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European Union formally adopts IFRS 16 as well as several amendments to IFRSs

  • European Union Image

09 Nov 2017

The European Union has published a Commission Regulation endorsing IFRS 16 'Leases', 'Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)', 'Disclosure Initiative (Amendments to IAS 7)', 'Clarifications to IFRS 15 'Revenue from Contracts with Customers'', and 'Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4)'.

  • IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.
  • Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) amends IAS 12 Income Taxes to address diversity in practice around the recognition of a deferred tax asset that is related to a debt instrument measured at fair value that has arisen because of uncertainty about the application of some of the principles in IAS 12.
  • Disclosure Initiative (Amendments to IAS 7) amends IAS 7 Statement of Cash Flows to clarify that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities.
  • Clarifications to IFRS 15 'Revenue from Contracts with Customers' amends IFRS 15 Revenue from Contracts with Customers to clarify three aspects of the standard (identifying performance obligations, principal versus agent considerations, and licensing) and to provide some transition relief for modified contracts and completed contracts.
  • Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4) amends IFRS 4 Insurance Contracts to provide two options for entities that issue insurance contracts within the scope of IFRS 4: the so-called overlay approach and the so-called deferral approach. The application of both approaches is optional.

The European Union effective date is the same as the IASB in case of all pronouncements. However, the text adopted for the IFRS 4 amendments includes a "top up" that allows a financial conglomerate to elect that none of its entities operating in the insurance sector apply IFRS 9 in the consolidated financial statements for financial years the commencement of which precedes 1 January 2021 where certain conditions are met.

The Commission Regulations amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council were all published in the Official Journal of the European Union on 9 November 2017.

As a result of the EU's adoption, the EFRAG has updated its endorsement status report.

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