November 2018

Agenda for the December 2018 ASAF meeting

Nov 20, 2018

On November 20, 2018, the International Accounting Standards Board (IASB) 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 December 6 and 7, 2018.

The meeting will discuss the following topics, among others:

  • Better communication – primary financial statements: Discussion on the tentative proposals to be included in the consultation document for the primary financial statements project.
  • Business combinations under common control (BCUCC): Approach for transactions that affect non-controlling interest.
  • Goodwill and impairment: Disclosure objectives and requirements and views on amortization and disclosures supporting amortization of goodwill.

Review the agenda papers for the meeting on the IASB's website.

CRD announces two-year project for better alignment

Nov 07, 2018

On November 7, 2018, at the World Congress of Accountants in Sydney, Australia, the Corporate Reporting Dialogue (CRD), which brings together organizations that have significant international influence on the corporate reporting landscape, announced a two-year project focused on aligning the standards and frameworks of its members.

The Corporate Reporting Dialogue was launched in June 2014 as a way to achieve dialogue and alignment between some of the key standard-setters and framework developers around the world. It includes the Carbon Disclosure Project (CDP), the Climate Disclosure Standards Board (CDSB), the Financial Accounting Standards Board (FASB, observer), the International Accounting Standards Board (IASB), the Global Reporting Initiative (GRI), the International Organization for Standardization (ISO), the Sustainability Accounting Standards Board (SASB), and is convened by the International Integrated Reporting Council (IIRC).

CRD participants hold regular meetings to share their views and provide further cooperation. They have already released a common map of the reporting landscape (May 2015) and a materiality statement (March 2016). Under the new project, participants will work on aligning their standards with the recommendations published by the Task Force on Climate-related Financial Disclosure (TCFD) in June 2017. They will map their respective sustainability standards and frameworks to identify the commonalities and differences between them, jointly refining and continuously improving overlapping disclosures and data points to achieve better alignment, taking into account the different focuses, audiences and governance procedures.

Importantly, participants will also identify how non-financial metrics relate to financial outcomes and how this can be integrated in mainstream reports. This work will be undertaken with the overview of financial standard-setters with the ultimate aim of integrating financial and non-financial reporting.

Review the participants' joint press release on the IIRC's website.

Deloitte's Trevor Derwin appointed to the IFRS Advisory Council

Nov 21, 2018

On November 21, 2018, the Trustees of the IFRS Foundation announced the appointments and re-appointments to the IFRS Advisory Council effective January 1, 2019.

The Advisory Council is the formal advisory body to the Trustees and the International Accounting Standards Board (IASB). It advises the IFRS Foundation on its strategic direction, technical work plan and priorities.

The new and reappointed members of the Advisory Council are:

  • Andreas Barckow - Accounting Standards Committee of Germany
  • Garth Jones - AIA Group
  • Maria Ángeles Peláez Morón - Banco Bilbao Vizcaya Argentaria, SA
  • Sergey Epifanov - Lukoil
  • Tessa Kuijl - Ortec Finance
  • M P Vijar Kumar - South Asian Federation of Accountants
  • James Andrus - Council of Institutional Investors
  • Trevor Derwin - Deloitte & Touche
  • Daniel Civit - Grant Thornton
  • Russell Guthrie - International Federation of Accountants (IFAC)
  • Ellen Gaston - International Monetary Fund (IMF)
  • George Iguchi - The Securities Analysts Association of Japan
  • William Coen - Basel Committee on Banking Supervision
  • Aziz Dieye - Fédération Internationale des Experts-Comptables Francophones
  • Isabelle Ferrand - International Co-operative Alliance
  • Andrew Marshall - KPMG
  • Yibin Gao - Ministry of Finance, People’s Republic of China

All appointments take effect January 1, 2019 and are for a three-year period.

In addition, the Trustees noted that the following members are stepping down from the Council at the end of 2018 or have stepped down already: Gavin Francis, Jake Green, Igor Kozyrev, Ghiath Shabsign, Anne Simpson, Lynda Sullivan, Stephen Taylor, Goro Kumagai, and Colin McDonald.

Review the press release on the IASB's website.

Discussions at the 5th IASB Research Forum

Nov 12, 2018

The International Accounting Standards Board (IASB) hosted its fifth Research Forum on November 11 and 12, 2018 in Sydney. The meeting saw the presentation of six academic papers, responses by academics and standard-setters as well as panel discussions.

The first paper Non-GAAP Earnings and the Earnings Quality Trade-off used a large sample of earnings press releases by Australian firms and compared multiple attributes of non-GAAP earnings measures with their closest GAAP equivalent. The results, which other participants found to be "not surprising", were that, on average, non-GAAP earnings are more persistent, smoother, more value-relevant, and have higher predictive power than their closest GAAP equivalent. The tendency was also noted that they tend to be more positive than GAAP numbers. The question of what this research might contribute to the IASB's efforts quickly turned into the question of whether non-GAAP measures really are such a problem (opinions were divided) and whether it is at all possible to suppress them to a certain degree (by requiring more line items/subtotals/a defined management performance measure). Takeaways from the discussion seemed to be that there is no stopping of non-GAAP measures because even if all non-GAAP measures were declared GAAP, new non-GAAP measures would immediately be defined by companies. However, it was also acknowledge that there was simply not just one number that would satisfy all needs.

The second paper Disclosure Overload? An Empirical Analysis of IFRS Disclosure Requirements examined the disclosure overload problem by testing whether the disclosure reduction recommendations of the Excess Baggage Report issued by professional accounting bodies from Scotland and New Zealand in 2011 are associated with companies’ disclosure incentives and are value relevant for a sample of Australian listed companies. The discussion following the presentation seemed to be rather critical of the paper although it was acknowledged that it was important that the paper shows that there is substantial non-compliance with IFRS disclosure requirements in Australia. However, discussants continued to return to the point that while it is interesting to see that there is non-compliance it is more important to find out why. Also, the relevance of 2011 research checked against 2012 data in the year 2018 was questioned. The opinion was voiced that the disclosure overload problem has more or less gone away by itself thanks to technological development. The IASB is now focusing on the quality of disclosure, no longer on the amount of it.

The third paper Equity Financial Assets: A Tool for Earnings Management – A Case Study of Youngor Group was actually a case study illustrating how earnings were managed by a Chinese company by re-classifying its available-for-sale (AFS) assets as long-term equity investments to decrease the volatility of the company’s apparent profits. The paper claimed that China's adoption of IFRS converged standards in 2007 did not improve transparency about fair value. Among the reasons cited by the paper and by the discussants were an immature capital market, the cost of preparation, difficulties in level 3 estimates, generally unreliable numbers, cultural and legal differences (the term "Western standards" was used), and the "special treatment system" in China. Other participants added, however, that the same earnings management had been possible and had been done in other jurisdictions before IFRS 9 replaced IAS 39. Therefore, some of the earnings management might go away with an IFRS 9 equivalent that is being introduced in three stages in China and with the Chinese market maturing.

The fourth paper Accounting for Intangibles: Can Capitalization of R&D Reduce Real Effects and Improve Investment Efficiency?, which was later followed by a panel discussion on the same topic, investigated the potential for accounting rules to mitigate under-investment by requiring the capitalisation of some research and development costs or might such a capitalization lead to over-investment? Panel members noted that as regards research and development costs, consistency and transparency was more important than the question of expensing vs. capitalization. However, the investor representative noted, if asked directly, investors would probably prefer expensing. It was also noted that most industries move in unison on the question of whether and what to capitalize. The takeaway from the panel and the paper seemed to be that there is already a framework in place that if properly used and enforced can provide useful information. Participants even went as far as to say that there was no immediate pressing need for the IASB to take a project on intangibles onto its agenda.

The fifth paper Extractive Industries Reporting: A Research Review, again followed by a panel discussion, reviewed international diversity of accounting practices and the challenges facing information users and standard-setting processes and lobbying behavior to explain why the IASB (and other standard-setters) have so far not succeeded in developing a rigorous standard for extractive activities and ESG factors. It was especially noted that the important aspect of reserves is only dealt with by disclosure although reserve estimates are required to be used in applying other standards. The paper argued that the IASB needs to take a comprehensive approach that also considers current values. The panel was less sure even though it admitted that there was diversity in practice. Nevertheless, panel members stressed the importance of disclosures and also voluntary disclosures. Mining companies needed to be in strong communication with their investors: "The better you disclose, the more the market will reward you." The panel and audience could also not quite conclude that an industry specific standard is needed for extractive activities although there was consensus that IFRS 6 is not satisfactory and consistency and comparability is needed.

The last paper Independently-certified Industry-specific Disclosures to the Capital Market: The JORC Code in the Australian Mining Industry investigate the compliance with the Australian JORC Code for the mining industry, the quality of the disclosure and its impact on the Australian capital market. The paper was very comprehensive, looking at two research questions and a large amount of data from multiple firms with various analyses. While the relevance of the research and its encouraging results (standard-setting can have a positive impact) were noted it was therefore suggested to split the paper actually into two papers. The relevance for standard-setting was then drilled into by asking after the impact of the standard-setting and the reasons for it, after disclosure vs. recognition and measurement, after the presentation inside or outside the financial statements and the user responses. Concluding, the Chair of the Australian standard-setter encouraged all academics in the audience: "Be brave!" She stressed that standard-setters are eager to be in dialogue with the research community and would always welcome the communication of research results when the findings were clear (also clear about definitions, methodologies, and limitations) and also included clear recommendations.

All links to the papers above are to the IASB website. Final versions of the papers will be included in a special edition of ABACUS early next year.

EFRAG publishes two FICE bulletins

Nov 01, 2018

On November 1, 2018, the European Financial Reporting Advisory Group (EFRAG) issued two bulletins to help constituents better understand the International Accounting Standards Board’s (IASB) discussion paper DP/2018/1 "Financial Instruments with Characteristics of Equity" and participate in the debate on it.

The two bulletins cover (1) the classification criteria included in the DP and (2) the presentation and disclosure requirements included in the DP.

Review the press release and bulletins on the EFRAG's website.

FASB makes narrow-scope amendments to its guidance on credit losses

Nov 15, 2018

On November 15, 2018, the Fi­nan­cial Accounting Stan­dards Board (FASB) issued Accounting Standards Update (ASU) No. 2018-19, “Codification Improvements to Topic 326, Financial Instruments — Credit Losses” which makes narrow-scope amendments to its guidance on credit losses

The ASU amends the transition requirements and scope of the credit losses standard issued in 2016.

Firstly, the ASU mitigates transition complexity by requiring entities other than public business entities—including not-for-profit organizations and certain employee benefit plans—to implement it for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. This aligns the implementation date for their annual financial statements with the implementation date for their interim financial statements.

Secondly, the ASU clarifies that receivables arising from operating leases are not within the scope of the credit losses standard, but rather, should be accounted for in accordance with the leases standard.

Of note, the accounting for credit losses under US GAAP is different from that under IFRS 9. Following the completion of joint deliberations with the IASB in July 2012, the FASB decided to explore an alternative model in response to the feedback received from US constituents.

Re­view the press re­lease and the ASU on the FASB’s website.

FRC announces 2019/2020 audit thematic reviews, priority sectors and audit areas of focus

Nov 15, 2018

On November 15, 2018, the Financial Reporting Council (FRC) announced that it will, in 2019/2020, supplement its routine AQR monitoring programme with two thematic reviews.

These thematic reviews, which focus on aspects of audit practice across a number of firms to identify both scope for improvement and good practice, complement other AQR work, all with the over-riding objective of driving improvements in audit quality.

Review the announcement on the FRC's website.

FRC Lab guidance on reporting performance metrics

Nov 07, 2018

In November 2018, the Financial Reporting Lab of the UK Financial Reporting Council (FRC) published guidance for companies on the presentation of performance metrics in their reporting following calls for clarity from investors.

Performance metrics – Principles and practice includes examples of how companies can apply the principles outlined in the Lab’s earlier project report Performance metrics - an investor perspective published in June 2018. That report found that investors wanted performance metrics to be aligned to strategy, transparent, in context, reliable and consistent.

Review the guidance on the FRC's website.

FRC publishes thematic review findings of IFRS 9 and IFRS 15 company disclosures

Nov 05, 2018

On November 5, 2018, the UK Financial Reporting Council (FRC) published two thematic reviews to help companies improve the quality of their corporate reporting in relation to IFRS 9, "Financial Instruments" and IFRS 15, "Revenue from Contracts with Customers".

The reports analyze the disclosures in a sample of companies’ June 2018 interim reports in relation to the adoption of the new standards and provide examples of better practice in explaining their effect.

The FRC’s review identified a number of areas where disclosure could be improved especially with respect to explanations of the impact of adoption of IFRS 15. It highlights that the best disclosures were those that were specific to the company and that provided additional detail for the benefit of providing a relevant and robust explanation of the impact of IFRS 15.

The main impact of IFRS 9 will be felt by banks and the FRC thematic review focused on the adequacy of disclosures regarding the effect of the transition to IFRS 9 in the first year of adoption. The FRC review highlights some areas where disclosure could be improved and some areas where no disclosure had been provided at all. In particular, the FRC highlights that some smaller banks did not sufficiently explain the impact of adopting IFRS 9.

Review the following additional information on the FRC's website:


FSB reports to G20

Nov 28, 2018

On November 28, 2018, in the context of the 2018 G20 Buenos Aires summit, the Financial Stability Board (FSB) released its fourth annual report on the implementation and effects of the G20 financial regulatory reforms and a letter by the FSB Chair to the G20 Leaders.

In the annual report, the FSB especially notes expected loan loss provisioning (IFRS 9 and the FASB's current expected credit loss model). The FSB has asked the standard-setters to monitor the consistent implementation of their standards. The annual report also notes IFRS 17 as setting out a single, consistent approach to accounting for insurance contracts.

In his letter to G20 Leaders, the FSB Chair especially comments on mitigating the financial stability risks from climate change through the Taskforce on Climate-related Financial Disclosures (TCFD). He notes "encouraging progress" and that a many companies are already reporting against some of the recommendations. The letter states: "Adoption can be expected to widen and improve as the private sector refines emerging good practice in efficient, decision-useful material climate-related financial disclosure."

Review the Annual report and Letter to G20 Leaders on the FSB's website.

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