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Joint IASB — FASB education meeting

Date recorded:

At this meeting, the IASB held an entire day of educational sessions with the US Financial Accounting Standards Board (FASB). The purpose was for the boards to update each other on individual projects that partially or entirely overlap with a project of the other board. No decisions were made during this session.

Responding to the COVID-19 crisis (Agenda Paper 32A)

The IASB staff have assessed the impact of COVID-19 on IFRS Standards. The staff find that IFRS Standards are working well in practice. Where necessary and appropriate, targeted and urgent action has been taken in line with the IASB’s due process. The staff find that developing assumptions is one of the most common challenges arising from the pandemic. The staff’s strategy with regard to the pandemic is to monitor application challenges and where necessary respond to urgent issues. The staff are planning to continue and deepen engagement with stakeholders and adjust consultation timelines to help stakeholders experiencing challenges from the crisis.

FASB response to COVID-19 (Agenda Paper 32B)

With regard to the FASB agenda and activities, the FASB staff is mindful about the preoccupation of stakeholders with COVID-19. Postponed exposure documents have been issued to provide stakeholders the opportunity to comment on proposals in a timeframe reflective of the current environment.

The FASB continues to allocate significant staff resources to focus on emerging issues with a priority for COVID-19-related matters, including technical inquiries and development of educational materials. The staff also focus on implementation of the various major new standards, especially in light of additional issues and challenges for FASB’s stakeholders stemming from the COVID-19 pandemic.

In addition, the FASB plans to delay or has already delayed certain effective dates, for example:

  • One-year delays for private-company and certain not-for-profit stakeholders that are implementing major new standards with current or imminent effective dates (Revenue Recognition and Leases)
  • One-year delay for insurance entities for the new Insurance standard (to 2023 for publics and to 2025 for non-publics)

Other standards with effective dates that are further out are being monitored for the impact of COVID-19 on entities’ implementation progress.

To make it easier for stakeholders to find educational and other resource materials, the staff created the FASB ‘Response to COVID-19’ portal and associated topic pages on their website.

Discussion

The discussion revolved around government grants and the respective accounting standards covering government grants. The IASB staff acknowledged that IAS 20 was written a long time ago and there might be inconsistencies compared to how Standards are developed today. The staff will see if the upcoming IASB agenda consultation will reveal a need to rework IAS 20. There was also some discussion around expected credit losses and how the FASB might delay the new Standard on current expected credit losses because of COVID. One IASB member said that issuing education material on COVID-19 might be perceived as mandatory, coming from the standard-setter. He asked how the FASB addresses this problem. FASB staff responded that the guidance makes clear that there is no interpretation or new guidance in the education material, and that it instead just highlights existing GAAP.

Identifiable Intangible Assets and the Subsequent Accounting for Goodwill (FASB) / Goodwill and Impairment (IASB) (Agenda Paper 18)

Both the FASB and the IASB have on their respective agendas projects covering accounting for goodwill. Those projects do not constitute a joint project. However, both boards previously decided to monitor each other’s work because of the largely converged accounting models for business combinations.

The FASB’s project is in an active project phase while the IASB’s project is in a research phase.

The objective of the FASB’s project is to revisit the subsequent accounting for goodwill and identifiable intangible assets broadly for all entities. This includes considerations for improving the decision usefulness of the information and rebalancing the cost benefit factors.

The objective of the IASB’s project is to explore whether companies can, at a reasonable cost, provide investors with more useful information about the acquisitions those companies make.

The purpose of this paper is to provide both boards with an update of the work performed regarding their respective projects. The meeting will give members of the boards an opportunity to ask questions about the projects—with particular focus on disclosures, the subsequent accounting for goodwill, and other topics, for example intangible assets recognised in a business combination.

Agenda Papers 18A and 18B provide more detailed information on the boards’ projects.

Discussion

The Boards discussed the IASB’s preliminary view that an entity should be required to disclose the metrics that management (the chief operating decision maker or ‘CODM’ as described in IFRS 8) will use to monitor whether the objectives of the acquisition are met. FASB members were interested in how long this information would have to be provided, to which the IASB staff responded that it is expected as long as management is monitoring whether the objective of the acquisition has been met. Another discussion point was the extension of the requirement to large asset acquisitions. This would be decided based on feedback to the consultations. A FASB member raised a concern about whether the CODM approach could be applied consistently between entities, to which the IASB Vice-Chair responded that the Board debated the approach, and while it is not the perfect approach, the IASB decided it was the best available. The challenges with regard to obtaining the data for the disclosures were also discussed. It was acknowledged that it might be costly for entities to obtain data for the metrics if the acquired company was integrated into several operating segments.

With regard to the subsequent accounting for goodwill, the Boards discussed whether it would be possible to determine an amortisation period, if amortisation was the chosen path. It was also discussed how the amortisation expense would affect income statements, especially with a view to preparers being very keen to strip out those costs in any non-GAAP performance measures. One solution mentioned by the IASB Chairman would be to allow or require to recognise the amortisation expense in OCI, which one IASB Board member vehemently rejected as OCI should be the last resort. A FASB Board member said that presentation would have to be well thought through. One IASB Board member asked whether the FASB has thought about convergence with regard to subsequent goodwill accounting as in his jurisdiction, preparers have stressed that the approach should be aligned as, otherwise, there would be a comparative disadvantage between the two Standards. The FASB staff replied that convergence does play a role for them.

ASU 2016-02 Implementation Update—Leases (Topic 842) (Agenda Paper 12A)

The FASB issued a new leases standard with an effective date of 15 December 2019. The FASB staff is currently monitoring the implementation of the standard and have added a project to the FASB technical agenda in July 2020. The project is intended to address issues on which the FASB can act because it already has sufficient information from stakeholders.

Issues include:

  • Sales-type leases with substantial variable lease payments
  • Remeasurement of lease payments based on a reference index or rate
  • Reduction of scope in a lease contract

The staff are also holding roundtables with stakeholders to discuss issues around the following topics:

  • Incremental borrowing rate
  • Lessee use of the rate implicit in the lease
  • Lease modification model
  • Embedded leases
  • Lessee allocation of payments

Update on IFRS 16 Leases (Agenda Paper 12B)

In this paper, the IASB staff provide information on the recent application questions discussed by the IFRS Interpretations Committee and narrow-scope standard-setting that has been initiated with regard to sale and leaseback transactions.

Discussion

No significant concerns were raised during this discussion. It was highlighted that the Boards should continue to strive for as much convergence as possible between the respective Standards.

Supply Chain Financing (Agenda Paper 27A)

In this paper, the IASB describes supply chain financing arrangements and related questions that were submitted to the IFRS Interpretations Committee. The IASB staff outline the tentative agenda decision that has been published by the Committee explaining what IFRS Standards require with regard to those arrangements. The IASB will also discuss a possible narrow-scope standard-setting project in early 2021.

Disclosure of Supplier Finance Programmes Involving Trade Payables (Agenda Paper 27B)

The Big 4 firms submitted an agenda request to the FASB in October 2019 for guidance on disclosure and cash flow statement presentation of supplier finance programmes involving trade payables.

Practice addresses balance sheet presentation of the programmes by reference to:

  • GAAP on derecognition of liabilities
  • SEC speeches
  • Certain indicators developed in practice
  • Requirements in SEC Regulations to separately present within current liabilities amounts payable to banks for borrowings and amounts payable to trade creditors

The FASB staff conducted research and outreach in 2020. Those activities revealed that financial statement users had a range of views on financial statement presentation, but most users asked for disclosure of quantitative and qualitative information to enable them to make their own assessments of the programmes and, if appropriate, adjust leverage ratios and operating cash flows.

At the October 2020 FASB meeting, the FASB decided to add a project to its agenda to develop disclosure requirements related to supplier finance programs involving trade payables (a narrow scope).

The staff plans to conduct additional research and outreach and will continue to monitor public company disclosures in SEC filings.

Discussion

The discussion focused on disclosures that should be made with regard to supplier chain financing arrangements. In the US, the SEC staff has made speeches or issued guidance that addresses reporting on supplier chain financing arrangements in the MD&A. This guidance encourages qualitative and quantitative disclosures, for example the amount of receivables that have been sold and the key terms of the arrangements. Many companies follow that guidance and increased their disclosures.

 

 

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