September 2016

ASBJ submits paper for the ASAF discussion of the Conceptual Framework

Sep 07, 2016

On September 7, 2016, the Accounting Standards Board of Japan (ASBJ) submitted a paper on 'The Linkage between Financial Performance and Measurement' for the discussion in advance of the upcoming meeting of the Accounting Standards Advisory Forum (ASAF) to be held on September 29, 2016, where members will discuss the question of measurement in the Conceptual Framework.

In the paper, the ASBJ argues two points:

  • As long as the statement of profit or loss is the primary source of information about an entity’s financial performance, the Conceptual Framework should, at a minimum, describe the fundamental characteristics that information about profit or loss should possess.
  • In order to calculate profit or loss that is useful, the measurement basis should be selected appropriately from the perspective of the statement of financial position and from the perspective or the statement(s) of financial performance, respectively. If the measurement basis differ, the difference in the changes in the measurements should be included in OCI.

Please click for access to the full paper on the ASBJ's Web site.

Australia to lead international blockchain standards committee

Sep 15, 2016

On September 15, 2016, Standards Australia announced that it will manage the secretariat of an international technical committee for the development of blockchain standards after the International Organization for Standardization (ISO) approved Standards Australia’s proposal for new international standards on blockchain.

Blockchain is an emerging peer-to-peer database tool for recording transactions. By removing the need to reconcile transactions externally, blockchain has the potential to make interactions more efficient, less expensive and safer working to respond to the risks and opportunities on the path to a sustainable future. International blockchain standards will play a key role in creating greater market certainty and confidence while supporting regulation of financial transactions, commodity exchanges and asset transfers.

Joining Australia on the technical committee are 35 ISO member bodies including Germany, USA, Canada, Estonia, France, Japan, UK, and Korea.

Re­view the press release on the Standards Australia web­site.

Challenges Ahead from New Revenue Standard

Sep 20, 2016

On September 20, 2016, the Wall Street Journal released an article where Eric Knachel, senior consultation partner at Deloitte & Touche LLP, and Christian Chiriatti, managing director at Deloitte & Touche LLP, discuss that the effects of implementing the FASB’s new revenue standard will likely reach beyond corporate finance and accounting and will impact the sales, IT, human resources and compliance functions.

In the article, Mr. Knachel observes that “some of the operational aspects of the new revenue standard seem to present the greatest challenge” and that “there is a significant amount of judgment around applying the new standard, and while similar facts should be followed by similar judgments; in practice, organizations may bump up against the notion that facts can be interpreted differently.”

While Mr. Chiriatti suggested that new guidance around contract modifications could affect whether a contract is considered new or modified. He mentions that there is a significant amount of judgment required around assessing the scope and pricing of work being added to a contract, and the resulting decision could impact revenue recognition patterns because new contracts are accounted for differently than modified ones, depending on several other factors.

Review the full article on the Wall Street Journal's website.

Death of Wayne Upton, Chairman of the IFRS Interpretations Committee

Sep 14, 2016

On September 14, 2016, the staff and the Trustees of the IFRS Foundation and the International Accounting Standards Board (IASB) released condolences on the sudden death of Wayne Upton, Director of International Activities at the IASB and Chairman of the IFRS Interpretations Committee.

Following a distinguished career at the FASB, Mr. Upton joined the IASB in 2001 and was, at different times, Research Director, Chair of the IFRS Interpretations Committee, Chair of the Emerging Economies Group, and Coordinator of the Islamic Finance Consultative Group. In his role as Director of International Activities, he played an important role in supporting jurisdictions around the world with their transition to IFRSs.

See the press release on the IASB's website.

EFRAG publishes a quantitative study on Goodwill and Goodwill Impairment

Sep 29, 2016

On September 29, 2016, the European Financial Reporting Advisory Group (EFRAG) released quantitative data gathered during its research to facilitate the debate related to the accounting for goodwill by providing evidence on how goodwill and goodwill impairment have evolved over time.

The main findings in Europe were (there is also a comparison with data from the US, Australia, and Japan):

  • From 2005 to 2014, the total amount of goodwill recognized increased from 935 billion euros to 1.341 billion euros, representing an increase of 43%;
  • A small number of companies account for a large share of the carrying amount of goodwill;
  • The ratio goodwill to total assets has remained fairly stable over the years at approximately 3,7%. The ratio is significantly higher when entities in Financials industry are excluded but has been gradually decreasing since 2009;
  • The ratio goodwill to net assets has been decreasing since 2008, but it was still significant in 2014 (29%);
  • The amount of impairment losses recognized was at the highest level in 2008 and 2011, years when the performance of the financial markets was negative. On average, impairment losses represented 2,7% of the opening balance of goodwill;
  • Impairment losses are significantly concentrated in a small number of companies, particularly in the Telecommunications and Financials indus­tries; and
  • Absolute and relative levels of goodwill and impairment losses vary significantly across industries.

Please click to access the study and a corresponding press release on the EFRAG's Web site.

FASB issues proposed ASU on insurance contracts

Sep 29, 2016

On September 29, 2016, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU) "Targeted Improvements to the Accounting for Long-Duration Contracts". The FASB's project runs parallel to the IASB's project to replace IFRS 4.

The proposal would amend the accounting and disclosure model for long-duration insurance contracts under US GAAP. The FASB believes that the proposal would improve the following aspects of the financial reporting for such contracts:

  • Measurement of the liability for future policy benefits,
  • Market risk benefits,
  • Deferred acquisition costs, and
  • Disclosures.

Specifically, the proposal aims to:

  • Improve the timeliness of recognizing changes in the liability for future policy benefits by requiring that updated assumptions be used to measure the liability for future policy benefits (that is, that assumptions be ‘unlocked’) and modify the rate used to discount future cash flows.
  • Simplify and improve the accounting for certain options or guarantees embedded in variable contracts.
  • Simplify the amortization of deferred acquisition costs.
  • Improve the effectiveness of the required disclosures.

These objectives are similar to those of the IASB's own project. Paragraphs BC87-BC89 of the proposed ASU explains the treatment of insurance contracts under IFRS. Issuance of IFRS 17, Insurance Contracts is currently expected in March 2017.

Comments on the proposed ASU are due by December 15, 2016. For more information, see the press release, proposed ASU, and FASB in Focus newsletter on the FASB’s Web site.

FASB proposes additional technical corrections and improvements to its new revenue standard

Sep 19, 2016

On September 19, 2016, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU), “Technical Corrections and Improvements to Update 2014-09, 'Revenue From Contracts With Customers' (Topic 606) — Additional Corrections,” which would make minor changes to the Board’s new revenue guidance. This proposed ASU is the second set of technical corrections on revenue proposed by the FASB this year.

The following narrow-scope topics were brought to the FASB’s attention after the initial deliberations of the May 2016 proposed ASU:

  • Loan guarantee fees.
  • Contract asset versus receivables.
  • Refund liabilities.
  • Advertising costs.

Comments on the proposed ASU are due by October 4, 2016. For more information, see the proposed ASU on the FASB’s Web site.

FASB proposes changes to hedge accounting

Sep 08, 2016

On September 8, 2016, the Financial Accounting Standards Board (FASB) issued a proposed Accounting Standards Update (ASU), "Targeted Improvements to Accounting for Hedging Activities." The proposed ASU would improve "how the economic results of an institution’s risk management activities are portrayed." In addition, the proposal would simplify the application of hedge accounting. Comments on the proposed ASU are due by November 22, 2016.

The FASB acknowledged that the language used to describe the hedge accounting guidance in the proposed ASU differs from IFRS 9, but it expects that many common hedge accounting strategies will have similar outcomes.

The proposed ASU and IFRS 9 provide similar methodologies for measuring the hedged item in a partial-term fair value hedge of interest rate risk. The proposed update would allow qualitative assessments of hedge effectiveness if certain conditions are met, while IFRS 9 allows for either quantitative or qualitative assessment of hedge effectiveness.

However, there are some differences between FASB’s proposed ASU and IFRS 9 pertaining to the presentation of changes in the fair value of hedging instruments. FASB’s proposed amendments would eliminate the concept of hedge ineffectiveness, while IFRS 9 retains that concept. FASB’s proposed changes would require an institution to record the entire change in the fair value of the hedging instrument in the same income statement line item as the earnings effect of the hedged item, while IFRS 9 does not provide broad guidance on presentation.

FASB plans to decide on an effective date for the update after redeliberates about all the comments gets during the comment period and from the public roundtable meetings. Early application of the proposed amendments would be allowed at the beginning of any fiscal year before the effective date.

Review the press release and the proposed ASU on the FASB’s website. See also an overview of the proposes changes.

IASB addresses concerns about the different effective dates of IFRS 9 and the new insurance contracts standard

Sep 12, 2016

On September 12, 2016, the International Accounting Standards Board (IASB) published "Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts'". The amendments are intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard (expected as IFRS 17 within the next six months).

The amendments in Applying IFRS 9 "Financial Instruments" with IFRS 4 "Insurance Contracts" (Amendments to IFRS 4) provide two options for entities that issue insurance contracts within the scope of IFRS 4:

  • an option that permits entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets; this is the so-called overlay approach;
  • an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4; this is the so-called deferral approach.

The application of both approaches is optional and an entity is permitted to stop applying them before the new insurance contracts standard is applied.

An entity would apply the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9. The application of the overlay approach requires disclosure of sufficient information to enable users of financial statements to understand how the amount reclassified in the reporting period is calculated and the effect of that reclassification on the financial statements.

An entity would apply the deferral approach for annual periods beginning on or after January 1, 2018. The application of the deferral approach needs to be disclosed together with information that enables users of financial statements to understand how the insurer qualified for the temporary exemption and to compare insurers applying the temporary exemption with entities applying IFRS 9. The deferral can only be use for the three years following January 1, 2018.

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IASB Chairman's welcome address at the World Standard-setters meeting

Sep 26, 2016

On September 26, 2016, in his opening remarks at the 2016 Word Standard-setters (WSS) meeting that is currently taking place in London, IASB Chairman Hans Hoogervorst spoke on IASB developments in the last 12 months, the Board's priorities for 2017 and beyond, and the cooperation between national standard-setters and the IASB.

Mr. Hoogervorst noted that the top priorities for 2017 and beyond would of course include the completion of the remaining major projects: Conceptual Framework, where completion of redeliberations is expected by the end of the year, and insurance contracts, where the issuance of a final standard is currently expected in March 2017.

He also noted the overriding priority of "better communication" the IASB will be focusing on going forward and explained that this does not mean that the IASB intends to cut back the information provided, nor to dramatically increase it. Rather, this focus aims at better presentation of information, better grouping of information together, and additional consideration of the form information is made available. As projects and developments that are expected to contribute to better communication Mr. Hoogervorst mentioned primary financial statements, the disclosure initiative, digital reporting, and non-financial reporting.

Please note that the IASB is not intending to publish a transcript of Mr Hoogervorst's speech on its website.

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