Mr. Hoogervorst mentioned that despite the resurgence of protectionism and threats to the rule based trade system of the World Trade Organization, the use of IFRS Standards has progress well. However, there are still some gaps to be filled in the adoption of IFRS Standard in certain jurisdictions.

Next, Mr. Hoogervorst provided an update on the developments in IFRS Standards. The topics he covered included primary financial statements, the implementation of IFRS 17, and wider corporate reporting as well as financial instruments with characteristics of equity, where the IASB has recently issued a discussion paper on this research project.

Review the speech transcript on the Board’s website.

Summary of main proposals

To begin with, the IASB expects many of the existing classification outcomes of IAS 32 to remain unchanged if the approach preferred by the IASB is implemented.

In accordance with the preferred approach proposed by the IASB, equity is a residual that remains if the characteristics of a financial liability are not fulfilled. Accordingly, a financial instrument must be classified as a financial liability if its contractual terms contain an unavoidable obligation:

• a) to transfer cash or another financial asset at a specified time other than at liquidation (timing feature); 
  
  and/or
  
  
• b) for an amount independent of the entity’s available economic resources (amount feature).

The analysis of the timing feature enables the assessment of funding liquidity and cash flows, including whether an enterprise has the economic resources necessary to meet its obligations at maturity and to estimate the need for economic resources at specific times. The timing feature can be specified as a fixed date as another date such as for example dates of coupon or interest payments.

The amount feature, on the other hand, supports the assessment of the balance sheet solvency and returns. This concerns in particular the question of whether an entity has sufficient economic resources to meet its obligations in terms of amount. It is central to the amount feature that a change in the value of the issuer's available economic resources does not limit the amount of the obligation. A simple example is the obligation to repay a loan when it matures: this obligation exists on the merits and in terms of amount, regardless of how the economic resources of the debtor develop. Nevertheless, there may also be changes in the amount of the obligation if, for example, the nominal amount changes due to exchange rates.

In the opinion of the IASB, the component approach already known under IAS 32 should be retained for compound financial instruments that contain both an equity and a liability component. Consequently, the issuer of a non-derivative financial instrument must assess whether it contains both a debt and an equity component. These components would continue to be classified separately as financial liabilities, financial assets or equity instruments.

A puttable instrument that comes puttable exception in IAS 32 would meet the definition of a financial liability if the Board’s preferred approach with timing feature and amount feature is applied. Consequently, the puttable exception would continue to be required under the Board’s preferred approach.

A derivative on own equity would be classified in its entirety. Such a derivative may be classified as an equity instrument, a financial asset or a financial liability in its entirety. The individual legs of the exchange would not be separately classified. A derivative on own equity would be classified as a financial asset or financial liability if:

• a) the derivative requires the entity to deliver cash or another financial asset, and/or contains a right to receive cash, for the net amount at a specified time other than at liquidation - it is net-cash settled (timing feature); or
• b) the 'net amount' of the derivative is affected by a variable that is independent of the entity’s available economic resources (amount feature).

The proposed preferred approach requires consistent accounting for redemption obligations, including NCI puts, and compound instruments with derivative components, e.g. convertible bonds. The IASB sees this as an improvement in the usefulness of financial statements because consistent debt and equity classifications are achieved for similar contractual rights and obligations.

In the opinion of the IASB, additional information on the timing feature is not necessary, as the current presentation and disclosure requirements in other IFRS Standards provide sufficient information to facilitate assessments of funding liquidity and cash flows. In contrast, additional disclosures on the amount feature are required to provide more comprehensive information to users of the financial statements; more detailed breakdowns are required in the balance sheet, the income statement and the revaluation reserve (other comprehensive income) to facilitate the assessment of solvency and return. The IASB proposes a separate disclosure in other comprehensive income for income and expenses from financial liabilities and derivative financial assets or financial liabilities that depend on the company's available economic resources, as well as partially independent derivatives. These amounts are not subsequently reclassified to profit or loss.

In addition, the discussion paper proposes to provide more comprehensive information on the characteristics of issued instruments, such as the ranking of financial liabilities and equity instruments in the event of liquidation.

Annexes to the discussion paper contain a discussion of the two alternative approaches discussed by the IASB, each based on only one of the two features, and a comparison of the classification of selected financial instruments under IAS 32 and under the IASB's preferred approach.

Comments on the discussion paper are requested by January 7, 2019.

Additional information

• Press release on the Board's website
• Discussion Paper DP/2018/1 Financial Instruments with Characteristics of Equity
• IASB Snapshot introducing the DP
• IASB Video: Vice-Chair Sue Lloyd talks about the DP

In addition, the rule removes the requirement for operating companies and funds to post XBRL data on their Web sites.

Review the press release and final rule on the SEC’s website.

Under the final rule, smaller reporting companies “include registrants with a public float of less than $250 million, as well as registrants with annual revenues of less than $100 million for the previous year and either no public float or a public float of less than $700 million.” In view of this new definition of smaller reporting company, the final rule also revises other definitions, such as those for “accelerated filer” and “large accelerated filer,” in an effort to “preserve the existing thresholds in those definitions.”

Review the press release and final rule on the SEC’s website.

The proposal provides additional tools to assist with award determinations; establishes a uniform definition of “whistleblower”; increases the efficiency of processing whistleblower award applications; and clarifies and enhances certain policies, practices, and procedures related to implementing the program.

Comments on the proposed rule are due 60 days after the date of its publication in the Federal Register.

Review the press release on the SEC’s website.

The panel discussed how technological developments in the collection and analysis of data has create an era of systematic investing which can search past price correlations and predict future changes in price. In addition, technological developments in AI are assisting auditors by flagging anomalies that may need to be investigated. Further, the automation of some task eliminates some of the human error that occurs during the collection of data.

The fears of technological advancements discussed by the panel included price crashes of exchanges within the highly automated trading environment; loss of jobs due to automation, and the loss of skepticism in the algorithms used (the human element).

Review the event notes on the Board's website.

Below is an analysis of all changes made to the work plan since our last analysis on May 25, 2018.

Research projects

• Financial Instruments with Characteristics of Equity — The work plan still states that a discussion paper is expected in June 2018.

Main­te­nance projects

• Disclosure initiative — Definition of Material (Amendments to IAS 1 and IAS 8) — IFRS amendments are now expected in Q4 2018.
• Disclosure initiative — Targeted Standards-level review of disclosures — A decision on the project’s direction is now expected in July 2018.

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

The report points out that investors are calling on companies to reassess how they report their performance metrics. The metrics chosen by companies to report their performance should be clearly aligned to the company’s strategic goals, be transparent on how they are calculated and provide sufficient information that allows comparisons to be made to previous years’ performance.

The questions companies and their boards should consider when deciding on how they report their performance focus on:

• alignment to strategy,
• transparency,
• context,
• reliability, and
• consistency.

The report build on the guidance on alternative performance measures issued by the European Securities and Markets Authority (ESMA) in October 2015 but provides an investor perspective on the reporting of all types of metrics (including wider metrics that are not covered by ESMA’s guidelines).

Review the report on the FRC's website.

Here’s an excerpt:

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

The purpose of these examples is to il­lus­trate the use of the IFRS Taxonomy 2018 elements by tagging the illustrative examples that accompany IFRS Standards.

Review the press release and the illustrative examples on the International Accounting Standards Board's website.