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Part I - IFRS

Updated IASB work plan — Analysis (July 2019)

Jul 29, 2019

On July 29, 2019, the International Accounting Standards Board (the Board) updated its work plan following its July 2019 meeting.

Below is an analysis of all changes that were made to the work plan since our last analysis on June 24, 2019.

Stan­dard-set­ting projects

  • Management commentary — The expected timing of an exposure draft has been moved to the second half of 2020 (previously first half of 2020).
  • Primary financial statements — The expected date of an exposure draft has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).

Main­te­nance projects

Research projects

  • Dynamic risk management — The expected date for the core model has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Extractive activities — The expected date to review the research has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Financial instruments with characteristics of equity — A decision on this project’s direction has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Goodwill and impairment — The expected date of the discussion paper has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Pension benefits that depend on asset returns — The expected date to review the research has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Provisions — The expected date to review the research has be narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Subsidiaries that are SMEs — The expected date to review the research has be narrowed down to the fourth quarter of 2019 (previously second half of 2019).

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

AcSB Exposure Draft – Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Proposed Amendments to IAS 12)

Jul 29, 2019

On July 29, 2019, the Accounting Standards Board (AcSB) issued its Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Comments are requested by November 14, 2019.

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.

The Bruce Column — Making the future more realistic than rosy

Jul 25, 2019

The Chairman of the International Accounting Standards Board (IASB), Hans Hoogervorst, is half way through his second, and final, term as Chairman.

In a video interview with Robert Bruce, he reflects on recent achievements, work still to be finalized, how non-GAAP measures lead to what he terms a ‘rosy’ view in accounts, and work ahead on many issues, including ensuring climate change is reflected in the figures.

The difficulties that have faced the IASB and its Chairman, Hans Hoogervorst, in recent years have all been ones that by their very nature are hard to pin down. Everyone knows that the risks surrounding climate change and market dislocation reflect real financial risks. But often the systems available make it harder for the financial reporting standards, (IFRS), to deal with them.

Hoogervorst looks to future IASB projects to provide at least some of the answers. He talks of the upcoming revision of the Board’s Management Commentary Practice Statement as part of the solution. ‘It would’, he says, ‘be a good vehicle for focusing on financial risks not yet captured in financial statements’. And he also sees it as a solution to issues surrounding the recommendations as to how to deal with climate-related financial disclosure.

While he insists it is not the place of the IASB to get involved with sustainability reporting he said that Management Commentary would be ‘an excellent vehicle’ to convey the disclosures. He said that such disclosures ‘fit perfectly in the annual report’ and that the IASB will write new guidance to cover it. And he is also keen that the IASB project on the nature of Primary Financial Statements should provide the guidance needed to ensure that there is more rigour surrounding the financial information that currently escapes financial statements.

These are the non-GAAP numbers that he suggests are generally more ‘rosy’ than the numbers reported under IFRS. ‘This is one of the most important pieces of work that we are currently working on’, he says. ‘The income statement’, he says, ‘ is the most important piece of information that is used by investors for future cash-flow projections and evaluations’, yet ‘what is currently the case in IFRS is that in the income statement we define revenue and we define profit or loss but in between we define not all that much’. Investors and companies, he suggests, like to look at subtotals like operating profit, or EBIT, or EBITDA, to better understand their own results or to explain it to investors. ‘But’, as Hoogervorst points out, ‘we don’t define any of that’. And into that gap has grown the mass of non-GAAP.

‘Non-GAAP is basically created by companies themselves’, he said, ‘but without the discipline of proper accounting standards. So it is no surprise’, he said, ‘that much of this information tends to be on the optimistic side. 70 to 80% of non-GAAP is more rosy than the IFRS numbers’. Hence the Primary Financial Statements project. ‘We have decided to make a definition for operating income. We have decided to define an EBIT-like subtotal which makes it possible for investors to better compare the performance of companies irrespective of the way that they are financed; by leverage or more by equity. By doing so’, says Hoogervorst, ‘we will provide more anchors in the financial statements for comparison across the board. It is extremely important’, he says. ‘We will also provide guidance and discipline around the use of the common practice of taking unusual items out of the income statement, which is one of the sources of rosiness’. And we will make it very clear that you have to do that symmetrically – if you take out expenses you probably have to take out some unusual sources of income that might not recur every year’.

All of this, and a variety of other measures will, says Hoogervorst ‘provide a lot more structure and order in the income statement’. All this, as ever, will take time, probably a couple of years, as it goes through the IASB process. The same has been true of IFRS 17 on insurance. ‘It has been clear that a lot of investors avoid investing in insurance companies because they cannot understand the accounting’, he says. ‘The existence of the new standard might draw more investors to the business of insurance’. At present he says that ‘it is a bit of a mess’. ‘Quite frankly’, he said, ‘investors rely more on prudential information than on accounting, and on a lot of non-GAAP, and we all know the problems with non-GAAP’. n Nevertheless he forsees an effective date of 2022 for the finalized standard. And looking at the IFRS landscape generally he is optimistic. ‘Accounting cannot prevent crises’, he says, ‘but we should be able to give better transparency about the risks that are building up in the financial system or within a company’.

Across the economy from banks to insurance companies he believes the useful and reliable information will be there. ‘I believe the introduction of IFRS 9, with the introduction of the expected loss model, should give investors a much quicker and better insight into the risks building up on the balance sheet of a bank’. The insurance reforms are also, he says, extremely important for the whole financial system. The update of management commentary will, he says, give investors a better insight into the future risks of a company related to, for example, sustainability issues, but also related to its business model or the technology it is working with. ‘All of these improvements will’, he says, ‘serve investors better in a future period of crisis’.

Video – Experts talk! New Insurance Standard

Jul 25, 2019

On July 25, 2019, the Accounting Standards Board (AcSB) released a video featuring Darrel Scott, IASB member, and other experts from the financial reporting community.

Linda Mezon, AcSB Chair, moderated a panel discussion on IFRS 17. Watch the video recording and download the slides to learn more about the conversations around the proposed amendments to the standard.

Review the recording and the slides on the AcSB's website:

Summary of the June 2019 joint CMAC-GPF meeting

Jul 23, 2019

On July 23, 2019, the International Accounting Standards Board (IASB) released a summary of its meeting with both the Capital Markets Advisory Council (CMAC) and Global Preparers Forum (GPF), which was held in London on June 13 and 14, 2019.

The topics discussed at the meeting included:

  • Disclosure of sensitive information
  • Goodwill and impairment
  • Primary financial statements
  • Business combinations under common control
  • Management commentary
  • Targeted standards-level review

The next GPF meeting will be held on October 8, 2019; the next CMAC meeting will take place on October 10, 2019.

Review the press releasemeeting page and meeting summary on the IASB's website.

IASB posts webinar on IFRS 9 after IFRS Interpretations Committee discussion

Jul 22, 2019

On July 22, 2019, the International Accounting Standards Board (IASB) posted to its website a webinar summarizing the IFRS Interpretations Committee's recent discussions on how a company should present amounts in its statement of profit or loss if a credit-impaired financial asset is subsequently paid in full or no longer credit-impaired (cured).

The webinar is hosted by IASB technical staff members Angie Ah Kun and Elizabeth Figgie. They discuss the March 2019 meeting of the IFRS Interpretations Committee and walk through the relevant requirements in IFRS 9 for amortized cost measurement and impairment.

Review the press release and webinar on the IASB’s website.

IFRS Foundation developing a stakeholder engagement register

Jul 22, 2019

On July 22, 2019, the IFRS Foundation announced that it will publish a register to provide a public record of IASB members’ engagement with stakeholders. The register will be published quarterly, beginning December 2019.

The register is being created to increase transparency and "continue demonstrating the Board’s independence and accountability and is also in line with stakeholder feedback." The register will include speaking engagements and face-to-face, web-based or phone meetings of more than 30 minutes duration. IASB members will record the date, the name of the relevant stakeholder organization, and location and purpose of each engagement.

This development can be traced back, among other things, to demands made by the European Commission in its annual report on the activities of the IFRS Foundation, EFRAG and PIOB in 2017, which was published in October 2018. The Commission had observed:

When members of the IFRS Foundation meet with stakeholders outside the framework of the Due Process Handbook, no formal record is kept.

The Commission had noted that it would take action in this regard:

The Commission will engage with the beneficiaries in 2018 in order to ensure (even) higher standards of transparency, in particular with regard to the establishement of mandatory transparency registers on meetings with external stakeholders.

As the Commission has made similar comments when reporting on the activities of EFRAG, it is likely that EFRAG will also present a transparency register in the near future.

Review the Commission report on the European Commission's website and press release on the IASB's website.

IASB publishes proposed amendments to IAS 12

Jul 17, 2019

On July 17, 2019, the International Accounting Standards Board (IASB) published an exposure draft "Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Proposed amendments to IAS 12)" that aim at clarifying how companies account for deferred tax on leases and decommissioning obligations. Comments are requested by November 14, 2019.

 

Background

The IFRS Interpretations Committee received a submission about IAS 12, Income Taxes and the recognition of deferred tax in relation to leases (when a lessee recognizes an asset and a liability at the lease commencement) and decommissioning obligations (when an entity recognizes a liability and includes the decommissioning costs in the cost of the item of of property, plant and equipment). The submitted fact pattern assumed that lease payments and decommissioning costs were deductible for tax purposes when paid and identified different approaches in practice.

The Committee discussed the submission at its meetings in March 2018 and June 2018 and came to the conclusion that the matter was relevant and widespread, as there are various kinds of contracts and fact patterns affected. Moreover, the question as to whether tax deductions are attributable to a contract, a (single) asset/liability, or rather to cash flows, and as to which consequences this may have for determining temporary differences, is fundamental within IAS 12. Therefore, the Committee recommended that the IASB develop clarifying amendments to IAS 12.

The IASB discussed the issue in October 2018 (general discussion of the issue and agreement with the IFRS Interpretations Committee's recommendation) and January 2019 (transition, retrospective application, and early application) and has now published an exposure draft of proposed clarifying amendments.

 

Suggested changes

The main change proposed in ED/2019/5 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Proposed amendments to IAS 12) is a proposed exemption from the initial recognition exemption provided in IAS 12.15(b) and IAS 12.24. Accordingly, the initial recognition exemption would not apply to transactions in which both deductible and taxable temporary differences arise on initial recognition that result in the recognition of deferred tax assets and liabilities of the same amount. This is also explained in the newly inserted paragraph IAS 12.22A.

    Comments on the proposed changes are requested by November 14, 2019.

     

    Effective date and transition

    The exposure draft does not contain a proposed effective date as the IASB intends to decide on this after exposure. The proposed amendments would be applied retrospectively in accordance with IAS 8 and early adoption would be permitted.

    For practical and cost reasons, some simplification is provided for the assessment of the probability that a taxable profit will be available against which the deductible temporary difference can be utilized. A similar simplification is proposed for first-time adopters.

     

    Additional information

     

    AcSB Exposure Draft – Amendments to IFRS 17

    Jul 17, 2019

    On July 17, 2019, the Accounting Standards Board (AcSB) issued its Exposure Draft that corresponds to the IASB’s Exposure Draft on this topic. Comments are requested by September 25, 2019.

    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.

    FASB staff issues Q&As on expected credit losses

    Jul 17, 2019

    On July 17, 2019, the Financial Accounting Standards Board (FASB) issued a Q&A document, “Topic 326, No. 2: Developing an Estimate of Expected Credit Losses on Financial Assets.”

    The Q&As address the following topics:

    • “Use of historical loss information.”
    • “Making reasonable and supportable forecasts.”
    • “The reversion to historical loss information.”

    Review the press release and Q&A document on the FASB’s website.

    Correction list for hyphenation

    These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.