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June 2015 IASB meeting notes posted — part 1

03 Jul 2015

The IASB met at its offices in London on 22 to 25 June 2015. We have posted the Deloitte observer notes from the sessions on IFRS implementation issues, financial instruments with characteristics of equity, research projects, insurance contracts, and pollutant pricing mechanisms.

Please click through for direct access to the notes:

Tuesday, 23 June 2015

Wednesday, 24 June 2015

Thursday, 25 June 2015

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

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ASBJ urges FASB to wait for IASB with changes to revenue recognition requirements

03 Jul 2015

The Accounting Standards Board of Japan (ASBJ) has responded to the proposed revenue ASU on licensing and identifying performance obligations the FASB published for comment in May.

In its comment letter, the ASBJ states that it finds some of the proposals useful and believes they would help entities avoid significant practical challenges when implementing the new revenue recognition requirements while also maintaining the usefulness of the resulting financial information. However, the ASBJ stresses that it is important that the FASB and the IASB try to remain converged on the requirements. Therefore, the ASBJ urges the FASB not to continue with these amendments and finalise them until "after the FASB sufficiently consult with the IASB on the optimal scope and contents of possible changes to the two standards". The IASB's proposed clarifications to IFRS 15 are currently expected for the third quarter of 2015.

US GAAP are one set of accounting standards for consolidated financial statements in Japan. The others are the newly issued Japan’s Modified International Standards (JMIS), designated IFRSs (IFRS as issued by the IASB), and Japanese GAAP.

Please click to access the comment letter on the ASBJ website.

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Videos from the IFRS Foundation's IFRS conference in Paris

02 Jul 2015

Video recordings of the speeches given at the IFRS Foundation's IFRS conference held in Paris on 29 and 30 June 2015 have been made available.

The speakers at the conference were:

  • Michel Prada, Chairman of the Trustees of the IFRS Foundation;
  • Hans Hoogervorst, Chairman of the IASB;
  • Patrick de Cambourg, Chairman, Autorité des Normes Comptables (ANC);
  • Gérard Rameix, Chairman, Autorité des Marchés Financiers (AMF); and
  • Steven Maijoor, Chair, European Securities and Markets Authority (ESMA).

The recordings of their speeches are available on the IASB website. We had already reported on the speeches of Hans Hoogervorst and Patrick de Cambourg, for which transcripts are available.

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Japanese government wants to push use of IFRSs in Japan

01 Jul 2015

On 30 June, the Cabinet in Japan adopted a revised 'Japan Revitalisation Plan' summarising the nation's growth strategy and policy. Among many other measures IFRSs are included in the document.

The document states that two policy measures will be taken to promote further IFRSs adoption by Japanese companies:

  • Developing/improving material that may be useful to companies adopting IFRSs, based on recent disclosure examples; and
  • Raising awareness around the IFRSs adoption situation by providing an analysis of disclosures by public companies on their choice of accounting standards (a disclosure required by the Tokyo Stock Exchange).

While the two measures may not particularly strong in themselves, a continued support for IFRS by the highest level of the government does create a comfortable environment to those who are willing to adopt.

The revised revitalisation plan is available on the Japanese government's website (document available in Japanese only).

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IASB issues work plan update

30 Jun 2015

Following its June meeting, the IASB has updated its work plan. The revised plan announces the expected issuance of an exposure draft (ED) on eliminations of gains arising from 'downstream' transactions in the third quarter of 2015, moves the target ED date for clarifications arising from the post-implementation review of IFRS 8 up one quarter, and extends redeliberations for several projects to the third quarter of 2015.

Current status

The revised timetable for the major projects is now as follows:

ProjectCurrent statusNext project stepExpected timing
Conceptual Framework — Comprehensive IASB project Exposure draft Redeliberations* Q1 2016*
Financial instruments — Macro hedge accounting Comment letter analysis Redeliberations Q3 2015*
Insurance contracts Revised exposure draft Redeliberations Q3 2015*
Leases Revised exposure draft Target IFRS Q4 2015
Disclosure initiative — Principles of disclosure Board discussion Target discussion paper Q4 2015
Disclosure initiative — Changes in accounting policies and estimates Board discussion Target ED Q4 2015
Disclosure initiative — Materiality Board discussion Draft Practice Statement Q3 2015
Rate-regulated activities Discussion paper Board discussion Q3 2015*

* Indicates a change since the previous work plan update on 27 May 2015.

Updates regarding the implementation and research projects include:

  • Clarifications arising from the post-implementation review of IFRS 8 will see an ED in the third quarter of 2015 (pulled forward);
  • IAS 28 — Eliminations of gains arising from 'downstream' transaction will see an ED in the third quarter (moved back));
  • Two research projects have moved from the assessment phase to the development phase:
    • Business combinations under common control;
    • Equity method of accounting.
  • Two research projects have been added to the development phase as a result of the post-implementation review of IFRS 3:
    • Definition of a business;
    • Goodwill.
  • The research project on performance reporting is now called primary financial statements.

The revised IASB work plan is available on the IASB's Web site. We have updated our project pages to reflect the updated work plan and other known developments.

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ESMA publishes final guidelines on alternative performance measures

30 Jun 2015

The European Securities and Markets Authority (ESMA) has published its final Guidelines on Alternative Performance Measures (APMs) for listed issuers. The guidelines apply to issuers with securities traded on regulated markets, and persons responsible for drawing up a prospectus. They are effective from 3 July 2016.

In February 2014, ESMA published proposed guidelines to improve the transparency and comparability of financial information, reduce information asymmetry among the users of financial statements, and contribute coherent use and presentation of alternative performance measures. However, respondents found that compliance with the proposed guidelines would increase the disclosure overload, especially since ESMA had proposed a very ambitious scope. To respond to the criticism, ESMA has revised the scope of the proposed guidelines and amended the definition, the presentation and the reconciliation principles for the APMs. Financial statements have now been excluded from the scope, considering that they are already covered by the applicable financial reporting framework.

The below is a short extract of the main points of the new guidelines.

  • An APM is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.
  • Issuers should define the APM used and its components as well as the basis of calculation adopted.
  • Issuers should disclose the definitions of all APMs used in a clear and readable way.
  • APMs should be given meaningful labels reflecting their methodology and basis of calculation in order to avoid conveying misleading messages to users.
  • APMs should be reconciled to the most relevant amount presented in the financial statements, separately identifying and explaining each reconciling item.
  • Issuers should also present the most directly reconcilable line item, subtotal or total presented in the financial statements relevant for that specific APM.
  • Issuers should explain the use of APMs in order to allow users to understand their relevance and reliability.
  • APMs should be accompanied by comparatives for the corresponding previous periods.
  • Issuers should present reconciliations for all comparatives presented.
  • The definition and calculation of an APM should be consistent over time. In exceptional circumstances where issuers decide to redefine an APM, the issuer should:
    • Explain the changes;
    • explain the reasons why these changes result in reliable and more relevant information on the financial performance, and
    • provide restated comparative figures.
  • If an issuer stops disclosing an APM, the issuer should explain the reason for considering that this APM no longer provides relevant information.
  • Where permitted, disclosure principles set out in the guidelines may be replaced by a direct reference to other documents previously published which contain these disclosures on APMs and are readily and easily accessible to users.

The above guidelines will be translated into the official languages of the EU and will be published on ESMA's website in the course of 2015. They are effective for documents issued on or after the effective date of 3 July 2016.

The guidelines are included as Annex IV in the Final Report on the ESMA Guidelines on Alternative Performance Measures published today. The report also offers an executive summary, general remarks, a feedback statement, and a cost-benefit analysis. Please click to access the final report and a corresponding press release on the ESMA website.

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ASBJ publishes 'Japan’s Modified International Standards'

30 Jun 2015

The Accounting Standards Board of Japan (ASBJ) has issued "Japan’s Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications". JMIS are standards and interpretations issued by the International Accounting Standards Board (IASB) with certain 'deletions or modifications' where considered necessary.

The current list of JMIS contains standards issued by the IASB as at 31 December 2012. During the endorsement process it was determined that several standards should be modified with respect to guidance related to the accounting of goodwill and other comprehensive income. To this end, two ASBJ Modification Accounting Standards were also published today:

  • ASBJ Modification Accounting Standard No. 1 Accounting for Goodwill contains modifications to IFRS 3 Business Combinations and IAS 28 Investments in Associates and Joint Ventures.
  • ASBJ Modification Accounting Standard No. 2 Accounting for Other Comprehensive Income contains modifications to IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments (2010), IAS 1 Presentation of Financial Statements, and IAS 19 Employee Benefits.

As regards the relationship with IFRSs, the Foreword to the JMIS states:

The IFRS endorsement process is an effort to promote the application of IFRS in Japan towards the ultimate goal of achieving a single set of high-quality global standards. Limited ‘deletions or modifications’ to the Standards issued by the IASB that are made today may be resolved depending on future discussions in Japan and at the IASB. Accordingly, they should be viewed as transitional treatments and the ASBJ will continue to express views on these requirements.

An entity may apply JMIS to consolidated financial statements for annual periods ending on or after 31 March 2016. The endorsement process for standards issued by the IASB as at 31 December 2013 has already begun and will be completed shortly. Afterwards, the endorsement process for standards issued by the IASB after 31 December 2013 will be taken up.

Please click to access the press release on the ASBJ website. It offers access to the Foreword, the approvd Application of the JMIS, and the two modification standards.

JMIS constitute the fourth set of accounting standards for consolidated financial statements in Japan in addition to designated IFRSs, Japanese GAAP, and US GAAP. The Financial Services Agency of Japan (FSA) is currently consulting on changing the related cabinet ordinances to make the use of JMIS legally possible. Comments on the consultation close on 30 July 2015. Please click for more information on the FSA website (Japanese only).


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Speech at Paris IFRS conference on the European view of IFRSs

30 Jun 2015

At the IFRS Foundation's IFRS conference currently held in Paris, the Chairman of the French standard-setter Autorité des Normes Comptables (ANC) Patrick de Cambourg spoke about the crucial importance of international accounting standards and the objective of establishing 'a confident and level playing field dialogue with the IASB'.

In his speech, Mr de Cambourg evaluated the 10 years of IFRS implementation in Europe and observed that Europe (and the world in general) is moving into a new stage of standard-setting. He stressed that extra attention needs to be paid to the general principles underlying standard-setting, if understanding and buy-in is to be encouraged. Therefore, he pointed out, standard-development needs to be pursued in a coherent manner, has to address emerging issues and has to avoid over-complexity.

The full transcript of Mr de Cambourg’s speech is available on the ANC website.

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ESMA opposes IFRS 9 deferral for insurance companies

29 Jun 2015

The European Securities and Markets Authority (ESMA) has responded to the EFRAG draft endorsement advice on IFRS 9 'Financial Instruments'.

In its response to the draft endorsement advice published in May 2015, ESMA agrees with the conclusion that adoption of IFRS 9 is conducive to the European public good and should be adopted for the use in the European Union in a timely manner "in order to respond to the concerns raised during the financial crisis".

In one point, however, ESMA diagrees with EFRAG: the potential deferral of IFRS 9 for insurance business activities while the IASB finalises its forthcoming insurance standard. The letter states:

ESMA is of the view that in light of significant uncertainty about the timing of the finalisation of the new standard on insurance contracts, there should be no delay in the application of IFRS 9 for insurance industry. Furthermore, ESMA is of the view that EFRAG should explicitly acknowledge that the IASB already considered and tentatively rejected deferring the mandatory effective date of IFRS 9 for entities that issue insurance contracts in January 2015.

ESMA believes that deferral of IFRS 9 for insurance companies would be inconsistent with the generic nature of IFRSs that apply across all industries. ESMA also fears a lack of comparability, confusion among financial statement users, potential earnings management, a loss of credibility of financial reporting, conceptual repercussions and other unintended consequences.

Please click to access the full comment letter on the ESMA website.

In a recent comment letter, the Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) had supported a deferral.

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Hans Hoogervorst speaks about historical cost and fair value

29 Jun 2015

At the IFRS Foundation's IFRS conference currently held in Paris, IASB Chairman Hans Hoogervorst spoke about the question of how assets and liabilities should be measured, a topic he called "one of the most difficult topics in accounting".

Mr Hoogervorst pointed at the fact that the recently published Exposure Draft containing proposals for topical areas where the IASB considers a revision and amendment of the existing Conceptual Framework necessary also includes a chapter on measurement offering a description of different measurement bases, the information that they provide and their advantages and disadvantages. In this chapter, the IASB has have divided the measurement techniques into two categories: historical cost and current value. However, Mr Hoogervorst pointed out that "the dichotomy between historical cost and fair value is not as stark as one would expect". He listed four aspects where the assumed stability of historical cost and the often cited vulnerability of current value are not necessarily that far apart. He cited

  • the fact that, for many transactions, historical cost starts and ends with fair value (or values that come very close to it);
  • that, despite its name, historical cost gets updated too (depreciation/amortisation);
  • that the alleged stability resulting from historical cost accounting can be extremely misleading; and
  • that the stability of historical cost can be interrupted by steep cliff effects.

He summed up:

In conclusion, historical cost is to some extent based on fair value; it needs a degree of current measurement to maintain its relevance, it is not free from subjective updating requirements; and it is not necessarily stable. Moreover, historical cost is also vulnerable to abuse. In sum, all the vulnerabilities that are often attributed to fair value accounting can be equally pertinent to historic cost.

However, Mr Hoogervorst also stated that it would not do to abandon historical costs completely in favour of fair value. Instead, he noted in "very broad brushstrokes indeed" the following general conclusions as to when the different categories of measurement bases should be applied:

  • If the nature of business activities is to use assets in combination with other assets to produce goods or services, this generally points in the direction of historical cost.
  • If the nature of business activities is to trade assets or liabilities in active markets, this would generally point in the direction of current value measurement.
  • If the characteristics of an asset of a liability are such that they are highly sensitive to market factors or to other risks in the item, this would generally point in the direction of current value measurement.

He also noted of course that more factors than these will need to be taken into consideration, such as the cost of performing the measurement, the degree of measurement uncertainty, faithful presentation and the avoidance of accounting mismatches. He encouraged his audience to comment on the proposals in the IASB's Exposure Draft.

The full transcript of Chairman Hoogervorst’s speech is available on the IASB’s website.

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