IFRS 15
an output measure is the most faithful depiction of an entity’s
performance because it directly measures the value of the
goods or services transferred to the customer. An input method
would be appropriate if it would be less costly and would provide
a reasonable basis for measuring progress. The new standard
includes additional guidance that notes that if an entity’s
performance has produced a material amount of work in
progress or finished goods that are controlled by the customer,
then output methods (units-of-delivery or units-of-production)
may not be appropriate.
• Uninstalled materials: Under IAS 11 materials that had not

yet been installed were often (but not always) excluded from
contract costs when determining the stage of completion of a
contract. Recognising revenue on uninstalled materials at a zero
percent profit margin under IFRS 15 may result in changes to an
entity’s profit recognition profile.
• Outcome estimation at early stages: IAS 11 stated that if it

is probable that the total contract costs will exceed the total
contract revenue, then any expected excess is recognised as an
expense immediately. However, IFRS 15 does not include
guidance on the accounting for losses. Therefore, IAS 37 is
applicable in those cases in order to assess whether the
contract is onerous and to measure the provision, if necessary.
• Repurchase arrangements: Previous IFRSs were focused on
the transfer of risk and rewards of ownership to the buyer. IFRS
15 includes specific guidance and focuses on whether the entity
has transferred control of a good or service.
• Bill and hold: To recognise revenue on a bill and hold basis

under previous IFRS the vendor is required to apply its usual
payment terms. Another condition under previous IFRS is that it
has to be probable that the delivery will be made. This is not
explicitly stated in the new standard. However, if it is not
probable that the delivery will be made, then it is possible that
the contract will not exist for the purpose of applying the
requirements of the new standard, or that the reason for the bill
and hold arrangement will be deemed not to be substantive.
Factors that are taken into consideration under previous
standard to determine whether risks and rewards have been
transferred were, for example, if the entity pays for the cost of
storage, shipment or insurance on the goods. As mentioned
before, IFRS 15 is focused on transfer of control, therefore
these factors are not as relevant under the new standard. Under
IFRS 15 for a customer to have obtained control of a product in
a bill-and-hold arrangement all the following criteria must be
met: a) the reason for the arrangement must be substantive; b)
the product must be identified separately as belonging to the
customer; and c) the entity cannot have the ability to use the
product or to direct it to another customer.
• Customer’s acceptance: Under IAS 18 revenue from goods

that were shipped subject to customer’s acceptance was
recognised when the customer accepts the delivery. Under the
new standard revenue may be recognised if customer
acceptance is a formality that does not affect the determination
of whether control of a good or service has been transferred.
Contract • Costs to obtain a contract: Previous IFRSs do not include
costs specific guidance on the accounting for the costs to obtain a
contract with a customer. In fact, it is only in limited
circumstances that direct and incremental recoverable costs to
obtain an identifiable contract may qualify for recognition as an
intangible asset (IAS 38). For contracts within the scope of IAS
11, costs related directly to the contract with the customer and
incurred in securing it were included as part of the contract costs
only if following criteria are met: they can be separately
identified, reliably measured and it is probable that the contract
will be obtained. Under IFRS 15 incremental costs of obtaining a
contract are those costs incurred in obtaining a contract that
would not have been incurred had that individual contract not
been obtained. This is restrictive, as any ongoing costs of
operating the business will be expensed as incurred.
• Costs to fulfill a contract: The new guidance on costs to fulfill

a contract will be relevant for contracts that were being
accounted for using the percentage of completion method. IFRS
15 requires an entity to capitalize the costs of fulfilling an
anticipated contract if certain conditions are met. This is similar
to the notion in IAS 11 that costs incurred before a contract is
obtained are recognised as contract costs if it is ‘probable’ that
the contract will be obtained.
Contract • Contract modifications: The specific guidance in IAS 11

modifications regarding the accounting for claims and variations in a
construction contract does not exist in the new standard. Under
IFRS 15 claims and variations in construction contracts are
accounted for according to the general (and more prescriptive)
guidance on contract modifications. The application of the
requirements for variable consideration to some contract
modifications may change the timing of revenue recognition
from claims and variations.
Licensing • License of IP and other components in a contract: Under

previous guidance a transaction involving a transfer of rights to
IP is subject to the general guidance on combining and
segmenting contracts and identifying separate components
within a contract. The new standard is more detailed in the
identification of distinct goods or services and will reduce the
inconsistency in practice.
• Pattern of revenue recognition: Under IAS 18 license fees

and royalties were recognised based on the substance of the
agreement. Revenue related to fees and royalties were
recognised:
a) over the life of the agreement on a straight line basis; or
b) when the conditions for the sale of a good are met. This is the
approach when the entity assigns rights for fixed consideration
and has no remaining obligations to perform and the licensee is
able to exploit the rights freely. Although this approach is similar
to over time and point in time recognition under IFRS 15, it is
possible that revenue recognition will be accelerated or deferred
compared with IAS 18.
• Substance of the agreement: Under previous IFRSs entities

may have considered that, by analogy, an appropriate
accounting policy for licenses is the guidance on leases. In
contrast, IFRS 15 contains specific guidance for licenses.
• Contingent license fee or royalty: Under IAS 18 if a license

fee or royalty was contingent on a future event, revenue was
recognised only if it was probable that the fee or royalty was to
be received (normally, when the future event occurs). Although
the sales or usage based royalty exception in IFRS 15 may not
lead to significant changes in practice, the new standard
prohibits the recognition of a sales or usage based royalty until
the sale or usage occurs, even if the sale or usage is probable.
Sales outside • Sale or transfer of an item of property, plant and
the entity’s equipment, intangible asset or investment property:
ordinary a) Timing of derecognition: the date of disposal of these types of
activities assets was determined by the guidance in IAS 18 regarding the
conditions for recognising a sale of goods, i.e. a risk and reward
test must be applied. The new control-based model may result
in a change in the date of disposal if risks and rewards are
transferred at a different date from control (for example, when
variable payments exist). The new model based on control
might have an effect in the real estate industry.
b) Gain or loss on disposal:
– IAS 18: the consideration received or receivable was
measured at fair value;
– IFRS 15: the guidance on the transaction price is applied,
including variable consideration and the constraint. This may
result in a decrease in any gain recognised initially, particularly if
the constraint applies.
Other issues • Warranties: A contract with a customer may contain a

warranty clause. The accounting approach might be different
under the new standard. a) IAS 18: a ‘standard’ warranty clause
does not result in the entity retaining significant risks and
therefore does not preclude revenue recognition at the date of
the sale of the product. The entity typically recognises a
warranty provision in accordance with IAS 37 for the best
estimate of the costs to be incurred for repairing or replacing the
defective products. On the other hand, an ‘abnormal’ warranty
obligation could indicate that the significant risks and rewards of
ownership have not been transferred to the customer and that
revenue should be deferred. b) IFRS 15: the new standard does
not contemplate that a warranty clause would preclude the
recognition of all of the revenue linked to the sale of the product.
However, a warranty that goes beyond assurance that a good or
service complies with agreed upon specifications is accounted
for as separate components and revenue is deferred.
• Agent or principal: Although the concept of principal and

agent is already contemplated in the previous standard, the
move from a risk and reward model to a transfer of control
based model implies that the indicators to assess whether an
entity is acting as principal or agent may be different. Under IAS
18 an entity was a principal in the transaction when it had
exposure to the significant risks and rewards associated with the
sale of goods or the rendering of services.
• Customer loyalty programs: Under previous IFRS an entity

can choose the method to allocate the consideration between
the sales transaction and the award credits. The residual
method to estimate the stand-alone selling price of award
credits was widely applied. Under IFRS 15 the residual
approach can be applied but only in certain cases.
• Breakage: Although it was not explicitly dealt with in IAS 18, it

was common to recognise revenue for breakage if the amount
was non-refundable and the likelihood of the customer requiring
the entity to fulfill its performance obligation was remote. The
new standard might imply changes in the timing of revenue
recognition.
• Non-refundable upfront fees: Under previous IFRS any initial

or entrance fee may have been recognised as revenue when
there was no significant uncertainty over its collection and the
entity had no further obligation to perform any continuing
services (according to the timing, nature and value of the
benefits provided). Under IFRS 15 an entity needs to assess
whether a non-refundable upfront fee relates to a specific good
or service transferred to the customer and recognise revenue in
a way that reflects properly how the control is transferred. This
may result in the deferral of revenue recognition.
• Onerous contracts: Under previous guidance onerous

contracts were within the scope of the following standards: a)
IAS 37: a provision must be recognised when the unavoidable
costs of meeting the obligations under a contract exceed the
economic benefits to be received. b) IAS 11: expected losses on
construction contracts have to be recognised immediately. IFRS
15 does not contain specific guidance on onerous contracts and
therefore the guidance on IAS 11 regarding expected losses on
construction contracts has been withdrawn. Instead, onerous
contracts are dealt with wholly in IAS 37.
Presentation • Consistent presentation approach: Under previous IFRS
there was some diversity in practice when presenting assets
and liabilities related to contracts with customers where the
percentage of completion method was being applied. Amounts
due to or from customers were presented in different ways
(assets, liabilities, deferred income, payments received in
advance or in account). IFRS 15 contains a single, more
systematic approach to presentation in the statement of financial
position and does not distinguish between different types of
contracts with customers.
• Disclosures: The IFRS 15 disclosures requirements are

significantly more extensive than under previous standards.
Reference:
https://www.bdo.global/getmedia/b76b00da-3aa8-415c-acbe-81ca2a702b47/
IFRS15_REVENUE_screen.aspx
Clarifications to IFRS 15
The International Accounting Standards Board (IASB) has published final

clarifications to IFRS 15 'Revenue from Contracts with Customers'. The amendments
are effective for annual reporting periods beginning on or after 1 January 2018 (same
effective date as IFRS 15 itself). Earlier application is permitted.
Background
On 28 May 2014, the IASB issued IFRS 15 Revenue from Contracts with
Customers. After issuing the new revenue standard, which is substantially the same as
the FASB's ASU 2014-09, the IASB and the FASB formed the joint Revenue Transition
Resource Group (TRG) to support the implementation of the new standard. The
substantial majority of the issues discussed by the TRG were resolved without the need
for standard-setting activity. However, five topics (identifying performance obligations,
principal versus agent considerations, licensing, collectability, and measuring non-cash
consideration) were identified as requiring consideration by the Boards. In addition,
some stakeholders asked for practical expedients. After considering the five topics and
possible practical expedients, the IASB proposed in July 2015 targeted amendments in
three areas of IFRS 15 as well as some transition relief. The proposals in the exposure
draft have now been finalized.
Changes
The amendments in Clarifications to IFRS 15 'Revenue from Contracts with

Customers' address three of the five topics identified (identifying performance
obligations, principal versus agent considerations, and licensing) and provide some
transition relief for modified contracts and completed contracts. The IASB concluded
that it was not necessary to amend IFRS 15 with respect to collectability or measuring
non-cash consideration. In all its decisions, the IASB considered the need to balance
helping entities with implementing IFRS 15 and not disrupting the implementation
process.
Identifying performance obligations. IFRS 15 requires an entity to identify

performance obligations on the basis of distinct promised goods or services. To clarify
the concept of 'distinct', the IASB has added the clarification that the objective of the
assessment of a promise to transfer goods or services to a customer is to determine
whether the nature of the promise, within the context of the contract, is to transfer each
of those goods or services individually or, instead, to transfer a combined item or items
to which the promised goods or services are inputs.
Principal versus agent considerations. When another party is involved in providing
goods or services to a customer, IFRS 15 requires an entity to determine whether it is
the principal in the transaction or the agent on the basis of whether it controls the goods
or services before they are transferred to the customer. To clarify how to assess control,
the IASB has amended and extended the application guidance on this issue, and
especially stresses:
● that an entity determines whether it is a principal or an agent for each specified

good or service promised to the customer and could be a principal for some
specified goods or services and an agent for others;
● that the indicators provided for assessing control are not a conclusive list; and
● that the indicators provided may be more or less relevant to the assessment of
control depending on the nature of the specified good or service and the terms
and conditions of the contract so that different indicators may provide more
convincing evidence in some contracts than others.
Licensing. When an entity grants a license to a customer that is distinct from other
promised goods or services, the entity has to determine whether the license is
transferred at a point in time or over time on the basis of whether the contract requires
the entity to undertake activities that significantly affect the intellectual property to which
the customer has rights. To clarify when an entity's activities significantly affect the
intellectual property, the IASB has amended the application guidance and stresses that
the activities significantly affect the intellectual property if
● the activities are expected to significantly change the form or the functionality of
the intellectual property; or
● the ability of the customer to obtain benefit from the intellectual property is
substantially derived from, or dependent upon, those activities.
Additionally, the IASB has extended the application guidance with respect to the
application of the royalties’ constraint.
Transition relief. The IASB has provided two additional practical expedients (both
optional):
● An entity need not restate contracts that are completed contracts at the
beginning of the earliest period presented (for entities that use the full
retrospective method only).
● For contracts that were modified before the beginning of the earliest period
presented, an entity need not retrospectively restate the contract but shall
instead reflect the aggregate effect of all of the modifications that occur before
the beginning of the earliest period presented (also for entities recognizing the
cumulative effect of initially applying the standard at the date of initial
application).
Alternative view
One Board member voted against the publication of the amendments. This Board
member supports all clarifications and the additional transition relief, but disagrees with
the proposal to require an entity to apply the amendments retrospectively as if those
amendments had been included in IFRS 15 at the date of initial application as this
would be inconsistent with allowing early application of IFRS 15.
https://www.iasplus.com/en/news/2016/04/ifrs-15-clarifications
For detailed reference of the amendments: https://www.efrag.org/Assets/Download?

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%2F330%2FClarifications%20to%20IFRS%2015%20-%20IASB
%20Amendments.pdf&AspxAutoDetectCookieSupport=1
PFRS 16 - Leases
Philippine Financial Reporting Standards 16 Leases (PFRS 16)
Overview: The new standard was issued on January 13, 2016. It replaces all previous
PFRS provisions on lease accounting (PAS 17, SIC 15, SIC 27 and IFRIC 4). PFRS 16
is effective for annual periods beginning on or after 1 January 2019. Earlier
application is permitted for entities that apply PFRS 15 Revenue from Contracts with
Customers at or before the date of initial application of PFRS 16.
Lease
● A lease is defined as a contract or part of a contract that conveys the right to use
the underlying asset for a period of time in exchange for consideration.
● The underlying asset is the subject of a lease for which the right to use that asset
has been provided by the lessor to the lessee.
PAS 17 PFRS 16
Lessee Accounting Rental expense is Recognize a Right-Of-Use

recognized in Profit or Asset and a Lease liability
Loss for all leases with a term of
more than 12 months, unless
the underlying asset is of low
value.
Expense at Year end In the form of rent In the form of depreciation
expense expense related to the ROU
Asset and Interest expense
related to the lease liability
Lessor Accounting Classifies the lease as Essentially unchanged

finance lease if
substantially all of the
risks and rewards
incidental to ownership of
the leased asset have
been transferred to the
lessee, otherwise
With the new standard on Leases, the lessee will be required to recognize the majority
of leases in its balance sheet. Lessor accounting will remain essentially unchanged.
Lastly, disclosure requirements will increase significantly.
Commercial Public Sector Entity (CPSE) - refers to an entity which does not meet all
of the characteristics of a Non-CPSE as enumerated in paragraph 5.9 below.
Entity - refers to a government corporation, regional/branch office or operating/field

unit.
Government Corporations (GCs) - refer to government-owned and/or controlled

corporations, government financial institutions, and government instrumentalities with
corporate powers/government corporate entities, including their subsidiaries, and water
districts. The regional, branch and field offices are component units of the corporation.
Finance lease - a lease that transfers substantially all the risks and rewards incidental
to ownership of an underlying asset.
Intermediate Lessor - a lessee that enters to a sublease of which underlying asset is

subject from a previously entered lease contract.
Lease - a contract or part of a contract that conveys the right to use an asset (the
underlying asset) for a period of time in exchange for consideration.
Lessor - an entity that provides the right to use an underlying asset for a period of time
in exchange for consideration. It is also referred to as head lessor in a sublease
transaction.
Lessee - an entity that obtains the right to use an underlying asset for a period of time
in exchange for consideration.
Non-Commercial Public Sector Entity - is an entity that have all the following
characteristics as enumerated under the pertinent provisions of the IPSAS:
a. Are responsible for the delivery of services to benefit the public and/or redistribute
income and wealth;
b. Mainly finance their activities, directly or indirectly, by means of taxes and/or transfers
from other levels of government, social contributions, debts or fees; and
c. Do not have a primary objective to make profits.
Operating Lease - a lease that does not substantially transfer all the risks and rewards
incidental to ownership of an underlying asset.
I. Identifying a Lease
Assessment of whether a contract contains a lease or not
All of the following criteria must be met for a contract to contain a lease.
a) There is an identified asset that the customer has the right to use.
b) The lessee obtains substantially all the economic benefits.
c) The lessee has the right to direct the use of the asset.
Determining Whether an Arrangement Contains a Lease Identified Asset
● The Lease Identified Asset must be explicitly or implicitly identified in the

contract.
● There must be no substitution rights, meaning there is no practical ability to
substitute the asset.
● The Leased Asset must be physically distinct.
Separating Components of a Contract into Lease and Non-Lease
For a contract that is, or contains, a lease, an entity shall account for each lease
component within the contract as a lease separately from non-lease components of the
contract.
Lessee
Allocate the consideration in the contract to each lease component on the basis of the
relative stand-alone price of the lease component and the aggregate stand-alone price
of the non-lease components.
The relative stand-alone price of lease and non-lease components shall be determined
on the basis of the price the lessor, or a similar supplier, would charge an entity for that
component, or a similar component, separately. If not readily available, the lessee shall
estimate the stand-alone price, maximizing the use of observable information.
Lessor
Allocate the consideration in the contract applying paragraphs 73–90 of PFRS 15.
II. Lease Term
An entity shall determine the lease term by considering the following:
1. non-cancellable period of a lease;

2. periods covered by an option to extend the lease if the lessee is reasonably
certain to exercise that option; and
3. periods covered by an option to terminate the lease if the lessee is reasonably
certain not to exercise that option.
III. Lessee Accounting
Recognition
At the commencement date, a lessee is required to recognize assets and liabilities for
all leases with a term of more than 12 months, unless the underlying asset is of
low value.
Initial Measurement
Right of Use Asset
At the commencement date, a lessee shall measure the right-of-use asset at cost.
The cost of the right-of-use asset shall comprise:
● initial measurement of Lease Liability;

● any lease payments made at or before the commencement date, less any
lease incentives received;
● any initial direct costs incurred by the lessee; and
● estimated dismantling/restoration cost.
Lease liability
● Present value of lease payments that are not paid at that date (using interest
rate implicit in the lease, or if not readily determinable, lessee’s incremental
borrowing rate)
Lease Payments that are not paid at the commencement date includes the following:
● fixed payments;
○ exercise price of a purchase option only if the lessee is reasonably
certain to exercise;
○ amounts expected to be payable by the lessee under residual value
guarantees;
○ variable lease payments that depend on an index or a rate; and
■ payments of penalties for terminating the lease, if the lease term
reflects the lessee exercising an option to terminate the lease.
● Subsequent Measurement
Right-of-Use Asset
After the commencement date, a lessee shall measure the right-of-use asset applying
a cost model, unless it applies either of the other measurement models.
Measurement models
a) Cost model
Measure the right-of-use asset at cost less any accumulated depreciation and any
accumulated impairment losses and adjusted for any remeasurement of the lease
liability.
b) Fair Value Model
If a lessee applies the fair value model in PAS 40 Investment Property to its
investment property, the lessee shall also apply that fair value model to right-of-use
assets that meet the definition of investment property in PAS 40.
c) Revaluation model
If right-of-use assets relate to a class of property, plant and equipment to which the
lessee applies the revaluation model in PAS 16, a lessee may elect to apply that
revaluation model to all of the right-of-use assets that relate to that class of property,
plant and equipment.
Lease liability
After the commencement date, a lessee shall measure the lease liability by:
a) increasing the carrying amount to reflect interest on the lease liability;
b) reducing the carrying amount to reflect the lease payments made; and
c) Remeasuring the carrying amount to reflect any reassessment or lease

modifications or to reflect revised in-substance fixed lease payments.
Presentation
Right-of-use asset
The Right-of-use asset can be presented in the Statement of Financial Position or

disclosed in the notes separately from other assets or under the same line item where
it would be presented as if the asset is owned. Disclose in which line items in the
statement of financial position include those right-of-use assets or presented as
investment property if it meets the definition of an investment property
Lease Liability
The lease liability can be presented as a separate line item or disclose on which line
item in the liabilities section of the Statement of Financial Position it is included.
● Disclosure Requirements
A lessee shall disclose information about its leases for which it is a lessee in a single
note or separate section in its financial statements.
The lessee shall disclose the following:
● depreciation charge for right-of-use assets by class of underlying asset;

● interest expense on lease liabilities;
● the expense relating to short-term leases accounted for applying paragraph 6.
This expense need not include the expense relating to leases with a lease term
of one month or less;
● the expense relating to leases of low-value assets accounted for applying
paragraph 6. This expense shall not include the expense relating to short-term
leases of low-value assets
● the expense relating to variable lease payments not included in the
measurement of lease liabilities;
● income from subleasing right-of-use assets;
● total cash outflow for leases;
● additions to right-of-use assets;
● gains or losses arising from sale and leaseback transactions; and
● the carrying amount of right-of-use assets at the end of the reporting period by
class of underlying asset.
Impact on Financial Metrics
Most commonly used financial ratios and performance metrics will be impacted, such
as debt to equity ratio, current ratio, asset turnover, interest cover, EBIT, operating
profit, net income.
PHILIPPINE APPLICATION GUIDANCE TO PFRS 16 LEASES
All provisions of PFRS 16 and its amendment shall be adopted by the GC

classified as CPSE and in accordance with the following PAG.
Recognition Exemption for Lessee Accounting
Paragraph 5 of PFRS 16 provides that a lessee may elect not to apply the
requirements for recognition, measurement and presentation of the right-of-use
assets and lease liability provided under paragraph 22-49 of PFRS 16 in the case of:
a. Short term leases (leases with lease term of 12 months or less at the
commencement date and do not contain a purchase option); and
b. Leases for which the underlying asset is low value (as described in paragraph
B3-B8 of PFRS 16).
PAG1 – For consistency and uniformity, a lessee shall not apply the requirements for
recognition, measurement and presentation of the right-of-use assets and lease
liability to either short-term leases or leases for which the underlying asset is of low
value when new. Henceforth, the lessee should strictly comply with the requirements
provided under paragraphs 6-8 of PFRS 16.
Separating Lease Component and Non-Lease Component of a Contract
Paragraph 12 of PFRS 16 requires that an entity shall account for each lease
component within the contract as a lease separate from non-lease components of the
contract, unless the entity applies the practical expedient in paragraph 15 of PFRS
16.
Paragraph 13 of PFRS 16 provides that for a contract that contains a lease

component and one or more additional lease or non-lease components, a lessee shall
allocate the consideration in the contract to each lease component on the basis of the
relative stand-alone price of the lease component and the aggregate stand-alone
price of the non-lease components.
Paragraph 15 of PFRS 16 provides for a practical expedient that a lessee may elect,
by class of underlying asset, not to separate non-lease components from lease
components, and instead account for each lease component and any associated non
lease components as a single lease component.
PAG2 – For consistency and uniformity, a lessee shall apply the practical expedient
provided in paragraph 15 of PFRS 16-Leases. Therefore, a lessee shall not separate,
by class of underlying asset, non-lease components from lease components, and
account for each lease component and any associated non-lease components as a
single lease component. However, a lessee shall not apply this practical expedient to
embedded derivatives that meet the criteria in paragraph 4.3.3 of PFRS 9-Financial
Instruments.
Depreciation under the Cost Model
Paragraph 31 of PFRS 16 provides that a lessee shall apply the depreciation

requirements in PAS 16 in depreciating the right-of-use asset, subject to the
requirements in paragraph 32 of PFRS 16.
PAG 3 of IPSAS 17 provides that depreciation shall be for one month if the Property,
Plant and Equipment (PPE) is available for use on or before the 15th of the month.
However, if the PPE is available for use after the 15th of the month, depreciation shall
be for the succeeding month.
PAG 4 of IPSAS 17 provides that the depreciation method to be used shall be the
straight line method unless another method is more appropriate for agency's
operation.
PAG3 – For uniform accounting treatment on the depreciation of the right-of-use

assets and considering PAGs 3 and 4 of IPSAS 17-Property, Plant and Equipment, if
the GC classified as CPSE uses the cost model as its accounting policy, depreciation
shall be for one month if the underlying asset is available for use on or before the
15th of the month. However, if the underlying asset is available for use after the 15th
of the month, depreciation shall be for the succeeding month. The depreciation
method to be used shall be the straight line method unless another method is more
appropriate for GC's operation.
Residual Value
PAG 6 of IPSAS 17 provides that a residual value equivalent to at least five percent
(5%) of the cost of PPE shall be adopted unless a more appropriate percentage is
determined by the agency based on their operation.
PAG4 – For uniform accounting treatment, the residual value of at least five percent
(5%) of the cost of right-of-use assets as provided in PAG 6 of IPSAS 17 Property,
Plant and Equipment shall be adopted, unless a more appropriate percentage is
determined by the GCs classified as CPSE based on their operation. However, for
leases classified operating lease but did not meet the exemption recognition as
stated in paragraph 6.1, no residual value shall be provided.
Presentation
Paragraph 47 of PFRS 16 provides that a lessee shall either present in the statement
of financial position, right-of-use assets and lease liabilities separately from other
assets and other liabilities, respectively, or provide the necessary disclosures if not
presented separately.
PAG5 – For uniformity in presentation, the lessee shall present the right-of-use
assets and lease liabilities in the statement of financial position separately from other
assets and other liabilities, except for right-of-use asset that meet the definition of
Investment Property, which shall be presented as investment property in accordance
with paragraph 48 of PFRS 16.
Transitional provisions on Identification of Lease
Paragraph C3 of Appendix C of PFRS 16 provides that as a practical expedient, an

entity is not required to reassess whether a contract is, or contains, a lease at the date
of initial application. Instead, the entiry is permitted:
a. To apply this Standard to contracts that were previously identified as leases applying
PAS 17- Leases and PI IFRIC 4- Determining whether an Arrangement contains a
Lease. The entity shall apply the transition requirements in paragraph C5-C18 of PFRS
16 to those leases
b. b. not to apply this Standard to contracts that were not previously identified as
containing a lease applying PAS 17 and PI IFRIC 4.
Paragraph C4 of Appendix C of PFRS 16 provides that if an entity chooses the practical
expedient in paragraph C3, it shall disclose that fact and apply the practical expedient to
all of its contracts. As a result, the entity shall apply the requirements in paragraphs 9-
11 only to contracts entered into (or changed) on or after the date of initial application.
PAG6- For consistency in the application of this Standard, the GC classified as CPSE
shall apply the practical expedient in paragraph C3 of PFRS 16- Leases to all of its
contracts at the date of initial application and disclose that fact in the FS. As a result,
the entity shall apply the succeeding transitional provisions under this Circular.
Transitional provisions on accounting for lessee
Paragraph C5 of Appendix C of PFRS 16 deals with the options that the lessee can
choose in accounting of its leases. It can either choose to apply PFRS 16:
a. retrospectively to each prior reporting period presented applying PAS 8 Accounting

Policies, Changes in Accounting Estimates and Errors; or
b. b. retrospectively with the cumulative effect of initially applying PFRS 16 recognized

as an adjustment to the opening balance of Retained Earnings (or other component of
equity, as appropriate) at January 1, 2021, the date of initial application (Modified
Retrospective Approach).
PAG7 For uniform application of the Standard, a GC classified as CPSE shall apply the
option described in 6.7.b in the accounting of its leases. The lessee shall not restate
comparative information. Instead, the lessee shall recognize the cumulative effect of
initially applying this Standard as an adjustment to the opening balance of Retained
Earnings (or other component of equity, as appropriate) at the date of initial application
or at January 1, 2021.
PAG8- The following transitional provisions on accounting for lease using the Modified
Retrospective Approach shall be adopted:
a. For leases previously classified as operating leases under PAS 17, apply paragraphs
C8 to C9 and the practical expedient in paragraph C10 of Appendix C of PFRS 16 upon
transition.
b. For leases previously classified as finance leases under PAS 17, apply paragraph
C11 of Appendix C of PFRS 16 upon transition.
c. Lessee shall disclose information upon transition in accordance with paragraph C12
of Appendix C of PFRS 16. 6.9
PAG9 - The following transitional provisions on accounting for lessor shall be adopted:
a. Paragraph C14 of Appendix C of PFRS 16 provides that a lessor is not required to
make any adjustments on transition for leases in which it is a lessor and shall account
for those leases applying PFRS 16 from the date of initial application except for
intermediate lessor as provided in paragraph C15.
b. Paragraph C16 to C21 of Appendix C of PFRS 16, Sale and leaseback transactions
before the date of initial application shall likewise be applied upon transition.
Tax Implications
The rules remain unchanged for tax purposes.
● For income tax purposes, the lessee may deduct the amount of rent paid or
accrued from gross income, including all expenses under the lease agreement
which the lessee is required to pay to or for the account of the lessor. The
difference between the rent expense and the sum of depreciation expense and
interest expense is treated as future deductible expense and a deferred tax asset
is recognized.
● For Value-Added Tax (VAT) purposes, the monthly payments to the lessor are
reported monthly since this is subject to VAT upon payment, and not at the
inception of the lease.
● For withholding tax purposes, the transaction remains a lease, which is subject
to a 5% withholding tax.
Transition Accounting and Effective Date
The effective date of PFRS 16 Leases is 1 January 2019. Early application is

permitted but it can’t be applied before an entity that also adopts IFRS 15 Revenue from
Contracts with Customers.
There are two methods to adopt the new leases standard. A lessee may choose
between a full retrospective approach or a modified retrospective approach. The
selected approach has to be applied to the entire lease portfolio.
Full Retrospective Approach
The transition accounting under the full retrospective approach requires entities to
retrospectively apply the new standard to each prior reporting period presented as
required by PAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
Under this transition approach, entities need to adjust its equity at the beginning of the
earliest comparative period presented.
Modified Retrospective Approach
Under this approach, a lessee does not restate comparative information. The date of
initial application is the first day of the annual reporting period in which a lessee first
applies the requirements of the new lease standard. At the date of initial application of
the new lease standard, lessees recognize the cumulative effect of initial application as
an adjustment to the opening balance of equity as of 1 January 2019. Comparative
figures for the year ended December 31, 2018 are not restated to reflect the adoption of
PFRS 16 but instead continue to reflect the lessee’s accounting policies under PAS 17
Leases.
IV. Lessor Accounting
PFRS 16 substantially carries forward the lessor accounting requirements in PAS 17.
Accordingly, a lessor continues to classify its leases as operating leases or finance
leases, and to account for those two types of leases differently.
V. Steps to consider in Transition to PFRS 16
At year-end or before the start of the audit, the following are the steps needed to be
taken into consideration to assess the impact of PFRS 16.
1. Review all lease contracts entered into by the Company as of December 31,
2019 with lease term of more than twelve (12) months.
2. Assess whether the contract qualifies as a lease.
a. Compute for the right-of-use asset and lease liability to be recognized and
provide amortization for the lease liability.
b. Calculate the deferred tax asset to be recognized at year-end.
1. Consider the pro-forma journal entries for the application of standard as well as
for the restatement of opening balances.
Source: https://www.rsbernaldo.com/quality-assurance/qau-bulletins/qau-memo-2019-
03-pfrs-16-leases
https://www.coa.gov.ph/phocadownloadpap/userupload/Issuances/Circulars/Circ2021/
COA_C2021-009.pdf
PFRS 17 - Insurance Contracts
Amendments to PFRS 17, Insurance Contracts
1. The Financial Reporting Standards Council (FRSC) has approved on August 19,
2020 the adoption of amendments to IFRS 17 Insurance Contracts issued by the
International Accounting Standards Board (IASB) in June 2020 as amendments to
PFRS 17 Insurance Contracts.
2. The main changes resulting from the amendments to IFRS 17 are:

● Deferral of the date of initial application of IFRS 17 by two years to annual
periods beginning on or after 1 January 2023 and change the fixed expiry date
for the temporary exemption in IFRS 4 Insurance Contracts from applying IFRS 9
Financial Instruments, so that entities would be required to apply IFRS 9 for
annual periods beginning on or after 1 January 2023.
● Additional scope exclusion for credit card contracts and similar contracts that
provide insurance coverage as well as optional scope exclusion for loan
contracts that transfer significant insurance risk.
● Recognition of insurance acquisition cash flows relating to expected contract
renewals, including transition provisions and guidance for insurance acquisition
cash flows recognized in a business acquired in a business combination.
● Clarification of the application of IFRS 17 in interim financial statements allowing
an accounting policy choice at the reporting entity level.
● Clarification of the application of contractual service margin (CSM) attributable to
investment-return service and investment-related service and changes to the
corresponding disclosure requirements.
● Extension of the risk mitigation option to include reinsurance contracts held and
nonfinancial derivatives.
● Amendments to require an entity that at initial recognition recognizes losses on
onerous insurance contracts issued to also recognize a gain on reinsurance
contracts held.
● Simplified presentation of insurance contracts in the statement of financial
position so that entities would present insurance contract assets and liabilities in
the statement of financial position determined using portfolios of insurance
contracts rather than groups of insurance contracts.
● Additional transition relief for business combinations and additional transition
relief for the date of application of the risk mitigation option and the use of the fair
value transition approach.
● Several small amendments regarding minor application issues.
KPMG further discussed the summary of the amendments to IFRS 17 Insurance

Contracts:
Topic Key facts and impacts
● Effective date ● 1 January 2023 effective date for

application of IFRS 17 and exemption
from applying IFRS 9
● Companies have just 18 months until
the transition date of 1 January 2022
Scope of IFRS 17
● Credit cards and similar ● Most companies that issue these

products that provide products will be able to continue with
insurance coverage their existing accounting, unless the
insurance coverage is a contractual
feature, easing implementation for non-
insurers
● Loan contracts that meet the ● Companies that issue such loans – e.g.
definition of insurance but a loan with waiver on death – have an
limit the compensation for option to apply IFRS 9 or IFRS 17,
insured events to the amount reducing the impact of IFRS 17 for non-
otherwise required to settle insurers
the policyholder’s obligation
created by the contract
Measuring the contractual service margin (CSM)
● Accounting policy choice for ● Companies will choose to apply either a

interim reporting ‘period-to-period’ or ‘year-to-date’
approach, allowing greater opportunity
for consistency with current practice
and for subsidiaries to align reporting
with their parent
● Insurance contract services ● Revenue and profit emergence will

now include both insurance better reflect performance of the wide
and investment services range of insurance products and the
services they provide to customers
● Accounting for assets and ● Allocating insurance acquisition cash

liabilities before the related flows to future renewal groups reduces
group of contracts is the risk of groups becoming onerous
recognised solely from acquisition expenses paid
relating to future renewals
● The allocation is revised at each
reporting period to reflect any changes
in assumptions that determine the
inputs to the method of allocation used,
until all contracts have been added to
the group.
● Companies now need to assess each
period the recoverability of insurance
acquisition cash flow assets usually on
a more granular level than applied
today
Transitioning to IFRS 17
● Contracts acquired in their ● Companies may be able to account for

settlement period acquired contracts before the transition
date as liabilities for incurred claims
● Assets for insurance ● In many cases, companies will be

acquisition cash flows required to identify and recognise an
asset for insurance acquisition cash
flows incurred prior to transition
● Companies are not required to perform
a recoverability assessment for periods
prior to transition
● Transition reliefs and minor ● Various amendments and impacts –

amendments see here for further detail
Accounting for direct participating contracts
● Risk mitigation option ● Broader application of the risk

expanded to non-derivative mitigation option will lead to fewer
assets at FVTPL and accounting mismatches
reinsurance contracts held ● If a company meets the risk mitigation
and extended to provide relief option criteria before transition, it can
prospectively from the now apply the fair value approach to
transition date the related contracts at transition
● Applying the OCI option and ● Companies applying both options

risk mitigation option together together will be able to achieve better
matching in the income statement
● Eligibility criteria for VFA ● Assessed on a contract level instead of

group level as some companies had
interpreted
Accounting for reinsurance contracts held
● Accounting for recovery of ● Companies will be able to offset losses

losses on initial recognition on initial recognition of direct insurance
contracts based on a prescribed
formula if they are covered by
reinsurance contracts held, reducing
accounting mismatches
Presentation and disclosure requirements
● Presentation in the statement ● Relief for companies to present

of financial position (re)insurance contract assets and
liabilities at a portfolio level, instead of
group level
● Income tax chargeable to the ● Income taxes specifically charged to

policyholder policyholders may now be included in
fulfilment cash flows, better reflecting
local practice in certain jurisdictions
References:
International Financial Reporting Standards Foundation. Retrieved from

https://www.prc.gov.ph/sites/default/files/FRSC-PIC%20Pronouncements/Amendment
%20to%20PFRS%2017_Preface.pdf
Summary of amendments to IFRS 17. Retrieved from

https://home.kpmg/xx/en/home/insights/2020/06/revised-standard-issued-ifrs17.html

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UPDATES ON PHILIPPINE FINANCIAL REPORTING STANDARDS

● Amendments to PFRS 1, Subsidiary as a first-time adopter

This amendment is adopted as part of the annual improvements to financial reporting

The amendments provides:

PFRS 2 - Share-based Payment

● Amendments to PFRS 2, Classification and Measurement of Share-based

This amendment clarifies the measurement basis for cash-settled, share-based

➔ Accounting for cash-settled share-based payment transactions that include a

➔ On such modifications, the original liability recognised in respect of the cash-

a. an unintentional difference arising from the book-building process; or

b. an intentional difference arising from a discount given to retail investors by the

To consider whether the transaction is a share-based payment transaction within the

References for PFRS 1 and 2 Updates:

PFRS 3 - Business Combination

Definition of a Business (Amendments to PFRS 3)

Old Definition New Definition

An integrated set of activities and An integrated set of activities and

PFRS 4 - Insurance Contracts

Applying IFRS 9 ‘Financial Instruments” with IFRs 4 ‘Insurance Contracts”

The application of both approaches is optional and an entity is permitted to stop

PFRS 5 - Non-current Assets Held for Sale and Discontinued Operations

On 25 September 2014, the International Accounting Standards Board issued Annual

Changes in methods of disposal

● Such reclassifications should not be considered changes to a plan of sale or a

PFRS 6 - Exploration and Evaluation Mineral Resource

No further Updates and Amendments

PFRS 7 - Financial Instruments: Disclosures

Timeline of PFRS 7 Amendment

January 1, 2007 Financial Instruments: Disclosures

January 1, 2007 Transition

July 1, 2008 Reclassification of Financial Assets

July 1, 2008 Reclassification of Financial Assets - Effective

January 1, 2009 Improving Disclosures about Financial

July 1, 2011 Disclosures - Transfers of Financial Assets

January 1, 2016 Servicing Contracts

Effective Date : January 1, 2007

Effective Date : January 1, 2007

For Philippine financial reporting purposes, the amendments to PAS 39 are

Effective Date : July 1, 2008

Effective Date : January 1, 2009

Effective Date : July 1, 2011

New PFRS for 2016

Effective Date : January 1, 2016

Effective Date : January 1, 2016

PFRS 8 - Operating Segments

Last updated: February 2019

IFRS 8- Operating Segments requires particular classes of entities (essentially

IFRS 8 defines an operating segment as follows. An operating segment is a component

Required disclosures include:

# This disclosure requirement was added by Annual Improvements to IFRSs 2010–

PFRS 9 - FINANCIAL INSTRUMENTS

(PURELY COPIED FROM https://www.iasplus.com/en/othernews/new-and-revised/2021/march)

The International Accounting Standards Board (IASB) has published 'Applying

The amendments in Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance

The application of both approaches is OPTIONAL and an entity is permitted to stop

1st 2nd 3rd Full

(PURELY COPIED FROM https://www.pwc.com/gx/en/audit-services/ifrs/publications/ifrs-9/

Amendments to IFRS 9: Prepayment Features with Negative Compensation and