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November 2020

AcSB endorses amendments

Nov 02, 2020

On November 2, 2020, the Accounting Standards Board (AcSB) endorsed amendments to IFRS 17 and extension of the temporary exemption from applying IFRS 9 (Amendments to IFRS 4)

The amendments are now in Part I of the CPA Canada Handbook – Accounting. The amendments include deferring the effective date of IFRS 17, Insurance Contracts to January 1, 2023 and extending the temporary exemption of applying IFRS 9, Financial Instruments by two years to keep the effective dates aligned.

Review the effective dates for new standards on the AcSB's website.

Chairman of the IFRS Foundation Trustees presents sustainability consultation paper at ISAR 37, engages in panel discussion

Nov 05, 2020

On November 5, 2020, the International Accounting Standards Board (IASB) released a speech by Erkki Liikanen, Chairman of the IFRS Foundation Trustees, given at the thirty-seventh session of the United Nations Conference on Trade and Development (UNCTAD) Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR). Mr. Liikanen introduced the Trustees' consultation paper that was published in September to assess demand for global sustainability standards and what role the Foundation might play in the development of such standards.

During the introduction of the consultation paper Mr. Liikanen noted that when the challenges are global, the most optimal solution would be global. He explained that there have calls for the IFRS Foundation to play a role in this area as the Foundation has a well-established model of global standard-setting, working in close cooperation with both public and private stakeholders.

The presentation was followed by a lively panel discussion on "Climate-related financial disclosures in mainstream entity reporting: Good practices and key challenges", that among other speakers saw participation of representatives of TCFD, CDSB, CDP, and UNEP FI.

Review the following additional information:

Disclosure considerations for China-Based issuers

Nov 23, 2020

On November 23, 2020, the Securities and Exchange Commission (SEC) released guidance that provides the Division of Corporation Finance’s views regarding certain disclosure considerations for companies based in or with the majority of their operations in the People’s Republic of China (“PRC” or “China”).

Although China-based Issuers that access the U.S. public capital markets generally have the same disclosure obligations and legal responsibilities as other non-U.S. issuers, the Commission’s ability to promote and enforce high-quality disclosure standards for China-based Issuers may be materially limited. As a result, there is substantially greater risk that their disclosures may be incomplete or misleading. In addition, in the event of investor harm, investors generally will have substantially less access to recourse, in comparison to U.S. domestic companies and foreign issuers in other jurisdictions.

This guide discusses some of the potential risks associated with investments in China-based Issuers. It also highlights related disclosure considerations that these issuers should consider as they seek to fulfill their disclosure obligations under the federal securities laws.

Review the guidance on the SEC's website.

Educational material on applying IFRS Standards to climate-related matters

Nov 20, 2020

On November 20, 2020, the IFRS Foundation released a publication that shows how existing IFRS requirements require companies to consider climate-related matters when their effect is material to the financial statements.

The publication mainly consists of a non-exhaustive list of examples illustrating when IFRS Standards may require companies to consider the effects of climate-related matters in applying the principles in a number of standards.

The examples in the list refer to the following standards:

  • IAS 1, Presentation of Financial Statements
  • IAS 2, Inventories
  • IAS 12, Income Taxes
  • IAS 16, Property, Plant and Equipment and IAS 38 Intangible Assets
  • IAS 36, Impairment of Assets
  • IAS 37, Provisions, Contingent Liabilities and Contingent Assets and IFRIC 21, Levies
  • IFRS 7, Financial Instruments: Disclosures
  • IFRS 9, Financial Instruments
  • IFRS 13, Fair Value Measurement
  • IFRS 17, Insurance Contracts

The publication also notes that in addition to the specific requirements outlined in the table, IAS 1 contains some overarching requirements that could be relevant when considering climate-related matters.

In an article published in November 2019, IASB Board member Nick Anderson had already explained how IFRS requirements can be used to report on climate and other emerging risks.

Review the press release and Effects of climate-related matters on financial statements on the IASB's website.

IASB officially adds Post-implementation Review of IFRS 9 to its work plan

Nov 18, 2020

On November 18, 2020, the International Accounting Standards Board (IASB) announced that it has started its post-implementation review (PIR) of the classification and measurement requirements in IFRS 9, "Financial Instruments".

At its October 2020 meeting, the Board decided unanimously to separate the PIR of the IFRS 9 classification and measurement requirements (including FVOCI equity instruments) from the PIR of the rest of IFRS 9 and to start the PIR on classification and measurement as soon as possible.

One argument brought forward for a separation of classification and measurement was that this part of IFRS 9 did not have a transition resource group (TRG) and thus application issues have not been addressed since publication of the standard. It was also noted that there is not much overlap between classification and measurement and the rest of IFRS 9, so the PIRs can be done separately.

Review the press release on the IASB's website.

IASB publishes discussion paper on business combinations under common control

Nov 30, 2020

On November 30, 2020, the International Accounting Standards Board (IASB) published a discussion paper DP/2020/2 "Business Combinations under Common Control". The IASB reactivated this topic as a research project in 2012 after the original research project was postponed in 2009 for the time being due to the financial crisis at that time. Comments are requested by September 1, 2021.

 

Background

Business combinations under common control are excluded from the application of the current IFRS requirements for business combinations. Under IFRS standards, there are requirements for the parent consolidated financial statements and for the selling entity, but no rules for the acquiring entity. As a result, the preparers of the financial statements of the acquiring entity must develop an accounting policy to account for such transactions. There are accounting policy choices - both in choosing the method and in presenting the comparative information for the previous period.

In practice, the need to develop a suitable accounting method can lead to different presentations of comparable facts and circumstances. Especially since such transactions often occur during restructuring or the creation of new entities - possibly also for an IPO. For these reasons, the IASB has been pursuing a research project for a long time, which was suspended for a time, but which, after intensive consideration, has now culminated in a discussion paper, which, in terms of process, precedes the development of an exposure draft.

 

Summary of preliminary views

Scope. The proposed requirements would apply to all transactions under common control. There would therefore no longer be any differentiation as to whether or not these transactions have economic substance, i.e. whether they constitute pure capital reorganizations or not.


Accounting method dependent on the existence of non-controlling interests. Following its analysis, the Board came to the preliminary conclusion that not one single method for all transactions is in the best interests of all stakeholders. The objective criterion for determining when a transaction should be accounted for using the acquisition method is the existence of a non-controlling interest in the acquiring entity, or at higher levels in the case of sub-groups. Consequently, the book-value method should be applied to all acquiring entities in which there are no non-controlling interests. The only exception is for acquirers whose shares are not traded on a public market, provided that all non-controlling shareholders have been informed of and have not objected to the proposed use of the book-value method. If all non-controlling interests are held by related parties within the scope of IAS 24, application of the book-value method is mandatory.

Application of the acquisition method. Where the acquisition method is to be applied, it must be applied in accordance with IFRS 3. However, if the consideration given is less than the fair value of the assets and liabilities received, this amount is not recognized in profit or loss but in equity.

Application of the book-value method. The IASB proposes to apply the IFRS carrying amounts of the transferred entity prospectively, i.e. from the date of acquisition. The consideration in the form of assets is to be determined at the carrying amounts of the acquiring entity, liabilities incurred are to be determined using the standards applicable to initial measurement. Any difference between the carrying amounts of the assets and liabilities received and the consideration given should be recognized in equity. Transaction costs should be recognized in profit or loss in the period in which they are incurred. The only exception to this are costs for the issuance of additional equity or debt instruments, which must be recognized in accordance with the provisions of IAS 32.

Disclosures. When applying the acquisition method, the disclosure requirements resulting from IFRS 3 should be disclosed, taking into account the improvements proposed in discussion paper DP/2020/1 Business Combinations - Disclosures, Goodwill and Impairment. However, there are additional requirements with regard to IAS 24 that intended to assist preparers. For acquisitions that must be accounted for using the book-value method, adjusted reporting obligations are proposed based on the disclosures required by IFRS 3. This should enable users to assess the nature, financial impact and benefits of the acquisition. However, it is explicitly not required to disclose financial information for periods prior to the acquisition date. Similarly, no fair value of the consideration given is to be disclosed or additionally determined. However, the amount recognized in equity as the difference between the carrying amounts of the assets and liabilities received and the consideration given should be disclosed.

The deadline for comments on the discussion paper is September 1, 2021.

 

Additional information

 

IASB publishes proposed amendment to IFRS 16

Nov 27, 2020

On November 27, 2020, the International Accounting Standards Board (IASB) published an exposure draft "Lease Liability in a Sale and Leaseback (Proposed amendment to IFRS 16)" that aims at clarifying how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in a sale and leaseback transaction. Comments are requested by March 29, 2021.

 

Background

The IFRS Interpretations Committee received a submission about IFRS 16 Leases and a sale and leaseback transaction with variable payments that do not depend on an index or rate and came to the conclusion (and the IASB agreed) that it would be beneficial to amend IFRS 16 to specify how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in the sale and leaseback transaction.

The IASB has now published an exposure draft (ED) of a proposed clarifying amendment.

 

Suggested changes

The IASB proposes in ED/2020/4 Lease Liability in a Sale and Leaseback (Proposed amendment to IFRS 16) to improve the sale and leaseback requirements in IFRS 16 by specifying how to apply paragraphs 36–38 of IFRS 16 in subsequently measuring the lease liability that arises in a sale and leaseback transaction. Specifically, the ED proposes that a seller-lessee

  • when applying the IFRS 16 requirements for measuring the right-of-use asset and lease liability arising from the leaseback, determines the proportion of the asset sold that relates to the right of use retained by comparing the discounted present value of the expected payments for the lease to the fair value of the asset sold and
  • subsequently measures the lease liability by reducing the carrying amount to reflect the expected payments for the lease.

A seller-lessee would apply the proposed amendment retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except when such application to sale and leaseback transactions with variable lease payments would be possible only with the use of hindsight.

The amendment would also add two illustrative examples to IFRS 16

Comments on the proposed changes are requested by March 29, 2021.

 

Effective date

The exposure draft does not contain a proposed effective date as the IASB intends to decide on this after exposure. Early application would be permitted.

 

Additional information

 

IFRS Foundation publishes proposed IFRS Taxonomy update

Nov 24, 2020

On November 24, 2020, the International Accounting Standards Board (IASB) published PTU/2020/5 "IFRS Taxonomy 2020 — General Improvements and Common Practice — IAS 19, Employee Benefits". Comments are requested by January 26, 2021.

The proposed update includes elements to reflect common reporting practice and new and amended labels to clarify the accounting meaning and intended use of some existing elements.

Review the press release and proposed update on the IASB’s website.

Recordings of the second webinar on the goodwill and impairment DP

Nov 06, 2020

On November 6, 2020, the International Accounting Standards Board (IASB) made available the recordings of the recent second webinar on the goodwill and impairment discussion paper.

The webinar introduced in more detail the Board’s preliminary views about improving disclosures about acquisitions.

Listen to the recordings on the IASB's website.

Recordings of the webinars on Trustees' sustainability consultation

Nov 18, 2020

On November 18, 2020, the Trustees of the IFRS Foundation released two webinars and moderated Q&As on their sustainability consultation launched in September.

The consultation is intended to assess demand for global sustainability standards and what role the Foundation might play in the development of such standards.

Review the press release and access the recordings on the IASB's website. The introductory part in both sessions is the same, the questions put forward by the audience differ.

Correction list for hyphenation

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