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FASB issues ASU on principal-versus-agent considerations

17 Mar 2016

The US Financial Accounting Standards Board (FASB) has issued Accounting Standards Update (ASU) No. 2016-08 'Principal Versus Agent Considerations (Reporting Revenue Gross Versus Net)', to clarify certain aspects of the principal-versus-agent guidance in its new revenue recognition standard in response to feedback received from the FASB-IASB joint revenue recognition transition resource group.

The ASU clarifies the following implementation guidance on principal-versus-agent considerations:

  • How “an entity determines whether it is a principal or an agent for each specified good or service promised to the customer.”
  • How “an entity determines the nature of each specified good or service.”
  • “When another party is involved in providing goods or services to a customer, an entity that is a principal obtains control of (a) a good or another asset from the other party that it then transfers to the customer; (b) a right to a service that will be performed by another party, which gives the entity the ability to direct that party to provide the service to the customer on the entity’s behalf; or (c) a good or service from the other party that it combines with other goods or services to provide the specified good or service to the customer.”

In addition, ASU 2016-08 updates the indicators in ASC 606-10-55-39 and revises the existing examples in ASC 606 to better illustrate the application of the principal-versus-agent guidance.

The amendments in the ASU are effective at the same time as those in ASU 2014-09 (as amended by ASU 2015-14). For more information, see Deloitte's related Heads Up newsletter as well as the ASU on the FASB’s website.

Comparison with IFRS

The amendments in the FASB's ASU are the same as the amendments the IASB decided to make to its principal versus agent considerations application guidance in its forthcoming final standard, Clarifications to IFRS 15. The FASB has adopted a more piecemeal approach to amending its revenue standard and has decided to publish more extensive amendments. ASU 2016-08 is the first of three expected FASB ASUs on revenue clarification.

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IFRS conference on implementing IFRS 16

17 Mar 2016

The IFRS Foundation has announced an IFRS conference 'Implementing IFRS 16: Leases' in London on 20 May 2016.

The conference will cover the following:

  • Welcome by IASB Chairman Hans Hoogervorst
  • IFRS 16: An Overview
  • Transition – What are Your Options and How To Make the Right Transition Decisions
  • 4 months into 3 year implementation period: What should you be doing now?
  • Implementation: Hot Topics
  • Systems Requirements
  • Ratings and Valuations
  • Panel discussion: Implementation – A Roadmap for Change

More details are available on the conference website.

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March 2016 IASB meeting notes posted

17 Mar 2016

The IASB met at its offices in London on 15–16 March 2016. We have posted the Deloitte observer notes from all of the sessions held on both days.

Please click through for direct access to the notes:

Tuesday, 15 March 2016

Wednesday, 16 March 2016

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

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ASBJ publishes ED of further ‘deletions or modifications’ to IFRSs

17 Mar 2016

In June 2015, the Accounting Standards Board of Japan (ASBJ) issued "Japan’s Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications", which covered standards and interpretations issued by the International Accounting Standards Board (IASB) as at 31 December 2012. The ASBJ has now completed consideration of IASB pronouncements as at 31 December 2013 and proposes additional 'deletions or modifications'.

JMIS constitute the fourth set of accounting standards for consolidated financial statements in Japan in addition to designated IFRSs, Japanese GAAP, and US GAAP and are part of the effort to promote the application of IFRS in Japan towards the ultimate goal of achieving a single set of high-quality global standards. The ‘deletions or modifications’ to the standards issued by the IASB may be resolved depending on future discussions in Japan and at the IASB and should, therefore, be viewed as transitional treatments. (Currently, no company applies JMIS yet.)

The exposure drafts published today propose ‘deletions or modifications’ for the following two items related to IFRS 9 (2013):

  • (a) Non-recycling of the hedging gain or loss on fair value hedges of investments in equity instruments measured at fair value through other comprehensive income: The ASBJ proposes that the gain or loss on a hedging instrument arising from fair value hedges that are recognised in other comprehensive income is reclassified to profit or loss.
  • (b) Basis adjustments in cash flow hedges: The ASBJ proposes that when an amount is removed from the cash flow hedge reserve, which is a component of equity, a corresponding amount is included in other comprehensive income in the statement of comprehensive income.

Please click for access to all exposure documents as well as a press release on the ASBJ website (all documents available in the English language).

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Constituents believe derecognition of modified financial assets needs to be addressed by the Board

16 Mar 2016

In November 2015, the IFRS Interpretations Committee discussed a potential project to clarify the requirements in IFRS 9 and IAS 39 regarding the derecognition of modified financial assets and tentatively decided not to add the project to its agenda. Comment letters on the tentative agenda decision show that constituents believe that not dealing with the problem is not an option.

In coming to its tentative negative agenda decision, the Interpretations Committee had argued that the issue was too complex to deal with in a narrow-scope project and that informal feedback received from individual IASB members had indicated that there was "little appetite to take on such a project".

Reactions from constituents (including ESMA, the Japanese standard-setter ASBJ, the German standard-setter ASCG, and Deloitte) were quite sharp in some cases given that (i) neither IAS 39 nor IFRS 9 include requirements that are sufficient regarding the modification of financial assets, which leads to a risk of divergence in accounting practice; (ii) the modification of financial assets is already an issue that arises in practice; (iii) such transactions are likely to increase given the current economic environment; and (iv) potential issues that could arise under IFRS 9. One comment letter states:

We consider the decision being inappropriate given that there is an issue in practice. While the IFRS IC take the view that it is not appropriate to progress with the issue "at this time" and that it cannot be resolved "through an interpretation", we point to the fact that there are other means to address an issue, even in case it is a broad one.

And another adds:

Indeed, this issue has been a contentious area for some years and has been discussed by the Committee in every year from 2012 to 2015.

The issue is set to be discussed at the upcoming meeting of the IFRS Interpretation Committee on 22 March 2016 from 4.40pm. Despite the comments received (all but one advocate further action) the staff recommends finalising the agenda decision with only a few suggested editorial changes as the comment letters received did not reveal any new information.

Please click for the following additional information:

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Agenda for the April 2016 ASAF meeting

16 Mar 2016

The International Accounting Standards Board (IASB) has released an agenda for the meeting of the Accounting Standards Advisory Forum (ASAF), which is to be held at the IASB's offices in London on 7-8 April 2016.

The agenda for the meeting is summarised below:

Thursday, 7 April 2016 (9:30-17:00)

  • Feedback to the 2015 Agenda Consultation
  • Conceptual Framework
    • seek members’ advice on the IASB's strategy for developing the Conceptual Framework
    • seek the views of ASAF members on a proposal by EFRAG on how Chapter 6 Measurement could easily be expanded to meet the concerns raised in the EFRAG comment letter on the exposure draft
  • Rate-regulated activities — discuss an example that might provide insight how a possible accounting model for activities that are subject to defined rate regulation may reconcile to the principles of IFRS 15 and with the definitions of assets and liabilities being proposed in the Conceptual Framework project
  • Accounting for inflation — presentation by GLASS

Friday, 8 April 2016 (9:00-14:45)

  • Business combinations under common control (BCUCC) — update on the project and plan for future deliberations
  • Amendment to IFRS 4: Applying IFRS 9 with IFRS 4 — summary of the feedback received on the exposure draft and feedback and advice from ASAF members following the IASB’s discussions in March 2016
  • Share-based payments — seek the ASAF members’ views on the possible next steps in this project
  • Project updates and agenda planning
    • Disclosure initiative
    • Financial instruments with characteristics of equity
    • Accounting for dynamic risk management
    • Research projects
    • Agenda planning

Agenda papers for the meeting are available on the IASB's website.

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Webinar on proposed IPSASB guidance on public sector combinations

16 Mar 2016

The International Public Sector Accounting Standards Board (IPSASB) has released a webinar introducing its Exposure Draft ED 60 'Public Sector Combinations'.

ED 60 classifies public sector combinations as either amalgamations or acquisitions taking into account control and other factors. Gaining of control over an operation creates a rebuttable presumption that the combination is an acquisition. If the acquisition presumption is rebutted, then the transaction is treated as an amalgamation. Comments are requested by 30 June 2016.

Please click to access the webinar and the presentation slides on the IPSASB website.

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Canadian standard-setter sees narrowing differences as a possible intermediate step to global convergence

15 Mar 2016

In an article for the website of Chartered Professional Accountants of Canada (CPA Canada), Linda Mezon, the recently reappointed Chair of the Canadian standard-setter AcSB, argues that the IFRS Foundation should move beyond focusing on the number of jurisdictions adopting IFRS and also consider the comparability of financial reporting outcomes within global capital markets regardless of which accounting framework is used.

Ms Mezon begins by noting that the AcSB, along with many publicly-accountable enterprises in Canada, has seen the benefits from providing more comparable financial information with companies in other jurisdictions who have also adopted IFRS and that, in fact, the cost of raising capital is lower as a result of Canada’s adoption of IFRS, given that investors can readily compare Canadian entities to those from other jurisdictions. However, she points at the countries that don't use IFRS and notes that there are several significant jurisdictions among them. She comments:

While we are happy and encouraged to see ongoing increases in the number of jurisdictions applying IFRS, more than 50 per cent of the world’s capital markets have either not yet adopted IFRS or don’t require an unreserved statement of compliance with IFRS — and it appears that full adoption is not imminent.

Therefore, Ms Mezon calls on regulators and standard-setters to work toward getting comparable results despite the framework used and to guide their jurisdictions toward globally comparable financial reporting outcomes by focusing on narrowing differences between frameworks. In the end, she notes, working closely together might lead to more jurisdictions ending up using one global set of standards.

Please click to access Accounting Standards Board (AcSB) calls for increased comparability in global financial reporting on the CPA Canada website.

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Two new integrated reporting publications

15 Mar 2016

In the context of the recent focus on sustainable capitalism and the global interest shown by firms, investors, and regulators in the work of the International Integrated Reporting Council (IIRC), we point out two recent publications.

The IIRC's <IR> Banking Network have released the publication Applying the Integrated Reporting concepts of outcomes and social and relationship capital in the banking industry. The paper helps to clarify some of the issues that banks have raised when preparing integrated reports and provides insights into current practice of banks’ reporting on outcomes. It also outlines leading reporting practice and articulates the benefits for banks in reporting on outcomes. Please click to download the paper from the IIRC's website.

The second paper is academic research into the question whether integrated report quality is associated with stock liquidity, firm value, expected future cash flow, and cost of capital. The study, The Economic Consequences Associated with Integrated Report Quality: Early Evidence from a Mandatory Setting, uses data from South Africa because it is the only country where integrated reporting is mandated. It finds that integrated reporting is positively associated with both stock liquidity and firm value. Among the authors of the paper are Stanford University professor and former IASB member Mary Barth and Elmar Venter from the University of Pretoria and scholar in the Deloitte IAAER Scholarship Programme. The paper is available free of charge through SSRN.

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We comment on the IASB’s proposed amendments to IAS 40

14 Mar 2016

We have responded to the IASB's Exposure Draft, "Transfers of Investment Property (Proposed amendments to IAS 40)," that was IASB published in November 2015.

As stated in the comment letter, we welcome the Board’s initiative to addressing the issue; however, we believe that additional clarity needs to be provided on the application to properties under construction and the role of management intent in an assessment of whether a change in use has occurred.

Please click to access the full comment letter.

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