September 2017

IASB issues newsletter on IFRS 17

Sep 05, 2017

On September 5, 2017, the International Accounting Standards Board (IASB) issued, “The Essentials — Busting insurance jargon.” This issue provides investors aid when translating existing terminology and metrics into the language of IFRS 17.

This issue features discussions on:

  • New metrics for evaluating the performance of insurers.
  • Premiums versus insurance revenue.
  • Contractual service margin.
  • Disclosures and ratios.

Review the press release and the newsletter 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 posts webcast on IFRS 17

Sep 19, 2017

On September 19, 2017, the International Accounting Standards Board (IASB) released a 30 minute webcast that covers the accounting for reinsurance contracts held in applying IFRS 17 "Insurance Contracts".

This webcast is part of a webcast series that the International Accounting Standards Board is providing to support the implementation of IFRS 17.

View the webcast on the IASB'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.

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

 

IASB publishes some general information on the work of the IFRS Interpretations Committee

Sep 22, 2017

On September 22, 2017, the International Accounting Standards Board (IASB) released a four-minute video, as well as a four-page leaflet with information about the mechanisms of the work of the IFRS Interpretations Committee.

Both, the video and the leaflet, are very general in nature. They can be accessed through the press release on the IASB'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.

ICAEW publication on the financial reporting implications of Brexit

Sep 29, 2017

In September 2017, the Institute of Chartered Accountants in England and Wales (ICAEW) published "Brexit: implications for financial reporting" as the ICAEW believes that the impact that Brexit will have on the UK’s financial reporting infrastructure and the related international ramifications have not yet been given sufficient attention.

The report addresses some of the key financial reporting issues the UK will face post-Brexit. It also offers 16 recommendations aimed at policymakers and their constituents in response to some of the principal questions that have been raised on the subject. These questions include:

  • What will Brexit mean for UK financial reporting?
  • Should the scope of the current regulatory framework be revisited?
  • How can the UK continue to be a major player in global standard-setting?

The report also examines three options available to the UK in its expected post-Brexit position as a country adhering to IFRS, but sitting outside EU jurisdiction:

  • EU-adopted IFRS continue to be applied by UK listed companies and the UK continues to participate in EFRAG decision making.
  • UK listed companies are required to use IFRS as issued by IASB, without any mechanism for rejecting new standards.
  • The UK establishes some form of national endorsement mechanism.

Review the full report on the ICAEW's website.

IFRS Foundation and BCBS enter Memorandum of Understanding

Sep 05, 2017

On September 5, 2017, the IFRS Foundation and the Basel Committee on Banking Supervision (BCBS) decided to deepen their cooperation to foster long-term financial stability, enhance market discipline and further develop sharing of information.

Both organizations have a public interest mission and the transparency created by appropriate disclosures as a result of rigorous accounting standards promotes financial stability and enhances market discipline.

The Memorandum of Understanding notes two priorities of interaction:

  • Fostering the sharing of information and the BCBS members’ views in support of work in the development of IFRS Standards and sharing information to support the understanding of interactions between IFRS Standards and the BCBS Framework.
  • Fostering the sharing of information to support both parties in their work in the application of IFRS Standards on a globally consistent basis.

Review the press release and the Memorandum of Understanding 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.

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.