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Report on the February 2016 IFRS Advisory Council meeting

Mar 11, 2016

On March 11, 2016, the International Accounting Standards Board (IASB) released a summary of the IFRS Advisory Council meeting held in London on February 23–24, 2016. Highlights of the meeting will be thorough discussions of the review of structure and effectiveness of the IFRS Foundation and of the future of corporate reporting.

The report, prepared by Chair of the IFRS Advisory Council Joanna Perry, notes the following dis­cus­sions:

  • IASB ac­tiv­i­ties — Members received a report of recent ac­tiv­i­ties and were congratulatory of the IASB bringing together implementation and education into one unit.
  • Trustee ac­tiv­i­ties — Members received an updated on the January Trustees meeting and were presented with the IFRS Foundation Strategy approved by the Trustees.
  • Post-implementation reviews strategy — Members discussed the primary objective of PIR and when a PIR would be necessary.
  • Review of the structure and ef­fec­tive­ness of the IFRS Foun­da­tion — Members discussed governance aspects of the review.
  • IFRS Foundation funding — The Council believed it is useful for members to have access to an Aide-Memoire and that there may be opportunities for additional funding from the public.
  • Corporate reporting — Members discussed consultation documents from the Federation of European Accountants and the Financial Stability Board and the Carbon Tracker Initiative on the implications of climate change in financial and corporate reporting.
  • Conceptual framework — Members provided advice related to the conceptual framework exposure draft.

The full report on the council’s February meeting is available on the IASB's Web site.

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EFRAG and ICAS issue financial reporting research report

Mar 09, 2016

On March 9, 2016, the European Financial Reporting Advisory Group (EFRAG) and the Institute of Chartered Accountants of Scotland (ICAS) issued a research report, “Professional investors and the decision usefulness of financial reporting,” which examines the use of financial reporting by professional investors and how the results of the research may have standard setting implications.

The research report discovered that:

  • “The objective of investors (valuation or stewardship) does matter.
  • Investors are strongly anchored on the income statement.
  • Investors have strong reservations about the representational faithfulness of bottom line figures.
  • Regardless of its shortcomings, financial accounting information is a key input factor for investors' decision making.
  • The quality of corporate governance, including audit, influences investors' assessment of the representational faithfulness.”

In addition, the research report noted that (1) different objectives for financial reporting need to be prioritised by standard setters; (2) income statements were considered more useful than the balance sheet; (3) standardised performance measures for the income statement need to be enhanced; and (4) "investors' perceptions of corporate governance significantly affect their views of representational faithfulness."

For more information, see the press release and report on the EFRAG’s website.

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New Capital Markets Regulator: Extent of Consultation and CMA Provisions Remain of Concern

Mar 09, 2016

On March 9, 2016, Blakes released a bulletin on the new capital markets regulator. Comments on the revised consultation draft of the provincial/territorial Capital Markets Act (CMA) and the draft initial regulations for the proposed Cooperative Capital Markets Regulatory System, indicate that capital markets stakeholders continue to have major concerns about the adequacy of the consultation process, the interface between the jurisdictions that will be part of the Cooperative System and those that will not, and other provisions of the Consultation Drafts.

The CMA is intended to replace existing provincial and territorial securities legislation in Ontario, British Columbia, New Brunswick, Saskatchewan, Prince Edward Island and Yukon (Participating Jurisdictions). While the 50 comment letters on the Consultation Drafts in large part expressed support for the goal of harmonizing securities regulation in Canada and moving toward a single national regulator, many commenters expressed concern about the inadequacy of the consultation process given the proposed substantive changes to securities law in certain Participating Jurisdictions, notably Ontario.

Review the bulletin on Blakes' Website.

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FASB issues ASU on leases

Feb 25, 2016

On February 25, 2016, the Financial Accounting Standards Board (FASB) issued its new leases standard, ASU 2016-02. The ASU introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard, ASC 606, Revenue From Contracts With Customers.

The ASU introduces a lessee model that brings most leases on the balance sheet and aligns many of the underlying principles of the new lessor model with those in the new revenue recognition standard, ASC 606, Revenue From Contracts With Customers. The new leases standard represents a wholesale change to lease accounting and will most likely result in significant implementation challenges during the transition period and beyond.

The new guidance will be effective for public business entities for annual periods beginning after December 15, 2018 (i.e., calendar periods beginning on January 1, 2019), and interim periods therein. For all other entities, the ASU will be effective for annual periods beginning after December 15, 2019 (i.e., calendar periods beginning on January 1, 2020), and interim periods thereafter. Early adoption will be permitted for all entities.

The leases project was part of a convergence effort between the IASB and FASB; however, the IASB’s counterpart standard, IFRS 16, contains notable differences from ASU 2016-02. For instance, the IASB’s standard has a single lessee accounting model while the FASB’s has a dual lessee accounting model. However, both standards require that assets and liabilities be recognized (with limited exceptions).

For more information, see the press release, FASB in Focus newsletter, ASU, cost-benefit analysis, and video discussion by FASB Vice-Chairman Jim Kroeker and Board members Tom Linsmeier and Hal Schroeder on the FASB’s Web site. In addition, don’t miss Deloitte US's Heads Up on the new standard, which will be available shortly.

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IASB updates work plan

Feb 19, 2016

On February 19, 2016, following its February 2016 meeting, the International Accounting Standards Board (IASB) released an updated work plan.

The Conceptual Framework project is now in the analysis stage (previously in public consultation). The Disclosure initiative — principles of disclosure project is now in the drafting discussion paper stage (previously in analysis).

Updates regarding the im­ple­men­ta­tion projects are:

  • Annual improvements 2015-2017 — exposure draft is no longer expected after six month, instead the Board will decide the direction of the project within the next six months.

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

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From incurred to expected—two years to go

Feb 19, 2016

On February 19, 2016, the IFRS Foundation released its latest video in Debrief series where Sue Lloyd, Member of the International Accounting Standards Board, explains the background to IFRS 9 and its different components – and gives an update on what has happened in the period since the Board completed the Standard in 2014.

Focusing on the impairment element of the Standard, it also covers how the accounting for loan loss provisioning will change from an incurred to an expected loan loss model and gives an update on how the Standard relates to activity by other organizations such as banking regulators.

Watch the video on the IASB's Web site.

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Hans Hoogervorst reappointed as IASB Chairman, Ian Mackintosh to retire as Vice-Chairman at end of first term

Feb 12, 2016

On February 12, 2016, the Trustees of the IFRS Foundation, responsible for the governance and oversight of the International Accounting Standards Board (IASB), announced the reappointment of Hans Hoogervorst as IASB Chairman for a second, five-year term with effect from July 1, 2016. At the same time, the Trustees announced that Ian Mackintosh has decided not to seek a second term, and will step down as IASB Vice-Chairman when his first term expires on June 30, 2016.

The IFRS Foundation is currently undertaking a review of its structure and effectiveness, while the Board is reviewing its Agenda for the next five years. These reviews are exploring possible changes to the composition and the size of the Board and its work in the coming years. In that context, Mr Mackintosh has proposed that he retire from the Board in 2016. The Trustees intend to discuss the review of structure and effectiveness in the coming months.

Review the press release on the IASB's Web site.

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Reactions to the proposed amendments intended to address concerns about the different effective dates of IFRS 9 and the forthcoming new insurance contracts standard

Feb 08, 2016

On December 9, 2015, the IASB published ED/2015/11 'Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Proposed amendments to IFRS 4)'. The comment deadline for this ED has now ended.

ED/2015/11 proposed two options for entities that issue insurance contracts within the scope of IFRS 4:

  • an option that would permit entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets; this is the so-called overlay approach;
  • an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4; this is the so-called deferral approach.

The comment letters on the ED made available on the IASB's Web site seem to focus on two questions:

  1. Is one of the two approaches preferable?/ Can one or the other be dropped altogether?
  2. How can predominance best be determined for the deferral approach?/ What is the appropriate level for assessing predominance?

On the first question, the vast majority of respondents state that both approaches are needed. They claim that both the overlay approach and the temporary exemption from applying IFRS 9 are needed as these address different issues depending on the type of business activities and group structures. On the ends of the spectrum are the insurance industry on the one side, and user organizations on the other side. The insurance industry is asking for a deferral of IFRS 9 until the insurance standard is completed; they mostly cite cost reasons. Some user groups are asking for the overlay approach only, some very few even argue that it is best to do nothing; these respondents mainly cite lack of comparability if multiple options exist.

One level down, it is especially the deferral approach that triggers suggestions for refinement. While most respondents agree that assessing predominance is the right approach, the IASB's proposal to assess predominance "at the reporting entity level" causes confusion. Most respondents seem to believe that the IASB sees the group level as the reporting entity level. Others believe that "reporting entity level" is an empty phrase that could also mean lower levels than the group level. The question of how to treat conglomerates is important in both cases. Therefore, respondents assuming that the IASB intends testing at the group level often argue that a testing "below the reporting entity level" is needed; respondents assuming an assessment at a lower level often wonder of the implications for the group. The two possibilities that seem to emerge are:

  • Assessment is at the group level and results are cascaded down - this would leave pure insurance companies that are subsidiaries of conglomerates without the option of deferral while companies that are not subsidiaries of conglomerates would have the option.
  • Assessment is at a lower level than the group level, however, there is the question of roll-up - this could either mean that groups need to consolidate IFRS 9 and IAS 39 numbers or that qualifying subsidiaries would need to keep two sets of books - an IAS 39 one for reporting to their users and an IFRS 9 one for reporting within the group.

Expectations are currently (as communicated at the October 2015 IASB meeting) that the IASB will begin re-deliberation of the exposure draft in the second quarter of 2016. Final amendments are expected in the third quarter of 2016.

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Report of the IFRS Foundation Trustees January meeting

Feb 05, 2016

On February 5, 2016, the report of the IFRS Foundation Trustees meeting in London held on January 26–28, 2016 was released.

Meeting ac­tiv­i­ties included the following:

  • Executive session — The Trustees discussed a number of important strategic issues:
    • Review of structure and effectiveness of the IFRS Foundation
    • Strategic Plan 2016 
    • Working with National Standard-Setters and regional bodies
    • Other issues.
    • Committee reports
  • IASB Chairman’s report — The Chair of the IASB provided the Trustees with an update on a number of the IASB’s technical ac­tiv­i­ties.
  • Report of the Due Process Oversight Committee (DPOC) — The Trustees received a report about the DPOC’s January 2016 meeting.
  • Investors in financial reporting event — The IFRS Foun­da­tion, with the CFA Institute, hosted an event 'Investors in Financial Reporting’.

The full report on the IFRS Foun­da­tion trustees’ meeting is available on the IASB’s Web site.

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Directors’ Alert 2016 Ingredients for Success: Striking the right balance

Feb 04, 2016

Independent board directors join Deloitte specialists from around the globe to share their insights into the challenges facing boards today and the strategies they can employ to overcome those issues.

What should your board have on its plate in 2016?

Directors’ Alert, “Ingredients for Success: Striking the right balance,” highlights some of key challenges facing boards of directors in 2016. Each topic was developed with input from Deloitte specialists and independent directors from around the globe, explores potential actions boards can take to address the issues, and includes questions directors can ask management to further understand the impact these issues have within their own organization.

Review the Directors’ Alert.

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