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January 2017

AICPA issues additional revenue working drafts

Jan 06, 2017

In January 2017, the American Institute of Certified Public Accountants’s (AICPA) Revenue Recognition Task Force released for public comment four working drafts on accounting issues associated with the implementation of the new revenue standard for the following industries: aerospace and defense, telecommunications, and time shares.

The aerospace and defense working draft provides guidance on contract modifications, the working draft for time-share entities discusses performance obligations, and the two working drafts for the telecommunications industry address (1) separate performance obligations and (2) stand-alone selling prices. Comments on the working drafts are due by March 1, 2017.

For more information, see the aerospace and defense, telecommunications, and time-share Revenue Recognition Task Force pages on the AICPA’s Web site.

Canadian academic Tom Scott appointed to the IASB

Jan 11, 2017

On January 11, 2017, the IFRS Foundation Trustees announced the appointment of Tom Scott to serve as a member of the International Accounting Standards Board (IASB). Mr. Scott will join the IASB in April 2017 for an initial 5-year term.

Mr. Scott has been an academic in the field of accounting at various universities in Canada since the late 1970s. Most recently, he acted as a Director and Professor of Accounting at the School of Accounting and Finance, University of Waterloo, Canada. He also served as a member of the Canadian Accounting Standards Board from 2003 to 2011.

Review the announcement on the IASB's website.

ECON exchange of views with Hans Hoogervorst and Michel Prada

Jan 25, 2017

On January 25, 2017, the European Parliament released a video of the annual exchange of views between the Committee on Economic and Monetary Affairs (ECON) of the European Parliament and representatives of the IASB and the IFRS Foundation. Hans Hoogervorst, IASB Chairman, and Michel Prada, Chairman of the IFRS Foundation Trustees, stood ready to answer questions of the Parliamentarians.

Mr. Hoogervorst made a few short introductory remarks mainly on the forthcoming new standard on insurance contracts (currently expected in May 2017), on which he also promised a full-fledged effect analysis.

There was a broad range of questions, including whether the election of Mr. Trump in the United States would have an effect on the international financial reporting landscape. Mr. Hoogervorst responded that "make US GAAP great again" had been a motto of US accounting well before the election.

Technical questions that drew the most attention were the amendments to IFRS 4 regarding the application of IFRS 9 together with IFRS 4. Mr. Hoogervorst repeated the IASB's belief that having two different standards applied in the same company did not seem desirable and that the overlay approach would provide conglomerates with a solution to their problems.

Another topic that was discussed from different angles was the frequency of amendments to IFRSs.

View the video recording of the ECON meeting on the European Parliament's website.

EFRAG research into dynamic risk management

Jan 30, 2017

On January 30, 2017, the European Financial Reporting Advisory Group (EFRAG) published a report of its findings from a targeted outreach it conducted in 2016 to support the development of a new, high quality macro-hedge accounting solution by the IASB. The outreach was a fact finding exercise focused on gaining a better understanding of banks’ practices in connection with their management of interest rate risk.

In the outreach, 15 banks confirmed that current hedge accounting requirements do not fully accommodate the way a bank manages interest rate risk. Particular challenges are:

  • The use of open portfolios,
  • the fact that interest rate risk is managed using net positions instead of gross positions, and
  • the difficulties of designating particular items as part of a hedge accounting relationship.

While IFRS 9 has addressed some of the above issues, a comprehensive solution for dynamic risk management is still lacking. Therefore, EFRAG's fact finding exercise, which also includes theoretical background to the range of practices employed by banks and considers both the risk management and the accounting perspectives, is meant to help the IASB in developing an improved approach to reporting the effect of dynamic risk management activities in the financial statements.

Review the press release and the outreach report on the EFRAG's website.

ESMA publishes 20th enforcement decisions report

Jan 15, 2017

On January 5, 2017, the European Securities and Markets Authority (ESMA) published further extracts from its confidential database of enforcement decisions taken by European national enforcers. This batch deals with decisions in relation to IFRS 7, IFRS 10, IFRS 12, IAS 1, IAS 8, IAS 12, IAS 16, IAS 17, IAS 32, IAS 36, IAS 37, IAS 38, IAS 39, and IFRIC 4.

The European national enforcers of financial information monitor and review financial statements published by issuers with securities traded on a regulated European market and who prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

ESMA has developed a confidential database of enforcement decisions taken by individual European enforcers as a source of information to foster appropriate application of IFRS.

The publication of enforcement decisions is designed to inform market participants about which accounting treatments European national enforcers may consider as complying with IFRS, i.e. whether the treatments are considered as being within the accepted range of those permitted by IFRS. ESMA considers the publication of the decisions, together with the rationale behind them, will contribute to a consistent application of IFRS in the European Union.

Topics covered in the latest batch of extracts, covering the period from March 2014 to June 2016, include:

Standard Topic
IFRS 7Financial Instruments: Disclosures Qualitative disclosures of the risks arising from financial instruments
IFRS 12 Disclosure of Interests in Other Entities Disclosure of significant judgements and assumptions in determining the existence of significant influence
IAS 36Impairment of Assets Disclosures relating to determination of value in use
IAS 39Financial Instruments: Recognition and Measurement Recognition of losses on loans upon conversion to shares
IAS 1Presentation of Financial Statements Presentation of equal and opposite gains and losses in the statement of profit or loss and other comprehensive income for the period
IAS 8Accounting Policies, Changes in Accounting Estimates and Errors
IAS 38Intangible Assets
Reclassification of capitalised milestone payments by a pharmaceutical company to the statement of profit or loss
IFRS 10Consolidated Financial Statements Legal requirements that prevent a shareholder from exercising its rights
IFRS 10Consolidated Financial Statements Determining whether an entity is an investment entity
IAS 16Property, Plant and Equipment Depreciation of vessels in the oil and gas industry
IAS 8Accounting Policies, Changes in Accounting Estimates and Errors
IAS 36Impairment of Assets
Application of value in use methodology in impairment testing
IAS 36Impairment of Assets
IAS 37Provisions, Contingent Liabilities and Contingent Assets
Recognition of onerous contract provisions
IAS 36Impairment of Assets Identification of cash-generating units
IAS 8Accounting Policies, Changes in Accounting Estimates and Errors
IAS 17Leases
IAS 32Financial Instruments: Presentation
IFRIC 4Determining whether an Arrangement contains a Lease
Purchase of a car fleet with an agreed buy-back agreement
IAS 12Income taxes Recognition of deferred tax assets for unused tax losses

Click for access to the full report (link to ESMA website). The ESMA has also published an updated overview of all enforcement decisions ever published.

FASB clarifies the definition of a business

Jan 05, 2017

On January 5, 2017, the US Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-01, "Clarifying the Definition of a Business", which provides guidance on evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.

The ASU amends ASC 805 to “provide a more robust framework to use in determining when a set of assets and activities is a business.” In addition, the amendments “provide more consistency in applying the guidance, reduce the costs of application, and make the definition of a business more operable.”

The ASU discusses its divergence with IFRS:

The definition of a business in GAAP is currently identical to the definition in IFRS. However, the Board observed that although the definition is identical, it does not appear to be interpreted or applied consistently in practice between jurisdictions that apply GAAP and jurisdictions that apply IFRS. That is, stakeholders have said that in jurisdictions that apply IFRS, the definition of a business generally is not applied as broadly as it is in jurisdictions that apply GAAP. In response to concerns from its stakeholders about the complexity of the definition of a business, the IASB added a project on the definition of a business to its agenda and issued an Exposure Draft, Definition of a Business and Accounting for Previously Held Interests, which proposes similar amendments to those in this Update.

Review the press release, ASU, and FASB in Focus newsletter on the FASB’s website.

FASB drops Step 2 from goodwill impairment test

Jan 26, 2017

On January 26, 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2017-04 "Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which eliminates Step 2 from the goodwill impairment test.

Under the amendments, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

Eliminating Step 2 from the goodwill impairment test under Topic 350 also results in guidance that more closely aligns with the requirements in IFRS as indicated in IAS 36, Impairment of Assets, for some aspects of the goodwill impairment test. IAS 36 requires an entity to test goodwill for impairment using a one-step quantitative impairment test; however, that test is at the cash-generating unit or group of cash-generating units level and compares the carrying amount of that unit with its recoverable amount.

Review the ASU and a summary on the FASB's website.

FYI Article – Take Stock of These Effective Dates

Jan 20, 2017

On January 20, 2017, the Accounting Standards Board (AcSB) released an article as a reminder of the effective dates of recently issued accounting standards and amendments.

A separate summary is provided for each type of reporting entity, as follows:

The articles includes:

  • Effective Dates – International Financial Reporting Standards
  • Effective Dates – Private Enterprises
  • Effective Dates – Private Sector Not-for-Profit Organizations

Review the article on the AcSB's website.

High-level recap of changes resulting from the application of IFRS 9 and IFRS 15

Jan 03, 2017

On January 3, 2017, the International Accounting Standards Board (IASB) published "IFRS 9 and IFRS 15 — one year to go" on its website.

Basically, the recap offers a very general overview of the changes IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers will bring about and then links to the IASB's IFRS 9 implementation page and IFRS 15 implementation page. The recap also reminds preparers that investors need to be informed about the expected impact of a new standard even before companies apply that standard.

Please click to access the recap on the IASB's website.

IASB decides on project on limited IFRS 9 amendments

Jan 18, 2017

On January 18, 2017, the International Accounting Standards Board (IASB) voted to add a limited scope project on IFRS 9 "Financial Instruments" to its agenda.

The project will look into whether a narrow-scope exception could be made to allow instruments with symmetric prepayment options to qualify for amortized cost or fair value through other comprehensive income measurement because they would otherwise fail the SPPI condition.

Review a summary of the agenda paper released by our Global firm.

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