Financial Instruments Transformation and Elimination in Accordance with International Financial Reporting Standards

: This paper presents a unified methodology of transformation and elimination of financial instruments in accordance with International Financial Reporting Standards (IFRS) in SAP R3 environment. SAP R3 is a module that allows creating a single chart of consolidation accounts, defining a hierarchy of consolidated companies, collecting data on-line and loading it from external systems, recalculating rates, automating reconciliation and exception in-group turnovers, debt consolidation, equity and generating consolidated reports. The proposed method can be used by subsidiaries of energy companies in form of public companies who are involved in the preparation of transformed statements in accordance with International Financial Reporting Standards (IFRS). In addition to the lack of a unified methodology of transformation and elimination of financial instruments, problems caused by report in introduction of IFRS 9 "Financial Instruments" to 2015 are discussed. The article also provides a rationale for the transformation amendments of elimination of the financial result caused by disposal of investments and amendments to repel investment using the equity method in the consolidated (consolidated) financial statements. Transformation amendments have been shown necessary in two systems: International Financial Reporting Standards (IFRS) and Russian Accounting Standards (IFRS).


INTRODUCTION
international public institutions (such as the Association Financial instruments -the most difficult part of methodological problems caused by conflicting objectives modern international accounting and one of the laying in the essential nature of the standards' unregulated aspects of Russian accounting standards.
development [3].That is why the reasoning techniques of transformation It should be noted that the need for accounting and elimination of financial instruments is relevant to reform in Russia, no one is in doubt, but its specific areas the current phase of development of accounting and have been the subject of intense debate [4].reporting of energy companies.The most voluminous in Various theoretical and practical aspects of IFRS and content and the most discussed IFRS standards relate the preparation of the transition to IFRS disclose foreign namely financial instruments and investment instruments authors [5,6,7].[1].
In [8] examined the application of the IFRS standards Until 01.01.2013 there were four international IFRS 1, IFRS 7, IFRS 9 in practice and analyzed issues of standards for financial instruments: IFRS 32, IFRS 39, interpretation of certain provisions of these standards.IFRS and IFRS 9 [2].But with the beginning of the global In [9] conducted a study on the transition to IFRS financial crisis, the accounting for financial instruments and the main problems of their use in European countries became the subject No 1" in the IFRS and other such as Great Britain, Spain.
of Accountants and Auditors).It revealed numerous However, at the present time, not publications that practice the interest (percentage) to debt investments held would sum up experience and provide guidance on to maturity is not equal to the market one.Refinancing methodological tools of reporting under IFRS energy rate can be chosen as market interest.Thus, there is a companies in relation to the Russian practice.difference between the refinancing rate and the declared Classification of Financial Instruments According with less than the declared percent) or discount (if refinancing International Financial Reporting Standards: Financial rate exceeds the declared percentage), which is then instruments are classified into two main types.
amortized.In accordance with IFRS the effective interest Debt financial instruments are investments which discount.The effective interest rate is used for liabilities give the investor a right to receive in the future from with similar terms.Amortization of premiums or discounts the investee company: is shown in the profit and loss statement (section -"Other A fixed payment equal to the amount of the investment Trading securities (TS) -securities that are bought And the variable part equal to the percentage that and held principally for resale in the near future.Sale investee company pays for the right to use the usually means a permanent or implemented from time investment.
to time purchase or sale.These securities are The main type of debt instruments -bonds, notes, changes in price.Recognition of income and loans.
expenses for change of market value of TS is Equity instruments -investments in share capital by securities generally includes short-term financial acquiring the shares of the share capital, so the instruments.TS are measured at fair value.It is investor receives a certain portion of the profits of defined as the amount at which two independent the investee company (for example -in the form of partners wishing to make a transaction, conduct dividends).The main type of equity instruments -transactions on purchase and sale of financial stocks. instruments.
Depending on the duration of the period of related to TS and HTM.AFS investment are repayment, financial instruments can be short-term measured at fair value [10].(repayment period <1 year) and long-term financial instruments (repayment period> 1 year).
When purchasing, TS or AFS securities are reported In accordance with IFRS (in accounting) all financial at cost, which includes the cost of the security and other instruments of the company (equity and debt) should be costs for its purchase (taxes, broker fee and t.D.).divided into three groups: At the end of each year, the carrying value of the Held-to-maturity (HTM) -securities, which the If the carrying amount (net of the provision for impairment company holds to maturity.Early sale of securities losses) exceeds the market value, a provision is created belonging to this class is possible only in for impairment of securities.Then the amount of the extraordinary cases (outflow of investors, for excess is credited to the account "Provision for example).
impairment of investments (balance)." This group includes long-term and short-term debt securities is considered as non-operating income / financial instruments (bonds and notes).HTM are expenses (Unrealized holding gain and loss) and is taken measured at amortized cost, which is equal to the book into account for: value and relative to the difference between the declared rate debt obligation and the market rate of this obligation, TS in the statement of profit and loss: Other incomes which for the maturity of the obligation is gradually (expenses) and Allowance for impairment of charged to financial result.In the Russian financial securities (Balance).
interest which is equal to premium (if the refinance rate is rate is used for the amortization of the premium or incomes and expenses").
typically used for profit in the period of short-term recognized in the income statement.This class of Available-for-sale (AFS) -investments that are not AFS and TS securities is compared to their market value.
Temporary change in fair value of AFS and TS AFS in other comprehensive income: In case if an investee does not pay dividends on its Gross income.
Non-operating incomes (expenses) and Allowance for impairment of securities (Balance).
Provision for impairment of financial instruments is the "evaluation reserve" because it is based on an accountant estimates and judgments.Evaluation reserve is formed only if it can be reasonably determined.For financial HTM instruments (bonds and notes) the reserve is not calculated.
The Procedure for Calculating Reserves: For financial instruments traded on the securities market (marketable securities): The carrying value of financial instruments balances' to securities at the end of the reporting period, compared with their fair (market) value, which is taken from the stock exchange quotations, financial publications in periodicals at the end of the reporting period; The size of reserve on listed securities is determined as the difference between the fair value and the carrying (book) value of these financial instruments.
For all other financial instruments that are not traded on the securities market:

Equity Instruments:
To calculate the reserve for impairment of unquoted equity instruments it is necessary to involve the Department of Property and Corporate Governance, which keeps records and analysis of the financial health of the investee; The size of reserve for unquoted securities is determined as the excess of the investment cost in the investor's net assets over the cost of the company; Litigation with the companies -investment objects should be accounted when calculating the size of a reserve.The information is obtained in the legal department; If there is a high probability that the investment will lose their "value", for example, because of the bankruptcy of the company, the reserve is made for the entire amount of the investment; shares, i.e. does not bring economic benefits to its investor, does not provide information about its activities, then the reserve is made for impairment of unquoted equity instruments.

Debt Financial Instruments:
The size of reserve on investments in unlisted securities is determined based on the information on department of the property and the corporate governance on realizable value of these investments.
The magnitude of the required reserves for each of the investment should be determined taking into account the opinion of the head of department of ownership and corporate governance on the advisability of further investor participation in the shareholders of the investee.
The reserve is not created for the derivatives in consolidation unit.
Reserve evaluation is made at the end of each reporting period.
Dividends, interests earned on TS and AFS investments are realized incomes and are shown in the profit and loss statement (section -"Other incomes and expenses").
Impairment is considered only in relation to long-term investments -held to maturity (HTM) and other investments (AFS).
If the decline in the market value of the securities (AFS and HTM) is other than temporary, the carrying value of the securities is written down to market value.Loss on write-off period is reflected in the costs.
According to the impairment test, the following indicators are the basis to decide whether that decline in market value is other than temporary: Fair market value is significantly lower than the cost of the security; Decline in market value of securities are a matter of specific adverse conditions that affect this financial investment; Decline in market value of securities caused by the specific conditions encountered in industry or geographic region; Management company at the same time has neither the capacity nor the intention to hold an investment for a long period of time sufficient for the occurrence of favorable conditions for overcoming the existing decline in market value of the investment; Decline in market value of securities is observed over "Investment activities".In Table 2, we give a rough a long period; classification of the financial instruments accounted by Debt securities brought to a lower category by a energy companies.rating agency; The financial state of the issuer of the security has Restrictions on the Transformation of Financial deteriorated; Instruments: With the transformation of the financial Value of dividends associated with these instruments in accordance to IFRS, the following investments was reduced, or payment of dividends restrictions apply.has been completely discontinued, or expected interest payments on debt securities have not been Transactions are not done for the full write-off of produced.
financial instruments, but the reserves are charged; IFRSs do not determine the period during which the to maturity (HTM) the refinancing rate (at the end of decline in market value ceases to be temporary since it the reporting period) is used as the effective interest depends on the characteristics of the business rate; companies.
Reserve calculation is performed only for external If the decline in value is not temporary, the cost of (outside the consolidation perimeter) issuers the investment should be written down to fair value (investment objects) [11].(new cost), the amount of write-offs should be considered as a realized loss and included in the determination of the Reserve (for impairment losses of financial financial result of the reporting period (see "Other instruments) forming rules in energy companies are incomes / expenses"): Loss impairment of financial subject to the general rules of formation of the reserve of instruments and "Long-term financial instruments" the IFRS as described above.Use Form "Statistical articles.
position to explaining" (item 0009141000 "Market value of Further increase market value of securities does not financial instruments ").Table 3 shows the formation of change its carrying value: the financial instruments by positions.
Further increase in the value of AFS securities is from the Russian Accounting Code in the forms recorded as other income / loss in equity (as a part of "Investments in shares", "Other investments", the full profit (comprehensive income)); "Investments in shares -amount", "Other investments -Further increase in the value of HTM securities is amount", "Bills -assets", "Statistical position to be accounted as "other gains / losses" in the income explained."statement.
Table 4 shows the structure of the balance sheet and Further decline in the market value of AFS securities collected.is recorded as other income / loss in equity, as a The reserve for impairment of financial instruments, component of comprehensive income.Further decline in calculated in accordance with Russian Accounting the value of TS securities is recorded as other income / Standards (RAS 19/02 "Investments"), automatically loss in the income statement.Financial investments sorted eliminated in the transformation module SAP R3.Balance by groups are presented in Table 1.
article on the reserve for financial instruments is formed If any of the components of the financial instruments exclusively as a result of the manual transformative (HTM, AFS, TS) is significant (more than 10% of total transactions in the unit of currency.investments), it shall be disclosed in the financial Consolidation and transformation module SAP statements.
R3 -a module allowing to create a unified chart of In accordance with IFRS, cash transactions for the consolidation accounts, define a hierarchy of purchase and sale of financial investments belonging to consolidated companies, to collect data on-line and load the TS group, are reflected in the "Operations".data from external systems, recalculate rates, automate Operations on purchase and sale of financial investments reconciliation and exception of in-group turnovers, debt related to AFS and HTM group are reflected in the consolidation, equity and generate consolidated reports.

For calculating the amortized cost of securities held
To form the balance sheet data are taken in rubles how the position titles correspond to the forms of data The debt, bills of domestic partners 5804030100 The debt, bills of other organizations -not-offered 5804030101 The debt, bills of other organizations -offered 0001259903 Short-term bills 5804010200 Short-term bills of internal partners 5804030200 Short-term bills of other organizations The Need for Transformational Amendments: The need If as a result of this transaction the balance of the for transformational investments amendment arises from account "Shares and shares of affiliated companies' the fact that SAP R3 does not automatically eliminate the becomes negative, the manual adjusting transaction is financial result on disposals of financial instruments to made in correspondence with the position (score by RAS) the RAS.Previously they (in previous reporting periods) 58" Investments ", which is reflected in the composition were reserved in accordance with the requirements of the of loans given to the associate.standard.
During reporting on income from dividends received Transformational amendments to repel investment from associates, a manual amendment is made to curtail using the equity method of consolidated statements are the income received from dividends with the amount of partially automated in the module of transformation and the investment: "Dividends" and "Shares and stocks of consolidation SAP R3.Need for additional amendments affiliated companies".manually may occur due to a lack of information about the When the investment account reaches a zero balance, associates, investments EC that should be reflected in the the use of the equity method ceases.The fact that further reporting period by means of the equity method.In this losses will not affect the profits of the associate is case, a report "Dynamics of results" is made on the basis reflected in reports.If later the object of investment of the financial result.Then a standard automatic becomes profitable again, share in its profits is ignored transaction is made to repel investment using the equity (for reporting) as long as it does not compensate the method: "Capitalized income, reflecting the profit of losses previously ignored.Only after that the application associate" and "Shares and stocks of associates" articles.
of the equity method can be resumed.There are, however, some conditions under which the into account the losses of the associate under the losses of the associate will be reflected in the financial equity method.This rule reflects the logical investor statements: risks in case of bankruptcy of the associate, the Some investors may act as guarantor in respect of be considered the last, in front of them -the interests payables of associate or investments of other of the shareholders on the preferred shares and so on investors in the associate, or undertakes to -until the debts of associates who have the highest compensate the losses of creditors, or agrees to priority in relation to the assets of the associate in finance the continuity of the associate.In this case, case of its liquidation.the investor assumes all risks associated with the insolvency of the associate and therefore the CONCLUSION application of the equity method is considered to be acceptable as a pure credit balance on the account of The studied technique of transformation and the investor's investment in the associate will elimination of financial instruments in accordance with actually reflect the real commitment of the investor.
IFRS in SAP R3 environment is applied to "historic" If the investments in associates include both financial instruments, i.e. those that have been taken for ordinary shares and other investments / loans given accounting under RAS in previous periods and already to the associate, debentures, then, in this case, the present on the balance of the consolidation units (under value of other investments should be adjusted taking RAS) at the beginning of the reporting period.
interests of the shareholders of ordinary shares will

Table 1 :
Summary table of financial investments accounting for groups

Table 2 :
Rough classification of financial instruments of energy companies

Table 3 :
Formation of financial instruments by positions

Table 4 :
Article's structure and appropriate forms of collected data