Part I - IFRS

Accountancy Europe follows up on 'CORE & MORE' and calls for decisive leadership in non-financial reporting

Sep 18, 2017

On September 18, 2017, at the "Shaping the future of corporate reporting" event held in Brussels, Accountancy Europe (formerly FEE) launched two publications: a follow-up report on the 2015 paper that put forward the idea of "CORE & MORE" and a call for action to enhance the coordination of non-financial information initiatives and frameworks.

The Core & More concept introduced in 2015 aims to present corporate reporting in a smarter way, organizing financial and non-financial information based on the interests of users. Information relevant for a wide range of stakeholders would be in the Core report, and supplementary details for a more limited audience would form the More reports. The paper develops the concept further and provides ideas on what information could be presented in each of the pillars. It also explores how technology might support the Core & More concept and addresses the relationship between Core & More and integrated reporting.

Review the paper Core & More: an opportunity for smarter corporate reporting on the Accountancy Europe's website.

The call for action notes that "the overwhelming number of existing disconnected non-financial information reporting frameworks complicates coherent, consistent, and comparable wider corporate reporting, and steadily increases the reporting burden for companies". Accountancy Europa calls on the different standard-setting bodies and initiatives to coordinate their efforts to streamline existing reporting frameworks addressing similar pieces of non-financial information. The organization believes that the final step in this development should aim at developing a single global framework for non-financial information reporting. (At the very same event IASB Chairman Hans Hoogervorst noted in a speech that the IASB could not and would not take the decisive leadership role Accountancy Europe hints at in the call for action).

Review the Call for action: Enhance the coordination of non-financial information initiatives and frameworks on the Accountancy Europe's website.

IASB Chairman speaks about the IASB and wider corporate reporting

Sep 18, 2017

On September 18, 2017, the International Accounting Standards Board (IASB) released a speech delivered at Accountancy Europe’s event "Shaping the future of corporate reporting" held in Brussels. In his speech, IASB Chairman Hans Hoogervorst discussed the relevance of financial reporting in a world where companies provide more and more non-financial information and are seeking a wider audience than investors alone.

Mr. Hoogervorst's main message at the beginning of his speech was: "Keep calm and carry on". He explained that he was not at all concerned that the relevance of financial reporting is under threat. He noted that financial statements are primarily backward looking and, therefore, always provide an important reality check. And he also noted that as more information becomes available, the more need there is for comparability, standardization and quality control.

Yet Mr. Hoogervorst also conceded that times are changing and everybody needs to adapt - including the IASB. He stressed the IASB's current effort at better communication in financial reporting. He noted a few projects and initiatives that form part of the effort and he also explained that the IASB may need to give preparers more guidance on how to provide context to their financial statements.

Also, Mr. Hoogervorst looked at environmental, social and governance (ESG) reporting and the question of whether the IASB should become active in that field. He noted that audience for sustainability reporting is broader than that of financial reporting and that much of sustainability reporting is primarily focused on the external effects of the performance of a company. Mr. Hoogervorst said that he believed that the IASB does not have the expertise to become the standard-setter in this field and that widening the audience and scope of the Board's work would most likely lead to loss of focus and identity.

However, Mr. Hoogervorst did not just leave it at that. He also followed up on the question who should take responsibility for harmonization of ESG requirements and try to prevent overload. He argued that since so much of ESG reporting is closely intertwined with public policy goals, public authorities would be best equipped to pursue harmonization.

Review the speech on the IASB's website.

IASB issues Practice Statement on materiality

Sep 14, 2017

On September 14, 2017, the International Accounting Standards Board (IASB) issued Practice Statement (PS) 2 "Making Materiality Judgements". The PS aims at assisting management in presenting financial information about the entity that is useful to existing and potential investors, lenders and other creditors in making decisions about providing resources to the entity.

  

Four-step process

The Practice Statement notes that an entity may find it helpful to follow a systematic process in making materiality judgements and offers an example of such a process.

  • Step 1. The entity identifies information that has the potential to be material. In doing so it considers the IFRS requirements applicable to its transactions, other events and conditions and its primary users’ common information needs.
  • Step 2. The entity then assesses whether the information identified in Step 1 is material. In making this assessment, the entity needs to consider quantitative (size) and qualitative (nature) factors.
  • Step 3. In a next step, the entity organises the information within the draft financial statements in a manner that supports clear and concise communication.
  • Step 4. In the most important step, the entity then steps back and assesses the information provided in the draft financial statements as a whole. It needs to consider whether the information is material both individually and in combination with other information. This final assessment may lead to adding additional information or removing information that is now considered immaterial, aggregating, disaggregating or reorganising information or even to begin the process again from Step 2.

 

Status and effective date

The Practice Statement is not an IFRS. Consequently, entities applying IFRSs are not required to comply with the Practice Statement. However, it should be noted that materiality is a pervasive principle in IFRSs. The Practice Statement does not have an effective date, it can be applied with immediate effect.

 

Additional information

 

IASB publishes proposed amendments to IAS 1 and IAS 8 regarding the definition of materiality

Sep 14, 2017

On September 14, 2017, the International Accounting Standards Board (IASB) published an exposure draft "Definition of Material (Proposed amendments to IAS 1 and IAS 8)" to clarify the definition of ‘material’ and to align the definition used in the Conceptual Framework and the standards themselves. Comments are requested by January 15, 2018.

 

Suggested changes and reasoning behind the changes

The changes proposed in ED/2017/6 Definition of Material (Proposed amendments to IAS 1 and IAS 8) all relate to a revised definition of 'material' which is quoted below from the ED:

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of a specific reporting entity’s general purpose financial statements make on the basis of those financial statements.

Three new aspects of the proposed definition should especially be noted:

  • Obscuring. The existing definition only focused on omitting or misstating information, however, the Board concluded that obscuring material information with information that can be omitted can have a similar effect. Although the term obscuring is new in the definition, it was already part of IAS 1 (IAS 1.30A).
  • Could reasonably be expected to influence. The existing definition referred to 'could influence' which the Board felt might be understood as requiring too much information as almost anything ‘could’ influence the decisions of some users even if the possibility is remote.
  • Primary users. The existing definition referred only to 'users' which again the Board feared might be understood too broadly as requiring to consider all possible users of financial statements when deciding what information to disclose.

In addition, the ED proposes some clarifications to the explanation accompanying the definition of material. These proposals include:

  • Relocating some information that explains rather than defines material from the definition into the explanatory paragraphs accompanying the definition;
  • adding a description of the characteristics of the primary users of financial statements;
  • noting that the consideration of the characteristics of users must be judged in the entity’s circumstances;
  • explaining that even well-informed and diligent users may need to seek the aid of an adviser from time to time; and
  • highlighting that the materiality of information is assessed either individually or in combination with other information.

 

Effective date

The exposure draft does not contain a proposed effective date which the IASB intends to decide on after the exposure. However, the Board has already concluded that an entity should apply the amendments prospectively and that earlier application will be permitted.

 

Additional information

 

Top ten issues for CFOs in 2017-2018

Sep 13, 2017

In September 2017, the Financial Executives International (FEI) Canada's Policy Forum released a list of Top 10 issues for CFOs and senior financial executives to consider, as they start out the new fiscal year for 2017-18.

The top 10 issues include:

Corporate Reporting

  • Member preparedness for implementation of new complex financial reporting requirements
  • Continued evolution to a more challenging and demanding reporting environment in a cost-conscious world:
  • Corporate reporting — More than accounting

Governance and Risk

  • Ensuring governance keeps pace with growth and improving risk management capabilities/practices
  • Sustainability, Corporate Social Responsibility and ESG:

Treasury and Capital Markets

  • Cash flow best practices, treasury risks, and raising money/financing

Taxation

  • Income tax simplification

Information Technology

  • Cybersecurity and business continuity
  • Disruption through digital transformation and block chain technology
  • Data analytics and big data

Review the publication on the FEI Canada's website.

IASB publishes proposed amendments to IAS 8 regarding accounting policies and accounting estimates

Sep 12, 2017

On September 12, 2017, the International Accounting Standards Board (IASB) published an exposure draft "Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8)" to help entities to distinguish between accounting policies and accounting estimates. Comments are requested by January 15, 2018.

 

Suggested changes

The changes proposed in ED/2017/5 Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8) are focused on three areas:

  • Relation of accounting policies and accounting estimates to each other.
    • The ED proposes to clarify the exisiting definition of accounting policies by removing the terms "conventions" and "rules" as the Board feels that their meanings are not clear and because these terms are not used elsewhere in IFRSs. Also, the Board proposes to clarify the term "bases" by using "measurement bases" instead.
    • The ED proposes to add a definition of accounting estimates because so far a defintion has not been provided. The definition makes clear that accounting policies are the overall objectives and accounting estimates are the inputs used in achieving that objective by stating that "accounting estimates are judgements or assumptions used in applying an accounting policy when, because of estimation uncertainty, an item in financial statements cannot be measured with precision".
  • Selecting an estimation technique or valuation technique. The ED proposes to clarify that selecting an estimation technique or valuation technique (the ED deliberately uses both terms as both terms are used in IFRSs) used when an item cannot be measured with precision constitutes making an accounting estimate.
  • IAS 2 Inventories. In developing the ED, the Board concluded that that selecting one of the two cost formulas for interchangeable inventories is not an attempt to estimate the actual flow of these inventories, therefore it does not constitute making an accounting estimate but selecting an accounting policy.

 

Effective date

The exposure draft does not contain a proposed effective date which the IASB intends to decide on after the exposure. However, the Board has already concluded that an entity should apply the amendments only to changes in accounting policies and changes in accounting estimates that occur on or after the start of the first annual period in which the entity applies the amendments.

Review the press release and the exposure draft on the IASB's website.

SEC chief accountant discusses advancing high-quality reporting in financial and capital markets

Sep 11, 2017

On September 11, 2017, the Securities and Exchange Commission (SEC) released a speech by SEC Chief Accountant, Wesley Bricker, given at the recent AICPA National Conference.

In his speech, Mr. Bricker discussed a number of topics related to public company reporting, including the role of financial reporting in our financial and capital markets, the FASB’s new credit loss standard, and recent PCAOB activities.

Review the speech on the SEC's website.

Study on providing financial information in a structured format

Sep 08, 2017

In September 2017, the CFA Institute, a global association of investment professionals, published "The Cost of Structured Data: Myth vs. Reality".

The study notes that the potential benefits of using structured data have not been realized yet, even though the use of such data can potentially improve the way financial information can be consumed by investors, regulators, and other users. The authors argue that this is primarily the case because companies mainly see structured data and reporting as a cost burden.

Therefore, the study looks first at what companies are saying about the costs associated with their XBRL filings and then goes through several case studies to demonstrate how, with proper implementation, companies can benefit from structured data. The authors conclude that if companies:

  • bring structured reporting in-house instead of using outside vendors to prepare their regulatory filings,
  • implement inline XBRL so that the data is both human and machine readable, and
  • curtail the use of company-specific tags

they can reduce costs, allowing both companies and users to benefit from structured reporting.

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

The Role of Stock Exchanges in Fostering Economic Growth and Sustainable Development

Sep 07, 2017

In September 2017, the United Nations Conference on Trade and Development (UNCTAD) and the World Federation of Exchanges (WFE) published a report examining the role of stock exchanges in promoting economic growth and sustainable development.

The report notes that by mid-2017 there were 32 stock exchanges providing formal guidance to issuers on reporting environmental, social, and governance (ESG) information and that stock exchanges, through their ability to influence the reporting behaviour of their listed entities, are successfully generating a rapid uptake in sustainability disclosure.

Review the report on the WFE's website.

ICAEW briefing paper on IFRS 9 for banks

Sep 06, 2017

In September 2017, the Institute of Chartered Accountants in England and Wales (ICAEW) published a briefing paper for analysts and other market participants on IFRS 9, "Financial Instruments". The paper is accompanied by a shorter briefing note for a non-technical audience.

The briefing paper covers:

  • Development of IFRS 9 and expected loss accounting
  • Regulatory expected loss
  • Staging of provisions
  • Complexities of presenting and understanding the new information

The briefing note covers an understanding of the role of banks, changes required by IFRS 9 and the expected effect on banks in applying its requirements.

Review the Briefing paper and the Briefing note on the ICAEW's website.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.