NOTES TO
FINANCIAL STATEMENTS
December 31, 2015
56
CITIC ENVIROTECH LTD.
Annual Report
2015
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont’d)
2.2 Adoption of new and revised standards (cont’d)
FRS 109
Financial Instruments (cont’d)
In relation to the impairment of financial assets, FRS 109 requires an expected credit loss
model, as opposed to an incurred credit loss model under the existing FRS 39. The expected
credit loss model requires an entity to account for expected credit losses and changes in those
expected credit losses at each reporting date to reflect changes in credit risk since initial
recognition. In other words, it is no longer necessary for a credit event to have occurred before
credit losses are recognised.
The new general hedge accounting requirements retain the three types of hedge
accounting mechanisms currently available in FRS 39. Under FRS 109, greater flexibility
has been introduced to the types of transactions eligible for hedge accounting, specifically
broadening the types of instruments that qualify for hedging instruments and the types of
risk components of non-financial items that are eligible for hedge accounting. In addition,
the effectiveness test has been overhauled and replaced with the principle of an ‘economic
relationship’. Retrospective assessment of hedge effectiveness is also no longer required.
Enhanced disclosure requirements about an entity’s risk management activities have also been
introduced.
FRS 109 will take effect from financial years beginning on or after January 1, 2018.
Management will undertake a detailed review of the effect of FRS 109 prior to implementation.
FRS 115
Revenue from Contracts with Customers
In November 2014, FRS 115 was issued which establishes a single comprehensive model for entities
to use in accounting for revenue arising from contracts with customers. FRS 115 will supersede the
current revenue recognition guidance including FRS 18 Revenue, FRS 11 Construction Contracts and
the related interpretations when it becomes effective.
The core principle of FRS 115 is that an entity should recognise revenue to depict the transfer of
promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. Specifically, the standard
introduces a 5-step approach to revenue recognition:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation
FRS 115 will take effect from Under FRS 115, an entity recognises revenue when (or as) a
performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the
particular performance obligation is transferred to the customer. Far more prescriptive guidance
has been added in FRS 115 to deal with specific scenarios. Furthermore, extensive disclosures are
required by FRS 115.
FRS 115 will take effect from financial years beginning on or after January 1, 2018. The Group is
currently evaluating the impact of the changes in the period of initial adoption.
