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April

IASB work plan updated

30 Apr 2013

The International Accounting Standards Board (IASB) has updated its work plan. Following its April meeting, the IASB changed the timing of expected milestones in macro hedge accounting, rate-regulated activities, and revenue recognition. Also, a number of updates to the narrow scope projects have been made.

Summary of changes

Details of the changes are:

Updates to major projects

Updates to narrow-scope projects

Projects where exposure drafts are expected in the second quarter include insurance contracts and leases. A discussion paper on the IASB's conceptual framework project is also expected in the second quarter. In addition, due process documents in a number of other projects are expected in the second or third quarters.

Click for IASB work plan dated 30 April 2013 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

EFRAG draft comment letter on amendments to employee contributions

29 Apr 2013

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB's Exposure Draft ED/2013/4 'Defined Benefit Plans: Employee Contributions (Proposed amendments to IAS 19)' which was published on 25 March 2013.

The EFRAG supports the IASB's proposed amendments to IAS 19. The draft comment letter states:

EFRAG agrees with the IASB’s proposals on the basis that they clarify the existing requirements in IAS 19 (2011) on accounting for contributions from employees or third parties and provide relief to preparers. We also support the IASB in addressing the existing inconsistency in IAS 19 (2011) in relation to the attribution of these contributions as this would reduce potential divergence in practice.

Comments on the draft letter are invited by 5 July 2013. Also, the EFRAG requests feedback on whether constituents know of any circumstances where the application of the practical expedient provided by the IASB would result in contributions being inappropriately recognised as reductions in service cost.

Click for:

  • EFRAG press release with link to the draft comment letter (link to EFRAG website).
  • Our previous story on the Exposure Draft ED/2013/4 Defined Benefit Plans: Employee Contributions (Proposed amendments to IAS 19).
  • Deloitte's IFRS in Focus newsletter on the proposals amendments to IAS 19 (2011).

Rate regulation consultative group membership announced

29 Apr 2013

The IASB has announced the members to its consultative group for the Rate-regulated Activities research project.

The group consists of 15 members, made up of senior professionals who are participants in the financial reporting process of entities subject to rate regulation. Also announced are the official observers of the consultative group. The following is the list of members and observers:

Member Name Organisation Country
Jacob Buys Eskom Holdings SOC Ltd South Africa
Leonardo George de Magalhães Companhia Energética de Minas Gerais (Cemig) Brazil
Richard McCabe AltaLink Management Ltd Canada
Tim Murray RBC Capital Markets, Royal Bank of Canada Canada
Michel Picard KPMG Canada
Duane DesParte Exelon Corporation USA
Sherman Myers Standard & Poor's USA
John Leotta Deloitte Touche Tohmatsu Australia
Poon Man Wah CLP Power Hong Kong Limited Hong Kong
Keyman Kim Korea Gas Corporation (KOGAS) Korea
Pascale Mourvillier GDF SUEZ France
Lily Ayalon Government Companies Authority Israel
Jesús Herranz Lumbreras Ferrovial SA Spain
Dennis Deutmeyer Ernst & Young United Kingdom
Michael Timar PricewaterhouseCoopers United Kingdom
Official Observers
Bryan Craig US Federal Energy Regulatory Commission (FERC)
Karen Taylor Ontario Securities Commission (OSC)
European Financial Reporting Advisory Group (EFRAG)

Click to view the press release on the IASB's website. For more information on the project, see our rate-regulated activities project page.

April 2013 IASB meeting notes — Part 3 (concluded)

26 Apr 2013

The IASB's April meeting was held in London on 23-25 April 2013. We have posted Deloitte observer notes from Wednesday's session on conceptual framework and Thursday's sessions on hedge accounting, conceptual framework, annual improvements — 2012-2014 cycle and 2010-2012 cycle, post-implementation review of IFRS 8, and levies (IAS 37/IFRIC 6).

April 2013 IASB meeting notes — Part 2 (continued)

25 Apr 2013

The IASB's April meeting is being held in London on 23-25 April 2013. We have posted Deloitte observer notes from Tuesday's educational session on IFRS for SMEs and regular sessions on IFRS for SMEs and narrow-scope amendments (IAS 36); and Wednesday's session on the annual improvements 2012-2014 cycle (IFRS 7).

Click through for direct access to the notes:

Tuesday, 23 April 2013

Wednesday, 24 April 2013

Please note: The IASB originally had scheduled a Friday session. However, the IASB progressed in its discussions faster than expected. The sessions planned for Friday morning have been discussed Thursday afternoon.

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

Summary of the CMAC March 2013 meeting

25 Apr 2013

The IASB has released a summary of the Capital Markets Advisory Committee (CMAC) meeting which was held in London on 7 March 2013.

The topics discussed at the meeting included:

  • Work plan update. An explanation was given on the process of updating the work plan after every IASB meeting. Also, updates were provided on major IASB projects, narrow-scope amendments projects, IFRS for SMEs comprehensive review project, and research projects.
  • Accounting Standards Advisory Forum (ASAF). CMAC members discussed the work aimed at creating the ASAF and also the role the ASAF will have with the IASB.
  • Conceptual framework project:
    • Elements of financial statements, reporting entity and measurement — CMAC Members discussed the objective of financial reporting as described in the conceptual framework. Many believed that the main objective of financial reporting should be to provide useful information to users. Also discussed were the main changes made to the qualitative characteristics of useful financial information, the definitions of a liability and equity, and the principles for measurement.
    • Presentation and disclosure — CMAC members were presented with the IASB's proposals for the possible use of other comprehensive income (OCI). There was an overall agreement among CMAC members with the concept of segregating comprehensive income into profit or loss and OCI. In addition, CMAC members supported the proposal to present bridging items and mismatched remeasurements in OCI.
  • Feedback on disclosure survey and Discussion Forum on disclosures. CMAC members were presented, by the IASB staff, with the outcome from a survey and a Discussion Forum on disclosure. Most CMAC members believed that (1) financial reports focus primarily on compliance and that excessive detail, (2) generic language lead to non-useful information in disclosures during practice, and (3) some types of disclosures in financial statements are more likely to contain irrelevant information.
  • Insurance contracts.The IASB staff presented the CMAC members with an overview of the insurance contracts project, which contained three approaches to revenue recognition for insurance contracts:
    • ‘premiums written’ (recognising premiums as revenue at the beginning of the contract)
    • ‘premiums due’ (recognising premiums as revenue when they are billed to the policyholder)
    • ‘premiums earned’, (recognising premiums as revenue as the insurance coverage is provided to the policyholder)

    Overall, CMAC members supported the 'premiums earned' approach.
  • Financial Instruments: Classification and Measurement. The IASB staff presented an overview of the IASB's proposed narrow-scope amendments to IFRS 9, which introduces a third measurement category. In general, the CMAC members were opposed to having a third measurement category and preferred the simplicity of having two categories.

The full meeting summary is available on the IASB website.

FRC conducts research bulletin into share option schemes used by private companies

25 Apr 2013

Following the issue of FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' which provides simplified requirements for accounting for share-based payment schemes, the Financial Reporting Council (FRC) have conducted research into whether an even more simplified accounting approach could be developed for private companies. The FRC has issued a Bulletin which discusses preliminary findings from this review and ask for comments through the Invitation to Comment process.

Share options schemes are an alternative form of remuneration and are a common way to give employees a stake in a company; providing them with an incentive to work harder and more effectively.  The accounting for employee share option schemes is contained within IFRS 2 Share-based payment, FRS 20 Share-based payment (the UK equivalent standard) and the IFRS for SMEs.

The options pricing model required under these accounting frameworks can be a complex calculation and costly experience for private companies, not least as some of the inputs to the model such as share price and volatility of share price are not readily available.  The FRC has relaxed the strict application of this options pricing model for those UK companies applying the recently published FRS 102 who are permitted to use an alternative valuation model where share price information is not available. 

The question has arisen as to whether these requirements should be further relaxed for private companies, many of whom operate employee share-option schemes.  Suggestions being considered included allowing employee share options to be expensed based on their intrinsic value or allowing recognition upon exercise rather than grant date. 

The research bulletin, available on the FRC website, contains findings on the following questions:

  • Types of employee share option schemes and number of private companies that hold them
  • Objective of employee share-option schemes
  • Recognition
  • Measurement
  • Disclosure

Responses to the above questions are required by 31 July 2013.  The Invitation to comment is also available on the FRC website.

IASB exposes guidance on regulatory deferral accounts

25 Apr 2013

The International Accounting Standards Board (IASB) has published ED/2013/5 'Regulatory Deferral Accounts'. This proposed interim standard is intended to allow entities that currently recognise regulatory assets and regulatory liabilities in accordance with their previous GAAP to continue to recognise the effects of rate regulation under IFRSs until the longer term rate-regulated activities project is completed.

The proposed interim standard is only applicable upon the initial adoption of IFRSs and therefore must be applied at the same time as an entity applies IFRS 1 First Time Adoption of International Financial Reporting Standards. The proposed interim standard cannot be applied by entities that have previously adopted IFRSs and entities applying this interim standard, if approved, must meet specified eligibility criteria. Specifically, there must be an authorised body (i.e. the rate regulator) that restricts the price that the entity can charge its customers for the goods or services that the entity provides and the price established by regulation is designed to recover the entity’s allowable costs of providing the regulated goods or services.

 

Core principles of the proposed interim standard

The proposed interim standard:

  1. permits (but does not require) an entity that adopts IFRS to continue to use its previous GAAP accounting policies as accepted in their local jurisdiction for the recognition, measurement and impairment of regulatory deferral account balances;
  2. requires entities to present regulatory deferral account balances as separate line items in the statement of financial position and to present movements in those account balances as a separate line item in the statement of profit of loss and other comprehensive income; and
  3. requires specific disclosures to identify clearly the nature of, and risks associated with, the rate regulation that has resulted in the recognition of regulatory deferral account balances.

 

Key features addressed in the proposed interim standard

Terminology

  • The draft interim standard replaces the commonly used phrases “regulatory assets” and “regulatory liabilities” with the terms “regulatory deferral account debit balances” and “regulatory deferral account credit balances” respectively. The longer term rate-regulated activities project is intended to address the issue of whether regulatory balances meet the conceptual definition of assets and liabilities and therefore the draft interim standard refers to the balances as “debit balances” or “credit balances” in the absence of a clear conclusion on whether these balances are assets and liabilities under IFRSs.

Application of other standards

  • The draft standard requires that all other IFRS be applied first such that each asset and liability recognised in the statement of financial position, such as property, plant and equipment, income taxes, and employee benefits, comply with the requirements of the other IFRS standards. The regulatory deferral accounts represent incremental amounts that are recognised over and above the assets and liabilities recognised under the other standards.
  • The proposed interim standard includes some specific guidance on how other standards such as IAS 12 Income Taxes, IAS 36 Impairment of Assets and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations should be applied to regulatory deferral balances.

Presentation

  • An entity will be required to present a sub-total representing total assets (and/or liabilities) before regulatory balances and then present regulatory deferral account debit (and/or credit) balances followed by total assets (and/or liabilities).  In summary, the statement of financial position will present assets in the following manner, with similar presentation requirements for liabilities.

     

    Current assets  xxx
    Long term assets  xxx
    Total assets before regulatory deferral debit balances: xxx
    Regulatory deferral debit balances      xxx
    Total assets xxx
  • Similarly, the presentation requirements for the statement of profit or loss also requires separate presentation of the movements in the regulatory deferral accounts. Therefore, the statement of profit or loss would have to present a sub-total of profit or loss prior to the presentation of a balance representing the net movement in all regulatory deferral accounts.
  • An additional measure of earnings per share, both basic and fully diluted, excluding the net movement on regulatory deferral balances must also be presented in addition to the basic and fully diluted earnings per share measurement otherwise required by IAS 33 Earnings per Share. Both measures (including and excluding the movement in regulatory deferral balances) must be shown with equal prominence.

Disclosure

  • The proposed interim standard includes specific disclosure requirements to enable users to evaluate the nature of, and the risks associated with, the specific rate regulation regime and the effects of that rate regulation on an entity's financial position, financial performance and cash flows. These disclosures include:
    • specific reconciliations of the carrying amount at the beginning and end of the period for each category of regulatory deferral account that is individually material (and others in aggregate);
    • the rate of return or discount rate allowed by the regulator to reflect the time value of money that is applicable to each regulatory deferral balance; and,
    • the remaining periods over which the entity expects to recover or amortise the carrying amount of each regulatory deferral account debit balance or reverse each regulatory deferral account credit balance.

Other matters

  • The proposed interim standard provides guidance on changes in accounting policies for the recognition and measurement of regulatory deferral balances for those entities that were eligible to apply the guidance in this draft interim standard upon the adoption of IFRS and chose to do so.
  • The ED identifies consequential amendments to IFRS 1.

 

Further information

     

    The comment period for the ED ends on 4 September 2013.

    Please click for:

    Decisions on hedge accounting

    25 Apr 2013

    Deloitte observers at the IASB meeting currently held in London report that the IASB has just voted on the way forward in the hedge accounting project.

    The IASB decided with a majority of ten to six votes (official notification outstanding) to follow the model suggested by EFRAG in its letter dated 22 March 2013 (an option of either following the current hedge accounting requirements until the project on macro hedge accounting has been completed or of applying IFRS 9). Furthermore, the IASB decided (12 – 4) that a re-exposure will not be necessary.

    More detailed information will be available soon in the IAS Plus meeting notes covering the current meeting.

    This week's IASB meeting might end today

    25 Apr 2013

    The IASB is progressing in its discussions faster than expected. It has announced that the sessions planned for Friday morning might be pulled forward to Thursday afternoon.

    The sessions affected are:

     

    Friday, 26 April 2013

    IASB meeting (09:00-11:30)

    • Post-implementation review of IFRS 8 Operating Segments
    • IAS 37/IFRIC 6 — Levies charged for participation in a market on a specified date
      • Interpretation
    • IFRS Interpretations Committee update
    • Annual improvements - 2010-2012 cycle and 2012-2014 cycle
    • Update on investor outreach (verbal update)

    Correction list for hyphenation

    These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.