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Part I - IFRS

IASB proposes to defer effective date of IAS 1 amendments

May 04, 2020

On May 4, 2020, the International Accounting Standards Board (IASB) published an exposure draft "Classification of Liabilities as Current or Non-current — Deferral of Effective Date (Proposed amendment to IAS 1)" proposing to defer the effective date of the January 2020 amendments to IAS 1 by one year. Comments are requested by June 3, 2020.

 

Background

On January 23, 2020, the IASB issued Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) providing a more general approach to the classification of liabilities under IAS 1, Presentation of Financial Statements based on the contractual arrangements in place at the reporting date. The amendments currently have an effective date of 1 January 2022.

In April 2020, the IASB held a supplementary IASB meeting to consider COVID-19-related matters including the Board's timelines in view of the COVID-19 pandemic. The Board tentatively decided to delay by one year the effective date of Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) to annual reporting periods beginning on or after 1 January 2023.

The proposed amendment published today is solely seeking to delay the effective date of the January 2020 amendments by one year.

 

Suggested changes

The changes proposed in ED/2020/3 Classification of Liabilities as Current or Non-current — Deferral of Effective Date (Proposed amendment to IAS 1) would defer the effective date of Classification of Liabilities as Current or Non-Current (Amendments to IAS 1) to annual reporting periods beginning on or after 1 January 2023. Earlier application of the January 2020 amendments would continue to be permitted.

 

Comment period

Comments on the exposure draft are requested by June 3, 2020. The shortened comment period of 30 days was approved in a DPOC meeting on April 16, 2020.

 

Additional information

 

Responses to Accountancy Europe cogito paper show strong support for a global solution to non-financial reporting

Apr 30, 2020

In December 2019, Accountancy Europe published a paper describing and calling for a global solution to interconnected standard-setting that can meet the need for reliable, consistent information in non-financial reporting that is interconnected with financial reporting. The comment deadline for the paper has now ended and the responses received show strong support for a global approach to standard setting in this area.

The paper had noted that the hundreds of non-financial information (NFI) reporting initiatives available are leading to confusion and the potential for greenwashing. For an effective response to these global issues and stakeholder demands, NFI reporting needs to be harmonized and interconnected with financial reporting. The paper then explored four approaches how this can be achieved, being (1) an international non-financial reporting standards board within the IFRS structures, (2) regional consolidation, (3) separate governance structure for financial and NFI reporting; and (4) global corporate reporting structure.

The responses so far made available on the Accountancy Europe website (17 responses that can be accessed here) show strong support for approach number four.

Of the large accounting organisations, ACCA very much supports overall the content and conclusions of the paper and agrees that approach 4 represents the best model for setting the standards needed to address the issues at hand. IFAC states that a global approach to international standard-setting is an optimal solution and notes: "IFAC strongly supports a global, versus regional or local, approach to “non-financial” standard setting, including the process of establishing a conceptual framework and standards, for the same reasons international standards were critical for the maturity of financial reporting. A regional or local approach ultimately leads to inefficiency and increased costs — for both companies and investors and might be challenging to retrofit at an international level."

The majority of national standard-setters also support the global approach. The German standard-setter ASCG states: "[W]e do not share the view of those that believe Europe should be first, go regional and create its own non-financial reporting environment. The reporting requirements are primarily targeting companies that are sourcing, selling and doing business beyond Europe's borders" and the Dutch standard-setter DASB believes that for any global initiative, clear support of major national and international stakeholders and jurisdictions is essential and notes that approach four may be most appropriate given the fact that also the United Nations have made promising progress in developing their SDGs.

The sustainability and integrated reporting organisations, apart from promoting their own standards and frameworks, favour global solutions as well. The CDSB warns that a "regional approach may not be the best method to develop a global standard. This problem is further exacerbated by the issue that jurisdictions outside of Europe may be hesitant to adopt regional concepts", GRI notes that a "globalized system will unlock the value of the information by easing comparability and analysis while minimizing reporting burden", and the IIRC comments: "We endorse the approach taken by Accountancy Europe in encouraging dialogue between stakeholders that will lead to a globally coordinated solution involving many different constituents on an inclusive basis."

Responses from academia offer careful analysis of all approaches and general statements in the paper. One comment letter notes: "Approach 4 has much greater potential with respect to global acceptance. It is unrealistic to expect global adoption of an approach that is designed and controlled locally. [...] This is especially important for NFI because the underlying challenges are global. [...] By creating barriers to global acceptance, Approach 2 risks undermining the EU’s policy ambition in this regard. Conversely, if the EU were to initiate, promote and support Approach 4, and commit to adopting the resulting standards (with appropriate endorsement process), then it would be in a strong position to ensure that the specific implementation of Approach 4 would reflect the EU’s views, against criteria such as public accountability and balanced member ship of the standard-setting body."

The responses from audit firms all support a global solution as well. Our Deloitte comment letter notes: "We agree that there is a need for a global solution in view of the global flow of capital and the urgent need to address issues such as climate change which have no borders. We urge capital market regulators and multi-lateral authorities to engage urgently in putting a robust global systemic solution in place."

IASB Chair discusses annual cohorts

Apr 28, 2020

On April 28, 2020, the International Accounting Standards Board (IASB) issued an article by IASB Chair Hans Hoogervorst explaining the reasons supporting the IASB’s recent decision to uphold the annual cohort requirement in IFRS 17 for grouping insurance contracts to measure and recognize profit.

In the article, In Brief: IFRS 17 Insurance Contracts — why annual cohorts?, Mr. Hoogervorst states:

The Board is particularly concerned that financial reporting presents fairly the financial performance of businesses in each period and how profitability changes over time. As emphasized by the Board’s Conceptual Framework, IFRS Standards must result in useful information about financial performance as well as financial position. Much of existing insurance contract accounting is founded on prudential regulation that has a primary focus on solvency. We believe the dual focus of IFRS Standards on financial performance and financial position greatly enriches the information provided in financial statements. The statements of financial performance often serve as a canary in the coal mine. An erosion of profits may be a foreboding of problems to come.

Mr. Hoogervorst goes on to discuss:

  • most financial reporting is applied at the individual contract level;
  • why accounting for individual insurance contracts is not appropriate;
  • annual cohorts essential for prudent planning;
  • objections to annual cohorts raised during the recent consultation, including:
    • Do annual cohorts fail to reflect intergenerational sharing of risk?
    • Do annual cohorts result in arbitrary allocations?
    • Are annual cohorts too costly for contracts with intergenerational sharing of risks?
  • deliberations and redeliberations; and
  • implementing the standard.

Review the press release and article on the IASB's website.

IASB releases podcast on IFRS 17 (April 2020)

Apr 27, 2020

On April 27, 2020, the International Accounting Standards Board (IASB) released a podcast featuring IASB member Darrel Scott and technical staff member Roberta Ravelli as they discuss the developments at the April 2020 Board meeting related to the amendments to IFRS 17, "Insurance Contracts".

During the meeting, the IASB was given a short oral update on the progress as regards finalizing the amendments.

Listen to the podcast on the IASB's website.

Updated IASB work plan — Analysis (April 2020 regular meeting)

Apr 24, 2020

On April 24, 2020, the International Accounting Standards Board (the Board) updated its work plan following its April 2020 regular meeting.

Below is an analysis of all changes made to the work plan since our last analysis on April 18, 2020.

Standard-setting projects

  • Disclosure initiative — Subsidiaries that are SMEs — The Board will decide whether to publish a discussion paper or an exposure draft as next step in this project in the fourth quarter of 2020 (previously no date given)

Maintenance projects

Research projects

Other projects

The revised IASB work plan is available on the Board's website.

Emerging market investments entail significant disclosure, financial reporting and other risks

Apr 21, 2020

On April 21, 2020, the Securities and Exchange Commission (SEC) Chair Jay Clayton and a group of senior SEC and PCAOB officials issued a joint statement warning about the risks posed by “emerging market” investments. While the statement addresses all emerging markets, it focuses on China.

In many emerging markets, including China, there is substantially greater risk that disclosures will be incomplete or misleading and, in the event of investor harm, substantially less access to recourse, in comparison to U.S. domestic companies. This significant asymmetry holds true even though disclosures, price quotes and other investor-oriented information often are presented in substantially the same form as for U.S. domestic companies. The statement summarizes some of these risks and related considerations specific to issuers, auditors, index providers and financial professionals.

Review the full statement on the SEC's website.

AcSB Exposure Draft – Interest Rate Benchmark Reform – Phase 2

Apr 17, 2020

On April 17, 2020, the Accounting Standards Board (AcSB) issued its Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Comments are requested by May 25, 2020.

The AcSB would like input from Canadian respondents on the following additional question regarding the proposed amendments:

The IASB has developed the proposed amendments in accordance with its due process for application around the world. Assuming the Exposure Draft proposals are finalized and approved by the IASB in accordance with its due process, do you think that the proposals are appropriate for application in Canada? If not, please specify which aspects of the proposals, and what circumstances, make the accounting requirements proposed in the Exposure Draft inappropriate.

Review the press release and exposure draft on the AcSB's website.

IASB publishes proposed amendments as a result of the second phase of its project on the IBOR reform

Apr 09, 2020

On April 9, 2020, the International Accounting Standards Board (IASB) published an exposure draft "Interest Rate Benchmark Reform — Phase 2 (Proposed amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)" that contains proposed amendments that would address issues that might affect financial reporting after the reform of an interest rate benchmark, including its replacement with alternative benchmark rates. Comments are requested by May 25, 2020.

 

Background

Interbank offered rates (IBORs) are interest reference rates, such as LIBOR, EURIBOR and TIBOR, that represent the cost of obtaining unsecured funding, in a particular combination of currency and maturity and in a particular interbank term lending market. Recent market developments have brought into question the long-term viability of those benchmarks.

The IASB addresses the issues in a project split into two phases: Phase 1 dealt with pre-replacement issues (issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark). This part of the project was concluded on 26 September 2019 by publishing Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7).

Phase 2 of the project deals with replacement issues, therefore, the proposed amendments published today are intended to address issues that might affect financial reporting when an existing interest rate benchmark is actually replaced.

 

Suggested changes

The changes proposed in ED/2020/1 Interest Rate Benchmark Reform — Phase 2 (Proposed amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) relate to the modification of financial assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and disclosure requirements applying IFRS 7 to accompany the Board’s proposals for classification and measurement and hedge accounting.

  • Modification of financial assets, financial liabilities and lease liabilities. The IASB proposes a practical expedient for modifications required by the reform (modifications required as a direct consequence of the IBOR reform and made on an economically equivalent basis). These modifications are accounted for by updating the effective interest rate. All other modifications are accounted for using the current IFRS requirements. A similar practical expedient is proposed for lessee accounting applying IFRS 16. For qualifying modifications, there would be no specific gain or loss associated with the replacement of the IBOR rate.
  • Specific hedge accounting requirements. Under the IASB's proposals, hedge accounting would not discontinued solely because of the IBOR reform. Hedging relationships (and related documentation) must be amended to reflect modifications to the hedged item, hedging instrument and hedged risk. Any valuation adjustments resulting from the amendments are recognized as part of ineffectiveness. Amended hedging relationship should meet all qualifying criteria to apply hedge accounting, including effectiveness requirements.
  • Disclosures. In order to allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition, the exposure draft proposes that an entity would disclose information about
    • how the transition from interest rate benchmarks to alternative benchmark rates is managed and progress made at the reporting date,
    • the carrying amount of financial assets and financial liabilities that continue to reference benchmarks subject to the reform, disaggregated by significant interest rate benchmark,
    • for each significant alternative benchmark rate to which the entity is exposed, an explanation of how the entity determined which modifications qualified for the practical expedient, including a description of significant judgements the entity made to determine qualifying modifications, and
    • to the extent that the IBOR reform has resulted in changes to an entity’s risk management strategy, a description of these changes and how is the entity managing those risks.

The IASB also proposes to amend IFRS 4 to require insurers that apply the temporary exemption from IFRS 9 to apply the amendments in accounting for modifications directly required by IBOR reform.

The IASB also proposes that the application of all proposed amendments should be mandatory. The IASB has also come to the conclusion that the nature of the proposed amendments is such that they can only be applied to modifications of financial instruments and changes to hedging relationships that satisfy the relevant criteria and, as such, no specific end of application requirements need to be specified.

Comments on the proposed changes are requested by May 25, 2020.

 

Effective date

The exposure draft proposes that the amendments would be effective for annual periods beginning on or after January 1, 2021 and would be applied retrospectively. Early application would be permitted.

 

Additional information

 

AcSB endorses Classification of Liabilities as Current or Non-Current (Amendments to IAS 1)

Apr 02, 2020

On April 2, 2020, the Accounting Standards Board (AcSB) announced that the amendments, which clarify how to classify liabilities as current or non-current, are now in Part I of the CPA Canada Handbook – Accounting, and are effective for annual reporting periods beginning on or after January 1, 2022. Earlier application is permitted.

Review the press release on the AcSB's website.

IASB updates work plan in view of COVID-19 developments

Mar 27, 2020

On March 27, 2020, the International Accounting Standards Board (IASB) updated its work plan. The IASB postponed to May 2020 the publication of several narrow-scope amendments to IFRS Standards originally planned for March and April 2020. This consolidation of publications is intended to facilitate more efficient post-publication procedures by the stakeholders. The work plan has been updated accordingly.

Below is an analysis of all changes made to the work plan since our last analysis on March 21, 2020. We also note the projects the IASB intends to move forward with in April 2020.

Standard-setting projects

  • No changes

Maintenance projects

Research projects

Other projects

The revised IASB work plan is available on the Board's website.

Correction list for hyphenation

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