It is often argued that the problem with economics is that it is neither an art nor a science. And when it comes to some areas of accounting and financial reporting the same dilemma becomes apparent. Quite what is the difference between judgement in determining what accounting policy applies to a transaction (and how to apply it) and what has been estimated in applying that policy?

Information about the key judgements and estimates provides very useful insights. It helps investors understand the choices and judgements management has had to make in preparing the financial statements.

It also allows investors to better assess the quality of the accounting policy decisions management makes and to identify those areas that rely on greater estimation. It enables people to think about what might happen and what may affect the outcomes being estimated. It throws light into a thought process that the blunt disclosure of a bald fact does not.

Review the entire column on our Global IAS Plus website.

The feedback received indicated that the Framework stands up well to the challenges of implementation. However, several opportunities to provide guidance and examples and take other actions to help report preparers and other stakeholders, who continue to tackle challenges, were also identified. In fact, the report identifies 48 actions the IIRC currently proposes taking, based on the preliminary analysis of the feedback. Some of these actions would also include updates to the framework itself. However, the report also acknowledges the need for a stable platform:

There is clearly a choice to be made between giving sufficient time for companies to implement the Framework without changes being made, and updating the Framework in the light of experience and external developments. We have carefully considered the small number of suggestions made in this exercise for Framework revisions, and concluded that none are of immediate concern to justify making those changes now.

Review the report from the IIRC's website.

The amendments in Prepayment Features with Negative Compensation (Amendments to IFRS 9) are:

Changes regarding symmetric prepayment options

Under the current IFRS 9 requirements, the SPPI condition is not met if the lender has to make a settlement payment in the event of termination by the borrower (also referred to as early repayment gain).

Prepayment Features with Negative Compensation amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments.

Under the amendments, the sign of the prepayment amount is not relevant, i. e. depending on the interest rate prevailing at the time of termination, a payment may also be made in favour of the contracting party effecting the early repayment. The calculation of this compensation payment must be the same for both the case of an early repayment penalty and the case of a early repayment gain.

During redeliberations, the IASB decided not to confirm the second eligibility condition (insignificant fair value of the prepayment feature at initial recognition) proposed in ED/2017/3.

Clarification regarding the modification of financial liabilities

The final amendments also contain (in the Basis for Conclusions) a clarification regarding the accounting for a modification or exchange of a financial liability measured at amortised cost that does not result in the derecognition of the financial liability. The IASB clarifies that an entity recognises any adjustment to the amortised cost of the financial liability arising from a modification or exchange in profit or loss at the date of the modification or exchange. A retrospective change of the accounting treatment may therefore become necessary if in the past the effective interest rate was adjusted and not the amortised cost amount.

Effective date and transition requirements

The amendments regarding prepayment features with negative compensation are to be applied retrospectively for fiscal years beginning on or after January 1, 2019, i. e. one year after the first application of IFRS 9 in its current version. Early application is permitted so entities can apply the amendments together with IFRS 9, if they wish so. Additional transitional requirements and corresponding disclosure requirements must be observed when applying the amendments for the first time.

The clarification regarding the modification of financial liabilities should be applied at the same time as the adoption of IFRS 9, i.e. January 1, 2018. 

Additional information

• IASB press release
• Proposed IFRS Taxonomy update regarding prepayment features with negative compensation (comments to be received by December 11, 2017)

The amendments in Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) are:

• Paragraph 14A has been added to clarify that an entity applies IFRS 9 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.
• Paragraph 41 has been deleted because the Board felt that it merely reiterated requirements in IFRS 9 and had created confusion about the accounting for long-term interests.

The ammendments are accompanied by an illustrative example.

Dissenting opinion

The final amendments contain a dissenting opinion as one Board member disagrees amending IAS 28 without also specifying the types of interests that an entity accounts for using the equity method and the types of interests that an entity accounts for applying IFRS 9.

Effective date and transition requirements

The amendments are effective for periods beginning on or after January 1, 2019. Earlier application is permitted. This will enable entities to apply the amendments together with IFRS 9, if they wish so, but leaves other entities the additional implementation time they had asked for.

The amendments are to be applied retrospectively, but they provide transition requirements similar to those in IFRS 9 for entities that apply the amendments after they first apply IFRS 9. They also include relief from restating prior periods for entities electing, in accordance with IFRS 4 Insurance Contracts, to apply the temporary exemption from IFRS 9. Full retrospective application is permitted if that is possible without the use of hindsight.

Additional information

• IASB press release
• Illustrative Example — Long-term Interests in Associates and Joint Ventures

Topics discussed during the investor podcast include the following:

• Overview of the new revenue guidance
• Presentation of bad debt on the income statement
• Implicit price concessions
• Disclosures
• Transition to the new guidance

Review the podcast on the FASB’s YouTube channel.

The forum also featured a panel discussion on users of financial statements, further financial information to be reported and an analysis of financial information.

Review a summary of the key discussion points and the slides for the presentation on the AASB's website.

This issue features:

• Challenges and approaches to defining an EBIT subtotal
• Analysis of the disclosures in the 2016 annual and 2017 interim reports related to the implementation of IFRS 15, Revenue from Contracts with Customers
• Project updates
• Information on investor materials and current events

The Investor Update newsletter is available on the IASB’s website.

The case study report provides illustrations before and after the companies implemented a change in the way they communicated the information and connects the changes to relevant principles within the IASB’s Discussion Paper Disclosure Initiative — Principles of Disclosure.

Review the press release and case study report on the IASB’s website.

The proposed amendments help to distinguish between accounting policies and accounting estimates by clarifying that accounting estimates are judgments and assumptions used in applying an accounting policy when an item cannot be measured with precision.

Review the Exposure Draft on the AcSB's website.

The requirements in IFRS 9, Financial Instruments are different from those in IAS 39 in many aspects, and for some, it will result in a significant change in the information provided in the financial statements. High quality disclosures are important for investors and others to understand what has changed in the transition from IAS 39 to IFRS 9, and to understand the basis for the new amounts reported in the financial statements.

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