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News

IASB finalizes amendments related to the application of the investment entities exception

Dec 18, 2014

The IASB has published "Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)." The amendments address issues that have arisen in the context of applying the consolidation exception for investment entities. They are effective for annual periods beginning on or after January 1, 2016, with earlier application permitted.

 

Background

In October 2012, the IASB issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), which provided an exemption from consolidation of subsidiaries under IFRS 10, Consolidated Financial Statements, for entities that meet the definition of an "investment entity." Subsequently, the IFRS Interpretations Committee received several submissions regarding the implementation of the exemption. The Committee recommended that the IASB address the issues in a narrow-scope project, and in March 2014, the IASB formally added a project on IFRS 10/IAS 28 — Investment entity amendments to its work program. In June 2014, it published an exposure draft of proposed amendments in June 2014, with comments due by September 15, 2014.

 

Key Provision of the Amendments

The amendments are intended to clarify the following:

  • Exemption from preparing consolidated financial statements The exemption from preparing consolidated financial statements for an intermediate parent entity is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all of its subsidiaries at fair value.
  • A subsidiary providing services that relate to the parent's investment activities — A subsidiary that provides services related to the parent's investment activities should not be consolidated if the subsidiary itself is an investment entity.
  • Application of the equity method by a non-investment entity investor to an investment entity investee — When applying the equity method to an associate or a joint venture, a non-investment entity investor in an investment entity may retain the fair value measurement applied by the associate or joint venture to its interests in subsidiaries.
  • Disclosures required —An investment entity measuring all of its subsidiaries at fair value provides the disclosures related to investment entities required by IFRS 12.

 

Changes to guidance proposed in exposure draft

ED/2014/2, Investment Entities: Applying the Consolidation Exception (Proposed amendments to IFRS 10 and IAS 28) would have provided relief to non-investment entity investors for their interests in investment entity associates but not for their interests in investment entity joint ventures. To retain consistency in the treatment of the application of the equity method to both associates and joint ventures, the final amendments provide relief to noninvestment entity investors in both investment entity associates and joint ventures.

The IASB amended IFRS 12, Disclosure of Interests in Other Entities, because the comments received in response to the ED highlighted that constituents were unclear about the applicability of IFRS 12 to the financial statements of an investment entity. The amendments clarify that the scope exclusion in paragraph 6(b) of IFRS 12 does not apply to the financial statements of a parent that is an investment entity and measures all of its subsidiaries at fair value.

 

Additional information

IASB finalizes amendments to IAS 1 as part of its disclosure initiative

Dec 18, 2014

The IASB has published Disclosure Initiative (Amendments to IAS 1). The amendments are intended to clarify IAS 1 to address perceived impediments to the exercise of judgment by preparers in presenting their financial reports. They are effective for annual periods beginning on or after January 1, 2016, with earlier application permitted.

 

Background

The IASB added a disclosure initiative to its work program in 2013 to complement its efforts in  conceptual framework project. The initiative consists of a number of smaller projects involving the exploration of opportunities to improve the presentation and disclosure principles and requirements in existing standards. Among them was a narrow-scope project on IAS 1, Presentation of Financial Statements, to ensure that entities were able to use judgement when presenting their financial reports because the wording of some of the requirements in IAS 1 had in certain cases been interpreted to prevent the use of judgement. An exposure draft of proposed amendments was published in March 2014, with comments due by July 23, 2014.

 

Key provisions of the amendments

The amendments to IAS 1 do the following:

  • Materiality — Clarify (1) that entities should not obscure information by aggregating or providing immaterial information and (2) that materiality considerations apply to all parts of the financial statements, even when a standard requires a specific disclosure.
  • Statement of financial position and statement of profit or loss and other comprehensive income — Clarify (1) that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant (as well as add guidance on subtotals in these statements) and (2) that an entity's share of other comprehensive income of equity-accounted associates and joint ventures should be presented in the aggregate as single line items according to whether the share will subsequently be reclassified as profit or loss.
  • Notes — Add examples of possible ways to arrange the notes to clarify that entities should consider understandability and comparability when determining the order of the notes and to demonstrate that the notes need not be presented in the order listed in paragraph 114 of IAS 1. The IASB also removed guidance and examples related to the identification of significant accounting policies that were perceived as being potentially unhelpful.

 

Changes to guidance proposed in exposure draft

ED/2014/1, Disclosure Initiative (Proposed amendments to IAS 1), stated that entities "shall not aggregate or disaggregate information in a manner that obscures useful information." Because disaggregation often means expanding totals and subtotals and thus providing added transparency, the IASB decided to rephrase the clarification to state that entities "shall not reduce the understandability of its financial statements by obscuring material information with immaterial information."

ED/2014/1 also proposed that the term "disclose" would be used to mean information in the notes and that the term "present" would be used otherwise. Because respondents to the ED noted that a change in terminology should be part of a comprehensive review of IAS 1 and would be outside the scope of a narrow-scope amendment, the IASB did not finalize the proposals regarding use of the terms "present" and "disclose."

Finally, the ED proposed that an entity would disclose the fact that it applied the amendments when it did so for the first time. However, the transition provisions in the standard state that an entity need not disclose the fact that it has applied these amendments (regardless of early application or application on the effective date) because the IASB considers the amendments to be clarifying (i.e., they do not directly affect an entity's accounting policies or accounting estimates).

 

Additional information

For more information, see:

SASB issues provisional services standards

Dec 17, 2014

The SASB has issued provisional standards for the services sector. The standards are the sixth set in a planned series of industry-related SASB standards on accounting for environmental, social, and governance issues that could be material to a corporation’s performance. The standards focus on material sustainability matters that corporations are already required to disclose in their Form 10-K or 20-F filings with the SEC.

The standards apply to the following industries:

  • Advertising and marketing.
  • Cable and satellite.
  • Casinos and gaming.
  • Cruise lines.
  • Education.
  • Hotels and lodging.
  • Leisure facilities.
  • Media production and distribution.
  • Professional services.
  • Restaurants.

The Board’s first five sets of provisional standards focus on communications, financials, health care, nonrenewable resources, and transportation.

The new provisional standards and corresponding industry briefs are available on the SASB’s Web site.

SEC updates EDGAR filer manual and technical specifications

Dec 16, 2014

The SEC has updated its Electronic Data Gathering, Analysis, and Retrieval (EDGAR) System Filer Manual (Volumes I and II) and has issued Version 14 of the EDGARLink Online XML Technical Specification and Version 5.5.0 of the EDGAR TA-2 Technical Specification.

Updates to the EDGAR Filer Manual include the fol­low­ing:

  • Revised submission form types.
  • New exhibit on EDGARLink Online.
  • Changes to Item 3(a) and validations for Item 5 of Form TA-2.
  • New option to the EDGAR Portal.

For more information, see the final rule and the EDGAR page on the SEC’s Web site.

Summary of the December 2014 PCC meeting

Dec 12, 2014

At its meeting this week, the Private Company Council (PCC) principally discussed (1) the definition of a public business entity (PBE), (2) partnership accounting, (3) share-based compensation, (4) and select FASB projects.

For more information about the PCC’s December 11, 2014, meeting, see the related Deloitte Accounting Journal entry and the media recap on the FASB’s Web site.

Highlights from the FASB’s December 10 meeting

Dec 12, 2014

At its December 10, 2014, meeting, the FASB discussed its projects on (1) consolidation and (2) improvements to employee share-based payment accounting.

Consolidation

The FASB discussed certain significant items related to its consolidation project that had been raised during the external review process. A significant portion of the discussion focused on (1) how entities that are required to comply with or operate in accordance with the requirements of the Investment Company Act of 1940 should be evaluated for consolidation and (2) whether kick-out rights held by a general partner and its related parties should affect the consolidation analysis.

For more information, see the related Deloitte Accounting Journal entry and the tentative Board decisions on the FASB’s Web site.

Improvements to employee share-based payment accounting

The FASB considered whether to simplify private-company accounting for share-based payments “by providing one or more practical expedients.” The Board deferred making any decisions on this topic until it receives and considers the PCC’s feedback.

For more information, see the tentative Board decisions on the FASB’s Web site.

FASB chairman discusses postconvergence priorities

Dec 09, 2014

At this year’s AICPA Conference on Current SEC and PCAOB Developments, FASB Chairman Russell Golden discussed the FASB’s postconvergence project agenda.

Mr. Golden stressed that the FASB’s first priority is to improve U.S. GAAP; he spoke about the FASB’s simplification initiative and reducing complexity in U.S. GAAP. He also admitted the need for a complete conceptual framework to bridge gaps and minimize inconsistencies. These priorities have helped align some topics of U.S. GAAP and IFRSs (e.g., inventory balance sheets, development-stage enterprises, and extraordinary items), although sometimes the simplification of U.S. GAAP has resulted in conclusions different from those of the IASB on various topics (e.g., leases, impairment, classification and measurement, and insurance).

On the subject of international cooperation, Mr. Golden said:

I believe that continuing to work toward the development of more comparable global accounting standards is an important way to help reduce complexity. That’s why we continue to collaborate and cooperate with the IASB and national standards setters with an eye toward agreeing on and adopting standards that either are converged or that have the fewest possible differences.

The full text of Mr. Golden's speech is available on the FASB's Web site.

Speeches available from the annual AICPA conference on current developments

Dec 09, 2014

The 2014 AICPA Conference on Current SEC and PCAOB Developments is being held in Washington, D.C., from December 8–10. The conference features speeches by — as well as panel discussions and question-and-answer sessions with — members of the SEC, PCAOB, FASB, IASB, and professionals from various industries.

Prepared remarks by the following speakers are now available:

SEC:

  • James Schnurr, Chief Accountant, Office of the Chief Accountant.
  • Brian T. Croteau, Deputy Chief Accountant, Office of the Chief Accountant.
  • Julie A. Erhardt, Deputy Chief Accountant, Office of the Chief Accountant.
  • Dan Murdock, Deputy Chief Accountant, Office of the Chief Accountant.
  • Kevin M. Stout, Senior Associate Chief Accountant, Office of the Chief Accountant.
  • Carlton E. Tartar, Associate Chief Accountant, Office of the Chief Accountant.
  • T. Kirk Crews, Professional Accounting Fellow, Office of the Chief Accountant.
  • Steven Mack, Professional Accounting Fellow, Office of the Chief Accountant.
  • Christopher F. Rogers, Professional Accounting Fellow, Office of the Chief Accountant.
  • Hillary H. Salo, Professional Accounting Fellow, Office of the Chief Accountant.

FASB:

PCAOB:

Center for Audit Quality:

IASB:

Deloitte’s upcoming Heads Up newsletter will summarize highlights from the conference. Watch for it early next week!

FASB and FAF comment on voluntary disclosure of IFRS information

Dec 09, 2014

The FASB and its parent body, the Financial Accounting Foundation (FAF), have issued a statement indicating that the organizations believe that “voluntarily providing IFRS information on a supplemental basis, subject to audit, SEC review, and other regulatory scrutiny, could be an important tool in fostering further convergence of [GAAP] and IFRS.”

At this year’s AICPA Conference on Current SEC and PCAOB Developments, SEC Chief Accountant James Schnurr spoke about a plan to consider whether U.S. companies should be permitted to voluntarily provide IFRS-prepared financial statements as a supplement to their U.S. GAAP financial statements. He also indicated that in this context, it might be necessary to reconsider the SEC's current thinking that IFRS-based measures are "non-GAAP" financial measures.

In their statement, the FAF and FASB noted that “it makes sense to explore whether there are ways to remove bar­ri­ers that might exist for com­pa­nies that vol­un­tar­ily choose to offer in­vestors a second set of fi­nan­cial state­ments pre­pared in ac­cor­dance with [IFRS].”

The full statement is available on the FAF's Web site.

SEC to explore permitting voluntary supplementary use of IFRSs

Dec 08, 2014

At this year’s AICPA Conference on Current SEC and PCAOB Developments, SEC Chief Accountant James Schnurr spoke about a plan to consider whether U.S. companies should be permitted to voluntarily provide IFRS-prepared financial statements as a supplement to their U.S. GAAP financial statements. He noted that in the coming months, he hopes “to commence discussions with the Chair and the Commissioners about the different alternatives for potential further incorporation of IFRS and the related issues/concerns of each alternative with the objective of reaching a recommendation on what, if any, further incorporation or use of IFRS by US registrants would be permitted or required.”

Al­ter­na­tives already under consideration by the SEC regarding the use of IFRSs in the United States include (1) the outright adoption of IFRSs, (2) providing U.S. reg­is­trants with the option to file IFRS financial state­ments, and (3) the so-called "con­dorse­ment" approach."

Mr. Schnurr explained the rationale for the new alternative as follows:

[W]e understand that some domestic issuers may, now or in the near future, prepare IFRS-based financial information in addition to the U.S. GAAP based information that they use for purposes of SEC filings. However, regulatory constraints may dissuade some issuers from providing this information, as current SEC rules would consider IFRS-based information to be a “non-GAAP” financial measure for a domestic issuer. Should IFRS-based information continue to be considered “non-GAAP” financial measures subject to the requirements for such measures, or should it be thought of differently? Under this line of thinking, issuers that do not believe IFRS-based information would be beneficial to investors would not be forced to undertake what we understand to be, in some cases, significant implementation costs. 

The full text of Mr. Schnurr’s speech is available on the SEC’s Web site.

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