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December 2018

AcSB publishes final framework for reporting performance measures

Dec 12, 2018

On December 12, 2018, in order to help enhance the relevance of financial information, the Accounting Standards Board (AcSB) released a framework responding to the needs of stakeholders about the performance measures reported by entities. The framework is aimed at enhancing the usefulness and transparency of performance measures for users when management chooses to report them outside financial statements.

The framework was first published as a draft in June 2018, and stakeholders were asked to provide their feedback by way of an online survey, in-person discussions, and written responses. 

The AcSB received feedback from over 350 Canadian and international stakeholders, from both the for-profit and not-for profit sectors, as well as from all parties involved in financial reporting – management, directors, providers, regulators, academics, and standard setters.

Review the press releaseframework for reporting performance measures and the In Brief for a detailed breakdown of respondents and their comments on the AcSB's website.

FASB releases 2019 U.S. GAAP and SEC taxonomies

Dec 18, 2018

On December 18, 2018, the Financial Accounting Standards Board (FASB) released the 2019 U.S. GAAP Financial Reporting Taxonomy and 2019 SEC Reporting Taxonomy.

The 2019 version of the U.S. GAAP taxonomy “contains updates for accounting standards and other recommended improvements.” The 2019 SEC taxonomy “contains elements necessary to meet SEC requirements for financial schedules required by the SEC, condensed consolidating financial information for guarantors, and disclosures about oil- and gas-producing activities.”

Both taxonomies are subject to final SEC approval, which is expected to be granted in early 2019.

Review the press release, U.S. GAAP taxonomy page, and SEC taxonomy page on the FASB’s website.

Hyperinflationary economies - updated IPTF watch list available

Dec 13, 2018

On December 13, 2018, the Center for Audit Quality (CAQ) released a discussion document "Monitoring Inflation in Certain Countries". IAS 29, "Financial Reporting in Hyperinflationary Economies" defines and provides general guidance for assessing whether a particular jurisdiction's economy is hyperinflationary. But the IASB does not identify specific jurisdictions. The International Practices Task Force (IPTF) of the CAQ monitors the status of "highly inflationary" countries. The Task Force's criteria for identifying such countries are similar to those for identifying "hyperinflationary economies" under IAS 29.

The IPTF's discussion document for the November 27, 2018 meeting is now available and states the following view of the Task Force:

Countries with three-year cumulative inflation rates exceeding 100%:

  • Angola
  • Argentina
  • South Sudan
  • Sudan
  • Suriname
  • Venezuela

Countries with projected three-year cumulative inflation rates exceeding 100%:

  • Democratic Republic of Congo
  • Libya

Countries where the three-year cumulative inflation rates had exceeded 100% in recent years:

There are no countries in this category for this period.

Countries with recent three-year cumulative inflation rates exceeding 100% after a spike in inflation in a discrete period:

  • Ukraine

Countries with projected three-year cumulative inflation rates between 70% and 100% or with a significant (25% or more) increase in inflation during the current period

  • Egypt
  • Islamic Republic of Iran
  • Liberia
  • Yemen

Review the full list, including exact numbers, detailed explanations of the calculation of the numbers, and observations of the Task Force on the CAQ website.

IASB Chairman doubts we are ready for the next crisis, but sees great improvements in financial reporting

Dec 11, 2018

On December 11, 2018, the International Accounting Standards Board (IASB) released a speech by IASB® Chairman Hans Hoogervorst, given at the 2018 AICPA Conference on Current SEC and PCAOB Developments. In his speech, Mr. Hoogervorst looked at the lessons learned from the global financial crisis, sketched the enormous risks in the global economy and admitted doubt as to whether the financial system as a whole is ready for the next financial crisis.

Mr. Hoogervorst began his speech by outlining the global situation financial situation regarding global debt, interest rates and the debt trap as well as the capitalization of the banking system. Against that backdrop, he analyzed whether accounting standards are fit for purpose in a possible new financial crisis.

Mr. Hoogervorst first turned to IFRS 9 and the expected loss models the IASB and the FASB have developed. He commented on the fear that IFRS 9 would lead to overreaction as economic expectations might be overly pessimistic during a recession, which might strengthen the downward turn of the economic cycle. However, he believed those fears are not to be justified for three reasons:

  • The fact that IFRS 9 leads to a much quicker crystallization of loan losses should have a preventative effect.
  • Timely loan loss recognition should contribute to limiting imprudent dividend distribution and remuneration policies.
  • Quick loan loss recognition should lead to timely clean-up of banks’ balance sheets, which in turn will contribute to much quicker restoration of credit flows to healthy companies.

Mr. Hoogervorst then turned to IFRS 17 and its contributions to financial stability. The slides that supported the speech noted six of these:

  • Insurance liabilities properly measured
  • Transparent costs of options and guarantees
  • Updated information on risk margins
  • Immediate recognition of onerous contracts
  • End of up-front profit taking
  • Less earnings management

Finally, Mr. Hoogervorst turned to goodwill and the risk that goodwill just keeps on accumulating over time even when the economics do not justify this. He did not believe that the accounting for goodwill poses a significant risk in terms of triggering a financial crisis, however, he noted that in the next financial crisis, a lot of goodwill that has been building up since the last one would be impaired all at once, which might add to unrest in the capital markets. Mr. Hoogervorst pointed out the discussion paper on this topic the IASB plans to publish that will present some new approaches to goodwill. The paper will look at is whether it will be possible to improve disclosures that will help investors to judge whether an acquisition has been successful, will consider a disclosure that shows what a company’s balance sheet will look like without goodwill, and include a discussion on the reintroduction of amortization of goodwill.

Mr. Hoogervorst closed his speech noting that he was not sure whether the financial system as a whole is ready for the next financial crisis. However, he added: "What I am sure of is that the recent improvements in our accounting standards will provide much more transparency that will help investors and regulators identify risks at a much earlier stage. That is the best contribution that accounting can give to financial stability."

Review the full speech (with slides embedded) on the IASB's website.

IASB decides on first potential amendments to IFRS 17

Dec 13, 2018

At its meeting on December 11-13, 2018, the International Accounting Standards Board (the Board) discussed IFRS 17, "Insurance Contracts" and 13 of the 25 concerns regarding the standard that were identified in October 2018 as candidates for potential amendments.

Applying the criteria for evaluating proposed amendments agreed on in October, the Board came to the following conclusions (all votes with at least 13 Board members in favour):

Topic

Issue

Agenda paper with detailed description (link to IASB website)

Board decision - consider amendment yes or no?

Presentation

Separate presentation in the statement of financial position of groups that are assets and groups that are liabilities

Agenda paper 2A

yes

Presentation and measurement

Separate presentation and measurement of premiums receivable and claims payable

no

Measurement

Use of locked in discount rate to adjust the contractual service margin (CSM)

Agenda paper 2B

no

Measurement

Subjectivity in determining discount rates and risk adjustment

no

Measurement

Risk adjustment in a group of entities

no

Presentation

Other comprehensive income (OCI) option for insurance finance income and expense

no

Defined terms

Definition of insurance contract with direct participation features

Agenda paper 2C

no

Measurement

Limited applicability of risk mitigation exception

non-transitional requirements: no

transitional requirements: no vote — deferred to the more general discussion of transition requirements, especially related to OCI

Measurement

Business combinations: classification of contracts

Agenda paper 2D

no

Measurement

Business combinations: contracts acquired in their settlement period

no

Measurement

Reinsurance contracts held: expected cash flows arising from underlying insurance contracts not yet issued

Agenda paper 2E

no

Measurement

Interim financial statements: Treatment of accounting estimates

Agenda paper 2F

no

The remaining nine topics from the list of issues presented at the October meeting will be considered at a future meeting.

The Board announced that it will propose to amend IFRS 17 with respect to the one topic noted above.

Review the press release the Board's website.

IASB publishes proposed amendments to IAS 37 regarding onerous contracts

Dec 13, 2018

On December 13, 2018, the International Accounting Standards Board (the Board) published an exposure draft "Cost of Fulfilling a Contract (Proposed amendments to IAS 37)" considering costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. Comments are requested by April 15, 2019.

 

Background

The IFRS Interpretations Committee received a request to clarify what costs an entity considers in assessing whether a contract is onerous. The Committee’s research revealed that, for some contracts, differing interpretations of the onerous contract requirements in IAS 37, Provisions, Contingent Liabilities and Contingent Assets could have a material effect on entities that enter into those contracts. Consequently, the Committee recommended that the Board clarifies the onerous contract requirements in IAS 37. The Board supported the Committee’s suggestion and has today published an exposure draft of proposed clarifications.

 

Suggested changes

The changes proposed in ED/2018/2 Cost of Fulfilling a Contract (Proposed amendments to IAS 37)

  • specify that the "cost of fulfilling" a contract in paragraph 68 of IAS 37 comprises the "costs that relate directly to the contract"; and
  • provide examples of costs that do, and do not, relate directly to a contract to provide goods or services.

The Board proposes no new requirements for entities to disclose information about onerous contracts.

Comments on the proposed changes are requested by April 15, 2019.

 

Effective date and transition requirements

The exposure draft does not contain a proposed effective date, which the Board intends to decide on after the exposure. Early application would be permitted.

Entities already reporting under IFRS would be required to apply the proposed amendments to contracts existing at the beginning of the annual reporting period in which the entity first applies the amendments. Comparatives are not restated ("modified retrospective" approach). There are no specific transition requirements for entities adopting IFRS standards for the first time.

 

Additional information

 

IFRS Foundation publishes proposed general improvements to the IFRS Taxonomy

Dec 06, 2018

On December 6, 2018, the IFRS Foundation published "IFRS Taxonomy 2018 — Proposed Update 2 "General Improvements''". Comments are requested by February 4, 2019.

The proposed changes aim to improve the quality of tagged data and to make the IFRS Taxonomy easier to use by:

  • introducing implementation notes that explain how to use specific IFRS Taxonomy elements and avoid tagging errors;
  • introducing the duration element type for reporting information about a period of time to achieve more consistent tagging; and
  • removing entry points without documentation labels to make it easier to access the IFRS Taxonomy.

Review the press release and proposed update on the International Accounting Standards Board’s website.

KASB research paper on the usefulness of note disclosures

Dec 04, 2018

On December 4, 2018, the Korea Accounting Standards Board (KASB) made available a research report that looks into the usefulness of financial information that is provided in the form of financial statements.

The KASB argues that financial statements currently consist of an overly simplified body and an extensive volume of notes that disclose a list of disorderly information necessary in decision-making. As the KASB believes that this inevitably leads to the on-going criticism that users of the financial statements cannot effectively utilize the information which are useful in making decisions, the KASB sought to find ways to better understand the current status of note disclosure preparation in entities and analyze usefulness of disclosed information in the notes through in-depth interviews with financial statement users. The research report The Usefulness of Note Disclosures: Examination and Suggestions for Improvement was issued in the hope of sharing the outcome of the research conducted with a wider range of stakeholders in Korea and overseas.

Review the research report on the KASB's website.

Post-implementation review of IFRS 13 completed

Dec 14, 2018

On December 14, 2018, the International Accounting Standards Board (the Board) published a summary report on its Post-implementation Review (PIR) of the fair value measurement Standard, IFRS 13, "Fair Value Measurement", which showed that the Standard works as intended.

During the PIR, the Board focused on the following matters:

  • the usefulness of information disclosed about fair value measurements — to gain a deeper understanding of both users’ and preparers’ perspectives on the usefulness and costs of fair value measurement disclosures;
  • whether to prioritise Level 1 inputs or the unit of account — to further assess the extent and effect of the issue as well as to examine current practice;
  • application of the concept of the highest and best use when measuring the fair value of non-financial assets —  to better understand the challenges of applying this concept and decide whether further support could be helpful; and
  • application of judgement in specific areas — to assess the challenges of making judgements and decide whether further support could be helpful.

The conclusions were that the information required by IFRS 13, Fair Value Measurement is useful to users of financial statements. Some areas of IFRS 13 present implementation challenges, largely in areas requiring judgement, However, evidence suggests that practice is developing to resolve these challenges. No unexpected costs have arisen from application of IFRS 13. Thus, the Board concluded that the standard works as intended.

The findings from the PIR regarding the usefulness of information disclosed will feed into the Board's work on better communication, in particular into the projects on targeted standards-level review of disclosures and on the primary financial statements. The Board will also continue liaising with the valuation profession, monitor new developments in practice and promote knowledge development and sharing. Other than that the Board does not intend to conduct any other follow-up in response to findings from the PIR.

Review the press release and PIR report on the Board’s website.

SEC seeks input on quarterly reporting

Dec 18, 2018

On December 18, 2018, the Securities and Exchange Commission (SEC) published a request for comment soliciting input on the nature, content, and timing of earnings releases and quarterly reports made by reporting companies.

The request for comment solicits public input on how the Commission can reduce burdens on reporting companies associated with quarterly reporting while maintaining, and in some cases enhancing, disclosure effectiveness and investor protections. In addition, the Commission is seeking comment on how the existing periodic reporting system, earnings releases, and earnings guidance, alone or in combination with other factors, may foster an overly short-term focus by managers and other market participants.

The public comment period will remain open for 90 days following publication of the request for comment in the Federal Register.

Review the press release and request for comment 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.