2019年6月刊 Feb 2020 国际/香港财务报告 IFRS/HKFRS News 准则动态准则动态

This month's issues: implications when the • Accounting implications when the Novel Coronavirus Novel Coronavirus outbreak is outbreak is considered to be a non-adjusting event for the financial statements for the considered to be a non-adjusting year ended 31 December 2019 • Classification of Liabilities as event for the financial statements for Current or Non-current (Amendment to IAS 1) the year ended 31 December 2019

Background The spread of the Novel Coronavirus has affected business and economic activities in certain territories including mainland China and Hong Kong. The situation at 31 December 2019 was that a limited number of cases of an unknown virus had been reported. There was no explicit evidence of human to human transmission at that date. In January 2020, the virus spread and it was identified as a new coronavirus.

Management should consider carefully the impact of the Novel Coronavirus on the financial statements. For some businesses, the impacts of the Novel Coronavirus outbreak could be significant. Consideration for the consequential accounting and financial reporting implications include not only the measurement of and liabilities but also the disclosure for events after the date and other disclosures, and the preparation of financial statements on a going concern basis.

This publication addresses only the accounting implications of the Novel Coronavirus for December 2019 year end.

IFRS/HKFRS News | Feb 2020 (A) Events after the balance sheet date

1. Adjusting or non-adjusting events • The latter events changed the conditions • Relevant information available up to the • A critical part of the assessment of the of the Novel Coronavirus outbreak date of authorisation of the financial impact of the Novel Coronavirus significantly and are considered to be the statements for issue should be outbreak is whether the events most significant in the assessment of post considered in the disclosure. Entities occurring after the balance sheet date balance sheet events. should consider disclosing the impact of developments after the reporting date on are adjusting or non-adjusting events. • These events indicate that the spread of the carrying amount of assets and the Novel Coronavirus is a non-adjusting • IAS 10 defines an adjusting event as liabilities if material, for example, the need post balance sheet event. Accordingly, an event that provides evidence of to impair assets or remeasure fair values, the amounts recognised at 31 December conditions that existed at the reporting the breach of a covenant or the impact on 2019 should, in general, not reflect the date. A non-adjusting event is . indicative of conditions that arose after conditions arising subsequent to 31 the reporting date. December 2019 though disclosures are • The extent of disclosure depends on the required. impact of the Novel Coronavirus outbreak • An adjusting event requires adjustment on the entity’s business and industry, as • Having said that, events after the to the financial statements. A non- well as the timing of authorising the reporting date sometimes provide adjusting event requires only financial statements for issue. A more additional information about the disclosures. comprehensive disclosure would be uncertainties that existed at the reporting expected if the Novel Coronavirus • In terms of the Novel Coronavirus, the date. Judgement might be required in outbreak has a greater impact, for following key conditions existed at 31 some situations, for example, the example to the retail and tourism December 2019: bankruptcy of a customer subsequent to industries. - a limited number of cases of an the reporting date might reflect existing unknown virus had been reported; and issues beyond the spread of the Novel • Disclosure of non-adjusting subsequent Coronavirus. events should be consistent with the other - there was no explicit evidence of analysis included in the or human to human transmission 2. Disclosures for non-adjusting other documents containing the financial events • The following key events arose since statements of the entity, e.g. MD&A January 2020 and hence did not • Non-adjusting events do not result in section. provide evidence of conditions existing adjustment to the financial statements • Events after the reporting period do not at 31 December 2019: but do require disclosure if material. alter a liability’s classification but This disclosure should be transparent - significant increase in numbers of additional disclosures on the following and specific to the entity and should infection transmitted human-to-human non-adjusting events may be required: include the nature of the event and an and the virus was identified as a new estimate of its financial effect. If it is not - Refinancing on a long-term basis coronavirus; and possible to make an estimate of an - Rectification of a breach of a long-term - extensive control measures were event’s financial effect, an entity must loan agreement taken by governments and disclose that fact. Broad statements organisations to prevent transmission regarding the general economic - The granting by the lender of a period environment do not provide useful of grace to rectify a breach of a long- information to users of the financial term loan agreement ending at least 12 statements. months after the reporting period.

IFRS/HKFRS News | Feb 2020 PwC | 2 3. Measurement • Similar principles should be applied to • IFRS 9 does not require events that occur, 3.1 other fair value measurements including, or new information that might affect • IFRS 13 requires an entity to determine fair but not limited to, fair values of forecasts, after the reporting date to be value at the measurement date from a market identifiable assets acquired and liabilities reflected in the measurement of ECL. This participant’s perspective in an orderly assumed in a business combination or issue was discussed by The IFRS Transition transaction. IFRS 13 assumes that a market the application of option pricing models Resource Group for Impairment of Financial participant would use all available information, when determining the fair value of share- Instruments in its April 2015 meeting and has a reasonable understanding of the based payments. noted that, given the lack of guidance in and liability and would be knowledgeable about • An accurate determination of the IFRS 9, entities should consider IAS 10 to any information acquired through normal and measurement date (e.g. acquisition date) assess whether events and new information customary due diligence efforts. will be a critical aspect of the fair value after the reporting date are adjusting or non- adjusting events. • If there is a quoted price in an active market (i.e. measurement given the significant Level 1 input) for an asset or a liability, this implications of the Novel Coronavirus • Determining ECL at the reporting period end price should be used as fair value without outbreak on assumptions at different is inherently dependent upon reasonable adjustment. Similarly, prices based on points in time. and supportable estimates and forecasts at observable data, such as an exchange rate, that date, regardless of whether subsequent 3.2 Impairment interest rate or commodity price, at 31 events confirm or rebut those estimates and forecasts. Entities should not apply hindsight December 2019 should not be adjusted for 3.2.1 Expected credit losses (“ECL”) events occurring in 2020. in the measurement of ECL based on new events or information after the reporting date • For those fair values determined through the • For any financial instruments that are in the that relates to non-adjusting events. use of significant unobservable inputs, scope of the IFRS 9 impairment information that becomes known after the requirements (for example loans and • Accordingly, an entity should not use measurement date is only taken into account if receivables, debt instruments not measured hindsight to incorporate subsequent such information could have been reasonably at fair value through profit or loss, contract changes in the conditions of the Novel known under a customary due diligence assets, or lease receivables) an entity Coronavirus outbreak that took place after performed at the measurement date. For should consider whether: 31 December 2019 (as specified in Section example, if hotel property prices decrease in - the credit risk (risk of default) has 1 above) in forecasting future economic February 2020 the fair value at 31 December increased significantly; and conditions. 2019 would not be adjusted as the subsequent - the loss as a result of default has 3.2.2 Value in use (“VIU”) reduction in occupancy rate due to the increased due to a decrease in the fair reduction of flights could not have been value of a non-financial asset pledged as • Only those conditions existed at the balance identified based on available information collateral sheet date should be considered in uncovered through reasonable due diligence determining whether there are impairment efforts at 31 December 2019. • Reasonable and supportable information indicators at the balance sheet date. • The fair value of investment properties should that is available without undue cost or effort • Assumptions used in annual tests of be determined at the balance sheet date. at the reporting date about forecasts of and indefinite-lived intangible Investment properties may experience future economic conditions (including assets and flow forecasts should increased price volatility following the Novel macro-economic information) is considered reflect the potential impact of the Novel Coronavirus outbreak. An entity should both when assessing whether there has Coronavirus outbreak based on the maximise the use of market data, where been a significant increase in credit risk (not reasonable and supportable assumptions available, at the balance sheet date. However, applicable for the simplified approach) and with reference to the conditions existing at the subsequent price volatility due to post- when measuring ECL. 31 December 2019. balance sheet event of Novel Coronavirus • IFRS 9 requires an entity to estimate ECL by spread should not be reflected in the fair value taking into account reasonable and • Adjustments should not be made to measurement at the balance sheet date. supportable information to devise a range of incorporate information that reflects the possible outcomes. IFRS 9 paragraph conditions existing after the balance sheet B.5.5.49 states that information is date. For example, the use of actual reasonable and supportable if it is consumption for the month of January 2020 reasonably available at the reporting date would represent use of hindsight reflecting without undue cost or effort. There should the control measures to prevent the be a well-documented basis for the entity’s transmission occurred after 31 December conclusions and considerations in 2019, which could not have been foreseen formulating its estimates. and therefore should not be included in VIU measurements at 31 December 2019.

IFRS/HKFRS News | Feb 2020 PwC | 3 3.3 Net realisable value (“NRV”) 3.4 Provisions (B) Going concern • Inventories are measured at the lower of cost • IAS 37 requires the amount recognised • IAS 10 states that the financial or NRV. NRV is the estimated selling price in as a provision to be the best estimate of statements should not be prepared on a the ordinary course of business less the expenditure required to settle the present going concern basis where events after estimated cost of completion and the obligation at the end of the reporting the balance sheet date indicate that the estimated costs necessary to make the sale. period. Subsequent information, which going concern assumption is no longer NRV refers to the net amount that an entity does not provide evidence to the appropriate. This guidance applies even expects to realise, which is an entity-specific conditions existing at the estimation date if those events would otherwise be non- value rather than a fair value as viewed by a (i.e. non-adjusting events), should not be adjusting. Entities should therefore market participant. However, both considered in estimating the provisions. consider whether developments measurements should be based on • Provision should not be recognised for subsequent to the reporting date have conditions existing at the balance sheet date. future operating losses arising from the any implications for the going concern • Estimates of net realisable value are Novel Coronavirus outbreak. assumption. determined using the most reliable evidence • In assessing whether the going concern available at the time the estimates were 3.5 Deferred tax assets and liabilities assumption is appropriate, management made regarding the amounts for which the takes into account, as a minimum, all inventories were expected to be realised. • IAS 12 requires the measurement of available information about the twelve- These estimates take into account deferred tax assets and liabilities to month period following the end of the fluctuations in prices or costs directly relating reflect the tax consequences that would reporting period. to events occurring after the balance sheet follow from the manner in which the date only to the extent that such events entity expects, at the end of the reporting • IAS 1 also specifies required disclosures confirm conditions existing at the balance period, to recover or settle the carrying if : sheet date. This analysis will generally follow amount of its assets and liabilities. - the financial statements are not the assessment under IAS 10 regarding • Entities should not apply hindsight in the prepared on a going concern basis; or whether the subsequent events were measurement of deferred tax assets and - management is aware of material adjusting or non-adjusting events. liabilities based on new events or uncertainties related to events or information after the reporting date that • For example, a retailer announced a conditions that may cast significant are non-adjusting events. significant price cut in its clothing and doubt upon the entity’s ability to accessories in early February 2020 after the continue as a going concern. The governments announced the delay of a return 4. Other disclosures events or conditions requiring to work after the Chinese New Year Holiday. • It is expected that disclosures regarding disclosure may arise after the reporting Such a price reduction would not have been significant estimates and judgements period. anticipated by management at 31 December may also need to include explanations in 2019. Accordingly, the price cut is a non- Should PwC clients have any questions relation to the Novel Coronavirus adjusting event and no adjustment is required regarding this article, please contact outbreak, including the nature of to the estimates performed at 31 December the engagement partners. assumptions or other estimation 2019. uncertainty and quantitative disclosures relating to the determination of: - forward-looking factors considered in the measurement of ECL;

- the fair value or recoverable amount of an asset at 31 December 2019; and

- the NRV of inventories at 31 December 2019.

IFRS/HKFRS News | Feb 2020 PwC | 4 Classification of Liabilities as Current or Non-current (Amendment to IAS 1)

What is the issue? What is the impact and for whom? At a glance

The IASB issued a narrow-scope On 23 January 2020, the IASB issued a The amendment changes the guidance for amendment to IAS 1, ‘Presentation narrow-scope amendment to IAS 1 to clarify the classification of liabilities as current or of Financial Statements’, to clarify non-current. It could affect the classification that liabilities are classified as either current that liabilities are classified as of liabilities, particularly for entities that or non-current, depending on the rights that either current or non-current, previously considered management’s exist at the end of the reporting period. The depending on the rights that exist at intentions to determine classification and for amendment requires the following: some liabilities that can be converted into the end of the reporting period. . All entities should reconsider their • Liabilities are classified as non-current if the Classification is unaffected by the existing classification in the light of the expectations of the entity or events entity has a substantive right to defer amendment and determine whether any after the reporting date (for settlement for at least 12 months at the end changes are required. example, the receipt of a waiver or of the reporting period. The amendment no a breach of covenant). The longer refers to unconditional rights, since When does it apply? amendment also clarifies what IAS loans are rarely unconditional (for example, 1 means when it refers to the because the loan might contain covenants). ‘settlement’ of a liability. • The assessment determines whether a right These amendments should be applied for exists, but it does not consider whether the annual periods beginning on or after 1 Entities should reconsider their January 2022, retrospectively in accordance entity will exercise the right. So, existing classification in the light of to IAS 8. Earlier application is permitted. If management’s expectations do not affect the amendment and determine an entity applies those amendments for an classification. earlier period, it should disclose that fact. whether any changes are required. • The right to defer only exists if the entity complies with any relevant conditions at the Where do I get more details? reporting date. A liability is classified as current if a condition is breached at or before the reporting date and a waiver is For more information, refer to the IAS 1 amendment (https://www.ifrs.org/news-and- obtained after the reporting date. A loan is events/2020/01/iasb-clarifies- requirements- classified as non-current if a covenant is for-classifying-debt-as-current-or-non- breached after the reporting date. current/) • ‘Settlement’ is defined as the extinguishment of a liability with cash, other economic resources or an entity’s own equity instruments. There is an exception for convertible instruments that might be converted into equity, but only for those instruments where the conversion option is classified as an equity instrument as a separate component of a compound financial instrument.

IFRS/HKFRS News | Feb 2020 PwC | 5 Contact us For further help, please contact the following locations:

Hong Kong PricewaterhouseCoopers Nanjing 27/F, 333 Keelung Road, Sec. 1 22/F, Prince’s Building Center, Room 12A01, South Tower Taipei, Taiwan 11012 Central, Hong Kong SAR, PRC 10 Zhujiang Xi Road Jinmao Plaza Tel: +886 (2) 2729 6666 Tel: +852 2289 8888 Pearl River New City 201 Zhongyang Road Tianjin Tianhe District Gulou District Beijing 36/F, The Exchange Tower Two Guangzhou 510623, PRC Nanjing 210009, PRC 26/F, Office Tower A 189 Nanjing Road Tel: +86 (20) 3819 2000 Tel: +86 (25) 6608 6288 Beijing Fortune Plaza Heping District 7 Dongsanhuan Haikou Ningbo Tianjin 300051, PRC Zhong Road Room 404, International Room 1203, Tower E Tel: +86 (22) 2318 3333 Chaoyang District Offshore Innovation Ningbo International Wuhan Beijing 100020, PRC Building, Fullsing Town E Zone, Financial Center Unit 04, 3/F, Building No. 6, Tel: +86 (10) 6533 8888 No.32 Binhai Avenue, 268 Min An Road East Red T Fashion Creative Block, 8 Longhua District, Haikou City, Jiangdong District, Shanghai Jiangwang Road, Jianghan Hainan 570105, PRC Ningbo 315040, PRC 11/F, PwC Center, Economic Development Zone, Tel: +86 (898) 6860 8888 Tel: +86 (574) 8187 1788 Link Square 2, Wuhan 430000, PRC 202 Hu Bin Road Hangzhou Tel: +86 (27) 5974 5818 Qingdao Huangpu District Unit 1301, Block A, China 37/F, Tower One Xiamen Shanghai 200021, PRC Resources Building, HNA IMC Center Unit E, 10/F International Plaza, Tel: +86 (21) 2323 8888 1366 Qianjiang Road, 234 Yanan Third Road 8 Lujiang Road Jianggan District Changsha Shinan District Siming District Hangzhou 310020, PRC Unit 1918, 19/F, Tower 2, Qingdao 266071, PRC Xiamen 361001, PRC Tel: +86 (571) 2807 6388 HC International Plaza, Tel: +86 (532) 8089 1888 Tel: +86 (592) 210 7888 109 Furong Road Middle Hefei Shenyang Xi’an Section 1, Unit 4306, Block B, Unit 2717, Office Tower 1, 7/F, D Block Kaifu District, Changsha China Resources Building, Forum 66, 1-1 Qingnian Da Jie, Chang’an Metropolis Center 410008, PRC 111 Qianshan Road, Shenhe District, 88 Nanguan Street Tel: +86 (731) 8633 7000 Shushan District Shenyang 110063, PRC Xi’an 710068, PRC Hefei 230022, PRC Chengdu Tel: +86 (24) 8615 6588 Tel: +86 (29) 8469 2688 Tel: +86 (551) 6488 4688 Unit 04, 26/F, Tower 1, Shenzhen Zhengzhou Raffles City Chengdu Jinan 34/F, Tower A Unit 15A12, Tower 8 No. 3, Section 4, Room 1801 Kingkey100 Kineer Center North South Renmin Road China Overseas Plaza 5016 Shennan East Road 51 Jinshui East Road Wuhou District, 6636 2nd Ring South Road Luohu District Zhengdong New District Chengdu 610041, PRC Shizhong District Shenzhen 518001, PRC Zhengzhou 450046, PRC Tel: +86 (28) 6291 2188 Jinan 250002, PRC Tel: +86 (755) 8261 8888 Tel: +86 (371) 6197 6901 Tel: +86 (531) 6879 4988 Chongqing Singapore Zhuhai Room 1905 19/F, Kunming 7 Straits View, Marina One Unit 2303, Zhuhai Tower Metropolitan Tower Unit 1703, East Tower, Level 12 No.1663 Yinwan Road, 68 Zou Rong Road China Merchants Bank Singapore, 018936 Xiangzhou District Chongqing 400010, PRC Tower,1 Chongren Street, Tel: +[65] 6236 3388 Zhuhai, 519030, PRC Tel: +86 (23) 6393 7888 Wuhua District, Tel: +86 (756) 2721 588 Kunming 650021, PRC Suzhou Dalian Tel: +86 (871) 6553 5988 Unit 02, 42/F West Tower, 8/F, Senmao Building Trirun Fortune Plaza 147 Zhongshan Road Macau 9 Suzhou Avenue West, Xigang District 14G, Finance and IT Center of Suzhou Industrial Park, Dalian 116011, PRC Macau Suzhou 215021, PRC Tel: +86 (411) 8379 1888 Avenida Doutor Mário Soares Tel: +86 (512) 6273 1888 No. 320 Macau SAR, PRC Guangzhou Tel: +853 8799 5111 Taiwan 18/F,

This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.

© 2020 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. IFRS/HKFRSPlease see www.pwc.com/structure News | Feb 2020 for further details. CN-20190319-5-C1