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IASB finalises amendments to IFRS 3 regarding the definition of a business

22 Oct 2018

The IASB has issued 'Definition of a Business (Amendments to IFRS 3)' aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020.


The post-implementation review of IFRS 3 Business Combinations revealed that entities have difficulties when determining whether they have acquired a business or a group of assets. As the accounting requirements for goodwill, acquisition costs and deferred tax differ on the acquisition of a business and on the acquisition of a group of assets, the IASB decided to issue narrow scope amendments aimed at resolving the difficulties that arise when an entity is determining whether it has acquired a business or a group of assets.

In June 2016, the IASB published ED/2016/1 Definition of a Business and Accounting for Previously Held Interests (Proposed amendments to IFRS 3 and IFRS 11), combining two of its implementation projects at that time. The proposed amendments regarding the accounting for previously held interests were finalised as part of the annual improvements 2015-2017 on 12 December 2017. The proposed amendments regarding the definition of a business are being finalised today.



The amendments in Definition of a Business (Amendments to IFRS 3) are changes to Appendix A Defined terms, the application guidance, and the illustrative examples of IFRS 3 only. They:

  • clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs;
  • narrow the definitions of a business and of outputs by focusing on goods and services provided to customers and by removing the reference to an ability to reduce costs;
  • add guidance and illustrative examples to help entities assess whether a substantive process has been acquired;
  • remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs; and
  • add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.


Interaction with the FASB

The amendments note that IFRS 3 is the result of a joint project between the IASB and the FASB and the business combinations requirements under IFRSs and US GAAP are substantially converged. However, even though the FASB (that had received similar feedback) and the IASB have worked together to respond to problems with the definition of a business, the IASB amendments to the application guidance of IFRS 3 are different from the amendments issued by the FASB in 2017. Nevertheless, the IASB expects that the amendments in conjunction with the FASB amendments will lead to more consistency in applying the definition of a business between entities applying IFRSs and entities applying US GAAP.


Effective date and transition requirements

The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020 and to asset acquisitions that occur on or after the beginning of that period. Earlier application is permitted.


Additional information

Please click for:

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ESAs comment on IFRS 17 endorsement process in the EU

19 Oct 2018

The European Supervisory Authorities (ESAs) have jointly written to the European Financial Reporting Advisory Group (EFRAG) to express concerns on the endorsement process for IFRS 17 'Insurance Contracts'.

In September 2018, EFRAG agreed on a letter to the IASB regarding IFRS 17 to bring concerns of European constituents regarding the standard to the IASB's attention. While EFRAG is waiting for the IASB to consider these (and other) concerns, the endorsement process for IFRS 17 is temporarily put on hold. The IASB will discuss IFRS 17 concerns and implementation challenges at its meeting next week but no decisions are expected as yet.

The ESAs note the delay in the endorsement process with concern. Their letter states:

While, at this stage, we do not express any detailed technical views on IFRS 17, we reiterate the need to continue to progress and to finalise the analysis of IFRS 17 in a timely manner against the background of the effective date of IFRS 17 of 1 January 2021.

Similarly, in a speech given in Madrid today, the Chair of the European Securities and Markets Authority (ESMA), which is one of the ESAs, also commented on IFRS 17. He said:

[W]hile we are still analysing its technical details, one thing that can already be affirmed with certainty is that IFRS 17 will improve comparability and transparency of financial information on insurance contracts when compared to the current situation. [...] Therefore, while it is important to exercise caution in assessing the changes introduced by IFRS 17, I think it is necessary to avoid any further delays in reaching a common set of accounting standards for insurance contracts. [...W]e are quite concerned by the delay that we are observing in the endorsement process of IFRS 17 in the EU.

And while the European Insurance and Occupational Pensions Authority (EIOPA), also one of the ESAs, does not explicitly refer to the endorsement process, it notes in its analysis of the benefits of IFRS 17 that has just now also become available:

EIOPA found that the expectedly increased transparency and comparability of insurers' financial statements through IFRS 17, providing better insights into insurers' business models, have the potential to strengthen financial stability in the European Economic Area (EEA). Therefore, EIOPA regards the implementation of IFRS 17 as beneficial for the European public good. [...] The introduction of IFRS 17 is a long overdue and positive shift of paradigm compared to IFRS 17's predecessor IFRS 4 Insurance Contracts.

Please click to access the the quoted documents:

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IFRS Foundation Trustees chair discusses new role and upcoming priorities

18 Oct 2018

In a recent interview, the Chair of the IFRS Foundation Trustees Erkki Liikanen provided his thoughts on his new role, financial reporting in the global economy, and his priorities for the Trustees.

Mr Liikanen noted that financial reporting works best when standards and practices across jurisdictions are the same to maintain consistency and that the use of IFRS Standards have helped achieve this. In addition, he stated that his priorities for the Trustees are to look at core functions and strategies.

For more information, see the interview on the IASB’s website.

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Financial Reporting Lab Image

FRC Lab report on on business model reporting and risk and viability reporting

18 Oct 2018

A new report from the Financial Reporting Lab of the Financial Reporting Council (FRC) considers how reporting practice has changed since the Lab published its original reports on business model reporting and risk and viability reporting.

The report finds that whilst there have been some good developments, investors continue to emphasise the need for reporting to be more consistent and clearly linked throughout a company’s annual report. Investors value disclosures that tie business model, strategy, risk and viability together to enable them to assess progress against strategy and management of risks.

The new report Business model reporting; Risk and viability reporting – Where are we now? can be accessed through the press release on the FRC website. It includes practical examples from companies that have implemented the recommendations in the earlier reports from 2016 and 2017, which can also be accessed through the press release.

For additional insight and examples around business model reporting and risk and viability reporting including how companies are reporting against the 2016 and 2017 Lab reports please refer to Deloitte's Annual Report Insights 2018 publication.

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Recordings from the October 2018 DPOC meeting

18 Oct 2018

The Trustees of the IFRS Foundation are currently meeting in Johannesburg. On 16 October, the Due Process Oversight Committee (DPOC) of the Trustees held its meeting (the only part of the Trustees meeting held in public). Recordings from the meeting are now available.

The DPOC members discussed the following topics

  • Introduction and actions from DPOC meeting held on 5 June 2018
  • Technical activities: Key issues and update
  • Review of the post-implementation review of IFRS 13
  • Consultative groups — annual review and DPOC engagement
  • Reporting protocol — annual general report
  • Education material — review of due process
  • Due Process Handbook review
    • Proposals for improvements
      • Agenda decisions: Supporting consistent application
      • Adding projects to the Board’s work plan
      • Effects analysis
      • Taxonomy
      • Anonymous complaints about due process
    • Outline of timetable and next steps
  • Correspondence: update
  • Summary

The recordings are available on the IASB's website.


We comment on updated draft SORP for Limited Liability Partnerships

17 Oct 2018

We have published our comment letter on the Consultative Committee of Accountancy Bodies' (CCAB's) Exposure Draft on an updated Limited Liability Partnerships (LLPs) Statement of Recommended Practice (SORP).

The Exposure Draft proposed updates to the LLP SORP which are required as a result of amendment to FRS 102 resulting from the first Triennial Review of the Standard in December 2017.

Overall we believe that the proposed revisions are appropriate.

Our full comments to all questions raised in the invitation to comment are contained within our comment letter.

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EFRAG issues final endorsement advice on ‘Amendments to References to the Conceptual Framework in IFRS Standards’

17 Oct 2018

The European Financial Reporting Advisory Group (EFRAG) has issued its final endorsement advice letter relating to the use in the European Union (EU) of ‘Amendments to References to the Conceptual Framework in IFRS Standards’ (“the Amendments”).

The Amendments, published in March 2018, update some of the references and quotations in IFRS Standards and Interpretations so that they refer to the revised Conceptual Framework or specify the version of the Conceptual Framework to which they refer.

EFRAG recommends the endorsement of the Amendments. EFRAG’s assessment is that the Amendments meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.  EFRAG also assesses that endorsing the Amendments is conducive to the European Public good.

A press release and the endorsement advice letter to the European Commission are available on the EFRAG website. EFRAG has also updated its endorsement status report.

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FRC publishes annual report 2017/18

17 Oct 2018

The Financial Reporting Council (FRC) has published its 2017/18 annual report (“the annual report”).

The annual report outlines the FRC’s financial position, highlights achievements and challenges in 2017/18 and also identifies areas that it will focus on in 2018/19. The annual report also outlines the progress made in the FRC’s strategy for 2018-21.

In 2018/19 the FRC’s priorities will include:

  • Driving further improvements in the quality of audit, including through implementing a new audit approach to the monitoring and supervision of the six largest audit firms, reviews of firm-wide audit quality processes, thematic reviews, and reviews of audit engagements, focusing on areas of high risk.
  • Consulting on a revised Stewardship Code.
  • Continuous improvement in corporate reporting through monitoring of annual reports and accounts. There will be a specific focus on how companies are implementing IFRS 15 Revenue from Contracts with Customers, IFRS 9 Financial Instruments and IFRS 16 Leases.
  • Ensuring that its enforcement action continues to be robust, proportionate and timely.

The press release and the full annual report are available on the FRC website.

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Insurers call for a two-year delay in the effective date of IFRS 17

17 Oct 2018

Nine insurance industry organisations from Europe, Canada, Korea, New Zealand, Australia, and South Africa have written a joint letter to the IASB asking for further amendments to IFRS 17 'Insurance Contracts' and a two-year delay in the effective date of the standard.

The letter stresses the support of the industry for IFRS 17 as a "high-quality standard for insurance contracts which improves insurers’ financial reporting" but notes that preparatory work has confirmed that "a number of important issues need to be resolved in order to ensure the quality and operational practicability of the new standard". In addition, the insurers mention operational constraints ontheir ability to successfully implement IFRS 17 on the current timelines. The letter argues:

As a result, we strongly believe a 2-year delay in the effective date of the standard is required. This lead time is essential both to allow for the necessary improvements to the standard and to allow adequate time for the wide range of companies required to apply the standard and meet its significant implementation challenges.

The letter promises that a delay would not result in insurers stopping or slowing their implementation projects.

Please click to access the letter on the website of Insurance Europe, one of the signatories of the letter.

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CMA launches immediate review of audit sector

17 Oct 2018

The Competition and Markets Authority (CMA) has announced a detailed study of the audit sector.

The study is focussing on three sets of issues:

  • choice and switching
  • the long-term resilience of the sector
  • the incentives between audited companies, audit firms and investors

The CMA has issued an invitation to comment with a deadline for responses of 30 October 2018. The webpage for the study, on the CMA website, contains more details.

In addition to the review, the Secretary of State has written to Sir John Kingman, who is undertaking a review of the Financial Reporting Council. In his letter to Sir John, the Secretary of State asks him to also provide his thoughts on:

  • whether there is any case for change in the way in which audits are currently procured, and audit fees and scope are set, particularly for major companies of public interest; and
  • whether any change could better promote the interests of users of accounts – and ensure quality, rigour, independence and scepticism on auditors’ part – whilst at the same time, of course, needing to be feasible and workable in practice.

The Secretary of State has asked the CMA and Sir John to liaise with each other.  The letter is available here.

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