February 2019

A Podcast Series – AcSB in Conversation

Feb 15, 2019

On February 15, 2019, the Accounting Standards Board (AcSB) released a series of poscasts where members of the AcSB discuss key topics relevant to IFRS Standards, Accounting Standards for Private Enterprises, and Not-for-Profit Organizations. Discussions also include updates on the AcSB’s current projects and its many activities.

The podcasts include:

  • Financial Instruments with Characteristics of Equity
  • Section 3856, Financial Instruments
  • IFRS Standards – Implementation Matters and Other Hot Topics
  • Insurance Contracts
  • Primary financial statements and better communication
  • Revenue and Combinations

Listen to the podcasts on the AcSB's website.

Accounting in the UK in case of a "no deal" Brexit

Feb 21, 2019

On February 21, 2019, the UK Financial Reporting Council (FRC) and the UK Department for Business, Energy and Industrial Strategy (BEIS) published letters for auditors and accountants to share information in case there is no deal for leaving the EU by Friday, March 29, 2019.

Regarding endorsement of International Accounting Standards, the letter refers to the recently drafted Statutory Instrument The International Accounting Standards and European Public Limited-Liability Company (Amendment etc.) (EU Exit) Regulations 2019 (IAS SI). The SI gives power to the Secretary of State to endorse new or amended standards and also power to delegate this responsibility. The intention is to delegate these functions to a newly-formed independent UK endorsement body. This body will be operational during 2019 once the appropriate infrastructure and staff are in place.

In regards to existing EU-adopted IAS, the letter notes that at the point of exit, the Withdrawal Act brings into UK law IASs already endorsed by the EU, to provide continuity.

The following information is available on the UK Government website:

AcSB Chair’s Term Extended

Feb 13, 2019

On February 13, 2019, the Accounting Standards Oversight Council (AcSOC) announced the extension of the term of the Chair of the Accounting Standards Board (AcSB).

Linda F. Mezon, FCPA, FCA, CPA (MI), CGMA has been the AcSB’s Chair since July 1, 2013. Her second term, which was originally set to end March 31, 2021, has been extended to June 30, 2023. This means that Ms. Mezon will serve ten years as Chair of the AcSB, ensuring continuity at a time of significant activity in accounting standard setting, both globally and in Canada.

Review the press release on the AcSB's website.

AcSB Research Update – Extractive Activities

Feb 08, 2019

On February 8, 2019, the Accounting Standards Board (AcSB) published an overview of the results of their research on the accounting challenges faced in the extractive sector.

The AcSB also outlines developments since the International Accounting Standards Board (IASB) Discussion Paper, Extractive Activities, was published in 2010. Their findings are to assist the IASB in identifying topics it should consider as it starts research on extractive activities.

Key research findings include:

  • A weak commodity price environment and pipeline capacity constraints are placing additional pressures on the extractive sector.
  • The decline in commodity prices reduces the profitability prospects and attractiveness of the sector.
  • These pressures have caused a decrease in the number of publicly traded entities as a result of mergers, acquisitions and bankruptcies.
  • Other than that, there have been no significant changes or developments in the Canadian extractive sector since 2010.
  • Many preparers, practitioners and regulators say that there are areas of accounting complexity both within and outside of the scope of IFRS 6.
  • However, non-authoritative guidance on many of these challenges are available, e.g. by CPA Canada Mining and the CPA Canada Oil and Gas Task Forces.

Review the press release and overview on the AcSB's website.

AcSB response Financial Instruments with Characteristics of Equity

Feb 19, 2019

On February 19, 2019, the Accounting Standards Board (AcSB) response to the International Accounting Standards Board’s (IASB) Discussion Paper, which seeks to address the current application challenges with IAS 32, "Financial Instruments: Presentation", was published by the IASB.

The AcSB commends the IASB for striving to address the current application challenges and agree that standard setting activity is required to address issues that currently arise with the application of IAS 32.

Overall, their response letter clearly articulates that they are of the view that the IASB’s preferred approach is not robust enough to address all the challenges identified in practice. The new terminology introduces very complex concepts that are likely to create additional application challenges.

Although they appreciated the IASB’s effort to expand the disclosures for equity instruments, they did not agree with the proposal to expand the attribution of income and expenses to equity instruments other than ordinary shares.

The AcSB welcomed some of the IASB’s proposals – especially on the retention of the puttable exception and the disclosure of terms and conditions of financial instruments, especially as it relates to equity instruments.

Review the press release on the AcSB's website and the full letter on the IASB's website.

Annual ECON exchange of views with Hans Hoogervorst and Erkki Liikanen

Feb 26, 2019

On February 26, 2019, at the annual exchange of views between the Committee on Economic and Monetary Affairs (ECON) of the European Parliament and representatives of the International Accounting Standards Board (IASB) and the IFRS Foundation, IASB Chairman Hans Hoogervorst and Erkki Liikanen, Chairman of the IFRS Foundation Trustees, stood ready to answer questions of the Parliamentarians. IFRS 17, "Insurance Contracts" and wider corporate reporting dominated the exchange.

On IFRS 17, Mr. Hoogervorst stressed the IASB's efforts to support implementation. He noted that the IASB had always said it was willing to consider addressing problems that become obvious during the implementation phase as long as addressing them would not disrupt the implementation process. He explained about the list of issues the IASB is looking into and also about the IASB's tentative decision to defer the effective date of IFRS 17 by one year.

On wider corporate reporting, Mr. Liikanen noted that the IFRS Foundation and the IASB are well aware of the fact that investors want more information about long-term risks and environmental, social and governance (ESG) matters. Mr. Hoogervorst pointed to the IASB's project to update the management commentary practice statement and noted that management commentary provided the space for information that does not naturally fit into the financial statements, but can have a financial effect nonetheless. He also used the opportunity to follow up on a question from an earlier exchange of views regarding country-by-country reporting and explained that while there was no direct fit with IFRSs, information on for example risky tax strategies could also very well be reported in the management commentary.

Questions from the almost empty room were few and were mostly focused on extra financial reporting. In response, Mr. Hoogervorst explained that the IASB does not see itself as a sustainability standard-setter as it a) lacks the expertise in the area and b) as there are already many standard-setters ("too many") active in the field. Therefore, the updated management commentary practice statement will include guidelines how sustainability information can be included in the management commentary and will provide space for such information, but it will not contain any standards for doing so. He also agreed that insurance is an industry very much exposed to effects of the climate change, but he noted that between the information resulting from the forward-looking standard itself and the management commentary there is enough space to report on these effects. Finally, he noted that the management commentary is also the place to report on intangibles and cryptocurrencies that are not caught by the financial statements.

A recording of the exchange of views is available on the European Parliament website (begins at 09:11, ends at 09:54). There are intermittent problems with the English language and original language soundtrack, all other translations work well.

FRC consults on the reporting of intangibles

Feb 06, 2019

On February 6, 2019, the UK Financial Reporting Council (FRC) launched a consultation into possible improvements to the reporting of factors that are important to a business’ generation of value. Comments are requested by April 30, 2019.

The FRC notes that there are frequent calls to reform the accounting for intangible assets, partly in response to the move to a knowledge-based economy. Therefore, the FRC paper considers the case for radical change to the accounting for intangible assets and the likelihood of such change being made in the near future.

It suggests that:

  • relevant and useful information could be provided without the need to recognize more intangible assets in companies’ balance sheets;
  • such information could cover a range of factors, broader than the definition of intangible assets in accounting standards, that are relevant to the generation of value;
  • improvements could be made on a voluntary basis within current reporting frameworks (such as the strategic report); and
  • participants in the reporting supply chain could collaborate to bring about improvements.

The paper is structured into five sections:

  • Section 1 introduces the subject and notes the objectives of the paper.
  • Section 2 discusses the implications of the IASB's Conceptual Framework for the reporting of intangibles. It relates its conclusions to the economic features of intangibles that are identified in the literature.
  • Section 3 considers possible improvements to the reporting of expenses incurred to develop intangibles that cannot be capitalised in financial statements but are expected to benefit future periods.
  • Section 4 discusses how narrative reporting, including the use of metrics, might be used to provide better information for investors on intangibles.
  • Section 5 notes that further consideration is required of the implementation of the suggestions made in the paper and the role of preparers, investors, and standard-setters in that process.

Review the Discussion Paper on the FRC's website.

IASB concludes two projects by publishing project summaries

Feb 28, 2019

On February 28, 2019, the International Accounting Standards Board (the Board) published "Improvements to IFRS 8 "Operating Segments" — Proposed amendments to IFRS 8 and IAS 34 project summary" and "Discount rates in IFRS Standards project summary". The Board will not conduct any further work regarding these projects.

In 2012, the Board started a post-implementation review of IFRS 8 Operating Segments and subsequently published a report and feedback statement summarizing the findings of the review. In March 2017, the Board proposed to address the findings from the review in the exposure draft ED/2017/2 Improvements to IFRS 8 "Operating Segments" (Proposed amendments to IFRS 8 and IAS 34). However, feedback to the ED revealed that some of the Board's proposals could be dealt with by existing requirements, that other proposals would not be effective in addressing the findings from the review, and that the remaining proposals would not result in sufficient improvements in information to investors to justify the additional costs. Therefore, the Board decided not to proceed with the amendments proposed in the ED. Thus, the project summary published today concludes the project.

The project on discount rates resulted from feedback in the Agenda consultation 2011 where constituents had commented that the reasons for differences in discount rate requirements under various IFRS® Standards is not well understood and could be considered inconsistent. Therefore, the Board conducted a research project from 2014 to 2017 to investigate reasons for inconsistencies between requirements relating to discount rates in IFRS Standards and to assess whether the Board should consider addressing those inconsistencies. The Board’s investigation found that, in some cases, inconsistencies arise between requirements relating to discount rates in IFRS Standards because different standards adopt different measurement bases. There are also some inconsistencies because different standards were developed at different times and with different areas of focus. The Board will use those findings in other projects but has no plans to conduct a separate project on discount rates. This project is, therefore, also concluded by publishing a project summary.

Review the following information on the Board's website:


IASB decides on further potential amendments to IFRS 17

Feb 07, 2019

At its meeting on February 7, 2019, the International Accounting Standards Board (the Board) discussed IFRS 17, "Insurance Contracts" and 4 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 2018, the Board came to the following conclusions:

Issue identified at the October IASB meeting

Agenda paper with detailed description (link to IASB website)

Staff recommendation

Board decision

1 — Loans that transfer significant insurance risk

Agenda paper 2A

  1. To amend the scope of IFRS 17 and IFRS 9 for insurance contracts for which the only insurance in the contract is for the settlement of some or all of the obligation created by the contract to enable an entity to apply either IFRS 17 or IFRS 9 to such contracts

13/14 support staff recommendation (on portfolio basis)

23 — Transition: Optionality and comparative information

Agenda paper 2B

  1. To retain the IFRS 17 transition requirements without amendment that would reduce the optionality
  2. To retain the IFRS 17 requirement to present restated comparative information

14/14 support both staff recommendations

25 (and some aspects of 8) — Transition: Risk mitigation option and amounts accumulated in other comprehensive income on transition

Agenda paper 2C

  1. To retain the requirements in IFRS 17 relating to the prohibition of retrospective application of the risk mitigation option
  2. To retain the requirements in IFRS 17 with respect to the cumulative amounts included in other comprehensive income

13/14 support staff recommendation 1 (the staff will do further research and bring back the issue at a future meeting); 14/14 support staff recommendation 2

24 — Transition: Modified retrospective approach

Agenda paper 2D

  1. To retain the requirements in IFRS 17 that an entity:
    • (a) cannot use a specified modification in the modified retrospective approach to the extent that the entity has reasonable and supportable information to apply the related IFRS 17 requirement retrospectively
    • (b) can only use a specified modification in the modified retrospective approach when the entity has reasonable and supportable information to apply that modification
  2. To
    • (a) not amend IFRS 17 to permit an entity to develop its own modifications
    • (b) amend the transition requirements in IFRS 17 for a liability that relates to the settlement of claims incurred before an insurance contract was acquired as follows:
      • (i) to add a specified modification to the modified retrospective approach to require an entity to classify such liabilities as a liability for incurred claims
      • (ii) to permit an entity applying the fair value approach to choose to classify such liabilities as a liability for incurred claims
    • (c) not amend the specified modification in the modified retrospective approach related to the use of cash flows that are known to have occurred
    • (d) not amend IFRS 17 to permit an entity to apply the specified modifications related to groups of insurance contracts without direct participation features to determine the contractual service margin for groups of contracts with direct participating features

14/14 support both staff recommendations (additional guidance to be included)

The staff notes that the only outstanding topics are now the level of aggregation of insurance contracts and a question about a risk mitigation option for general model contracts related to the December 2018 Board discussion on risk mitigation. The staff intend to present papers on the remaining topics and on possible sweep issues at the March 2019 Board meeting.

IASB issues latest edition of "The Essentials" newsletter

Feb 27, 2019

On February 27, 2019, the International Accounting Standards Board (the Board) issued the fifth edition of its newsletter “The Essentials,” which is intended to increase investors’ awareness of IFRS® Standards and enhance their insights into IFRS financial statements.

This issue highlights attributes of free cash flow (FCF) measures reported by lessees that limit comparability with FCF measures reported by companies that buy assets.

Review the press release and Issue 5 of The Essentials, as well as an archive of previous issues, on the Board’s website.

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