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September 2016

IASB posts webcast on the definition of a business proposals

Sep 06, 2016

On September 6, 2016, the International Accounting Standards Board (IASB) posted a webcast discussing its proposed amendments to the definition of a business in IFRS 3 "Business Combinations".

The webcast, which was hosted by Mary Tokar, IASB Board Member, and Michael Stewart, Technical Director, provides an overview of the proposals, including the two proposed assessment models.

For more information, view the webcast on the IASB’s website.

IASB updates work plan

Sep 23, 2016

On September 23, 2016, the International Accounting Standards Board, following its September 2016 meeting, updated its work plan. The most noticeable change to the work plan is the expected point of time the final standard on insurance contracts will be published: March 2017.

Changes to the work plan include:

Major projects

Implementation projects

Research projects

Post-implementation reviews

The revised IASB work plan is available on the IASB's Web site.

ICAS publishes new professional judgement framework

Sep 02, 2016

On September 2, 2016, the Institute of Chartered Accountants of Scotland (ICAS) released its second edition of a professional judgement framework distilling the key principles for making a sound judgement.

The framework A professional judgement framework for financial reporting decision making - An international guide for preparers, auditors, audit committees, regulators and standard setters across business and not-for-profit sectors identifies core principles and provides a structured process to guide decision makers through how to make, assess and document significant judgements. It targets significant judgements across narrative and financial reporting including accounting treatment, materiality and disclosures.

The framework is designed to fit within the context provided by applicable accounting standards. It also provides a useful training guide for students or those new to decision making.

Access the framework and a corresponding press release on the ICAS' Web site.

Insurance accounting must reflect economic reality, says IASB Chairman

Sep 08, 2016

On September 8, 2016, the International Accounting Standards Board Chairman Hans Hoogervorst reported on the progress of the upcoming insurance contracts standard.

Here are some excerpts from his remarks:

"We finished our deliberations recently and our staff are very busy drafting the Standard.

We have been working on the new insurance Standard for many years and its publication will not come a day too soon. Our current insurance Standard, IFRS 4, is a holding standard which has grandfathered an array of highly diverse national accounting standards. As a result, there is little comparability between insurance companies around the world.

Moreover, there is variety in the measurement of the insurance liability. Some insurers use discount rates that are based on the expected return of assets, others use risk-free discount rates; others still use historical rates based on interest rates at the date of inception.

As a result, the devastating impact of the current low-interest-rate environment on long-term obligations is not nearly as visible in the insurance industry as it is in the defined benefit pension schemes of many companies. Clearly, discounting an insurance liability that was incurred 15 years ago at a historical interest rate of 5-6 per cent does not give relevant information in a time when interest rates are close to—or even below—zero.

In some cases, minimum-return guarantees and other complex features are typically reflected in the insurance liability only when they become worth exercising and even then typically only at an amount that does not reflect their true economic value. For a bank, such treatment of complex financial liabilities would be unthinkable.

As a result, there is not only a lack of comparability among insurance companies, but there is also a great lack of comparability between insurance and other parts of the financial industry, such as banks."

Please click to access the full text of Mr. Hooger­vorst's speech on the IASB's Web site.

Study of the CFA Institute on the role of data and technology in transforming financial reporting

Jun 15, 2016

On June 15, 2016, the CFA Institute, a global association of investment professionals, published "Data and Technology: Transforming the Financial Information Landscape." The study examines the current financial reporting process, assesses the inefficiencies in the system, and determines the ways that data, data analytics, and technology could potentially improve or even transform that process.

The study begins by pointing out that the current system presumes that information is consumed by humans, therefore machine-readable formats are often neglected or viewed as secondary. However, the study concludes that the use of data and technology can result in a more effective and efficient overall financial reporting process in which users at every level receive more transparent, better-quality information on a timely basis. The three levels the study identifies are companies, auditors and investors.

  • Companies. Using standardized data from very early on in the process (and not only at the regulatory filing stage) would enable companies to use applications that are able to pull information from different data sources to write automated reports, which will streamline current labor-intensive processes.
  • Auditors. Structuring data early in the process would also allow auditors to use audit data analytics to make the audit more efficient and potentially provide users with a better quality and greater granularity of financial information with greater reporting frequency and possibly a higher level of assurance.
  • Investors. Structured quantitative data not bounded by the document in which the information is contained would give investors the possibility to apply current technology to sift through data and analyse the numbers in a faster and more comprehensive manner.

However, the study also notes that to achieve these changes, regulators need to improve access to and searchability of information within the regulator’s primary source documents.

Review the full study on the CFA Institute's website.

Summary of the June 2016 joint CMAC-GPF meeting

Sep 02, 2016

On September 2, 2016, the International Accounting Standards Board (IASB) posted the minutes of the meeting of the Global Preparers Forum (GPF) and the Capital Markets Advisory Council (CMAC) with representatives of the IASB held in London on June 15 and 16, 2016.

The topics discussed at the meeting included:

  • IASB and Interpretations Committee Update: Members discussed the support of consistent application of IFRSs and the agenda consultation.
  • Materiality: Members discussed a proposed ‘four-step approach’ for making materiality judgements when preparing a financial report:
    • Step 1 — identifying the primary users and their information needs;
    • Step 2 — making a materiality judgement, considering quantitative factors as well as qualitative entity-specific and environmental factors;
    • Step 3 — organising material information within the financial report; and
    • Step 4 — stepping back and reviewing the financial report as a whole.
  • Statement of Cash Flows: Topics discussed were the classification of cash flows (positively defining cash flows from operating activities, presenting cash outflows for acquiring property, plant and equipment as cash flows from operating activities, presentation of cash flows related to financing liabilities, cash received from customers and presentation of cash flows related to tax), cash equivalents and the management of liquid resources, reconciliation of operating activities, and direct or indirect method.
  • Primary Financial Statements: Members discussed the structure and content of the statement of profit or loss and OCI as regards line items and subtotals as well as alternative performance measures, the structure and content of the statement of financial position, and the interaction between items reported in different primary financial statements,
  • Financial instruments with characteristics of equity: Focus of the discussion were shares redeemable at fair value and cumulative preference shares.

Review the full meeting summary on the IASB's website.

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