KPMG Nigeria and Shasat (UK) Limited have launched the Africa IFRS Academy (AIA) to address the shortage of skills and to offer world class international financial reporting standard (IFRS) training to Nigerian and African accounting professionals as well as top management personnel, just as the Central Bank of Nigeria (CBN) has once again called for greater compliance to globally accepted financial standards among stakeholders.

Speaking at the launch which held at the Southern Sun Hotel, Ikoyi, Lagos, Wednesday, Sarah Alade, CBN’s deputy governor, economic policy, while commending KPMG and Shasat UK for setting up the academy, stated that the move would help address one of the major challenges to compliance among Nigerian and African business entities by breaching the skills gap and ensure that the continent was abreast of global best practices.

“Attempts at standardizing financial reporting have become universal with many countries jettisoning their national standards for the IFRS. The IFRS Foundation in 2014 completed a research on the use of IFRS around the world. Of 129 countries reviewed, nearly all made a public commitment to IFRS.

“More than countries surveyed and two-thirds of G-20 members have already adopted IFRS for most or all publicly listed companies while many of those jurisdictions permit IFRS for at least some of those listed companies,” Alade said.

She explained further that global investors were more attracted to markets that they could understand, trust and have confidence in. For this reason, she added, countries that adopt internationally accepted accounting standards were at an advantage over those that do not.

She traced the Nigerian banking crisis of 2008 to a weakness in financial reporting and disclosures, hence the need for compliance to the global standard set by the IFRS. She added that to address the weaknesses within the banking system and the economy, the CBN has since been at the vanguard of initiatives that enhanced full disclosures and financial reporting practices in the nation’s banking system.

Emphasizing the need for adopting the IFRS standard, Alade stated that there was “no gainsaying that adoption of IFRS has had a salutary effect on the safety, soundness and stability of Nigeria’s banking system,” while adding that a key challenge for Nigerian companies was the shortage of skilled personnel within the local environment to drive the implementation of IFRS.

The CBN deputy governor, while appreciating efforts that have been made by stakeholders to bridge capacity gaps, added that there was still much work to be done to ensure that “personnel at all levels are better abreast of regulations.”

She implored all members of the financial community to “leverage on the resources provided by the academy to enhance their understanding of IFRS so that we can continue to reap the benefit of the implementation of this very important global financial reporting standard.”

The panel discussion session which was moderated by Tola Adeyemi, partner & head, audit services, KPMG, saw contributions from Rashidat Adebisi, CFO, Mansard Insurance plc; Demola Odeyemi, executive director, GTB; Olumide Oluyinka, head, consultancy services, KPMG; on the benefits, challenges and system development issues in respect of IFRS compliance and adoption.

Agnes Lutukai gave a presentation of “IFRS 9: Game Changer in Accounting for Financial Instruments” while Oluwafemi Awotoye and Sunil Kansal handled the formal unveiling of the AIA website. Seyi Bickersteth, national senior partner and chief executive officer at KPMG Professional Services Limited, gave the vote of thanks.

The Basel committee has re adjusted the leverage ratio requirement after analysing the bank data. The group also modified a liquidity rule to make it easier to count a certain type of central bank loan against regulatory standards. Changes to the leverage rule give lenders more scope to use an accounting practice known as netting to calculate the ratio, and ease proposals on how lenders determine the size of their off-balance sheet activities. According to the Basel committee other amendments avert the risk that banks end up double-counting some derivatives trades.

In March 2014, the Eurostat published a draft report concerning the results of Eurostat’s public consultation on future EPSAS governance principles and structures.

Also, it is important to keep in mind that in October 2013, the IPSAS-Board published the following six Exposure Drafts as part of its ongoing improvements to International Public Sector Accounting Standards (IPSAS).

• At a Glance: Interests in Other Entities – Summary of Five Exposure Drafts;
• Exposure Draft 48: Separate Financial Statements;
• Exposure Draft 49: Consolidated Financial Statements;
• Exposure Draft 50: Investments in Associates and Joint Ventures;
• Exposure Draft 51: Joint Arrangements;
• Exposure Draft 53: First-Time Adoption of Accrual Basis IPSAS

The IASB has issued a new accounting standard IFRS 15 –Revenue from Contracts with Customers in May 2014 which will replace the existing accounting standards IAS 18 – Revenue and IAS 11- Construction Contracts along with few IFRIC interpretations. IFRS 15 shall be effective retrospectively for reporting period beginning on or after 1 January 2017 but early application is permitted. For entities in the European Union need to wait for the endorsement before it is adopted.  This new accounting standard converge with the USGAAP.

This new accounting standard established a fundamental revenue recognition principle to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  IFRS 15 is more prescriptive in nature as compared to IAS 18 and IAS 11, therefore, may impact many organisation and implementation would require adequate planning and considerations. The revenue recognition principle has been designed based on five step model:

• Identify the contract(s) with a customer
• Identify the performance obligations in the contract
• Determine the transaction price
• Allocate the transaction price to the performance obligations in the contract
• Recognize revenue when (or as) the entity satisfies a performance obligation

Where a contract involves multiple performance obligations then the entity shall allocate the transaction price to the performance obligations in the contract by reference to their relative standalone selling prices. If a standalone selling price is not directly observable, the entity will need to estimate it based on below mentioned methods:

• Adjusted market assessment approach
• Expected cost plus a margin approach
• Residual approach (only permissible in limited circumstances).

Some of the other key points to note:

In accordance with IFRS 5, if the overall discount compared to the aggregate of standalone selling prices is allocated between performance obligations on a relative standalone selling price basis. However in some situations, it may be appropriate to allocate such a discount to some but not all of the performance obligations.

If the consideration is paid in advance or in arrears, the entity will need to consider whether the contract includes a significant financing arrangement and, if so, adjust for the time value of money.

Disclosures

The accounting standard requires an entity to disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Therefore, it requires disclosure of both qualitative and quantitative information.

Presentation in financial statements

Contracts with customers will be presented in an entity’s statement of financial position as a contract liability, a contract asset, or a receivable, depending on the relationship between the entity’s performance and the customer’s payment.  Similarly, a contract liability is presented in the statement of financial position where a customer has paid an amount of consideration prior to the entity performing by transferring the related good or service to the customer.

The IASB during the June 2014 meeting has continued its re-deliberations on its 2013 exposure draft Insurance Contracts and has discussed on the issues. The Board also held decision-making discussions on the following topics:

Discount rates

When observable market information is not available, the ED on IFRS 4 (Phase II) – Insurance Contracts requires entities to use estimation techniques to determine the appropriate discount rate.  However, the concerns have been raised on how to estimate discount rates when there is a lack of observable data.  As the staff felt this lack of clarity could give rise to diverse interpretations, the staff recommended that the Board provides additional application guidance to:

•  Ensure that appropriate adjustments are made to observable inputs to accommodate any differences between observed transactions and the insurance contracts being measured
• Develop any unobservable inputs using the best information available in the circumstances, while remaining consistent with the objective of reflecting how market participants assess those inputs.

At the same time, any unobservable inputs should not contradict any available and relevant market data.  The measurement objective of the ED is not a fair value estimate, but the guidance in IFRS 13 needs to be considered when determining discount rate used for measuring insurance liabilities.

The staff asked the Board to confirm the principle in the ED that the discount rates should be consistent with observable current market prices for instruments with cash flows whose characteristics are consistent with those of the insurance contract.

During the meeting, some concerns were raised on the issue that may arise where the observable market data may not have any observable transactions for certain durations, but there are a few longer durations with an observable transaction.  Therefore, it needs to be clarified whether any transactions for longer-durations contracts would represent data from an active market and would be required to be used.

Asymmetrical accounting treatment

The concern in relation to asymmetry in the accounting treatment for a cedant’s reinsurance contracts and the underlying contracts. In accordance with the ED, a gain on a reinsurance contract is not recognised even if the contractual service margin on the underlying direct contracts is nil and changes in estimates of future cash flows are reported in profit or loss.

The IASB has tentatively decided that subsequent changes in cash flow estimates of reinsurance contracts held should be recognised in profit or loss by the cedant when changes in the expected reinsured losses of the underlying direct contracts are recognised in profit or loss. This would occur when, for example, the underlying direct contracts have become onerous and the CSM on these contracts has been reduced to nil. As a result, it is possible that some of the cash flow changes related to a reinsurance contract are recorded in profit or loss, whilst other changes of that contract are adjusted against CSM.

Level of aggregation

In the meeting, the staff explained that the comment letters to the ED have raised an issue that different levels of aggregation could arise and asked that the Board further clarify which elements exist within the model that would be subject to a different level of aggregation and what factors need to be considered in determining the level of aggregation for these respective elements.   Therefore, the staff has recommended to:

• Clarify that the objective of the proposed insurance contracts standard is to provide principles for the measurement of an individual insurance contract, but that, in applying the standard, an entity could aggregate insurance contracts provided that it meets that objective;
• Add application guidance to explain that in determining the contractual service margins or loss at initial recognition, an entity should not aggregate onerous contracts with profit-making contracts. An entity should consider the facts and IPSAS Update
• The staff has also recommended amending the definition as “Insurance contracts that provide coverage for similar risks and are managed together as a single pool”.

Accounting policy for presenting effects of changes in discount rates

In the March meeting, the Board had tentatively decided that an entity should choose to present the effect of changes in discount rates in profit and loss or in other comprehensive income as its accounting policy. The Board required that an entity should apply that accounting policy to all contracts within a portfolio.  The staff also asked the Board to further clarify the level of aggregation for applying the accounting policy choice on where to recognise the effects of changes in discount rates.

In the June 2014 meeting, the IASB discussed on the scope of the research project on business combinations under common control and tentatively decided that the project should consider:

• business combinations under common control that are currently excluded from the scope of IFRS 3 Business Combinations;
• group restructurings; and
• to clarify the description of business combinations under common control, including the meaning of common control.

It has been tentatively been decided to give priority to considering transactions that involve third parties.  , for example those undertaken in preparation for an initial public offering. This is an area of particular concern for securities regulators.  Going forward in the third quarter of 2014, the IASB will discuss the accounting for transactions within the scope of the research project and will also consider further questions relating to the scope of the project.

The IASB tentatively decided to require an entity to apply IFRS 9 for annual periods beginning on or after 1 January 2018.

Classification and Measurement
On 28 November 2012 the IASB issued an Exposure Draft Classification and Measurement: Limited Amendments to the proposed amendments to IFRS 9 issued in 2010.   In February 2014 the IASB finalised its deliberations on the limited amendments to the classification and measurement requirements of IFRS 9 Financial Instruments. According to the future agenda, the IASB will proceed to drafting and balloting the final requirements for impairment and the limited amendments to the classification and measurement requirements to be incorporated into IFRS 9.

Impairment
The IASB had issued an Exposure Draft Financial Instruments: Expected Credit Losses was published in March 2013 and since then various industry groups have raised various implementation challenges and concerns. As per the future IASB agenda, the staff will proceed to drafting and balloting the final requirements for impairment to be incorporated into IFRS 9.