About two months remain until the beginning of 2018 when all public companies reporting on a US GAAP and International Financial Reporting Standards (IFRS) basis adopt the revised revenue recognition requirements. The paper examines reporting patterns that have begun to crystallise in the transition to full adoption although it notes:

Notably, many companies seem to be crawling to the starting line. Very few companies have been early adopters. At the same time, insightful numerical information on anticipated impacts from those that are yet to adopt is limited.

The paper also reviews selected critical judgments that could affect reported revenue.

Review the full paper on the CFA Institute's website.

The AcSB would like input from Canadian respondents on the following additional question regarding the proposed amendments:

The IASB has developed the proposed amendments in accordance with its due process for application around the world. Assuming the Exposure Draft proposals are finalized and approved by the IASB in accordance with its due process, do you think that the proposals are appropriate for application in Canada? If not, please specify which aspects of the proposals, and what circumstances, make the accounting requirements proposed in the Exposure Draft inappropriate.

Review the Exposure Draft on the AcSB's website.

Some standard-setters are strictly against including any non-IFRS information in financial statements. Canada's AcSB argues that non-IFRS information "could undermine other information in the financial statements that conforms with IFRS Standards" and could "further reduce the relevance of financial statements". Mexico's CINIF ("we do not believe there are situations where 'non-IFRS information' is warranted").

Some standard-setters argue in favour of allowing information that is not IFRS information in financial statements. The UK FRC notes that it "does not support a principle which prohibits information".

Many standard-setters draw a line between non-IFRS information and information that is not consistent with IFRSs (with some of them again pointing out that it would be difficult to distinguish between the two types of information).

Other standard-setters again simply acknowledge that prohibiting non-IFRS information is impractical.

The middle ground is held by standard-setters who see pros and cons and weigh them carefully but who also stress two points: (i) in some jurisdictions there are legal requirements to include certain non-IFRS information in financial statements and (ii) IAS 1 already requires "to provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance".

All comment letters cited or referred to are available on the IASB's website. The questions regarding non-IFRS information and information that is inconsistent with or contradicts IFRS information are questions 6 and 7.

Review the full article on our Global IAS Plus website.

Several concerns were raised, including how the resulting profit margin may not be a meaningful measure for users to predict future profitability and cash flows. The AcSB strongly encourages the IASB to consider further developing this proposal in order to provide relevant information to users.

Review the AcSB letter posted by the IASB.

The AcSB is supportive of the IASB’s Principles of Disclosure project, however they disagree with the IASB’s preliminary view that a general disclosure standard should allow an entity to include information in its financial statements that it has identified as non-IFRS information. In particular, they think the IASB should develop strict boundaries that prohibit the use of non-IFRS information that is inconsistent with or contradicts IFRS information.

Non-IFRS information should not be included in the financial statements, as it could undermine other information in the financial statements that conforms with IFRS Standards. The AcSB thinks that allowing non-IFRS information to be included in the financial statements could further reduce the relevance of financial statements, and would contradict the IASB’s objective, in the Disclosure Initiative project, of better communication.

Review the press release and letter on the AcSB's website.

The agenda paper:

• compares the Board’s tentative decisions with the FASB Amendments;
  Agenda ref 13A;
• explains the main differences;
• reports feedback from Accounting Standards Advisory Forum (ASAF) members on the Board’s tentative decisions: and
• recommends clarifying that the cash acquired should be excluded from the gross assets acquired considered in the screening test.

Appendix A of this paper includes a table that shows a summary of all the Board’s tentative decisions against the FASB decisions.

Review the agenda paper on the IASB's website.

It is often argued that the problem with economics is that it is neither an art nor a science. And when it comes to some areas of accounting and financial reporting the same dilemma becomes apparent. Quite what is the difference between judgement in determining what accounting policy applies to a transaction (and how to apply it) and what has been estimated in applying that policy?

Information about the key judgements and estimates provides very useful insights. It helps investors understand the choices and judgements management has had to make in preparing the financial statements.

It also allows investors to better assess the quality of the accounting policy decisions management makes and to identify those areas that rely on greater estimation. It enables people to think about what might happen and what may affect the outcomes being estimated. It throws light into a thought process that the blunt disclosure of a bald fact does not.

Review the entire column on our Global IAS Plus website.

The feedback received indicated that the Framework stands up well to the challenges of implementation. However, several opportunities to provide guidance and examples and take other actions to help report preparers and other stakeholders, who continue to tackle challenges, were also identified. In fact, the report identifies 48 actions the IIRC currently proposes taking, based on the preliminary analysis of the feedback. Some of these actions would also include updates to the framework itself. However, the report also acknowledges the need for a stable platform:

There is clearly a choice to be made between giving sufficient time for companies to implement the Framework without changes being made, and updating the Framework in the light of experience and external developments. We have carefully considered the small number of suggestions made in this exercise for Framework revisions, and concluded that none are of immediate concern to justify making those changes now.

Review the report from the IIRC's website.

The amendments in Prepayment Features with Negative Compensation (Amendments to IFRS 9) are:

Changes regarding symmetric prepayment options

Under the current IFRS 9 requirements, the SPPI condition is not met if the lender has to make a settlement payment in the event of termination by the borrower (also referred to as early repayment gain).

Prepayment Features with Negative Compensation amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments.

Under the amendments, the sign of the prepayment amount is not relevant, i. e. depending on the interest rate prevailing at the time of termination, a payment may also be made in favour of the contracting party effecting the early repayment. The calculation of this compensation payment must be the same for both the case of an early repayment penalty and the case of a early repayment gain.

During redeliberations, the IASB decided not to confirm the second eligibility condition (insignificant fair value of the prepayment feature at initial recognition) proposed in ED/2017/3.

Clarification regarding the modification of financial liabilities

The final amendments also contain (in the Basis for Conclusions) a clarification regarding the accounting for a modification or exchange of a financial liability measured at amortised cost that does not result in the derecognition of the financial liability. The IASB clarifies that an entity recognises any adjustment to the amortised cost of the financial liability arising from a modification or exchange in profit or loss at the date of the modification or exchange. A retrospective change of the accounting treatment may therefore become necessary if in the past the effective interest rate was adjusted and not the amortised cost amount.

Effective date and transition requirements

The amendments regarding prepayment features with negative compensation are to be applied retrospectively for fiscal years beginning on or after January 1, 2019, i. e. one year after the first application of IFRS 9 in its current version. Early application is permitted so entities can apply the amendments together with IFRS 9, if they wish so. Additional transitional requirements and corresponding disclosure requirements must be observed when applying the amendments for the first time.

The clarification regarding the modification of financial liabilities should be applied at the same time as the adoption of IFRS 9, i.e. January 1, 2018. 

Additional information

• IASB press release
• Proposed IFRS Taxonomy update regarding prepayment features with negative compensation (comments to be received by December 11, 2017)

The amendments in Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) are:

• Paragraph 14A has been added to clarify that an entity applies IFRS 9 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.
• Paragraph 41 has been deleted because the Board felt that it merely reiterated requirements in IFRS 9 and had created confusion about the accounting for long-term interests.

The ammendments are accompanied by an illustrative example.

Dissenting opinion

The final amendments contain a dissenting opinion as one Board member disagrees amending IAS 28 without also specifying the types of interests that an entity accounts for using the equity method and the types of interests that an entity accounts for applying IFRS 9.

Effective date and transition requirements

The amendments are effective for periods beginning on or after January 1, 2019. Earlier application is permitted. This will enable entities to apply the amendments together with IFRS 9, if they wish so, but leaves other entities the additional implementation time they had asked for.

The amendments are to be applied retrospectively, but they provide transition requirements similar to those in IFRS 9 for entities that apply the amendments after they first apply IFRS 9. They also include relief from restating prior periods for entities electing, in accordance with IFRS 4 Insurance Contracts, to apply the temporary exemption from IFRS 9. Full retrospective application is permitted if that is possible without the use of hindsight.

Additional information

• IASB press release
• Illustrative Example — Long-term Interests in Associates and Joint Ventures