Topics discussed during the DPOC meeting were:

1. Update on technical activities — Updates were given on the progress of the major projects on the IASB’s work plan. Regarding insurance contracts, the DPOC affirmed its view that the IASB had met all the required due process steps for its upcoming exposure draft to be issued in the first half of 2013. Other major projects discussed were impairments, classification and measurement, leases and revenue recognition.

   In addition, the DPOC received updates on newer projects to the agenda, in particular, the conceptual framework project which the Accounting Standards Advisory Forum discussed during its 8-9 April 2013 meeting and will serve as the consultative group. Other newer projects to the agenda discussed were rate-regulated activities, bearer plants, and the research programme.

2. Due process ‘lifecycle’ review of upcoming hedge accounting guidance — a summary was given of the due process steps taken since 2008 on the hedge accounting project. The DPOC noted that it was satisfied with due process steps the IASB has completed, but will need to consider the decision made during the IASB’s April 2013 meeting before the IASB can proceed with the Ballot Draft of a new IFRS 9.
3. Progress on post-implementation review (PIR) of IFRS 8 — the DPOC reviewed the draft agenda papers on PIR that are to be used during discussions at the IASB April 2013 meeting. Topics reviewed were (1) sources of input to the IFRS 8 PIR, due process and next steps, (2) messages received and feedback summary, and (3) lessons learned about the PIR process.
4. Update on consultative groups — the DPOC reviewed (1) the IASB’s proposed composition of a new rate-regulated activities consultative group and (2) proposed change in membership to the financial instruments consultative group. The DPOC also agreed on a proposal to have a DPOC member observe (in person) a meeting of the major groups once a year and submit a report back to the Committee on the attendance and quality.
5. Update on operations
6. Review of correspondence — No new correspondence cases were submitted since the Committee’s previous meeting in January 2013.
7. Any other business

The DPOC is responsible for approving due process and overseeing the IASB’s compliance with due process, and reviewing the Trustees’ fulfilment of their oversight function in accordance with the Constitution of the IFRS Foundation.

A summary of the meeting is available on the IASB website.

The third issue of the newsletter summarises and comments on the tentative decisions reached at the March 2013 IASB meeting regarding the content of the forthcoming Discussion Paper. In addition, the newsletter summarises some initial views expressed by National Standard Setters in the EFRAG CFSS meeting of 3 April 2013, which was devoted to the preparation of the first meeting of the IFRS Accounting Standards Advisory Forum (ASAF) where the conceptual framework was the dominating topic.

Conceptual framework topics discussed in this issue of the newsletter are:

• the scope of the project,
• definition and recognition of elements,
• measurement,
• development and content of the Discussion Papern and
• debt/equity.

The joint European strategy on the conceptual framework includes issuing specific newsletters as new developments become available issuing bulletin reports on specific issues during the course of the project in an effort to stimulate debate that may be used in discussions with the IASB.

The new issue of the newsletter is available on the EFRAG website.

Issued July 2010, the exposure draft on insurance contracts provides guidance on a comprehensive framework, removes issues with existing practices (IFRS 4), and provides comparability across various markets.

The ‘reporting back’ documents cover the following proposals:

• Contracts with cash flows that vary with the returns on underlying items (including ‘participating’, ‘universal life’, ‘with profits’ and ‘unit-linked’ contracts)
• Accounting for reinsurance contracts

The ‘reporting back’ documents, along with other resources related to the exposure draft, are available on the IASB website.

In addition, click to view our:

• Insurance contract project page.
• Insurance webcasts.

The text agreed on at the beginning of April and made available now has been submitted to the Committee of Permanent Representatives (Comité des représentants permanents, COREPER) which has to agree to it.

The proposal aims at reducing the administrative burden on small companies in particular, increasing the clarity and comparability of financial statements and enhancing the transparency of payments to governments by the extractive industry and loggers of primary forest. Mandatory country-by-country is in fact one of the major changes introduced into the new Accounting Directive.

Subject to no further changes and legal-linguistic verification of all the language versions by Legal-linguists of European Parliament and European Council, the new Directive could be published in the Official Journal in June or July 2013. Member States will then be given two years to implement the Directive in national law.

The full text of the agreed compromise is available through the public register of Council documents.

Until now, the FSR offered two sets of non-mandatory guidelines for the so-called class B and class C companies. They had the option of following either the accounting standard for small companies issued by the FSR in 2007 (class B companies) or the suite of Danish Accounting Standards number 1-22 (class B and C companies) if they did not choose to follow the Danish Financial Statements Act alone. The Danish Accounting Standards were based on International Accounting Standards (IAS) but were not updated since 2002 because the application of IFRSs became mandatory for listed companies in Europe in 2005. The accounting standard for small companies was again based on the Danish Accounting Standards but adapted to SMEs’ needs.

Apart from complying with the Danish Financial Statements Act, which is based on the 4^th and 7^th EU Accounting Directives, following a certain (set of) accounting standard(s) has not been mandatory for B and C class companies and continues to be voluntary. The new, single standard issued in mid-April is an updated version of the old standard for class B companies expanded to now also include class C companies. It embodies also some current accounting thinking for smaller entities as for example reflected in the IFRS for SMEs. It is to be understood as accounting guidance for issues not covered by or explained in detail in the Act and as inspiration for preparing good informative financial statements.

Going forward, B and C class companies have the following options:

• drawing up their financial statements based on the Danish Financial Statements Act alone
• drawing up their financial statements based on the Danish Financial Statements Act but also applying the new accounting standard for class B and C companies to ensure informative and relevant financial reporting
• following full IFRSs.

The accounting standard for small companies issued in 2007 and the suite of Danish Accounting Standards number 1-22 have been withdrawn.

Listed companies (class D companies) are not affected by this change. They will continue to apply full IFRS as adopted for use in the EU, as is required for all listed companies in Europe.

The new accounting standard comes into force with financial statements for reporting periods beginning on or after 1 January 2013. Early application is permitted.

The accounting landscape for SMEs in Europe is currently undergoing some change. Only recently, the UK FRC issued FRS 102 replacing local GAAP with a new standard based on the IFRS for SMEs. The European Union is currently revising the Accounting Directives in an effort to simplify and unify accounting requirements for SMEs, and so-called micro entities in particular. As reported before, agreement on the revision of the Accounting Directives has just been reached although details of the changes have not been communicated yet. In connection with the revision of the Accounting Directives there had also been calls to allow the application of the IFRS for SMEs in member states that choose to do so; however, as the IFRS for SMEs conflicts with certain provisions of the 7^th Accounting Directive, this has not come to pass.

Please click for further information on the FSR website (Danish language only):

• FSR Press release on the publication of the new standard (currently members only)
• Practical information on the new accounting standard (members only)

The proposals in Conceptual Framework Exposure Draft 4 (CF–ED4) Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities: Presentation in General Purpose Financial Reports, represent the fourth and final phase of the IPSASB Conceptual Framework project and follow on from an earlier Consultation Paper published in early 2012.

The first phase of the IPSASB's project was completed with the release of the first four chapters of the IPSASB Conceptual Framework project in January 2013, covering the role and authority of the framework, the objectives and users of general purpose financial reporting, qualitative characteristics of information included in general purpose financial reports, and the reporting entity. Exposure drafts dealing with the second and third phases of the project where issued in November 2012, covering the elements and recognition in financial statements, and the measurement of assets and liabilities in financial statements.

CF–ED4 explains the relationship between these other parts of the IPSASB Conceptual Framework and presentation concepts, doing so by proposing definitions of "presentation", "display" and "disclosure", and identifying three presentation decisions: selection, location and organisation.

The exposure draft explains that the concept of 'presentation' relates not only to how information is included within reports, but also which reports are necessary in addition to financial statements. Accordingly, it considers whether new reports are required, whether information should be moved between reports, and whether existing reports should be amalgamated in order to meet the objectives of financial information and qualitative characteristics.

The exposure draft considers 'displayed' information as conveying key messages, and so accordingly is kept concise and displayed prominently using techniques such as clear labelling, borders, tables and graphs. 'Disclosed information' then makes displayed information more useful through the provision of detail to assist in the understanding of it, but disclosed information is not considered a substitute for displayed information.

The document also explores decisions about what information needs to be reported, how information is selected for inclusion in a GFPR, the importance of location of information (both between reports and within each report), and how information should be organised.

CF–ED4 is open for comment until 15 August 2013. Click for IPSASB press release (link to IPSASB website).

The latest development follows initial proposals published in October 2011 and two resolutions of the European Parliament in February 2013.

An Executive Summary of the Impact Assessment prepared by Commission staff notes that "the majority of large EU companies fail to adequately meet growing demand from stakeholders (including investors, shareholders, employees and civil society organisations) for non-financial transparency", both in terms of quantity (only around 2,500 out of a possible 42,000 EU companies formally disclose non-financial information each year) and quality (lacking in materiality, balance, accuracy and timeliness).  The Impact Assessment outlines the various options considered to address these concerns, including no policy change, requiring disclosure in an annual report, detailed reporting or setting up of a mandatory EU standard.

On the basis of the constituent feedback and analysis performed, it was determined the best policy option was to propose a combined approach, setting minimum disclosure requirements in annual reports, but permitting companies to provide more comprehensive reports if they wish.  The requirements would only apply to larger EU companies (around 18,000 in total) to avoid an administrative burden on small and medium-sized companies (SMEs).

To implement the requirements, the legislative proposals would amend the Accounting Directives (Fourth and Seventh Accounting Directives on Annual and Consolidated Accounts, 78/660/EEC and 83/349/EEC) to require the annual report to include a non-financial statement with the prescribed minimum information.

The draft wording of the key requirements is reproduced below:

However, the statement is not required where the company includes in its annual report a comprehensive report relying on prescribed frameworks (such as the UN Global Compact, ISO 26000, the German Sustainability Code, or GRI guidelines) covering the information required.

Frequently asked questions accompanying the proposals clarify they do not require European companies to adopt integrated reporting:

The proposed directive focuses on environmental and social disclosures. Integrated reporting is a step ahead, and is about the integration by companies of financial, environmental, social and other information in a comprehensive and coherent manner. To be clear, this Directive does not require companies to comply with integrated reporting. The Commission is monitoring with great interest the evolution of the integrated reporting concept, and, in particular, the work of the International Integrated Reporting Council.

Click for EC press release (link to EC website).

EFRAG supported the 2009 exposure draft proposal for the integrated effective interest rate approach and the time proportionate approach indicated in the Supplementary Document. However, the EFRAG recognises that there were operational concerns by constituents when implementing those approaches.

Regarding the current exposure draft (ED/2013/3), the EFRAG preliminary position is that it:

• "accepts the proposed approach that requires recognition of a 12-month expected credit loss at initial recognition and lifetime expected credit losses when there is a significant increase in credit risk,"
• "the proposed approach strikes an acceptable balance between the cost of implementation and the underlying economics, while meeting the need to provide earlier for expected credit losses as expressed by financial regulators and other constituents, and"
• "supports the proposed credit deterioration approach as it distinguishes between financial assets that have deteriorated in credit quality and those that have not because it provides relevant and useful information about the likelihood of the collection of future contractual cash flows and the effect of changes in the credit quality of an entity’s financial assets."

However, the EFRAG does not believe the recognition of a portion of expected credit losses at initial recognition is conceptual sound but due to the lack of a better approach, the IASB should use the approach developed in the exposure draft as a basis when finalising its impairment requirements.

In addition, EFRAG states:

[A]ny impairment model – such as the model proposed by the FASB – that uses a single measurement approach that recognises lifetime expected credit losses from initial recognition will inevitably remove the need to track any changes in credit quality to determine when lifetime expected credit losses should be recognised as a result of significant credit deterioration. Nevertheless, in our view, such a model would not be less subjective and not necessarily operationally simpler compared to the proposed approach in the ED. EFRAG believes that such an approach would provide less relevant information about the effects of changes in the credit quality subsequent to initial recognition, and does not result in an appropriate balance between the representation of the underlying economics and the cost of implementation as the double counting effect of expected loss recognition at inception is aggravated by the consideration at once of life time expected losses.

In an effort to gather more information, the EFRAG, along with other European National Standard Setters, are currently conducting a field-test designed to show whether it improves on the old model, whether its operational and determine the costs and impacts that will come with the new model.

Click for (links to EFRAG website):

• EFRAG press release
• EFRAG draft comment letter
• Short presentation of EFRAG's position

Our previous story on the Exposure Draft ED/2012/3 Financial Instruments: Expected Credit Losses offers a summary of the key proposals of the ED.

Comments on the letter are invited by 17 June 2013.