News

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IIRC publishes results of integrated reporting implementation survey

Oct 13, 2017

In October 2017, the International Integrated Reporting Council (IIRC) released the results of a survey, that it had conducted earlier this year, on how companies are adopting integrated reporting since the International <IR> Framework was released in 2013.

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.

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G-7 Releases Follow-Up Report on Fundamental Elements for Cybersecurity Assessment

Oct 13, 2017

On October 13, 2017, G-7 finance ministers and central bank governors released a report titled "G-7 Fundamental Elements for Effective Assessment of Cybersecurity in the Financial Sector" to provide guidance on G-7 countries’ (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) expectations for effective cybersecurity assessments for the financial sector.

They aim to build greater financial system resilience by supporting private and public entities as they design and implement cybersecurity policies and operating frameworks. The G7FE are nonbinding, high-level building blocks that provide the foundation for private and public entities, as they develop their approach to cybersecurity, supported by their risk management and culture.

Review the press release and the report on US Department of the Treasury's website.

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IASB finalizes amendments to IFRS 9 regarding prepayment features with negative compensation and modifications of financial liabilities

Oct 12, 2017

On October 12, 2017, the International Accounting Standards Board (IASB) published "Prepayment Features with Negative Compensation (Amendments to IFRS 9)" to address the concerns about how IFRS 9 "Financial Instruments" classifies particular prepayable financial assets. In addition, the IASB clarifies an aspect of the accounting for financial liabilities following a modification.

 

Changes

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

 

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IASB finalizes amendments to IAS 28 regarding long-term interests in associates and joint ventures

Oct 12, 2017

On October 12, 2017, the International Accounting Standards Board (IASB) published "Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)" to clarify that an entity applies IFRS 9 "Financial Instruments" 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.

 

Changes

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

 

FASB (US Financial Accounting Standards Board) (lt blue) Image

FASB releases investor podcast on revenue recognition for health care services entities

Oct 12, 2017

On October 12, 2017, the Financial Accounting Standards Board (FASB) released an investor podcast on the impact of revenue recognition on entities in the health care services industry.

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.

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SEC proposes amendments to simplify and modernize certain disclosure requirements in Regulation S-K

Oct 11, 2017

On October 11, 2017, the Securities and Exchange Commission (SEC) issued a proposed rule that contains a number of specific revisions to a broad group of disclosure requirements in Regulation S-K in response to a mandate of the Fixing America’s Surface Transportation (FAST) Act.

The objective of the proposed rule is to "modernize and simplify certain disclosure requirements in Regulation S-K, and related rules and forms, in a manner that reduces the costs and burdens on registrants while continuing to provide all material information to investors." The proposal underscores the importance of making registrants' disclosures more readable and navigable as well as eliminating "repetition and disclosure of immaterial information."

SEC Chairman Jay Clayton addressed the proposed rule in a public statement at the Commission's October 11, 2017, open meeting. Mr. Clayton particularly emphasized two areas in which the proposed rule has recommended improvements: (1) Management's Discussion and Analysis (MD&A) and (2) the confidential treatment process. Regarding the proposed changes related to MD&A, he pointed out that registrants would be permitted to "forgo discussion of the oldest period if the information has been previously reported and . . . is no longer material." In discussing the suggested enhancements to the confidential treatment process, he noted that the proposed amendments would "create efficiencies" by permitting "registrants to omit from material contract exhibits confidential information that is not material and would cause competitive harm if publicly disclosed, without having to request confidential treatment from the Commission."

Application to Foreign Private Issuers

The disclosure requirements for Item 5 of Form 20-F (Operating and Financial Review and Prospects) are substantively comparable to the MD&A requirements under Item 303 of Regulation S-K. To maintain a consistent approach to MD&A for domestic registrants and foreign private issuers, they are proposing changes to Form 20-F that conform to their proposed amendments to Instruction 1 to Item 303(a). Accordingly, their proposals would amend the instructions to Item 5 of Form 20-F to provide that, when financial statements included in a filing cover three years, discussion about the earliest year would not be required if (i) that discussion is not material to an understanding of the registrant’s financial condition, changes in financial condition, and results of operations and (ii) the registrant has filed its prior year Form 20-F on EDGAR containing Item 5 disclosure of the earliest of the three years included in the financial statements of the current filing. Similar to their proposals for Item 303, they are proposing to amend the instructions to Item 5 of Form 20-F to emphasize that registrants may use any presentation that, in the registrant’s judgment, would enhance a reader’s understanding.

Review the proposed rule and Mr. Clayton's public statement on the SEC's Web site.

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IASB Chairman speaks on "The Future of Financial Reporting" at the Australian Accounting Standards Board forum

Oct 10, 2017

On October 10, 2017, the Australian Accounting Standards Board (AASB) hosted a forum featuring special guest IASB Chairman, Hans Hoogervorst, who delivered a presentation on the "big picture" and the IASB’s plans for global financial reporting.

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.

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IASB issues "Investor Update" newsletter

Oct 09, 2017

On October 9, 2017, the International Accounting Standards Board (IASB) issued the fourteenth edition of its newsletter "Investor Update", which provides investors with quick access to information about current accounting and financial reporting topics.

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.

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Trump administration proposes eliminating pay-gap reporting requirement for companies

Oct 06, 2017

On October 6, 2017, MarketWatch released an article that discussed how the Trump administration proposed scrapping a requirement that companies disclose the pay ratio between chief executives and employees, one of several recommendations outlined in a detailed report on capital markets.

The U.S. Treasury Department (Treasury) said parts of the Dodd-Frank Act should be repealed, among other steps, to promote economic growth and capital formation. "By streamlining the regulatory system, we can make the U.S. capital markets a true source of economic growth which will harness American ingenuity and allow small businesses to grow," Treasury Secretary Steven Mnuchin said in remarks accompanying a report on regulation and markets.

The Treasury recommends that Section 1502 (conflict minerals), Section 1503 (mine safety), Section 1504 (resource extraction), and Section 953(b) (pay ratio) of Dodd-Frank be repealed and any rules issued pursuant to such provisions be withdrawn, as proposed by H.R. 10, the Financial CHOICE Act of 2017. In the absence of legislative action, the Treasury recommends that the SEC consider exempting smaller reporting companies (SRCs) and emerging growth companies (EGCs) from these requirements.

Appendix B of the report includes a list of all of the Treasury’s recommendations, including the recommended action, the method of implementation (Congressional and/or regulatory action), and which Core Principles are addressed. 

Review the article on MarketWatch's website and the report on U.S. Treasury Department's website.

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IFRS Foundation issues case study report on disclosure improvements

Oct 05, 2017

On October 5, 2017, the IFRS Foundation has issued a case study report, “Better Communication in Financial Reporting — Making disclosures more meaningful.” The case study report looks at six companies from varied industries and describes their process to improve disclosures.

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.

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