What is the effective date for entities that adopt IFRS 2 subsequent to 1 January 2005

Financial Reporting Standard (“FRS”)

International Accounting Standard/ International Financial Reporting Standard

Modification of International Accounting Standard/ International Financial Reporting Standard for the purposes of FRS

FRS 1
Presentation of Financial Statements

IAS 1
(revised 2003)
Presentation of Financial Statements

(i)	Delete any reference to paragraph 25 of the Framework for the Preparation and Presentation of Financial Statements and substitute a reference to paragraph 21 of the FRS Framework.

(ii)	Delete paragraph 128 of IAS 1 and substitute the following paragraph:

“Withdrawal of FRS 1 (issued in 2003)

128.  This Standard supersedes FRS 1 Presentation of Financial Statements issued in 2003.”.

(iii)

Delete paragraph A2 of the Appendix to IAS 1.

(iv)	Delete “2003” in paragraph A10 of the Appendix to IAS 1 and substitute “2004”.

(v)	Insert, immediately after paragraph 124 of IAS 1, the following paragraphs:

124A.  An entity shall disclose information that enables users of its financial statements to evaluate the entity’s objectives, policies and processes for managing capital.

124B.  To comply with paragraph 124A, the entity discloses the following:

(a)	qualitative information about its objectives, policies and processes for managing capital, including (but not limited to):

(i)	a description of what it manages as capital;

(ii)	when an entity is subject to externally imposed capital requirements, the nature of those requirements and how those requirements are incorporated into the management of capital; and

(iii)

how it is meeting its objectives for managing capital.

(b)	summary quantitative data about what it manages as capital. Some entities regard some financial liabilities (e.g. some forms of subordinated debt) as part of capital. Other entities regard capital as excluding some components of equity (e.g. components arising from cash flow hedges).

(c)	any changes in (a) and (b) from the previous period.

(d)	whether during the period it complied with any externally imposed capital requirements to which it is subject.

(e)	when the entity has not complied with such externally imposed capital requirements, the consequences of such non-compliance.

These disclosures shall be based on the information provided internally to the entity’s key management personnel.

124C.  An entity may manage capital in a number of ways and be subject to a number of different capital requirements. For example, a conglomerate may include entities that undertake insurance activities and banking activities, and those entities may also operate in several jurisdictions. When an aggregate disclosure of capital requirements and how capital is managed would not provide useful information or distorts a financial statement user’s understanding of an entity’s capital resources, the entity shall disclose separate information for each capital requirement to which the entity is subject.”;

IAS 2
(revised 2003)
Inventories

(i)	Delete the words “revised in 1993” in paragraph 41 of IAS 2 and substitute the words “issued in 2003”.

(ii)	Delete “2003” in paragraph A1 of IAS 2 and substitute “2004”.

(iii)

Delete paragraph A3 of the Appendix to IAS 2.

FRS 7
Cash Flow Statements

IAS 7
(revised 1992)
Cash Flow Statements

(i)	Delete paragraph 2 of IAS 7.

(ii)	Delete paragraph 53 of IAS 7 and substitute the following paragraph:

“53.  FRS 7, Cash Flow Statements, is operative for financial statements covering periods beginning on or after 1st January 1995.”.

FRS 8
Accounting Policies,
Changes in Accounting
Estimates and Errors

IAS 8
(revised 2003)
Accounting Policies, Changes in Accounting Estimates and Errors

(i)	Delete any reference to paragraph 25 of the Framework for the Preparation and Presentation of Financial Statements and substitute a reference to paragraph 21 of the FRS Framework.

(ii)	Delete the words “the IASB has concluded” in paragraph 8 of IAS 8.

(iii)

Delete the words “revised in 1993” in paragraph 55 of IAS 8 and substitute the words “issued in 2003”.

(iv)	Delete paragraph A9 of the Appendix to IAS 8 and substitute the following paragraph:

“A9.  In FRS 35 Discontinuing Operations, paragraphs 41 and 42 are deleted.”.

(v)	Delete paragraph A10 of the Appendix to IAS 8 and substitute the following paragraph:

“A10.  In FRS 36 Impairment of Assets, paragraphs 120 and 121 are deleted.”.

(vi)	Delete paragraph A13 of the Appendix to IAS 8 and substitute the following paragraph:

“A13.  In INT FRS 12 Consolidation — Special Purpose Entities, the effective date paragraph is amended to read as follows:

Effective Date: INT FRS 12 comes into effect on 1st February 2003. Changes in accounting policies shall be accounted for in accordance with FRS 8.”.

(vii)

Delete paragraph A14 of the Appendix to IAS 8 and substitute the following paragraph:

“A14.  In INT FRS 13 Jointly Controlled Entities — Non-Monetary Contributions by Venturers, the effective date paragraph is amended to read as follows:

Effective Date: INT FRS 13 comes into effect on 1st February 2003. Changes in accounting policies shall be accounted for in accordance with FRS 8.”.

(viii)

Delete paragraph A15 of the Appendix to IAS 8 and substitute the following paragraph:

“A15.  In INT FRS 21 Income Taxes — Recovery of Revalued Non-Depreciable Assets, the effective date paragraph is amended to read as follows:

Effective Date: INT FRS 21 comes into effect on 1st February 2003. Changes in accounting policies shall be accounted for in accordance with FRS 8.”.

(ix)	Delete “2003” in paragraph A16 of the Appendix to IAS 8 and substitute “2004”.

(x)	Delete paragraph A17 of the Appendix to IAS 8 and substitute the following paragraph:

“A17.  In INT FRS 25 Income Taxes —Changes in the Tax Status of an Entity or its Shareholders, the effective date paragraph is amended to read as follows:

Effective Date: INT FRS 25 comes into effect on 1st February 2003. Changes in accounting policies shall be accounted for in accordance with FRS 8.”.

(xi)	Delete paragraph A18 of the Appendix to IAS 8 and substitute the following paragraph:

“A18.  In INT FRS 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease, the effective date paragraph is amended to read as follows:

Effective Date: INT FRS 27 comes into effect on 1st February 2003. Changes in accounting policies shall be accounted for in accordance with FRS 8.”.

(xii)

Delete paragraph A19 of the Appendix to IAS 8 and substitute the following paragraph:

“A19.  In INT FRS 31 Revenue — Barter Transactions Involving Advertising Services, the effective date paragraph is amended to read as follows:

Effective Date: INT FRS 31 comes into effect on 1st February 2003. Changes in accounting policies shall be accounted for in accordance with FRS 8.”.

(xiii)

Delete the words “and the Basis for Conclusions” in paragraphs A21 and A22 of the Appendix to IAS 8.

(xiv)

Delete the words “or is accompanied by a Basis for Conclusions” in the accompanying footnote to paragraphs A21 and A22.

(xv)	Delete the words “but retain the IASC format of the Standard when it was adopted by the IASB” in paragraph A22 of the Appendix to IAS 8.

FRS 10
Events after the Balance Sheet Date

IAS 10
(revised 2003)
Events after the Balance Sheet Date

(i)	Delete paragraph 24 of IAS 10 and substitute the following paragraph:

“Withdrawal of FRS 10 (issued in 2003)

24.  This Standard supersedes FRS 10 Events After the Balance Sheet Date (issued in 2003).".

(ii)	Delete paragraph A3 of the Appendix to IAS 10 and substitute the following paragraph:

“A3.  In FRS 37 Provisions, Contingent Liabilities and Contingent Assets, paragraph 75 is amended to read as follows:

75.  A management or board decision to restructure taken before the balance sheet date does not give rise to a constructive obligation at the balance sheet date unless the entity has, before the balance sheet date:

(a)	started to implement the restructuring plan; or

(b)	announced the main features of the restructuring plan to those affected by it in a sufficiently specific manner to raise a valid expectation in them that the entity will carry out the restructuring.

If an entity starts to implement a restructuring plan, or announces its main features to those affected, only after the balance sheet date, disclosure is required under FRS 10 Events after the Balance Sheet Date, if the restructuring is material and non-disclosure could influence the economic decisions of users taken on the basis of the financial statements.”.

FRS 11
Construction Contracts

IAS 11
(revised 1993)
Construction Contracts

(i)	Delete paragraph 2 of IAS 11.

(ii)	Delete paragraph 46 of IAS 11 and substitute the following paragraph:

“46.  FRS 11, Construction Contracts, is operative for financial statements covering periods beginning on or after 1st January 1997.”.

IAS 12
(revised 2000)
Income Taxes

Delete paragraphs 89, 90 and 91 of IAS 12 and substitute the following paragraph:

“89.  FRS 12, Income Taxes, is operative for financial statements covering periods beginning on or after 1st April 2001.”.

IAS 14
(revised 1997)
Segment Reporting

Delete paragraph 84 of IAS 14 and substitute the following paragraph:

“84.  FRS 14, Segment Reporting, is operative for financial statements covering periods beginning on or after 1st January 2000.”.

FRS 16
Property, Plant and Equipment

Property, Plant and Equipment

(i)	Insert, immediately after paragraph 81 of IAS 16, the following paragraph:

“For an enterprise which had:

(a)	revalued its property, plant and equipment before 1st January 1984 (in accordance with the prevailing accounting standard at that time); or

(b)	performed any one-off revaluation on its property, plant and equipment between 1st January 1984 and 31st December 1996 (both dates inclusive), there will be no need for the enterprise to revalue its assets in accordance with paragraph 31 of this Standard.

In this paragraph, “one-off revaluation” means any instance where an item of property, plant and equipment was revalued only once between 1st January 1984 and 31st December 1996 (both dates inclusive). Where an item of property, plant and equipment has been revalued more than once between 1st January 1984 and 31st December 1996 (both dates inclusive), the company should explain why the particular item of property, plant and equipment should be exempted, and the auditor’s concurrence of the explanation is required.”.

(ii)	Delete the words “revised in 1998” in paragraph 82 of IAS 16 and substitute the words “issued in 2003”.

(iii)

Delete the following words in paragraph A1 of the Appendix to IAS 16:

“In the Basis for Conclusions, paragraph BC45 is amended to read as follows:

BC45 Under the revaluation model in IAS 16 Property, Plant and Equipment, if an entity revalues an asset, it must revalue all assets in that class. This restriction prevents selective revaluation of only those assets whose revaluation would lead to a particular result. Some suggested a similar restriction on the use of fair value as deemed cost. However, IAS 36 Impairment of Assets requires an impairment test if there is any indication that an asset is impaired.

Thus, if an entity uses fair value as deemed cost for assets whose fair value is above cost, it cannot ignore indications that the recoverable amount of other assets may have fallen below their carrying amount. Therefore, the IFRS does not restrict the use of fair value as deemed cost to entire classes of asset.”.

(iv)	Delete the following words in paragraph A4 of the Appendix to IAS 16:

“In the IASC Basis for Conclusions, in paragraph B14(b)(ii) a footnote is inserted after “incurred” at the end of the penultimate sentence, as follows:

*IAS 16 Property, Plant and Equipment as revised by the IASB in 2003 requires all subsequent costs to be covered by its general recognition principle and eliminated the requirement to reference the originally assessed standard of performance. IAS 36 was amended as a consequence of the change to IAS 16.”.

(v)	Delete the following words in paragraph A6 of the Appendix to IAS 16:

Paragraph 7 is deleted."; and

“IAS 38/IAS 22 Basis for Conclusions In paragraphs 31 and 35, a footnote is inserted after “dissimilar asset”, as follows:

*IAS 16 Property, Plant and Equipment as revised by the IASB in 2003 requires an entity to measure an item of property, plant and equipment acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets, at fair value unless the exchange transaction lacks commercial substance.

Previously, an entity measured such an acquired asset at fair value unless the exchanged assets were similar.

The IASB concluded that the same measurement criteria should apply to intangible assets acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets.”.

(vi)	Delete paragraph A11 of the Appendix to IAS 16 and substitute the following paragraph:

“A11.  In December 2002 the CCDG published an Exposure Draft of Proposed Amendments to FRS 36 Impairment of Assets and FRS 38 Intangible Assets. The proposed amendments to FRS 36 and FRS 38 reflect changes related to the decisions in the Business Combinations project. Because that project is still under way, those proposed changes are not reflected in the amendments to FRS 36 and FRS 38 included in this appendix.”.

(vii)

Delete paragraph A12 of the Appendix to IAS 16 and substitute the following paragraph:

“A12.  In August 2003 the CCDG published ED FRS Disposal of Non-current Assets and Presentation of Discontinued Operations in which it proposed amendments to FRS 38 and to FRS 40 Investment Property. Those proposed changes are not reflected in the amendments to FRS 38 and FRS 40 included in this appendix.”.

(viii)

Delete “2003” in paragraphs A7, A9 and A10 of the Appendix to IAS 16 and substitute in each case “2004”.

IAS 17
(revised 2003)
Leases

(i)	Delete the words immediately after the first sentence in paragraph 14 of IAS 17.

(ii)	Delete the words immediately after the first sentence in paragraph 15 of IAS 17.

(iii)

Delete the words “revised 1997” in paragraph 68 of IAS 17 and substitute the words “issued in 2003”.

(iv)	Delete paragraph 70 of IAS 17 and substitute the following paragraph:

“Withdrawal of FRS 17 (ISSUED IN 2003)

70.  This Standard supersedes FRS 17 Leases (issued in 2003).”.

(v)	Delete references to paragraphs 22 and 35 of the Framework and substitute references to paragraphs 18 and 31 of the FRS Framework, respectively.

(vi)	Delete “2003” in paragraph A1 of the Appendix to IAS 17 and substitute “2004”.

IAS 18
(revised 1993)
Revenue

(i)	Delete paragraph 2 of IAS 18.

(ii)	Delete paragraph 37 of IAS 18 and substitute the following paragraph:

“37.  FRS 18, Revenue, is operative for financial statements covering periods beginning on or after 1st January 1997.”.

(i)	Delete paragraphs 157 and 158 of IAS 19 and substitute the following paragraph:

“157.  FRS 19, Employee Benefits, is operative for financial statements covering periods beginning on or after 1st October 2000, except as specified in paragraph 159 of this Standard.”.

(ii)	Delete paragraphs 159 and 159A of IAS 19 and substitute the following paragraphs:

“159.  The following become operative for annual financial statements* covering periods beginning on or after 1st April 2001:

(a)	the revised definition of plan assets in paragraph 7 of this Standard and the related definitions of assets held by a long-term employee benefit fund and qualifying insurance policy; and

(b)	the recognition and measurement requirements for reimbursements in paragraphs 104A, 128 and 129 of this Standard and related disclosures in paragraph 120A(f)(iv), (g)(iv), (m) and (n)(iii) of this Standard.

159A.  The amendment in paragraph 58A of this Standard becomes operative for annual financial statements* covering periods ending on or after 1st October 2002. Earlier adoption is encouraged. If earlier adoption affects the financial statements, an enterprise should disclose that fact.

*Paragraphs 159 and 159A of this Standard refer to “annual financial statements” in line with the more explicit language for writing effective dates adopted in 1998. Paragraph 157 of this Standard refers to “financial statements”..

(iii)

Delete “2003” wherever it appears in paragraph 93B of, and paragraphs A1 and A2 of Appendix F to, IAS 19 and substitute “2004”.

FRS 20
Accounting for Government Grants and Disclosure of Government Assistance

IAS 20 (1983)
(reformatted 1994)
Accounting for Government Grants and Disclosure of Government Assistance

Delete paragraph 41 of IAS 20 and substitute the following paragraph:

“41.  FRS 20, Accounting for Government Grants and Disclosure of Government Assistance, is operative for financial statements covering periods beginning on or after 1st January 1985.”.

FRS 21
The Effects of Changes in Foreign Exchange Rates

IAS 21
(revised 2003)
The Effects of Changes in Foreign Exchange Rates

(i)	Delete the words “revised in 1993” in paragraph 61 of IAS 21 and substitute the words “issued in 2003”.

(ii)	Delete paragraph A5 of the Appendix to IAS 21.

(iii)

Delete “2003” in paragraphs A3 and A8 of the Appendix to IAS 21 and substitute in each case “2004”.

(iv)	Delete the words “revised 1999” in paragraph A8 of the Appendix to IAS 21 and substitute the words “issued in 2003”.

(v)	Delete the words “1 June 1998” in paragraph A8 of the Appendix to IAS 21 and substitute the words “1 February 2003”.

(vi)	Delete the following words in paragraph A2 of the Appendix to IAS 21:

“Paragraph 1 of the Introduction (now numbered paragraph IN2) is amended to read as follows:

Furthermore, there are some temporary differences which are not timing differences, for example those temporary differences that arise when:

(a)	the non-monetary assets and liabilities of an entity are measured in its functional currency but the taxable profit or tax loss (and, hence, the tax base of its non-monetary assets and liabilities) is determined in a different currency);

(viii)

Insert, immediately after paragraph 15 of IAS 21, the following paragraph:

“  15A.  The entity that has a monetary item receivable from or payable to a foreign operation described in paragraph 15 may be any subsidiary of the group. For example, an entity has two subsidiaries, A and B. Subsidiary B is a foreign operation. Subsidiary A grants a loan to Subsidiary B. Subsidiary A’s loan receivable from Subsidiary B would be part of the entity’s net investment in Subsidiary B if settlement of the loan is neither planned nor likely to occur in the foreseeable future. This would also be true if Subsidiary A were itself a foreign operation.”.

(viii)

Delete paragraph 33 of IAS 21 and substitute the following paragraph:

“33.  When a monetary item forms part of a reporting entity’s net investment in a foreign operation and is denominated in the functional currency of the reporting entity, an exchange difference arises in the foreign operation’s individual financial statements in accordance with paragraph 28. If such an item is denominated in the functional currency of the foreign operation, an exchange difference arises in the reporting entity’s separate financial statements in accordance with paragraph 28. If such an item is denominated in a currency other than the functional currency of either the reporting entity or the foreign operation, an exchange difference arises in the reporting entity’s separate financial statements and in the foreign operation’s individual financial statements in accordance with paragraph 28. Such exchange differences are reclassified to the separate component of equity in the financial statements that include the foreign operation and the reporting entity (i.e. financial statements in which the foreign operation is consolidated, proportionately consolidated or accounted for using the equity method).”.

(ix)	Insert, immediately after paragraph 58 of IAS 21, the following paragraph:

“Net Investment in a Foreign Operation

58A.  (Amendment to FRS 21), issued in 2006, added paragraph 15A and amended paragraph 33. An entity shall apply those amendments for annual periods beginning on or after 1 January 2006. Earlier application is encouraged.”.

IAS 23
(revised 1993)
Borrowing Costs

Delete paragraphs 1 to 31 of IAS 23 and substitute the following paragraphs:

1. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset formed part of the cost of that asset. Other borrowing costs are recognised as an expense.

2. An entity shall apply this Standard in accounting for borrowing costs.

3.	The Standard does not deal with the actual or imputed cost of equity, including preferred capital not classified as a liability.

4.	An entity is not required to apply the Standard to borrowing costs directly attributable to the acquisition, construction or production of:

(a)	a qualifying asset measured at fair value, for example a biological asset; or

(b)	inventories that are manufactured, or otherwise produced, in large quantities on a repetitive basis.

5.	This Standard uses the following terms with the meanings specified:

Borrowing costsare interest and other costs that an entity incurs in connection with the borrowing of funds.

A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale.

6.	Borrowing Costs may include:

(a)	interest on bank overdrafts and short-term and long-term borrowings;

(b)	amortisation of discounts or premiums relating to borrowings;

(c)	amortisation of ancillary costs incurred in connection with the arrangement of borrowings;

(d)	finance charges in respect of finance leases recognised in accordance with FRS 17 Leases; and

(e)	exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

7.	Depending on the circumstances, any of the following may be qualifying assets:

(c)	power generation facilities

(e)	investment properties.

Financial assets, and inventories that are manufactured, or otherwise produced, over a short period of time, are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

8.	An entity shall capitalise borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. An entity shall recognise other borrowing costs as an expense in the period in which it incurs them.

9.

Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are included in the cost of that asset. Such borrowing costs are capitalised as part of the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. When an entity applies FRS 29 Financial Reporting in Hyperinflationary Economies, it recognises as an expense the part of borrowing costs that compensates for inflation during the same period in accordance with paragraph 21 of that Standard.

Borrowing costs eligible for capitalisation

10.

The borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are those borrowing costs that would have been avoided if the expenditure on the qualifying asset had not been made. When an entity borrows funds specifically for the purpose of obtaining a particular qualifying asset, the borrowing costs that directly relate to that qualifying asset can be readily identified.

11.

It may be difficult to identify a direct relationship between particular borrowings and a qualifying asset and to determine the borrowings that could otherwise have been avoided. Such a difficulty occurs, for example, when the financing activity of an entity is co-ordinated centrally. Difficulties also arise when a group uses a range of debt instruments to borrow funds at varying rates of interest, and lends those funds on various bases to other entities in the group. Other complications arise through the use of loans denominated in or linked to foreign currencies, when the group operates in highly inflationary economies, and from fluctuations in exchange rates. As a result, the determination of the amount of borrowing costs that are directly attributable to the acquisition of a qualifying asset is difficult and the exercise of judgement is required.

12.

To the extent that an entity borrows funds specifically for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalisation as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings.

13.

The financing arrangements for a qualifying asset may result in an entity obtaining borrowed funds and incurring associated borrowing costs before some or all of the funds are used for expenditures on the qualifying asset. In such circumstances, the funds are often temporarily invested pending their expenditure on the qualifying asset. In determining the amount of borrowing costs eligible for capitalisation during a period, any investment income earned on such funds is deducted from the borrowing costs incurred.

14.

To the extent that an entity borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the entity shall determine the amount of borrowing costs eligible for capitalisation by applying a capitalisation rate to the expenditures on that asset. The capitalisation rate shall be the weighted average of the borrowing costs applicable to the borrowings of the entity that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that an entity capitalises during a period shall not exceed the amount of borrowing costs it incurred during that period.

15.

In some circumstances, it is appropriate to include all borrowings of the parent and its subsidiaries when computing a weighted average of the borrowing costs; in other circumstances, it is appropriate for each subsidiary to use a weighted average of the borrowing costs applicable to its own borrowings.

Excess of the carrying amount of the qualifying asset over recoverable amount

16.

When the carrying amount or the expected ultimate cost of the qualifying asset exceeds its recoverable amount or net realisable value, the carrying amount is written down or written off in accordance with the requirements of other Standards. In certain circumstances, the amount of the write-down or write-off is written back in accordance with those other Standards.

Commencement of capitalisation

17.	An entity shall begin capitalising borrowing costs as part of the cost of a qualifying asset on the commencement date. The commencement date for capitalisation is the date when the entity first meets all of the following conditions:

(a)it incurs expenditures for the asset;

(b)it incurs borrowing costs; and

(c)it undertakes activities that are necessary to prepare the asset for its intended use or sale.

18.

Expenditures on a qualifying asset include only those expenditures that have resulted in payments of cash, transfers of other assets or the assumption of interest-bearing liabilities. Expenditures are reduced by any progress payments received and grants received in connection with the asset (see FRS 20 Accounting for Government Grants and Disclosure of Government Assistance). The average carrying amount of the asset during a period, including borrowing costs previously capitalised, is normally a reasonable approximation of the expenditures to which the capitalisation rate is applied in that period.

19.

The activities necessary to prepare the asset for its intended use or sale encompass more than the physical construction of the asset. They include technical and administrative work prior to the commencement of physical construction, such as the activities associated with obtaining permits prior to the commencement of the physical construction. However, such activities exclude the holding of an asset when no production or development that changes the asset’s condition is taking place. For example, borrowing costs incurred while land is under development are capitalised during the period in which activities related to the development are being undertaken. However, borrowing costs incurred while land acquired for building purposes is held without any associated development activity do not qualify for capitalisation.

Suspension of capitalisation

20.	An entity shall suspend capitalisation of borrowing costs during extended periods in which it suspends active development of a qualifying asset.

21.

An entity may incur borrowing costs during an extended period in which it suspends the activities necessary to prepare an asset for its intended use or sale. Such costs are costs of holding partially completed assets and do not qualify for capitalisation. However, an entity does not normally suspend capitalising borrowing costs during a period when it carries out substantial technical and administrative work. An entity also does not suspend capitalising borrowing costs when a temporary delay is a necessary part of the process of getting an asset ready for its intended use or sale. For example, capitalisation continues during the extended period that high water levels delay construction of a bridge, if such high water levels are common during the construction period in the geographical region involved.

Cessation of capitalisation

22.	An entity shall cease capitalising borrowing costs when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.

23.

An asset is normally ready for its intended use or sale when the physical construction of the asset is complete even though routine administrative work might still continue. If minor modifications, such as the decoration of a property to the purchaser’s or user’s specification, are all that are outstanding, this indicates that substantially all the activities are complete.

24.

When an entity completes the construction of a qualifying asset in parts and each part is capable of being used while construction continues on other parts, the entity shall cease capitalising borrowing costs when it completes substantially all the activities necessary to prepare that part for its intended use or sale.

25.

A business park comprising several buildings, each of which can be used individually, is an example of a qualifying asset for which each part is capable of being usable while construction continues on other parts. An example of a qualifying asset that needs to be complete before any part can be used is an industrial plant involving several processes which are carried out in sequence at different parts of the plant within the same site, such as a steel mill.

26.	An entity shall disclose:

(a)the amount of borrowing costs capitalised during the period; and

(b)the capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation

27.	When application of this Standard constitutes a change in accounting policy, an entity shall apply the Standard to borrowing costs relating to qualifying assets for which the commencement date for capitalisation is on or after the effective date.

28.	However, an entity may designate any date before the effective date and apply the Standard to borrowing costs relating to all qualifying assets for which the commencement date for capitalisation is on or after that date.

29.	An entity shall apply the Standard for annual periods beginning on or after 1 January 2009. Earlier application is permitted. If an entity applies the Standard from a date before 1 January 2009, it shall disclose that fact.

Withdrawal of IAS 23 (revised 1993)

30.	This Standard supersedes FRS 23 Borrowing Costs revised in 2004.

FRS 24
Related Party Disclosures

IAS 24
(revised 2003)
Related Party Disclosures

(i)	Delete the Appendix to IAS 24.

(ii)	Delete paragraph 24 of IAS 24 and substitute the following paragraph:

“Withdrawal of FRS 24 (issued in 2003)

24.  This Standard supersedes FRS 24 Related Party Disclosures (issued in 2003).”.

FRS 26
Accounting and Reporting by Retirement Benefit Plans

IAS 26 (1987) (reformatted 1994)
Accounting and Reporting by Retirement Benefit Plans

(There is no modification on IAS 26.)

FRS 27
Consolidated and Separate Financial Statements

IAS 27
(revised 2003)
Consolidated and Separate Financial Statements

(i)	Delete the following words in paragraphs 10(d) and 41 of IAS 27:

“that comply with International Financial Reporting Standards”.

(ii)	Delete the words “revised in 2000” in paragraph 44 of IAS 27 and substitute the words “issued in 2003”.

(iii)

Delete any reference to paragraph 35 of the Framework and substitute a reference to paragraph 31 of the FRS Framework.

(iv)	Delete the words “revised 1997” in paragraph A3 of the Appendix to IAS 27 and substitute the words “issued in 2003”.

(v)	Delete “2003” in paragraphs A2 and A3 of the Appendix to IAS 27 and substitute in each case “2004”.

FRS 28
Investments in Associates

IAS 28
(revised 2003)
Investments in Associates

(i)	Delete the following words in paragraph 13(c)(iv) of IAS 28:

“that comply with International Financial Reporting Standards”.

(ii)	Delete the words “revised in 2000” in paragraph 42 of IAS 28 and substitute the words “issued in 2003”.

FRS 29
Financial Reporting in Hyperinflationary Economies

IAS 29 (1989) (reformatted 1994)
Financial Reporting in Hyperinflationary Economies

Delete paragraph 41 of IAS 29 and substitute the following paragraph:

“41.  FRS 29, Financial Reporting in Hyperinflationary Economies, is operative for financial statements covering periods beginning on or after 1st April 2001.”.

FRS 31
Interests in Joint Ventures

IAS 31
(revised 2003)
Interests in Joint Ventures

(i)	Delete the following words in paragraph 2(c)(iv) of IAS 31:

“that comply with International Financial Reporting Standards”.

(ii)	Delete paragraph 59 of IAS 31 and substitute the following paragraph:

“Withdrawal of FRS 31 (issued in 2003)

59.  This Standard supersedes FRS 31 Financial Reporting of Interests in Joint Ventures (issued in 2003).”.

(iii)

Delete “2003” in paragraph A1 of the Appendix to IAS 31 and substitute “2004”.

FRS 32
Financial Instruments: Disclosure and Presentation

IAS 32
(March 2004)
Financial Instruments: Disclosure and Presentation

(i)	Delete paragraph 96 of IAS 32 and substitute the following paragraph:

“96.  An entity shall apply this Standard for annual periods beginning on or after 1 January 2005. Earlier application is permitted. An entity shall not apply this Standard for annual periods before 1 January 2005 unless it also applies FRS 39 (issued in 2004), including the amendments issued in September 2004. If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact.”.

(ii)	Delete the words “revised in 2000” in paragraph 98 of IAS 32 and substitute the words “issued in 2003”.

(iii)

Delete paragraph 100 of IAS 32.

(iv)	Delete sub-paragraph (d) of paragraph 4 in IAS 32 and substitute the following sub-paragraph:

“(d)

insurance contracts as defined in FRS 104 Insurance Contracts. However, this Standard applies to derivatives that are embedded in insurance contracts if FRS 39 requires the entity to account for them separately. Moreover, an issuer shall apply this Standard to financial guarantee contracts if the issuer applies FRS 39 in recognising and measuring the contracts, but shall apply FRS 104 if the issuer elects, in accordance with paragraph 4(d) of FRS 104, to apply FRS 104 in recognising and measuring them.”.

(v)	Insert, immediately after the words “financial asset or financial liability at fair value through profit or loss” in paragraph 12 of IAS 32, the following words:

“•	financial guarantee contract”.

(vi)	Delete sub-paragraphs (b) and (c) of paragraph 66 in IAS 32, and substitute the following sub-paragraphs:

“(b)	the basis of measurement applied to financial assets and financial liabilities on initial recognition and subsequently;

(c)	the basis on which income and expenses arising from financial assets and financial liabilities are recognised and measured; and

(d)	for financial assets or financial liabilities designated as at fair value through profit or loss:

(i)	the criteria for so designating such financial assets or financial liabilities on initial recognition.

(ii)

how the entity has satisfied the conditions in paragraph 9, 11A or 12 of FRS 39 for such designation. For instruments designated in accordance with paragraph 9(b)(i) of FRS 39, that disclosure includes a narrative description of the circumstances underlying the measurement or recognition inconsistency that would otherwise arise. For instruments designated in accordance with paragraph 9(b)(ii) of FRS 39, that disclosure includes a narrative description of how designation as at fair value through profit or loss is consistent with the entity’s documented risk management or investment strategy.

(iii)

the nature of the financial assets or financial liabilities the entity has designated as at fair value through profit or loss.”.

(vii)

Re-number sub-paragraphs (g) to (j) of paragraph 94 in IAS 32 as sub-paragraphs (j) to (m), delete sub-paragraphs (e) and (f) of paragraph 94 in IAS 32 and substitute the following sub-paragraphs:

“(e)	An entity shall disclose the carrying amounts of:

(i)	financial assets that are classified as held for trading;

(ii)	financial liabilities that are classified as held for trading;

(iii)

financial assets that, upon initial recognition, were designated by the entity as financial assets at fair value through profit or loss (i.e. those that are not financial assets classified as held for trading);

(iv)	financial liabilities that, upon initial recognition, were designated by the entity as financial liabilities at fair value through profit or loss (i.e. those that are not financial liabilities classified as held for trading).

(f)	An entity shall disclose separately net gains or net losses on financial assets or financial liabilities designated by the entity as at fair value through profit or loss.

(g)	If the entity has designated a loan or receivable (or group of loans or receivables) as at fair value through profit or loss, it shall disclose:

(i)	the maximum exposure to credit risk (see paragraph 76 (a)) at the reporting date of the loan or receivable (or group of loans or receivables),

(ii)	the amount by which any related credit derivative or similar instrument mitigates that maximum exposure to credit risk,

(iii)

the amount of change during the period and cumulatively in the fair value of the loan or receivable (or group of loans or receivables) that is attributable to changes in credit risk determined either as the amount of change in its fair value that is not attributable to changes in market conditions that give rise to market risk; or using an alternative method that more faithfully represents the amount of change in its fair value that is attributable to changes in credit risk,

(iv)	the amount of the change in the fair value of any related credit derivative or similar instrument that has occurred during the period and cumulatively since the loan or receivable was designated.

(h)	If the entity has designated a financial liability as at fair value through profit or loss, it shall disclose:

(i)

the amount of change during the period and cumulatively in the fair value of the financial liability that is attributable to changes in credit risk determined either as the amount of change in its fair value that is not attributable to changes in market conditions that give rise to market risk (see paragraph AG40); or using an alternative method that more faithfully represents the amount of change in its fair value that is attributable to changes in credit risk.

(ii)	the difference between the carrying amount of the financial liability and the amount the entity would be contractually required to pay at maturity to the holder of the obligation.

(i)	The entity shall disclose:

(i)	the methods used to comply with the requirement in (g)(iii) and (h)(i).

(ii)

if the entity considers that the disclosure it has given to comply with the requirements in (g)(iii) or (h)(i) does not faithfully represent the change in the fair value of the financial asset or financial liability attributable to changes in credit risk, the reasons for reaching this conclusion and the factors the entity believes to be relevant.”.

(viii)

Delete paragraph AG40 in IAS 32 and substitute the following paragraph:

“AG40. If an entity designates a financial liability or a loan or receivable (or group of loans or receivables) as at fair value through profit or loss, it is required to disclose the amount of change in the fair value of the financial instrument that is attributable to changes in credit risk. Unless an alternative method more faithfully represents this amount, the entity is required to determine this amount as the amount of change in the fair value of the financial instrument that is not attributable to changes in market conditions that give rise to market risk. Changes in market conditions that give rise to market risk include changes in a benchmark interest rate, commodity price, foreign exchange rate or index of prices or rates. For contracts that include a unit-linking feature, changes in market conditions include changes in the performance of an internal or external investment fund. If the only relevant changes in market conditions for a financial liability are changes in an observed (benchmark) interest rate, this amount can be estimated as follows:

(a)

First, the entity computes the liability’s internal rate of return at the start of the period using the observed market price of the liability and the liability’s contractual cash flows at the start of the period. It deducts from this rate of return the observed (benchmark) interest rate at the start of the period, to arrive at an instrument-specific component of the internal rate of return.

(b)

Next, the entity calculates the present value of the cash flows associated with the liability using the liability’s contractual cash flows at the start of the period and a discount rate equal to the sum of the observed (benchmark) interest rate at the end of the period and the instrument-specific component of the internal rate of return at the start of the period as determined in (a).

(c)	The amount determined in (b) is then adjusted for any cash paid or received on the liability during the period and increased to reflect the increase in fair value that arises because the contractual cash flows are one period closer to their due date.

(d)	The difference between the observed market price of the liability at the end of the period and the amount determined in (c) is the change in fair value that is not attributable to changes in the observed (benchmark) interest rate. This is the amount to be disclosed.

“The above example assumes that changes in fair value that do not arise from changes in the instrument’s credit risk or from changes in interest rates are not significant. If, in the above example, the instrument contained an embedded derivative, the change in fair value of the embedded derivative would be excluded in determining the amount in paragraph 94(h)(i).”.

FRS 33
Earnings per Share

IAS 33
(revised 2003)
Earnings per Share

(i)	Delete “2003” in paragraph 34 of IAS 33 and substitute “2004”.

(ii)	Delete “1997” in paragraph 75 of IAS 33 and substitute “2003”.

FRS 34
Interim Financial Reporting

IAS 34 (1998)
Interim Financial Reporting

Delete paragraph 46 of IAS 34 and substitute the following paragraph:

“46.  FRS 34, Interim Financial Reporting, is operative for financial statements covering periods beginning on or after 1st October 2001.”.

FRS 36
Impairment of Assets

IAS 36
(March 2004)
Impairment of Assets

(i)	Delete any reference to “31 March 2004” and substitute “1 July 2004”.

(ii)	Delete paragraph 139 of IAS 36 and substitute the following paragraph:

“139.  Otherwise, an entity shall apply this Standard to goodwill and intangible assets acquired in business combinations and to all other assets prospectively for annual periods beginning on or after 1 July 2004.”.

(iii)

Delete paragraph 141 of IAS 36 and substitute the following paragraph:

“Withdrawal of FRS 36 (issued 2003)

141.  This Standard supersedes FRS 36 Impairment of Assets (issued in 2003).”.

(iv)	Delete the paragraph immediately after the heading “Amendment to IAS 16” in Appendix B to IAS 36 and substitute the following paragraph:

“The amendment in this appendix shall be applied when an entity applies FRS 16 Property, Plant and Equipment (as revised in 2004). It is superseded when FRS 36 Impairment of Assets (as revised in 2004) becomes effective. This appendix replaces the consequential amendments made by FRS 16 (as revised in 2004) to FRS 36 Impairment of Assets (issued in 2003). FRS 36 (as revised in 2004) incorporates the requirements of the paragraphs in this appendix. Consequently, the amendments from FRS 16 (as revised in 2004) are not necessary once an entity is subject to FRS 36 (as revised in 2004). Accordingly, this appendix is applicable only to entities that elect to apply FRS 16 (as revised in 2004) before its effective date.”.

(v)	Delete reference to “1998” in paragraph B1 of Appendix B to IAS 36 and substitute “2003”.

(vi)	Delete the following words in paragraph B1 of Appendix B to IAS 36:

“In the IASC Basis for Conclusions, in paragraph B14(b)(ii) a footnote is inserted after “incurred” at the end of the penultimate sentence, as follows:

*IAS 16 Property, Plant and Equipment as revised by the IASB in 2003 requires all subsequent costs to be covered by its general recognition principle and eliminated the requirement to reference the originally assessed standard of performance. IAS 36 was amended as a consequence of the change to IAS 16.”.

FRS 37
Provisions, Contingent Liabilities and Contingent Assets

IAS 37 (1998)
Provisions, Contingent Liabilities and Contingent Assets

Delete paragraphs 95 and 96 of IAS 37 and substitute the following paragraph:

“95.  FRS 37, Provisions, Contingent Liabilities and Contingent Assets, is operative for financial statements covering periods beginning on or after 1st October 2000.”.

IAS 38
(March 2004)
Intangible Assets

(i)	Delete reference to “1998” in paragraph 128 of IAS 38 and substitute “2003”.

(ii)	Delete any reference to “31 March 2004” and substitute “1 July 2004”.

(iii)

Delete the words in paragraph 130 of IAS 38 and substitute the following:

“130.  Otherwise, an entity shall apply this Standard to the accounting for intangible assets acquired in business combinations and to all other intangible assets prospectively for annual periods beginning on or after 1 July 2004. Thus, the entity shall not adjust the carrying amount of intangible assets recognised at that date.

However, the entity shall, at that date, apply this Standard to reassess the useful lives of such intangible assets. If, as a result of that reassessment, the entity changes its assessment of the useful life of an asset, that change shall be accounted for as a change in an accounting estimate in accordance with FRS 8.”.

(iv)	Delete paragraph 133 of IAS 38 and substitute the following paragraph:

“Withdrawal of FRS 38 (issued 2003)

133.  This Standard supersedes FRS 38 Intangible Assets (issued in 2003).”.

FRS 39
Financial
Instruments: Recognition and Measurement

IAS 39
(2005)
Financial Instruments: Recognition and Measurement

(i)	Delete paragraphs 103 to 110 of IAS 39 and substitute the following paragraphs:

“103.  An entity shall apply this Standard (including the amendments issued in September 2004) for annual periods beginning on or after 1 January 2005. Earlier application is permitted. An entity shall not apply this Standard (including the amendments issued in March 2005) for annual periods beginning before 1 January 2005 unless it also applies FRS 32 (issued in 2004). If an entity applies this Standard for a period beginning before 1 January 2005, it shall disclose that fact.

103A.  An entity that has adopted FRS 39 (issued 2003) before its effective date of 1 January 2005 shall apply the transitional provisions set out in paragraphs 104 to 108, except for paragraphs 106A and 106B.

104.  This Standard shall be applied retrospectively except as specified in paragraphs 105, 106, 107, 107A and 108 (excluding paragraphs 106A and 106B). The opening balance of retained earnings for the earliest prior period presented and all other comparative amounts shall be adjusted as if this Standard had always been in use unless restating the information would be impracticable. If restatement is impracticable, the entity shall disclose that fact and indicate the extent to which the information was restated.

105.  When this Standard is first applied, an entity is permitted to designate a previously recognised financial asset or financial liability as a financial asset or financial liability at fair value through profit or loss or available for sale despite the requirement in paragraph 9 to make such designation upon initial recognition. For any such financial asset designated as available for sale, the entity shall recognise all cumulative changes in fair value in a separate component of equity until subsequent derecognition or impairment, when the entity shall transfer that cumulative gain or loss to profit or loss. For any financial instrument designated as at fair value through profit or loss or available for sale, the entity shall:

(a)	restate the financial asset or financial liability using the new designation in the comparative financial statements; and

(b)	disclose the fair value of the financial assets or financial liabilities designated into each category and the classification and carrying amount in the previous financial statements.

106.  An entity shall not adjust the carrying amount of non-financial assets and non-financial liabilities to exclude gains and losses related to cash flow hedges that were included in the carrying amount before the beginning of the financial year in which this Standard is first applied.  At the beginning of the financial period in which this Standard is first applied, any amount recognised directly in equity for a hedge of a firm commitment that under this Standard is accounted for as a fair value hedge shall be reclassified as an asset or liability, except for a hedge of foreign currency risk that continues to be treated as a cash flow hedge.

106A.  When this Standard is first applied, an entity shall apply the transitional provisions set out in paragraphs 106B to 108. Early adoption shall be restricted to annual periods beginning on or after 1 January 2003.

106B. Retrospective application is not permitted (except as permitted by paragraph 108). The transition to this Standard is as follows:

(a)	recognition, derecognition, measurement and hedge accounting policies followed in financial statements for periods prior to the effective date of this Standard shall not be reversed and, therefore, those financial statements shall not be restated;

(b)

for those transactions entered into before the beginning of the financial year in which this Standard is initially applied that the entity did previously designate as hedges, the recognition, derecognition and measurement provisions of this Standard shall be applied prospectively. Therefore, if the previously designated hedge does not meet the conditions for an effective hedge set out in paragraph 88 and the hedging instrument is still held, hedge accounting shall no longer be appropriate starting with the beginning of the financial year in which this Standard is initially applied. Accounting in prior financial years shall not be retrospectively changed to conform to the requirements of this Standard. Paragraphs 91 and 101 explain how to discontinue hedge accounting;

(c)

at the beginning of the financial year in which this Standard is initially applied, an entity shall recognise all derivatives in its balance sheet as either assets or liabilities and shall measure them at fair value (except for a derivative that is linked to and that must be settled by delivery of an unquoted equity instrument whose fair value cannot be measured reliably). Because all derivatives, other than those that are designated hedging instruments, are considered held for trading, the difference between previous carrying amount (which may have been zero) and fair value of derivatives shall be recognised as an adjustment of the balance of retained earnings at the beginning of the financial year in which this Standard is initially applied (other than for a derivative that is a designated hedging instrument);

(d)

at the beginning of the financial year in which this Standard is initially applied, an entity shall apply the criteria in paragraphs 43-54 to identify those financial assets and liabilities that shall be measured at fair value and those that shall be measured at amortised cost, and it shall remeasure those assets as appropriate. An entity is permitted to designate a previously recognised financial asset or financial liability as a financial asset or financial liability at fair value through profit or loss or available for sale despite the requirement in paragraph 9 to make such designation upon initial recognition.  For any such financial asset designated as available for sale, the entity shall recognise all cumulative changes in fair value in a separate component of equity until subsequent derecognition or impairment, when the entity shall transfer that cumulative gain or loss to profit or loss. Any adjustment of the previous carrying amount shall be recognised as an adjustment of the balance of retained earnings at the beginning of the financial year in which this Standard is initially applied;

(e)	at the beginning of the financial year in which this Standard is initially applied, any balance sheet positions in fair value hedges of existing assets and liabilities shall be accounted for by adjusting their carrying amounts to reflect the fair value of the hedging instrument;

(f)

if an entity’s hedge accounting policies prior to initial application of this Standard had included deferral, as assets and liabilities, of gains or losses on cash flow hedges, at the beginning of the financial year in which this Standard is initially applied, those deferred gains and losses shall be reclassified as a separate component of equity to the extent that the transactions meet the criteria in paragraph 88 and, thereafter, accounted for as set out in paragraphs 97-100; and

(g)	transactions entered into before the beginning of the financial year in which this Standard is initially applied shall not be retrospectively designated as hedges.

Early Adoption and First-time Adoption

  107.  Except as permitted by paragraph 108, an entity shall apply the derecognition requirements in paragraphs 15-37 and Appendix A paragraphs AG36-AG52 prospectively.  Accordingly, if an entity derecognised financial assets under FRS 39 (issued 2003) as a result of a transaction that occurred before 1 January 2004 and those assets would not have been derecognised under this Standard, it shall not recognise those assets.

107A.  Notwithstanding paragraph 104, an entity may apply the requirements in the last sentence of paragraph AG76, and paragraph AG76A, in either of the following ways:

(a)	prospectively to transactions entered into after 25 October 2002; or

(b)	prospectively to transactions entered into after 1 January 2004.

108. Notwithstanding paragraph 107, an entity may apply the derecognition requirements in paragraphs 15-37 and Appendix A paragraphs AG36-AG52 retrospectively from a date of the entity’s choosing, provided that the information needed to apply FRS 39 to assets and liabilities derecognised as a result of past transactions was obtained at the time of initially accounting for those transactions.

109. This Standard supersedes FRS 39 Financial Instruments: Recognition and Measurement issued in 2003.

"(ii) Delete paragraph 80 of IAS 39 and substitute the following paragraph:

"80.  For hedge accounting purposes, only assets, liabilities, firm commitments or highly probable forecast transactions that involve a party external to the entity can be designated as hedged items. It follows that hedge accounting can be applied to transactions between entities or segments in the same group only in the individual or separate financial statements of those entities or segments and not in the consolidated financial statements of the group. As an exception, the foreign currency risk of an intragroup monetary item (e.g. a payable/receivable between two subsidiaries) may qualify as a hedged item in the consolidated financial statements if it results in an exposure to foreign exchange rate gains or losses that are not fully eliminated on consolidation in accordance with FRS 21 The Effects of Changes in Foreign Exchange Rates. In accordance with FRS 21, foreign exchange rate gains and losses on intragroup monetary items are not fully eliminated on consolidation when the intragroup monetary item is transacted between two group entities that have different functional currencies. In addition, the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in consolidated financial statements provided that the transaction is

AG76A. The subsequent measurement of the financial asset or financial liability and the subsequent recognition of gains and losses shall be consistent with the requirements of this Standard. The application of paragraph AG76 may result in no gain or loss being recognised on the initial recognition of a financial asset or financial liability. In such a case, FRS 39 requires that a gain or loss shall be recognised after initial recognition only to the extent that it arises from a change in a factor (including time) that market participants would consider in setting a price.

(iii) Delete “2004” in paragraph B1 of Appendix B to IAS 39 and substitute “2005”.

(iv) Delete the heading “Basis for Conclusions” in paragraph B1 of Appendix B to IAS 39 and all paragraphs thereunder.

(v) Delete paragraph B4 and the heading “Amendments to IAS 19” immediately before the paragraph in Appendix B to IAS 39.

(vi) Delete the heading “Basis for Conclusions” in paragraph B6 of Appendix B to IAS 39 and all paragraphs thereunder.

(vii) Delete the heading “Amendments to IAS 30” before paragraph B5 of Appendix B to IAS 39 and all paragraphs thereunder.

“"(viii) Insert, immediately after paragraph 108 of IAS 39, the following paragraphs:

108A.  An entity shall apply the last sentence of paragraph 80, and paragraphs AG99A and AG99B, for annual periods beginning on or after 1 January 2006. Earlier application is encouraged. If an entity has designated as the hedged item an external forecast transaction that (a) is denominated in the functional currency of the entity entering into the transaction, (b) gives rise to an exposure that will have an effect on consolidated profit or loss (i.e. is denominated in a currency other than the group’s presentation currency), and (c) would have qualified for hedge accounting had it not been denominated in the functional currency of the entity entering into it, it may apply hedge accounting in the consolidated financial statements in the period(s) before the date of application of the last sentence of paragraph 80, and paragraphs AG99A and AG99B.

108B.  An entity need not apply paragraph AG99B to comparative information relating to periods before the date of application of the last sentence of paragraph 80 and paragraph AG99A.”.

“(ix) Re-number paragraphs AG99A and AG99B in Appendix A of IAS 39 as paragraphs AG99C and AG99D, respectively.”.

“(x) Insert, immediately after paragraph AG99 in Appendix A of IAS 39, the following paragraphs:

AG99A.  Paragraph 80 states that in consolidated financial statements the foreign currency risk of a highly probable forecast intragroup transaction may qualify as a hedged item in a cash flow hedge, provided the transaction is denominated in a currency other than the functional currency of the entity entering into that transaction and the foreign currency risk will affect consolidated profit or loss. For this purpose an entity can be a parent, subsidiary, associate, joint venture or branch. If the foreign currency risk of a forecast intragroup transaction does not affect consolidated profit or loss, the intragroup transaction cannot qualify as a hedged item. This is usually the case for royalty payments, interest payments or management charges between members of the same group unless there is a related external transaction. However, when the foreign currency risk of a forecast intragroup transaction will affect consolidated profit or loss, the intragroup transaction can qualify as a hedged item. An example is forecast sales or purchases of inventories between members of the same group if there is an onward sale of the inventory to a party external to the group. ”.

“Similarly, a forecast intragroup sale of plant and equipment from the group entity that manufactured it to a group entity that will use the plant and equipment in its operations may affect consolidated profit or loss. This could occur, for example, because the plant and equipment will be depreciated by the purchasing entity and the amount initially recognised for the plant and equipment may change if the forecast intragroup transaction is denominated in a currency other than the functional currency of the purchasing entity.

AG99B.  If a hedge of a forecast intragroup transaction qualifies for hedge accounting, any gain or loss that is recognised directly in equity in accordance with paragraph 95 (a) shall be reclassified into profit or loss in the same period or periods during which the foreign currency risk of the hedged transaction affects consolidated profit or loss.".”.

“(xi) Insert, immediately after paragraph AG132 in Appendix A of IAS 39, the following paragraph:”.

(xii) Delete paragraph 3 of IAS 39.

(xiii) Delete sub-paragraphs 2(e) and 2 (h) of IAS 39 and substitute the following sub-paragraphs:

"(e)rights and obligations arising under (i) an insurance contract as defined in FRS 104Insurance Contracts, other than an issuer’s rights and obligations arising under an insurance contract that meets the definition of a financial guarantee contract in paragraph 9, or (ii) a contract that is within the scope of FRS 104 because it contains a discretionary participation feature. However, this Standard applies to a derivative that is embedded in a contract within the scope of FRS 104 if the derivative is not itself a contract within the scope of FRS 104 (see paragraphs 10–13 and Appendix A paragraphs AG27-AG33). Moreover, if an issuer of financial guarantee contracts has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, the issuer may elect to apply either this Standard or FRS 104 to such financial guarantee contracts (see paragraphs AG4 and AG4A). The issuer may make that election contract by contract, but the election for each contract is irrevocable.

(h)loan commitments other than those loan commitments described in paragraph 4. An issuer of loan commitments shall apply FRS 37 to loan commitments that are not within the scope of this Standard. However, all loan commitments are subject to the derecognition provisions of this Standard (see paragraphs 15-42 and Appendix A paragraphs AG36-AG63).".

(xiv) Delete paragraph 4 of IAS 39 and substitute the following paragraph:

"4. The following loan commitments are within the scope of this Standard:

(a)loan commitments that the entity designates as financial liabilities at fair value through profit or loss. An entity that has a past practice of selling the assets resulting from its loan commitments shortly after origination shall apply this Standard to all its loan commitments in the same class.

(b)loan commitments that can be settled net in cash or by delivering or issuing another financial instrument. These loan commitments are derivatives. A loan commitment is not regarded as settled net merely because the loan is paid out in instalments (for example, a mortgage construction loan that is paid out in instalments in line with the progress of construction).

(c)commitments to provide a loan at a below-market interest rate. Paragraph 47 (d) specifies the subsequent measurement of liabilities arising from these loan commitments.".

(xv) Delete sub-paragraphs (a) (iii) and (b) of paragraph 9 in IAS 39 under the heading “Definitions of Four Categories of Financial Instruments” and substitute the following sub-paragraphs:

"(iii) a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument).

(b) Upon initial recognition it is designated by the entity as at fair value through profit or loss. An entity may use this designation only when permitted by paragraph 11A, or when doing so results in more relevant information, because either:

(i) it eliminates or significantly reduces a measurement or recognition inconsistency (sometimes referred to as “an accounting mismatch”) that would otherwise arise from measuring assets or liabilities or recognising the gains and losses on them on different bases; or

(ii) a group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity’s key management personnel (as defined in FRS 24 Related Party Disclosures (as revised in 2004)), for example the entity’s board of directors and chief executive officer.

In FRS 32, paragraphs 66, 94 and AG40 require the entity to provide disclosures about financial assets and financial liabilities it has designated as at fair value through profit or loss, including how it has satisfied these conditions. For instruments qualifying in accordance with (ii) above, that disclosure includes a narrative description of how designation as at fair value through profit or loss is consistent with the entity’s documented risk management or investment strategy.

Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured (see paragraph 46 (c) and Appendix A paragraphs AG80 and AG81), shall not be designated as at fair value through profit or loss.

It should be noted that paragraphs 48, 48A, 49 and Appendix A paragraphs AG69-AG82, which set out requirements for determining a reliable measure of the fair value of a financial asset or financial liability, apply equally to all items that are measured at fair value, whether by designation or otherwise, or whose fair value is disclosed.".

(xvi) Insert the following heading and words in paragraph 9 of IAS 39, immediately before the heading “Definitions Relating to Recognition and Measurement”:

"Definition of a financial guarantee contract

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.".

(xvii) Delete paragraphs 12 and 13 in IAS 39 and insert, immediately after paragraph 11 of IAS 39, the following paragraphs:

"11A. Notwithstanding paragraph 11, if a contract contains one or more embedded derivatives, an entity may designate the entire hybrid (combined) contract as a financial asset or financial liability at fair value through profit or loss unless:

(a) the embedded derivative(s) does not significantly modify the cash flows that otherwise would be required by the contract; or

(b) it is clear with little or no analysis when a similar hybrid (combined) instrument is first considered that separation of the embedded derivative(s) is prohibited, such as a prepayment option embedded in a loan that permits the holder to prepay the loan for approximately its amortised cost.

12. If an entity is required by this Standard to separate an embedded derivative from its host contract, but is unable to measure the embedded derivative separately either at acquisition or at a subsequent financial reporting date, it shall designate the entire hybrid (combined) contract as at fair value through profit or loss.

13. If an entity is unable to determine reliably the fair value of an embedded derivative on the basis of its terms and conditions (for example, because the embedded derivative is based on an unquoted equity instrument), the fair value of the embedded derivative is the difference between the fair value of the hybrid (combined) instrument and the fair value of the host contract, if those can be determined under this Standard. If the entity is unable to determine the fair value of the embedded derivative using this method, paragraph 12 applies and the hybrid (combined) instrument is designated as at fair value through profit or loss.".

(xviii) Delete paragraph 47 of IAS 39 and substitute the following paragraph:

"47. After initial recognition, an entity shall measure all financial liabilities at amortised cost using the effective interest method, except for:

(a) financial liabilities at fair value through profit or loss. Such liabilities, including derivatives that are liabilities, shall be measured at fair value except for a derivative liability that is linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured which shall be measured at cost.

(b) financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition or when the continuing involvement approach applies. Paragraphs 29 and 31 apply to the measurement of such financial liabilities.

(c) financial guarantee contracts as defined in paragraph 9. After initial recognition, an issuer of such a contract shall (unless paragraph 47 (a) or (b) applies) measure it at the higher of:

(i) the amount determined in accordance with FRS 37Provisions, Contingent Liabilities and Contingent Assets; and

(ii) the amount initially recognised (see paragraph 43) less, when appropriate, cumulative amortisation recognised in accordance with FRS 18Revenue.

(d) commitments to provide a loan at a below-market interest rate. After initial recognition, an issuer of such a commitment shall (unless paragraph 47 (a) applies) measure it at the higher of:

(i) the amount determined in accordance with FRS 37; and

(ii) the amount initially recognised (see paragraph 43) less, when appropriate, cumulative amortisation recognised in accordance with FRS 18.

Financial liabilities that are designated as hedged items are subject to the hedge accounting requirements in paragraphs 89-102.".

(xix) Insert, immediately after paragraph 48 of IAS 39, the following paragraph:

"48A. The best evidence of fair value is quoted prices in an active market. If the market for a financial instrument is not active, an entity establishes fair value by using a valuation technique. The objective of using a valuation technique is to establish what the transaction price would have been on the measurement date in an arm’s length exchange motivated by normal business considerations. Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available, reference to the current fair value of another instrument that is substantially the same, discounted cash flow analysis and option pricing models. If there is a valuation technique commonly used by market participants to price the instrument and that technique has been demonstrated to provide reliable estimates of prices obtained in actual market transactions, the entity uses that technique. The chosen valuation technique makes maximum use of market inputs and relies as little as possible on entity-specific inputs. It incorporates all factors that market participants would consider in setting a price and is consistent with accepted economic methodologies for pricing financial instruments. Periodically, an entity calibrates the valuation technique and tests it for validity using prices from any observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on any available observable market data.".

(xx) Insert, immediately after paragraph 103A of IAS 39, the following paragraph:

“103B. Financial Guarantee Contracts (Amendments to FRS 39 and FRS 104), issued in January 2006, amended paragraphs 2 (e) and (h), 4, 47 and AG4, added paragraph AG4A, added a new definition of financial guarantee contracts in paragraph 9, and deleted paragraph 3. An entity shall apply those amendments for annual periods beginning on or after 1 January 2006. Earlier application is encouraged. If an entity applies these changes for an earlier period, it shall disclose that fact and apply the related amendments to FRS 32 and FRS 104 at the same time.”.

(xxi) Delete paragraph 105 in IAS 39 and substitute the following paragraphs:

"105. When this Standard is first applied, an entity is permitted to designate a previously recognised financial asset as available for sale. For any such financial asset the entity shall recognise all cumulative changes in fair value in a separate component of equity until subsequent derecognition or impairment, when the entity shall transfer that cumulative gain or loss to profit or loss. The entity shall also:

(a) restate the financial asset using the new designation in the comparative financial statements; and

(b) disclose the fair value of the financial assets at the date of designation and their classification and carrying amount in the previous financial statements.

105A. An entity shall apply paragraphs 11A, 48A, AG4B-AG4K, AG33A and AG33B and the January 2006 amendments in paragraphs 9, 12 and 13 for annual periods beginning on or after 1 January 2006. Earlier application is encouraged.

105B. An entity that first applies paragraphs 11A, 48A, AG4B-AG4K, AG33A and AG33B and the January 2006 amendments in paragraphs 9, 12 and 13 in its annual period beginning before 1 January 2006:

(a) is permitted, when those new and amended paragraphs are first applied, to designate as at fair value through profit or loss any previously recognised financial asset or financial liability that then qualifies for such designation. When the annual period begins before 1 September 2005, such designations need not be completed until 1 September 2005 and may also include financial assets and financial liabilities recognised between the beginning of that annual period and 1 September 2005. Notwithstanding paragraph 91, any financial assets and financial liabilities designated as at fair value through profit or loss in accordance with this sub-paragraph that were previously designated as the hedged item in fair value hedge accounting relationships shall be de-designated from those relationships at the same time they are designated as at fair value through profit or loss.

(b) shall disclose the fair value of any financial assets or financial liabilities designated in accordance with sub-paragraph (a) at the date of designation and their classification and carrying amount in the previous financial statements.

(c) shall de-designate any financial asset or financial liability previously designated as at fair value through profit or loss if it does not qualify for such designation in accordance with those new and amended paragraphs. When a financial asset or financial liability will be measured at amortised cost after de-designation, the date of de-designation is deemed to be its date of initial recognition.

(d) shall disclose the fair value of any financial assets or financial liabilities de-designated in accordance with sub-paragraph (c) at the date of de-designation and their new classifications.

105C. An entity that first applies paragraphs 11A, 48A, AG4B-AG4K, AG33A and AG33B and the January 2006 amendments in paragraphs 9, 12 and 13 in its annual period beginning on or after 1 January 2006

(a) shall de-designate any financial asset or financial liability previously designated as at fair value through profit or loss only if it does not qualify for such designation in accordance with those new and amended paragraphs. When a financial asset or financial liability will be measured at amortised cost after de-designation, the date of de-designation is deemed to be its date of initial recognition.

(b) shall not designate as at fair value through profit or loss any previously recognised financial assets or financial liabilities.

(c) shall disclose the fair value of any financial assets or financial liabilities de-designated in accordance with sub-paragraph (a) at the date of de-designation and their new classifications.

105D. An entity shall restate its comparative financial statements using the new designations in paragraph 105B or 105C provided that, in the case of a financial asset, financial liability, or group of financial assets, financial liabilities or both, designated as at fair value through profit or loss, those items or groups would have met the criteria in paragraph 9 (b) (i), 9 (b) (ii) or 11A at the beginning of the comparative period or, if acquired after the beginning of the comparative period, would have met the criteria in paragraph 9 (b) (i), 9 (b) (ii) or 11A at the date of initial recognition.".

(xxii) Insert, immediately after paragraph AG3 of IAS 39, the following paragraph:

“AG3A. This Standard applies to the financial assets and financial liabilities of insurers, other than rights and obligations that paragraph 2 (e) excludes because they arise under contracts within the scope of FRS 104.”.

(xxiii) Delete paragraphs AG4 and AG4A of IAS 39 and substitute the following paragraphs:

"AG4. Financial guarantee contracts may have various legal forms, such as a guarantee, some types of letter of credit, a credit default contract or an insurance contact. Their accounting treatment does not depend on their legal form. The following are examples of the appropriate treatment (see paragraph 2(e)):

(a) Although a financial guarantee contract meets the definition of an insurance contract in FRS 104 if the risk transferred is significant, the issuer applies this Standard. Nevertheless, if the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, the issuer may elect to apply either this Standard or FRS 104 to such financial guarantee contracts. If this Standard applies, paragraph 43 requires the issuer to recognise a financial guarantee contract initially at fair value. If the financial guarantee contract was issued to an unrelated party in a stand-alone arm’s length transaction, its fair value at inception is likely to equal the premium received, unless there is evidence to the contrary. Subsequently, unless the financial guarantee contract was designated at inception as at fair value through profit or loss or unless paragraphs 29-37 and AG47-AG52 apply (when a transfer of a financial asset does not qualify for derecognition or the continuing involvement approach applies), the issuer measures it at the higher of:

(i) the amount determined in accordance with FRS 37; and

(ii) the amount initially recognised less, when appropriate, cumulative amortisation recognised in accordance with FRS 18 (see paragraph 47 (c)).

(b) Some credit-related guarantees do not, as a precondition for payment, require that the holder is exposed to, and has incurred a loss on, the failure of the debtor to make payments on the guaranteed asset when due. An example of such a guarantee is one that requires payments in response to changes in a specified credit rating or credit index. Such guarantees are not financial guarantee contracts, as defined in this Standard, and are not insurance contracts, as defined in FRS 104. Such guarantees are derivatives and the issuer applies this Standard to them.

(c) If a financial guarantee contract was issued in connection with the sale of goods, the issuer applies FRS 18 in determining when it recognises the revenue from the guarantee and from the sale of goods.

AG4A. Assertions that an issuer regards contracts as insurance contracts are typically found throughout the issuer’s communications with customers and regulators, contracts, business documentation and financial statements. Furthermore, insurance contracts are often subject to accounting requirements that are distinct from the requirements for other types of transaction, such as contracts issued by banks or commercial companies. In such cases, an issuer’s financial statements typically include a statement that the issuer has used those accounting requirements.".

(xxiv) Insert, immediately after the heading “Definitions (paragraphs 8 and 9)” after paragraph AG4A of IAS 39, the following heading and paragraphs:

"Designation as at Fair Value through Profit or Loss

AG4B. Paragraph 9 of this Standard allows an entity to designate a financial asset, a financial liability, or a group of financial instruments (financial assets, financial liabilities or both) as at fair value through profit or loss provided that doing so results in more relevant information.

AG4C. The decision of an entity to designate a financial asset or financial liability as at fair value through profit or loss is similar to an accounting policy choice (although, unlike an accounting policy choice, it is not required to be applied consistently to all similar transactions). When an entity has such a choice, paragraph 14(b) of FRS 8 Accounting Policies, Changes in Accounting Estimates and Errors requires the chosen policy to result in the financial statements providing reliable and more relevant information about the effects of transactions, other events and conditions on the entity’s financial position, financial performance or cash flows. In the case of designation as at fair value through profit or loss, paragraph 9 sets out the two circumstances when the requirement for more relevant information will be met. Accordingly, to choose such designation in accordance with paragraph 9, the entity needs to demonstrate that it falls within one (or both) of these two circumstances.

Paragraph 9 (b) (i): Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise

AG4D. Under FRS 39, measurement of a financial asset or financial liability and classification of recognised changes in its value are determined by the item’s classification and whether the item is part of a designated hedging relationship. Those requirements can create a measurement or recognition inconsistency (sometimes referred to as an “accounting mismatch”) when, for example, in the absence of designation as at fair value through profit or loss, a financial asset would be classified as available for sale (with most changes in fair value recognised directly in equity) and a liability the entity considers related would be measured at amortised cost (with changes in fair value not recognised). In such circumstances, an entity may conclude that its financial statements would provide more relevant information if both the asset and the liability were classified as at fair value through profit or loss.

AG4E. The following examples show when this condition could be met. In all cases, an entity may use this condition to designate financial assets or financial liabilities as at fair value through profit or loss only if it meets the principle in paragraph 9(b)(i).

(a) An entity has liabilities whose cash flows are contractually based on the performance of assets that would otherwise be classified as available for sale. For example, an insurer may have liabilities containing a discretionary participation feature that pay benefits based on realised and/or unrealised investment returns of a specified pool of the insurer’s assets. If the measurement of those liabilities reflects current market prices, classifying the assets as at fair value through profit or loss means that changes in the fair value of the financial assets are recognised in profit or loss in the same period as related changes in the value of the liabilities.

(b) An entity has liabilities under insurance contracts whose measurement incorporates current information (as permitted by FRS 104 Insurance Contracts, paragraph 24), and financial assets it considers related that would otherwise be classified as available for sale or measured at amortised cost.

(c) An entity has financial assets, financial liabilities or both that share a risk, such as interest rate risk, that gives rise to opposite changes in fair value that tend to offset each other. However, only some of the instruments would be measured at fair value through profit or loss (i.e. are derivatives, or are classified as held for trading). It may also be the case that the requirements for hedge accounting are not met, for example because the requirements for effectiveness in paragraph 88 are not met.

(d) An entity has financial assets, financial liabilities or both that share a risk, such as interest rate risk, that gives rise to opposite changes in fair value that tend to offset each other and the entity does not qualify for hedge accounting because none of the instruments is a derivative. Furthermore, in the absence of hedge accounting there is a significant inconsistency in the recognition of gains and losses. For example:

(i) the entity has financed a portfolio of fixed rate assets that would otherwise be classified as available for sale with fixed rate debentures whose changes in fair value tend to offset each other. Reporting both the assets and the debentures at fair value through profit or loss corrects the inconsistency that would otherwise arise from measuring the assets at fair value with changes reported in equity and the debentures at amortised cost.

(ii) the entity has financed a specified group of loans by issuing traded bonds whose changes in fair value tend to offset each other. If, in addition, the entity regularly buys and sells the bonds but rarely, if ever, buys and sells the loans, reporting both the loans and the bonds at fair value through profit or loss eliminates the inconsistency in the timing of recognition of gains and losses that would otherwise result from measuring them both at amortised cost and recognising a gain or loss each time a bond is repurchased.

AG4F. In cases such as those described in the preceding paragraph, to designate, at initial recognition, the financial assets and financial liabilities not otherwise so measured as at fair value through profit or loss may eliminate or significantly reduce the measurement or recognition inconsistency and produce more relevant information. For practical purposes, the entity need not enter into all of the assets and liabilities giving rise to the measurement or recognition inconsistency at exactly the same time. A reasonable delay is permitted provided that each transaction is designated as at fair value through profit or loss at its initial recognition and, at that time, any remaining transactions are expected to occur.

AG4G. It would not be acceptable to designate only some of the financial assets and financial liabilities giving rise to the inconsistency as at fair value through profit or loss if to do so would not eliminate or significantly reduce the inconsistency and would therefore not result in more relevant information. However, it would be acceptable to designate only some of a number of similar financial assets or similar financial liabilities if doing so achieves a significant reduction (and possibly a greater reduction than other allowable designations) in the inconsistency. For example, assume an entity has a number of similar financial liabilities that sum to CU100* and a number of similar financial assets that sum to CU50 but are measured on a different basis. The entity may significantly reduce the measurement inconsistency by designating at initial recognition all of the assets but only some of the liabilities (for example, individual liabilities with a combined total of CU45) as at fair value through profit or loss. However, because designation as at fair value through profit or loss can be applied only to the whole of a financial instrument, the entity in this example must designate one or more liabilities in their entirety. It could not designate either a component of a liability (e.g. changes in value attributable to only one risk, such as changes in a benchmark interest rate) or a proportion (i.e. percentage) of a liability.

*In this Standard, monetary amounts are denominated in “currency units” (CU).

Paragraph 9 (b) (ii): A group of financial assets, financial liabilities or both is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy

AG4H. An entity may manage and evaluate the performance of a group of financial assets, financial liabilities or both in such a way that measuring that group at fair value through profit or loss results in more relevant information. The focus in this instance is on the way the entity manages and evaluates performance, rather than on the nature of its financial instruments.

AG4I. The following examples show when this condition could be met. In all cases, an entity may use this condition to designate financial assets or financial liabilities as at fair value through profit or loss only if it meets the principle in paragraph 9(b)(ii).

(a) The entity is a venture capital organisation, mutual fund, unit trust or similar entity whose business is investing in financial assets with a view to profiting from their total return in the form of interest or dividends and changes in fair value. FRS 28 Investments in Associates and FRS 31 Interests in Joint Ventures allow such investments to be excluded from their scope provided they are measured at fair value through profit or loss. An entity may apply the same accounting policy to other investments managed on a total return basis but over which its influence is insufficient for them to be within the scope of FRS 28 or FRS 31.

(b) The entity has financial assets and financial liabilities that share one or more risks and those risks are managed and evaluated on a fair value basis in accordance with a documented policy of asset and liability management. An example could be an entity that has issued ’structured products’ containing multiple embedded derivatives and manages the resulting risks on a fair value basis using a mix of derivative and non-derivative financial instruments. A similar example could be an entity that originates fixed interest rate loans and manages the resulting benchmark interest rate risk using a mix of derivative and non-derivative financial instruments.

(c) The entity is an insurer that holds a portfolio of financial assets, manages that portfolio so as to maximise its total return (i.e. interest or dividends and changes in fair value), and evaluates its performance on that basis. The portfolio may be held to back specific liabilities, equity or both. If the portfolio is held to back specific liabilities, the condition in paragraph 9(b)(ii) may be met for the assets regardless of whether the insurer also manages and evaluates the liabilities on a fair value basis. The condition in paragraph 9(b)(ii) may be met when the insurer’s objective is to maximise total return on the assets over the longer term even if amounts paid to holders of participating contracts depend on other factors such as the amount of gains realised in a shorter period (e.g. a year) or are subject to the insurer’s discretion.

AG4J. As noted above, this condition relies on the way the entity manages and evaluates performance of the group of financial instruments under consideration. Accordingly, (subject to the requirement of designation at initial recognition) an entity that designates financial instruments as at fair value through profit or loss on the basis of this condition shall so designate all eligible financial instruments that are managed and evaluated together.

AG4K. Documentation of the entity’s strategy need not be extensive but should be sufficient to demonstrate compliance with paragraph 9(b)(ii). Such documentation is not required for each individual item, but may be on a portfolio basis. For example, if the performance management system for a department — as approved by the entity’s key management personnel — clearly demonstrates that its performance is evaluated on a total return basis, no further documentation is required to demonstrate compliance with paragraph 9(b)(ii).".

(xxv) Insert, immediately after paragraph AG33 of IAS 39, the following heading and paragraphs:

"Instruments containing Embedded Derivatives

AG33A. When an entity becomes a party to a hybrid (combined) instrument that contains one or more embedded derivatives, paragraph 11 requires the entity to identify any such embedded derivative, assess whether it is required to be separated from the host contract and, for those that are required to be separated, measure the derivatives at fair value at initial recognition and subsequently. These requirements can be more complex, or result in less reliable measures, than measuring the entire instrument at fair value through profit or loss. For that reason this Standard permits the entire instrument to be designated as at fair value through profit or loss.

AG33B. Such designation may be used whether paragraph 11 requires the embedded derivatives to be separated from the host contract or prohibits such separation. However, paragraph 11A would not justify designating the hybrid (combined) instrument as at fair value through profit or loss in the cases set out in paragraph 11A(a) and (b) because doing so would not reduce complexity or increase reliability."

FRS 40
Investment Property

IAS 40
(March 2004)
Investment Property

"(i) Delete the following words in paragraph 80 of IAS 40:

“An entity that has previously applied IAS 40 (2000) and elects for the first time to classify and account for some or all eligible property interests held under operating leases as investment property shall recognise the effect of that election as an adjustment to the opening balance of retained earnings for the period in which the election is first made.”.

and substitute the following words:

“Under the fair value model, an entity should report the effect of adopting this Standard on its effective date (or earlier) as an adjustment to the opening balance of retained earnings for the period in which the Standard is first adopted.”.

(ii) Delete “2005” in paragraph 85 of IAS 40 and substitute “2007”.

(iii) Delete the following words in paragraph 86 of IAS 40:

“Withdrawal of IAS 40 (2000)

86.  This Standard supersedes IAS 40 Investment Property (issued in 2000).”.

IAS 41 (2001)
Agriculture

Delete paragraph 58 of IAS 41 and substitute the following paragraph:

“58.  FRS 41, Agriculture, is operative for financial statements covering periods beginning on or after 1st October 2001.”.

FRS 101
First-time Adoption of Financial Reporting Standards

IFRS 1
First-time Adoption of International Financial Reporting Standards (2005)

(i) Deleted by S 546/2005, wef 01/09/2005.

“In other words, if a first-time adopter derecognised financial assets or financial liabilities under its previous GAAP in a financial year beginning before 1 January 2001, it shall not recognise those assets and liabilities under IFRSs (unless they qualify for recognition as a result of a later transaction or event).”,

and substitute the following words:
“In other words, if a first-time adopter derecognised financial assets or financial liabilities under its previous GAAP in a financial year beginning before 1 January 2005, it shall not recognise those assets and liabilities under FRSs (unless they qualify for recognition as a result of a later transaction or event).”.

(ii) Delete “2003” in paragraphs 30 and B1A of IFRS 1 and substitute in each case “2004”.

(iii) Delete paragraph 25A of IFRS 1 and substitute the following paragraph:

"25A. FRS 39 Financial Instruments: Recognition and Measurement permits a financial asset to be designated on initial recognition as available for sale or a financial instrument (provided it meets certain criteria) to be designated as a financial asset or financial liability at fair value through profit or loss. Despite this requirement exceptions apply in the following circumstances:

(a) any entity is permitted to make an available-for-sale designation at the date of transition to FRSs.

(b) an entity that presents its first FRS financial statements for an annual period beginning on or after 1 September 2006 — such an entity is permitted to designate, at the date of transition to FRSs, any financial asset or financial liability as at fair value through profit or loss provided the asset or liability meets the criteria in paragraph 9(b)(i), 9 (b) (ii) or 11A of FRS 39 at that date.

(c) an entity that presents its first FRS financial statements for an annual period beginning on or after 1 January 2006 and before 1 September 2006 — such an entity is permitted to designate, at the date of transition to FRSs, any financial asset or financial liability as at fair value through profit or loss provided the asset or liability meets the criteria in paragraph 9(b)(i), 9 (b) (ii) or 11A of FRS 39 at that date. When the date of transition to FRSs is before 1 September 2005, such designations need not be completed until 1 September 2005 and may also include financial assets and financial liabilities recognised between the date of transition to FRSs and 1 September 2005.

(d) an entity that presents its first FRS financial statements for an annual period beginning before 1 January 2006 and applies paragraphs 11A, 48A, AG4B-AG4K, AG33A and AG33B and the 2005 amendments in paragraphs 9, 12 and 13 of FRS 39 — such an entity is permitted at the start of its first FRS reporting period to designate as at fair value through profit or loss any financial asset or financial liability that qualifies for such designation in accordance with these new and amended paragraphs at that date. When the entity’s first FRS reporting period begins before 1 September 2005, such designations need not be completed until 1 September 2005 and may also include financial assets and financial liabilities recognised between the beginning of that period and 1 September 2005. If the entity restates comparative information for FRS 39 it shall restate that information for the financial assets, financial liabilities, or group of financial assets, financial liabilities or both, designated at the start of its first FRS reporting period. Such restatement of comparative information shall be made only if the designated items or groups would have met the criteria for such designation in paragraph 9(b)(i), 9 (b) (ii) or 11A of FRS 39 at the date of transition to FRSs or, if acquired after the date of transition to FRSs, would have met the criteria in paragraph 9(b)(i), 9 (b) (ii) or 11A at the date of initial recognition.

(e) for an entity that presents its first FRS financial statements for an annual period beginning before 1 September 2006— notwithstanding paragraph 91 of FRS 39, any financial assets and financial liabilities such an entity designated as at fair value through profit or loss in accordance with sub-paragraph (c) or (d) above that were previously designated as the hedged item in fair value hedge accounting relationships shall be de-designated from those relationships at the same time they are designated as at fair value through profit or loss.".

(iv) Delete the heading and words in paragraph 36B of IFRS 1 and substitute the following heading and words:

"Exemption from the requirement to present comparative information for FRS 106

36B. An entity that adopts FRSs before 1 January 2006 and chooses to adopt FRS 106 Exploration for and Evaluation of Mineral Resources before 1 January 2006 need not apply the requirements of FRS 106 to comparative information presented in its first FRS financial statements.".

(v) Delete paragraph 43A of IFRS 1 and substitute the following paragraph:

“43A. An entity is permitted to designate a previously recognised financial asset or financial liability as a financial asset or financial liability at fair value through profit or loss or a financial asset as available for sale in accordance with paragraph 25A. The entity shall disclose the fair value of financial assets or financial liabilities designated into each category at the date of designation and their classification and carrying amount in the previous financial statements.”.";

(iv) Deleted by S 546/2005, wef 01/09/2005.

FRS 102
Share-based Payment

IFRS 2
Share-based Payment

(i) Delete references to “2003” in paragraph 6 of IFRS 2 and substitute “2004”.

(ii) Delete references to “7 November 2002” in paragraphs 53, 56 and 58 of IFRS 2 and substitute in each case “22 November 2002”.

(iii) Delete paragraph 60 of IFRS 2 and substitute the following paragraph:

“60.  Companies incorporated or foreign companies registered under the Companies Act, that have been admitted to the official list of a securities exchange in Singapore and have not been removed from that official list shall apply this FRS for annual periods beginning on or after 1 January 2005. All other entities incorporated or registered in Singapore shall apply this FRS for annual periods beginning on or after 1 January 2006. Early application is encouraged. If an entity applies the FRS before its effective date, it shall disclose that fact.”.

(iv) Delete the following words in paragraph C2 of Appendix C to IFRS 2:

“In paragraph 6 of IAS 16 Property, Plant and Equipment, paragraph 7 of IAS 38 Intangible Assets, and paragraph 5 of IAS 40 Investment Property, as revised in 2003, the definition of cost is amended to read as follows:”,

and substitute the following words:

“In paragraph 6 of FRS 16 Property, Plant and Equipment and paragraph 7 of FRS 38 Intangible Assets, as revised in 2004, the definition of cost is amended to read as follows:”.

(v) Delete the headings “Introduction”, and “Basis for Conclusions” in paragraph C3 of Appendix C to IFRS 2 and all paragraphs thereunder.

(vi) Delete references to “7 November 2002” in paragraph C8 of Appendix C to IFRS 2 and substitute “22 November 2002”.

(vii) Delete all paragraphs after sub-paragraph IG65 in paragraph C8 of Appendix C to IFRS 2.

FRS 103
Business Combinations

IFRS 3
(March 2004)
Business Combinations

(i) Delete any reference to “31 March 2004” and substitute “1 July 2004”.

(ii) Delete paragraph 78 of IFRS 3 and substitute the following paragraph:

"78. Except as provided in paragraph 85, this FRS shall apply to the accounting for business combinations for annual periods beginning on or after 1 July 2004. This FRS shall also apply to the accounting for:

(a) goodwill arising from a business combination for annual periods beginning on or after 1 July 2004; or

(b) any excess of the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities over the cost of a business combination for annual periods beginning on or after 1 July 2004.".

(iii) Delete “1998” in paragraph 86 of IFRS 3 and paragraph C18 of Appendix C to IFRS 3 and substitute in each case “2003”.

(iv) Delete the first sentence immediately under the heading “Amendments to other IFRSs” in Appendix C of IFRS 3 and substitute the following sentence:

“The amendments in this appendix shall be applied to the accounting for business combinations for annual periods beginning on or after 1 July 2004, and to the accounting for any goodwill and intangible assets acquired in those business combinations.”.

(v) Delete the heading “Introduction” in paragraph C4 of Appendix C to IFRS 3 and all paragraphs thereunder.

(vi) Delete the following words in paragraph C5 of Appendix C to IFRS 3:

"On the title page, the second paragraph after the title of IAS 14 is amended to read as follows:

Paragraphs 129 and 130 of IAS 36 Impairment of Assets set out in disclosure requirements for reporting impairment losses by segment.".

(vii) Delete “2003” in paragraphs C6, C11 and C15 of Appendix C to IFRS 3 and substitute in each case “2004”.

(viii) Delete the heading “Basis for Conclusions” in paragraph C7 of Appendix C to IFRS 3 and all paragraphs thereunder.

(ix) Delete reference to “25 March 2002” in paragraph C18 of Appendix C to IFRS 3 and substitute “1 February 2003”.

FRS 104
Insurance Contracts

IFRS 4
Insurance Contracts

(i) Delete the first sentence in paragraph 1 of IFRS 4 and substitute the following sentence:

“The objective of this FRS is to specify the financial reporting for insurance contracts by any entity that issues such contracts (described in this FRS as an insurer) until the second phase of the project is completed.”.

(ii) Delete “2003” in paragraphs C1, C2 and C11 of Appendix C to IFRS 4 and substitute in each case “2004”.

(iii) Delete the last sentence of sub-paragraph IN5 of paragraph C5 of Appendix C to IFRS 4 and substitute the following sentence:

“An Exposure Draft proposing amendments to the treatment of financial guarantees within the scope of FRS 104 is expected to be issued in the near future.”.

(iv) Delete the sentence in paragraph C5 of Appendix C to IFRS 4 which reads:

“In paragraph BC20 of the Basis for Conclusions, the phrase “in the same way as financial guarantees (see paragraph BC23)” is replaced by the phrase inserted in paragraph IN6.”,

and all paragraphs thereunder.

(v) Delete the sentence in paragraph C7 of Appendix C to IFRS 4 which reads:

“In the first line of paragraph BC7 of the Basis for Conclusions, “an instrument” is replaced by “a financial instrument”.”.

(vi) Delete paragraph C12 of Appendix C to IFRS 4.

(vii) Delete sub-paragraph (d) of paragraph 4 in IFRS 4 and substitute the following sub-paragraph:

“(d) financial guarantee contracts unless the issuer has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, in which case the issuer may elect to apply either FRS 39 and FRS 32 or this Standard to such financial guarantee contracts. The issuer may make that election contract by contract, but the election for each contract is irrevocable.”.

(viii) Insert, immediately after paragraph 41 of IFRS 4, the following paragraph:

“41A. Financial Guarantee Contracts (Amendments to FRS 39 and FRS 104), issued in January 2006, amended paragraph 4 (d), B18 (g) and B (19f). An entity shall apply those amendments for annual periods beginning on or after 1 January 2006. Earlier application is encouraged. If an entity applies those amendments for an earlier period, it shall disclose that fact and apply the related amendments to FRS 39 and FRS 32 at the same time.”.

(ix) Insert, immediately after the definition of “fair value” in Appendix A of IFRS 4, the following definition:

Financial guarantee contract

A contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument.

(x) Delete sub-paragraph (g) of paragraph B18 in Appendix B of IFRS 4 and substitute the following sub-paragraph:

“(g) credit insurance that provides for specified payments to be made to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due under the original or modified terms of a debt instrument. These contracts could have various legal forms, such as that of a guarantee, some types of letter of credit, a credit derivative default contract or an insurance contract. However, although these contracts meet the definition of an insurance contract, they also meet the definition of a financial guarantee contract in FRS 39 and are within the scope of FRS 32 and FRS 39, not this FRS (see paragraph 4 (d)). Nevertheless, if an issuer of financial guarantee contracts has previously asserted explicitly that it regards such contracts as insurance contracts and has used accounting applicable to insurance contracts, the issuer may elect to apply either FRS 39 and FRS 32 or this Standard to such financial guarantee contracts.”.

(xi) Delete sub-paragraph (f) of paragraph B19 in Appendix B of IFRS 4 and substitute the following sub-paragraph:

“(f) a credit-related guarantee (or letter of credit, credit derivative default contract or credit insurance contract) that requires payments even if the holder has not incurred a loss on the failure of the debtor to make payments when due (see FRS 39).”

FRS 105
Non-current Assets Held for Sale and Discontinued Operations

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

(i) Delete “2003” in paragraphs 3 and 24 (a) of IFRS 5 and substitute in each case “2004”.

(ii) Delete “2003” in paragraphs C1, C4 and C5 of Appendix C to IFRS 5 and substitute in each case “2004”.

(iii) Delete the sentence in paragraph C6 of Appendix C to IFRS 5 which reads:

“In the Basis for Conclusions, at the end of paragraph BC14 a footnote is added, as follows:”,

and all paragraphs thereunder.

(iv) Delete the sentence in paragraph C7 of Appendix C to IFRS 5 which reads:

“In the Basis for Conclusions, at the end of paragraph BC14 a footnote is added, as follows:”,

and all paragraphs thereunder

(v) Delete the sentence in paragraph C8 of Appendix C to IFRS 5 which reads:

“In the Basis for Conclusions, at the end of paragraph BC13 a footnote is added, as follows:”,

and all paragraphs thereunder.

(vi) Delete “1998” in paragraphs C9 and C12 of Appendix C to IFRS 5 and substitute in each case “2003”.

(vii) Delete the accompanying footnote in paragraph C12 of Appendix C to IFRS 5.

(viii) Delete paragraph C14 of Appendix C to IFRS 5.

Exploration for and Evaluation of Mineral Resources

Exploration for and Evaluation of Mineral Resources

Delete reference to “2003” in paragraph B2 of Appendix B to IFRS 6 and substitute “2004”.

FRS 107
Financial
Instruments:
Disclosures

IFRS 7
Financial
Instruments:
Disclosures

(i) Delete sub-paragraph (d) of paragraph 3 in IFRS 7 and substitute the following sub-paragraph:

"(d) insurance contracts as defined in FRS 104 Insurance Contracts. However, this FRS applies to derivatives that are embedded in insurance contracts if FRS 39 requires the entity to account for them separately.

Moreover, an issuer shall apply this FRS to financial guarantee contracts if the issuer applies FRS 39 in recognising and measuring the contracts, but shall apply FRS 104 if the issuer elects, in accordance with paragraph 4 (d) of FRS 104, to apply FRS 104 in recognising and measuring them.".

(ii) Delete paragraph 43 of IFRS 7 and substitute the following paragraph:

“43. Companies incorporated or foreign companies registered under the Companies Act, that have been admitted to the official list of a securities exchange in Singapore and have not been removed from that official list, shall apply this FRS for annual periods beginning on or after 1 January 2007. All other entities incorporated or registered in Singapore shall apply this FRS for annual periods beginning on or after 1 January 2008. Earlier application is encouraged. If an entity applies this FRS for an earlier period, it shall disclose that fact.”

(iii) Delete paragraph 45 of IFRS 7 and the accompanying heading.

(iv) Insert, immediately after the words “financial asset or financial liability at fair value through profit or loss” in Appendix A to IFRS 7, the following words:

“• financial guarantee contract”.

(v) Delete paragraph C1 of Appendix C to IFRS 7 and substitute the following paragraph:

“In Financial Reporting Standards, including Interpretations, references to FRS 32 Financial Instruments: Disclosure and Presentation are replaced by references to FRS 32 Financial Instruments: Presentation, unless otherwise stated below.”

(vi) Delete the following words in paragraph C2 of Appendix C to IFRS 7:

“IAS 32 Financial Instruments: Disclosure and Presentation (as revised in 2003) is amended as described below.”;

“This Introduction refers to IAS 32 as revised in 2003. In August 2005 IASB amended IAS 32 by relocating all disclosures relating to financial instruments to IFRS 7 Financial Instruments: Disclosures.”;

“In August 2005 the IASB relocated all disclosures relating to financial instruments to IFRS 7 Financial Instruments: Disclosures.”;

“In August 2005 the Board revised disclosures about financial instruments and relocated them to IFRS 7 Financial Instruments: Disclosures;”, and

“In August 2005 the IASB relocated all disclosures relating to financial instruments to IFRS 7 Financial Instruments: Disclosures.”,

and substitute the following words respectively:

“FRS 32 Financial Instruments: Disclosure and Presentation (as revised in 2004) is amended as described below.”;

“This Introduction refers to FRS 32 as revised in 2004. In January 2006 FRS 32 was amended by relocating all disclosures relating to financial instruments to FRS 107 Financial Instruments: Disclosures.”;

“In January 2006, all disclosures relating to financial instruments were relocated to FRS 107 Financial Instruments: Disclosures.”;

“In January 2006, disclosures about financial instruments were revised and relocated to FRS 107 Financial Instruments: Disclosures.”; and

“In January 2006, all disclosures relating to financial instruments were relocated to FRS 107 Financial Instruments: Disclosures.”.

(vii) Delete the following words in paragraph C7 of Appendix C to IFRS 7:

“IAS 39 Financial Instruments: Recognition and Measurement (as amended in April 2005) is amended as described below.”; and

“In August 2005 the IASB relocated all disclosures relating to financial instruments were relocated to IFRS 7 Financial Instruments: Disclosures.”,

and substitute the following words respectively:

“FRS 39 Financial Instruments: Recognition and Measurement (as amended in 2005) is amended as described below.”; and

“In January 2006, all disclosures relating to financial instruments were relocated to FRS 107 Financial Instruments: Disclosures.”.

(viii) Delete the word “June” in paragraph C8 of Appendix C to IFRS 7.".

(There is no modification on IFRS 8).