Appendix 1: PBE IPSAS 29 to PBE IPSAS 41 transition changes

Commentary for 31 December 2021 reporting by Te Pūkenga subsidiaries.

 

PBE IPSAS 29 PBE IPSAS 41
Financial assets classifications Selection of classification and measurement categories is based on a range of factors.

The categories are:
  • Fair value through surplus or deficit
  • Loans and receivables
  • Held-to-maturity investments
  • Available for sale financial assets.
 Selection of classification and measurement categories depends on the entity’s management model and nature of the contractual cash flows.

The categories are:
  • Fair value through surplus or deficit
  • Amortised cost
  • Fair value through other comprehensive revenue or expense (for certain debt instruments)
  • Fair value through other comprehensive revenue or expense (for certain equity instruments).
Financial liability classifications No change: Financial liabilities continue to be classified as at amortised cost or fair value through surplus or deficit.
Measurement Unquoted equity instruments classified as available for sale were able to be accounted for at cost. Unquoted equity instruments must be fair valued (there is transition guidance in paragraph 169 of PBE IPSAS 41 on how to account for the difference between the previously recognised cost and the fair value on transition).
Impairment
  • Incurred loss model.
  • Expected credit loss model.
Hedge accounting
  • More restrictive (e.g., 80-125% rule)
  • For example, PBE IPSAS 29 allows components of financial items to be hedged, but not components of non-financial items (except for foreign currency risk).
  • Entities can continue to apply the hedge accounting requirements in PBE IPSAS 29 if they wish.
  • The new requirements in PBE IPSAS 41 are:
    • aligned more closely with an entity’s risk management
    • allows more hedging instruments and relationships to qualify for hedge accounting.
Revised hedge disclosures in PBE IPSAS 30 apply whether the entity has elected to continue to apply the hedge requirement from PBE IPSAS 29 or has chosen to apply the new hedge requirements in PBE IPSAS 41.
Disposal of financial assets designated at FVOCRE Upon disposal of available for sale financial assets, previous valuation gains sitting in the revaluation reserve were reclassified through the surplus and deficit. Upon disposal of equity instruments designated at fair value through other comprehensive revenue and expense, any previous revaluation movements sitting in the revaluation reserve are transferred directly within equity (para AG222).
This differs to the disposal of debt instruments designated at fair value through other comprehensive revenue and expense, where those previous revaluations movements sitting in the revaluation reserve are reclassified from equity to the surplus or deficit (para 111).
Impairment of financial assets designated at FVOCRE If financial assets were impaired (significant or prolonged decline) an impairment through the surplus or deficit was recognised. For equity instruments at FVOCRE, the impairment provisions of the standard do not apply. This means if there is a decrease in the share price below cost, there may be a negative revaluation reserve.

For debt instruments, the impairment provisions of the standard do apply, and an impairment may be required.
Disclosures Additional disclosures are required in particular around credit risk and derivatives.

Refer to full standard for more details.