The Blue Book will sell for £68 plus shipping (academic, developing country, and volume discounts apply). You will find more information and ordering details here.

The agenda for the meeting (as at 15 November 2013*) is summarised below:

* The agenda was subsequently revised on 6 December 2013, to amend the finish times on both days, and swap the discussion of the liabilities and profit and loss/measurement/OCI on the first day. These changes have not been reflected in the summary of the agenda.

Agenda papers for the meeting are available on the IASB's website.

The roundtable will cover characteristics of good governance in standard-setting, Directorate General Eurostat’s EPSAS governance proposal, and suitable governance model for EPSAS discussions. The roundtable will bring together European and national policymakers, public sector representatives, accountants, and auditors.

For additional information, please see the press release on the FEE’s website.

FRED 51 proposes limited amendments to FRS 102 in respect of hedge accounting with the following stated objectives: 

to allow entities to apply hedge accounting when this reflects their economic and risk management strategies, without onerous conditions; and

to use concepts and language that are, as far as possible, consistent with those included within IFRS 9 Financial Instruments, the International Accounting Standard Board's (IASB's) standard that includes hedge accounting . 

The amendments propose to replace the restrictive hedge accounting requirements in FRS 102 with a set of hedge accounting principles based on the IFRS 9 hedge accounting model.  Current FRS 102 requirements are narrow and do not permit hedge accounting in a number of common hedging scenarios leading to volatility in profit or loss when hedging instruments are transacted to reduce rather than increase risk. 

As a result of the proposed amendments, there will be more opportunities for entities to apply hedge accounting.  This will reduce profit or loss volatility from hedging instruments such as interest rate swaps, FX forwards and option contracts recognised and measured at fair value under FRS 102. 

In addition to broadening the eligibility criteria, FRED 51 also proposes to remove the requirement that an entity must expect the hedging instrument to be highly effective in offsetting the hedged risk in order to apply hedge accounting.  Instead, FRED 51 would require there to be “an economic relationship between the hedged item and the hedging instrument”. 

FRED 51 also uses consistent terminology with IFRSs, describing hedge relationships as cash flow hedges, fair value hedges and net investment hedges.

Click for:

• Press release (link to FRC website).
• Financial Reporting Exposure Draft (FRED) 51: ‘Draft amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland: Hedge Accounting’ (link to FRC website).
• Deloitte ‘Need to Know’ on FRED 51.
• Deloitte video interview discussing financial instrument accounting under FRS 102 and FRED 51.

In a letter dated 13 November 2013, FEI emphasises the need to focus on display issues versus a change to the recognition and measurement model for leases. In order to reduce complexity, FEI believes it would be beneficial to adopt a more limited approach that focuses on changing the display of the contract in the statement of financial position. Therefore, FEI points again at its 'Display approach' developed in its September 2013 comment letter.

Under the suggested display model, the lessee would record a leased asset and a lease obligation at the end of each period based upon the present value of the remaining lease payments, adjusted for any prepaid or deferred rent recorded under existing GAAP. According to FEI, the liability recognised under this approach should not be characterised as debt because FEI believes such obligations are not legally or economically debt equivalents. The statement of financial position would be prepared using this methodology, and the statement of earnings would reflect the rent expense during the period in accordance with existing GAAP.

FEI states: "Our proposed model would achieve the enhanced balance sheet display which is the primary goal of this project while avoiding the artificial allocation of costs in the statement of earnings that is proposed  for Type A leases. We believe that our proposed model would also eliminate the amortization computations required for Type B leases under the proposed recognition model, which could be challenging to implement across the broad spectrum of lease arrangements."

FEI also lists the benefits the suggested approach is believed to have:

IASB and FASB will discuss the accounting for leases again at the upcoming IASB meeting. Agenda papers for the meeting have been made available on the IASB's website.

Please click for access to the FEI letters:

• FEI letter urging the IASB and FASB to reconsider the 'Display approach' (November 2013, link to FEI website)
• FEI comment letter on the leasing proposals (September 2013, link to FASB website)

While pointing to broad support for a commitment towards globally accepted, high-quality accounting standards and for maintaining the current endorsement process as such, Mr Maystadt proposed three options in his report how the process could be improved to ensure that the EU’s voice is better heard in developing high quality accounting standards:

• Under option 1 EFRAG would be transformed such that the public policy voice was embedded into the decision-making process already before recommendations are made to the Commission.
• Option 2 suggests making EFRAG a part of the European Securities and Market Authority (ESMA).
• Option 3 would be to set up a separate European agency to replace EFRAG.

Mr Maystadt's preliminary recommendation is to follow the option 1.

In its comment letter, ESMA expresses the belief "that options 2 and 3 are not sufficiently developed [...] to allow a real assessment of their validity and merit with respect to the objectives assigned". At the same time, ESMA believes that the recommended first option does not fully meet the objective of reinforcing the credibility and political legitimacy of the body in charge of providing advice to the European Commission. The letter states:

Please click for access to the full letter on the ESMA website. (Please keep in mind that this is a response to the draft report and some of ESMA's concerns were addressed in the final report.)

Highlights were the publication of:

• Final comment letter on IASB ED Agriculture — Bearer Plants.
• Soon to be issued final comment letter on IASB ED Insurance Contracts.
• Draft comment letter on IASB ED IFRS for SMEs.
• Results of the field-test on leases ED.
• Feedback statement on the EFRAG comment paper on bearer plants ED.

Additional topics discussed in the newsletter are:

• IASB ED on insurance contracts.
• IASB ED on bearer plants.
• IASB discussion paper on the conceptual framework.
• EFRAG/DASB/ICAC/OIC proactive project on separate financial statements.
• EFRAG/OIC proactive project on business combinations under common control.
• Long-term asset-driven investment business models.
• IASB ED on leases.
• Macro hedging.
• Impairment.

Click for the EFRAG Update (link to EFRAG website).

The further outreach event, to be held on 28 November 2013 and will be in partnership with The Investment Management Association (IMA) and The Association of British Insurers (ABI).  The event will cover the same areas as announced for the earlier events with The Institute of Chartered Accountants in England and Wales (ICAEW) and The Confederation of British Industry (CBI).   

Click for more information, including registration details for the joint IMA and ABI event on the FRC website.

Subsequent to the events, the FRC released the slide pack from the outreach event.  These can be accessed from the FRC website.

For lessees, the ED published on 16 May 2013 proposes the recognition of a liability and a right-of-use asset for all leases with a profit or loss impact dependent on the classification of a lease. The lessor model in the ED is similar to current lease accounting with some nuances for the recognition of revenue and discounting of the residual asset.

The field-test, conducted through a questionnaire developed by EFRAG and National Standard Setters, was focused on the practical application of the new requirements. Forty preparers participated in the field-test with almost half of the respondents (18) from Germany. Industrywise, respondents from the retail industry were the biggest group (12).

Regarding the practical implications the main findings were that the most common areas of concern were assessment of the lease term where 67% of the respondents reported difficulties in applying the proposed guidance and disclosure requirements where the majority of respondents (also 67%) expect difficulties in applying the disclosure requirements as they consider them to be complex, too extensive and too detailed.

Apart from the practical implications, respondents also commented on other issues. The following fundamental concerns about the proposals were expressed (reproduced from the EFRAG report):

• the IASB had not explained why they believed a lease creates assets and liabilities at commencement;
• the right-of-use model did not depict the business model of the entities and did not reflect that most leases are ways to obtain a service rather than obtain access to an asset;
• the proposals were complex, involve significant judgment and would likely result in inconsistent application;
• there was not a clear need for a change in accounting guidance for leases and the IASB should rather considering improvements in disclosures;
• the benefit of the new accounting model was questionable or at best limited, while the cost to apply it was extremely high especially for entities that have thousands of individually small leases; and
• the proposals would result in time-consuming discussions because of diverging interpretations from auditors.

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

In June 2013, the IASB published an exposure draft on bearer plants, which proposed amendments to IAS 16 and IAS 41. In response to the exposure draft, the EFRAG issued a draft comment letter that noted its support for the project and provided several suggestions to improve the proposed amendments. The EFRAG’s feedback statement provides the main comments received from constituents on its draft comment letter. The general consensus from constituents was that the “main principle of IAS 41 was not appropriate for bearer plants and that the cost model or the revaluation model of IAS 16 applied to bearer plants would provide more useful financial information.”

For more details on the feedback statement, please see (links to EFRAG website):

• EFRAG press release.
• EFRAG Feedback Statement — ED Bearer Plants 2013