November 2018

IASB issues "Investor Update" newsletter

Nov 27, 2018

On November 27, 2018, the International Accounting Standards Board (the Board) issued the seventeenth edition of its newsletter "Investor Update", which provides investors with quick access to information about current accounting and financial reporting topics.

This issue features:

  • Spotlight — Financial Instruments with Characteristics of Equity project
  • Spotlight — IFRS 9 & 15 implementation update
  • We need your views
  • Stay up to date

Review the Investor Update newsletter on the Board’s website.

IASB tentatively decides to defer the IFRS 17 effective date

Nov 14, 2018

At its meeting being held in London today, the IASB discussed the effective date of IFRS 17 'Insurance Contracts' and ten­ta­tively decided to defer it to annual periods beginning on or after January 1, 2022. The IASB also ten­ta­tively decided to defer the fixed expiry date for the temporary exemption to IFRS 9 in IFRS 4 by one year so that all insurance entities must apply IFRS 9 for annual periods on or after January 1, 2022.

In its decision on the effective date of IFRS 17, the IASB followed the staff's line of argument that the Board plans to consider whether to explore amend­ments to IFRS 17 and that any un­cer­tainty about those amend­ments could disrupt the progress of im­ple­ment­ing IFRS 17. Together with the sig­nif­i­cant change that IFRS 17 will cause, this con­sti­tutes ex­cep­tional cir­cum­stances that justify the deferral. 14 Board members voted for deferring the effective date of IFRS 17.

The deferral of the fixed expiry date for the temporary exemption to IFRS 9 was a more con­tentious issue as the deferral would mean that some entities would not apply IFRS 9 up to four years after all other entities. However, the IASB concluded that without the deferral there would be two sets of major accounting changes in a short period of time resulting in sig­nif­i­cant cost and effort for preparers of financial state­ments. Avoidance of this had been the Board's original reason for providing the temporary exemption. 13 Board members voted for deferring the expiry date of the exemption.

IFRS Foundation announces technology initiative

Nov 05, 2018

On November 5, 2018, the IFRS Foundation announced the launch of its technology initiative. The technology initiative will consider how changes in technology may affect the work done by the International Accounting Standards Board (IASB) in certain areas.

Specifically, the technology initiative will investigate how automation, AI, and the consumption of big data may affect accounting, financial reporting, standard-setting process, and stakeholder engagement.

Review the press release on the IASB’s website.

IFRS Foundation Trustees amend Constitution effective December 1, 2018

Nov 29, 2018

On November 29, 2018, the Trustees of the IFRS Foundation issued amendments to the IFRS Foundation Constitution that increase the maximum tenure of the Trustees’ Chair and Vice-Chair to nine years.

The amendments also clarify that the Chair of the Trustees can be appointed either from among the Trustees or externally and specify that the Vice-Chairs must be appointed from the Trustee ranks.

Review the following additional information on the International Accounting Standards Board's website:

IFRS Foundation Trustees Chair delivers speech on the EU fitness check

Nov 30, 2018

On November 30, 2018, the Chair of the IFRS Foundation Trustees, Erkki Liikanen, delivered the keynote speech at the EU Conference in Brussels, discussing the results of the EU fitness check.

Mr. Liikanen began by reviewing the history of how the EU decided to adopt IFRS instead of adapting them into EU GAAP. He noted the importance of that decision and how most of the world has followed suit. He then stated:

All things considered, the IFRS project has been a success at an international level. Is it also viewed as a success at an EU level? The answer to that is provided by the EU Fitness Check.

He went on to praise the EU fitness check, mentioning high participation within — and outside of — the EU. He explained that the number of external comments could be attributed to (1) many non-EU domiciled companies and investors having interests in the EU and being impacted by EU policies; and (2) the EU's approach to corporate reporting — particularly IFRS Standards — is "highly influential in shaping the policies of other jurisdictions".

Mr. Liikanen described the financial reporting perspective of the EU fitness check, mentioning that "the report shows that things are working well". He acknowledged that not everything is perfect, but highlighted that there is not much support for substantive change:

Most respondents felt that IFRS Standards are effective, helping to reduce the cost of capital and increase investments within the EU. Few believed that the Standards have led to procyclicality and short-termism, while most believed that the EU’s policy on IFRS Standards has promoted more integrated capital markets in the EU and internationally. This is encouraging feedback and shows the importance of our Standards to the EU’s Capital Markets Union project and the wellbeing of the global economy more broadly.

He also discussed the fitness check results related to the "carve-in" mechanism proposed to modify IFRS Standards in the EU. Mr. Liikanen reported that three quarters of all respondents supported the status quo of a restricted endorsement process and argued against carve-ins. He did acknowledge that a minority of respondents argued for the carve-in mechanisms; he provided their perspective that it would help the EU exert greater influence on the IASB's standard-setting process. He explained:

This topic of influence is an important one and should not be dismissed. Every major jurisdiction sets out to influence the international agenda, and this is naturally relevant also for the EU. The EU signed up to IFRS Standards from the very beginning, has been a strong and vocal supporter of IFRS Standards as the global standard, and the EU has endorsed pretty much every standard the IASB has ever issued. So, I completely understand the desire to be highly influential in a process to create standards that are mandated for use across the EU.

The question is how best to exert that influence. To collect views, to analyse concerns, to present them well and to win the argument through logic and reason. The EU has a great deal of experience in this area, because that is how its own internal decision-making works.

Mr Liikanen said that many people see carve-ins as an "opt-out" clause from international IFRS system, of which the EU is a major player. He emphasised that he sees the fitness check as an endorsement that the system is working well as-is. He opined that "the best way for the EU to influence the IASB is through the quality of its work and the persuasiveness of its arguments".

Review the full text of Mr. Liikanen's speech on the IASB's website.

In Brief – IFRS 16 Leases

Nov 23, 2018

On November 23, 2018, the Accounting Standards Board (AcSB) published an overview on the impact that the new Leases standard may have on lessees and lessors. The effective date for the new Leases standard is just around the corner.

Review the overview on the AcSB's website.

Podcast on tentative decision to defer IFRS 17 effective date released

Nov 16, 2018

On November 16, 2018, the International Accounting Standards Board (the Board) released a podcast with IASB® Board member Darrel Scott explaining the Board's reasoning behind its decision to tentatively defer the effective date of IFRS 17, "Insurance Contracts" by one year to January 1, 2022 and to extend the fixed expiry date for the temporary exemption to IFRS 9 available to insurers also by one year.

As Mr. Scott explains, the Board had not been very sympathetic to the general calls to delay the IFRS 17 effective date, however, the Board's decision to consider possible amendments to the standard has created a situation of uncertainty that justifies a deferral of application.

Listen to the podcast (approx. 7 minutes) on the Board's website.

Rate-regulated Activities – AcSB Research Paper

Nov 16, 2018

On November 16, 2018, the Accounting Standards Board (AcSB) published a research paper that looks at the topic of rate-regulated activities. It explores the decision-usefulness of financial information that reflects the economics of rate-regulated activities by assessing data taken from the practical experiences of users of the financial statements of entities with such activities.

The data presented in the paper is intended to assist an understanding of the following:

  1. The presence of rate-regulated entities in the capital markets in Canada and other jurisdictions;
  2. The regulatory framework that governs the relationship between the rate regulator and the rateregulated entity;
  3. The similarities and differences in the design of regulatory frameworks across jurisdictions;
  4. The degree to which the regulatory framework can influence the enforceability, and value, of an entity’s rights and obligations arising from the performance of rate-regulated activities; and
  5. The information that users such as debt and equity analysts, and credit rating agencies, consider when making investing and lending decisions.

Review the research paper on the AcSB's website.

Recent developments – Primary Financial Statements Project

Nov 14, 2018

At its meeting on November 14, 2018, the International Standards Board (the Board) met to discuss: (i) earnings before interest, tax, depreciation and amortisation (EBITDA); (ii) whether to develop templates and examples to assist preparers of financial statements; and (iii) possible amendments to the presentation requirements in IAS 1, Presentation of Financial Statements, for minimum line items in the statement(s) of financial performance. The Board tentatively decided not to require presentation of EBITDA in the statement(s) of financial performance, and not to require its disclosure in the notes. The Board also tentatively decided (a) to develop illustrative examples (including for different types of entities) to assist preparers of financial statements; and (b) to clarify that certain line items are required to be presented separately in the statement(s) of financial performance.

The IASB’s Primary Financial Statements Project is part of the Board’s plan to promote Better Communication in Financial Reporting. A discussion paper or exposure draft is currently expected in the second half of 2019.

Noting that companies use different performance measures in their financial statements, often without clarifying what information is included in or excluded from such measures, the purpose of the project to  develop new presentation requirements for the statement(s) of financial performance. The Board is also reducing presentation choices for items in the statement(s) of financial performance and statement of cash flows to make it easier for investors to compare companies’ performances and future prospects.

At its meeting on November 14, 2018, the Board tentatively decided not to require presentation of EBITDA in the statement(s) of financial performance, and not to require its disclosure in the notes. The Board also tentatively decided (a) to develop illustrative examples (including for different types of entities) to assist preparers of financial statements and (b) to clarify that certain line items are required to be presented separately in the statement(s) of financial performance.

Previously at its meeting on October 24, 2018, the Board discussed the descriptions of three subtotals that the Board is proposing for the statement(s) of financial performance. The Board tentatively decided: that the first of the three proposed subtotals should be described as ‘operating profit or loss’; that the second one should be described as ‘operating profit or loss and share of profit or loss of integral associates and joint ventures’; and that the third one should be described as "profit or loss before financing and income tax’"

For further details of these and other developments, refer to the project on the Board’s website. A cumulative list of tentative decisions made by the Board up to its October 2018 meeting is included as Appendix A to this November 2018 Board Paper.

Revenue Recognition Implementation Far From Over: A Q&A with Deloitte’s Eric Knachel

Nov 07, 2018

On November 7, 2018, Financial Executives International (FEI) posted an article regarding a conversation with Deloitte Partner, Professional Practice Group, Eric Knachel about what U.S. public companies must turn their attention to in disclosures now that the first few filings have been completed.

U.S. public companies with fiscal years ending December 31st have now adopted the new revenue recognition standard (ASC 606) and applied it for the first time to their quarterly reports. What work is left to do? As public companies continue to better understand the nuances of the new revenue recognition standard, the issue of disclosures remains a critical pain point for CFOs. Benchmarking can be extremely helpful. But what steps can companies take if they find their revenue recognition practices are out of line with what others are doing?

Refer to the article in FEI Daily for details of Deloitte Partner, Eric Knachel’s comments.

 

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