In September 2012, the IASB published a review draft of a hedge accounting chapter of IFRS 9. The review draft was issue to allow constituents an opportunity to provide a fatal flaw review on the proposals. The EFRAG, along with European National Standards Setters, conducted a field test on the review draft to determine if there are any fatal flaws and to test how the proposals will work when performing actual transactions.

As a result of the field test, the EFRAG initiated an additional consultation concerning the impact on macro hedge accounting relationship proposed in the review draft and those currently existing under IAS 39. The outcome of the consultation resulted in two options, which are (1) retain IAS 39 hedge accounting for all of their hedges until either they decide to apply IFRS 9 irreversibly or the project on macro hedging is completed or (2) to adopt irreversibly the requirements of the Review Draft as drafted.

The feedback statement is available on the EFRAG website.

In September 2012 the International Accounting Standards Board (IASB) published on its website a staff draft of the general hedge accounting section of IFRS 9 'Financial Instruments', the requirements of which will be added to IFRS 9 Financial Instruments.  The purpose of a staff draft was to illustrate the IASB's position while at the same time enabling constituents to familiarise themselves with the document.

Field testing was conducted on the Review Draft by EFRAG in conjunction with the ASCG, together with the UK Financial Reporting Council, Autorité des Normes Comptables (ANC) and Organismo Italiano di Contabilità (OIC).  Based on the results of the field test a letter was sent to the IASB in January 2013 providing an overview of the implementation difficulties including fatal flaws and requests for additional guidance.

Many participants reported that it was unclear whether the requirements in the Review Draft would change the way they deal with macro hedge relationships.  To address these concerns EFRAG conducted further outreach and then published a draft comment letter on the impact of the Review Draft on existing macro hedge relationships under IAS 39 in January 2013.  A final comment letter was published in March 2013.

The feedback statement summarises the constituent’s comments from the field test, highlights the flaws that were identified in the Review Draft and indicates how these comments were considered by EFRAG in forming their comment letter to the IASB on the results of the field test  The feedback statement also provides an analysis of the EFRAG tentative position expressed in the draft comment letter on the impact of the Reciew Draft on existing macro hedging relationships under IAS 39 , describes the comments received from constituents and then highlight how these comments were considered by EFRAG in reaching their final position set out in their final comment letter to the International Accounting Standards Board (IASB). 

Click for:

EFRAG press release (link to EFRAG website)

Feedback statement in full (link to EFRAG website)

The proposed PN 14 ‘The Audit of Housing Associations in the United Kingdom’ updates the 2006 version to reflect recent regulatory developments and changes to the environment in which housing associations operate and for the issuance of the clarified ISAs (UK and Ireland) in 2010.  The proposed Practice Note includes a section on the business risks and audit risks in the housing sector.  Comments are invited until 25 October 2013. 

Practice Note 23, issued after a consultation in October 2012, revises the previous guidance for auditors in 2009 by updating it to include both the clarified International Standards on Auditing (ISAs) (UK and Ireland) and updated guidance issued by the International Auditing and Assurance Standards Board (IAASB) in its International Auditing Practice Note (IAPN) 1000, Special Considerations in Auditing Financial Instruments.  The Practice Note, relevant to entities of all sizes, includes a discussion of the audit considerations relating to financial instruments.

Both Practice Notes are intended to assist auditors in applying the ISAs (UK and Ireland) during their audit engagements.

Click for:

FRC press release PN 14 (link to FRC website)

FRC press release PN 23 (link to FRC website)

Proposed Practice Note 14 (Revised) ‘The Audit of Housing Associations in the United Kingdom’ (link to FRC website)

Practice Note 23 ‘Special considerations in auditing financial instruments’

The update consists of removing the example of the special purpose vehicle that issues credit-linked notes, which had proved problematic.

The updated Effects Analysis and the previous version (last updated January 2012, example now deleted on pages 25 and 26) are both available on the IASB website.

In 2012, European enforcers performed full reviews of around 1,050 interim and annual accounts covering around 17 % of listed entities accounts in Europe. In addition, 1,200 accounts were subject to partial review, representing a coverage of 20% of the population of listed entities.

ESMA noted that there is still room for improvement in the quality of financial reporting. Examples of areas requiring additional effort from issuers in order to comply with IFRS include:

• application of the classification criteria for assets held for sale,
• determination of the discount rate for the calculation of defined benefit obligations,
• classification and measurement of financial instruments,
• assessment of goodwill impairment,
• distinction between a change in an accounting policy and an accounting estimate and
• disclosures about the risks and uncertainties or judgments and estimates used in preparation of IFRS financial statements.

A separate targeted review of goodwill impairment, where the results were already published in January 2013, was conducted in 2012 and illustrated "that goodwill impairment losses recognised in 2011 were limited to a handful of issuers and concentrated in a very limited number of industries" and in many cases the related disclosures "were of a boiler-plate nature and not sufficiently entity-specific".

As the enforcers feel that this means that, in many cases, the users of the financial statements are not able to evaluate the reliability of the assumptions used from the disclosures given, ESMA and European enforcers decided to monitor this area in 2013 and included this topic in the common enforcement priorities defined for the 2012 annual financial statements.

In an additional effort to strengthen enforcement, the ESMA has launched a consultation on guidelines on the enforcement of financial information published by listed entities in the European Union. The proposed guidelines are the result of a review of Standards No. 1 and 2 on the enforcement of financial information developed by the Committee of European Securities Regulators (CESR), ESMA's predecessor, in April 2003 and April 2004 respectively.

Please click for the Activity Report of the IFRS Enforcement activities in Europe in 2012 on the ESMA website.

In March 2013 the IASB published Exposure Draft ED/2013/4 Defined Benefit Plans: Employee Contributions (proposed amendments to IAS 19).  In the Exposure Draft the IASB proposes amendments to IAS 19 which aim to clarify the accounting for employee contributions set out in the formal terms of a defined benefit plan if these contributions are linked to service. 

EFRAG published their draft comment letter in April 2013 and the final comment letter was published in July 2013. 

The feedback statement provides an analysis of the EFRAG tentative position expressed in the draft comment letter, describes the comments received from respondents and then highlight how these comments were considered by the EFRAG Technical Group (EFRAG TEG) in reaching their final position on the IASB ED set out in their final comment letter to the International Accounting Standards Board (IASB). 

Click for:

EFRAG press release (link to EFRAG website)

Feedback statement in full (link to EFRAG website)

Exposure Draft ED/2013/3 Financial Instruments: Expected Credit Losses proposes a model according to which credit losses are no longer recognised if incurred; rather, entities would recognise expected credit losses on financial assets and on commitments to extend credit based upon current estimates of expected shortfalls in contractual cash flows as at the reporting date.

The field-test, conducted through a questionnaire developed by EFRAG and National Standard Setters, was focused on the practical application of the new requirements and was intended to gather solely facts and objective data, rather than views and opinions.

The main findings of the survey are reproduced below from the press release published on the EFRAG website:

The proposed model would be more responsive to changes in credit quality compared to the incurred loss model in IAS 39.

Many participants were concerned that the proposals in the ED did not allow them to sufficiently rely on their existing credit risk management and regulatory practices; and that not all necessary data are available.

While overall the requirements were found to be clear, they were rated operationally difficult to apply. As a consequence further guidance was considered necessary by participants.

Tracking credit quality, assessing the significance of credit deterioration, having access to sufficient data, discounting expected credit losses and fulfilling the disclosures would be operationally difficult.

Participants were divided as to whether the proposals in the Exposure Draft reflected the manner in which they assessed credit deterioration.

Participants would incur significant implementation costs to apply the requirements in the ED.

Please click for access to the full field-test results on the EFRAG website.

IFRIC 21 provides guidance on when to recognise a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the levy is certain.

EFRAG published its draft endorsement advice tentatively recommending to adopt IFRIC 21 for use in Europe on 19 July 2013. Currently, EFRAG believes that final endorsement of IFRIC 21 might be expected in the first quarter of 2014.

Please click for the EFRAG Endorsement Status Report as of 22 July 2013.

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