The European Union has published the Commission Regulation (EC) No 183/2013 of 4 March 2013 amending Regulation (EC) No 1226/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council in the Official Journal on 5 Mach 2013. This means that the amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards published by the IASB on 13 March 2012 have now been incorporated into European law.

This amendment addresses how a first-time adopter would account for a government loan with a below-market rate of interest when transitioning to IFRSs. It also adds an exception to the retrospective application of IFRS, which provides the same relief to first-time adopters granted to existing preparers of IFRS financial statements when the requirement was incorporated into IAS 20 in 2008.

The amendments to IFRS 1 must be applied, at latest, to annual periods beginning on or after 1 January 2013.

The 2013 IFRS 'Blue Book' consolidates all new standards and amendments to International Financial Reporting Standards (IFRS) which are applicable on 1 January 2013, but without early application of other standards and amendments that apply in later periods.

Due to the deferral of the mandatory effective date of IFRS 9 to annual reporting periods beginning on or after 1 January 2015, the 2013 IFRS 'Blue Book' should not contain references to IFRS 9.  The Blue Book 2013 errata removes these references and replace them with equivalent references and other requirements related to IAS 39 Financial Instruments: Recognition and Measurement.

The compilation of editorial corrections includes the following:

• consequential amendments that should have been included in the stand-alone Standards at the time of publication. These corrections will need to be made to either 2012 IFRS (Red Book), A Guide through IFRS 2012 or 2013 IFRS (Blue Book), or all of them
• notification that an Error Note was issued in January 2013 to correct the Exposure Draft Recoverable Amount Disclosures for Non-financial Assets (separately available on the IASB website)
• notification of minor changes made to the content of the Illustrative examples to accompany IFRS 13 Fair Value Measurement Unquoted equity instruments within the scope of IFRS 9 Financial Instruments (separately available on the IASB website)
• editorial corrections to various individual publications, which may need to be made to 2012 IFRS (Red Book), A Guide through IFRS 2012 (Green Book) and 2013 IFRS (Blue Book)
• editorial corrections to 2012 IFRS (Red Book), A Guide through IFRS 2012 and 2013 IFRS (Blue Book) as a consequence of errors that were made when compiling those volumes.

Click for the following on the IASB website:

• Blue Book 2013 errata
• Editorial corrections as at 7 March 2013.

The MoU seeks to assist both organisations in reaching their mutual interests, which include the following:

• Efforts to promote the global harmonisation and clarity of corporate reporting frameworks, standards and requirements
• The development of their respective reporting frameworks, guidelines and standards
• Transparency and sharing of relevant and significant information.

The MoU follows similar agreements with the International Federation of Accountants (IFAC) announced in October 2012, and International Accounting Standards Board (IASB) announced in February 2013.

The MoU is effective from the date of signing on 1 February 2013 until 30 September 2014, but may be extended by mutual agreement.

Click for:

• IIRC press release (link to IIRC website)
• GRI press release (link to GRI website)
• Text of the memorandum of understanding (link to IIRC website).

The Monitoring Board's Final Report on the Review of the IFRS Foundation's Governance published in February 2012 identified a number of enhancements to the governance framework including expanding the Monitoring Board’s membership and beginning periodic assessments of the members against membership criteria yet to be developed. The criteria and the assessment processes were finalised at the Monitoring Board’s 6 February 2013 meeting.

The main focus of the membership criteria is the use of IFRSs with some quantitative and qualitative additional aspects:

• The jurisdiction has made a clear commitment to IFRSs and promotes global acceptance of a single set of high quality international accounting standards. It mandates or permits the application of IFRSs to consolidated financial statements of companies raising capital in its relevant market.
• The IFRSs to be applied are essentially aligned with IFRSs developed by the IASB.
• The jurisdiction can be regarded a major market for capital-raising in the global context.
• The jurisdiction makes financial contributions to the setting of IFRSs on a continuing basis.
• The jurisdiction has in place and in operation a robust enforcement mechanism.
• The relevant national or regional standard-setting body actively contributes to the development of IFRSs.

These criteria will be applied in selecting new members. This process will begin in 2013. Candidate not meeting certain criteria, but demonstrating clear commitment to do so can be invited for reapplication.

Additionally, a periodic review of existing members will take place every three years, beginning in 2013. Eligibility of continued Monitoring Board membership will be assessed against the criteria with due consideration of the evolution over time towards full compatibility with all criteria. If an existing member is found not to be fully or materially meeting the criteria, its voting rights could be suspended and at worst its membership could be revoked.

The members of the Monitoring Board currently include the US Securities and Exchange Commission (SEC). Although the application of IFRSs by domestic companies is not permitted in the United States, the SEC does permit application of IFRSs in consolidated financial statements of companies raising capital in its relevant market (foreign private issuers) and the US market is a major market for capital-raising. Behind the EU and Japan is also the third largest contributor to the IFRSF funding, the SEC’s enforcement is robust and the FASB as the national standard-setter continues to be committed to contributing to the development of high-quality IFRSs. The decision whether this means the SEC fully meets the membership criteria rests with the other Monitoring Board members and will have to be taken during the periodic review of the existing members.

Please click for access to the press release on the Monitoring Board website.

Background

This project arose out of a request to the IFRS Interpretations Committee in respect of a European Regulation on OTC derivatives, central counterparties and trade repositories (the so-called European Market Infrastructure Regulation - EMIR) which implemented central clearing for certain classes of OTC derivatives.

The legislation in Europe giving rise to the Committee request arose out of a commitment from the G20, in response to the global financial crisis, to implement new requirements for  centralised clearing for standardised OTC derivative contracts.  Specifically, in September 2009, the G20 leaders agreed that:

All standardised OTC derivative contracts should be traded on exchanges or electronic trading platforms, where appropriate, and cleared through central counterparties by end-2012 at the latest. OTC derivative contracts should be reported to trade repositories. Non-centrally cleared contracts should be subject to higher capital requirements. We ask the FSB [Financial Stability Board] and its relevant members to assess regularly implementation and whether it is sufficient to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse.

The original request to the Committee concerned the impact on hedge accounting from when an OTC derivative is novated to a central counterparty (CCP) in accordance with EMIR. Specifically, the Committee considered whether the novation of OTC derivatives in these circumstances would result in the discontinuing of hedge accounting and recommended a limited scope amendment to provide relief so that hedge accounting could be continued.

The IASB considered the issue and agreed to add this project to its active agenda at its January 2013 meeting, determining that without an amendment, the novation of an existing OTC derivatives in these circumstances would lead to its derecognition and lead to the discontinuation of hedge accounting.

Overview of the proposed amendments

ED/2013/2 proposes that the novation of a hedging instrument should not be considered an expiration or termination giving rise to the prospective discontinuation of hedge accounting if all of the following (summarised) criteria are met:

• the novation is required by laws or regulations
• the novation results in a central counterparty becoming the new counterparty to each of the parties to the novated derivative
• the changes in terms of the novated derivative are limited to those necessary to effect the terms of the novated derivative.

As such, the amendment is narrowly focused on the specific fact pattern introduced by the G20's OTC derivative reforms.  The IASB's view is that accounting for the  hedging relationship that existed before the novation as a continuing hedging relationship in these circumstances provides more useful information to financial statement users. However, given its limited scope the amendment would not grandfather continuation of hedge accounting for any voluntarily novated derivative that the two original parties to the contract agreed to (e.g., if the entities agreed to novation as a preemptive measure knowing that the change in legislation was coming). This represents a difference to U.S. GAAP where similar requirements to the EMIR Regulation are included in the Dodd-Frank Act. In the U.S. the SEC has opined that hedging relationships where the hedging derivative was novated to a central counterparty would be continued even if the exchange of counterparties took place before the effective date of the Act.

The exposure draft notes that since the forthcoming hedge accounting chapter of IFRS 9 Financial Instruments will require the discontinuation of hedge accounting where novation occurs, the exposure draft proposes amendments to be incorporated into IFRS 9 in addition to IAS 39 Financial Instruments: Recognition and Measurement.

Given that many jurisdictions are in the process of finalising legislation to introduce the G20's OTC reforms, the proposed amendments are being expedited and the exposure draft is open for a short comment period of only 30 days, which closes on 2 April 2013.

Click for:

• IASB press release (link to IASB website)
• ED/2013/2 Novation of Derivatives and Continuation of Hedge Accounting (link to IASB website)
• Our project page related to these amendments

The ED will be discussed in the upcoming Dbriefs webcast — IFRS: Important developments on 27 March.

Summary of changes

Details of the changes are:

• IAS 19 - Employee contributions to defined benefit plans - a new project added to the IASB's agenda following discussions at the February 2013 meeting.  An exposure draft is expected in the first quarter of 2013
• Insurance contracts - target date for the publication of an exposure draft is now clarified as the second quarter of 2013 (previously first half of 2013)
• Rate regulated activities - Interim standard - the expected timing of an exposure draft for an interim IFRS on rate-regulation is now clarified as the second quarter of 2013 (previously first half of 2013)
• Rate regulated activities - Comprehensive project - a discussion paper is now expected in the fourth quarter of 2013 (previously third or fourth quarter of 2013)
• Annual improvements 2010-2012 cycle - finalised amendments arising from this cycle of annual improvements are now expected in the third quarter of 2013 (previously second quarter)
• IAS 41 - Bearer biological assets - an exposure draft is now expected in the second or third quarter of 2013 (previously second quarter)
• IAS 27 - Equity method in separate financial statements - timing of the issue of an exposure draft is now the second or third quarter of 2013 (previously second quarter)
• Post-implementation review of IFRS 3 - initiation of the review is now scheduled to commence in the second or third quarter of 2013 (previously first or second quarter)
• Conceptual Framework project - the work plan notes that a feedback statement from the recently held disclosure forum is expected to be published in the second quarter of 2013.

Due process documents expected before the end of the first quarter 2013

According to the plan, the following due process documents are expected to be issued by the end of the March 2013 (this includes those items already noted above in some cases):

Exposure drafts

• Financial instruments - Impairment
• IAS 19 - Employee contributions to defined benefit plans
• IAS 39/IFRS 9 - Novation of derivatives

Discussion papers

• Financial instruments - macro hedge accounting (may be second quarter)

Click for IASB work plan dated 25 February 2013 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

The Council also expressed its concerns on the state of the Impairment project. There were mixed opinions on which direction the IASB should take in the development of its standard. Some council members were in favour of a converged solution with the FASB, while others wanted an IFRS issued to avoid further delay and have convergence efforts continue in parallel.

Please click to access the preliminary and unofficial notes taken by Deloitte observers during the first day of the meeting.

The next council meeting is on 10-11 June 2013 in London.

The EFRAG and NSS seeks participants from all entities that may have a significant impact by the proposals made to IFRS 9, in particular, banks, insurers and other financial institutions. Participants of the field-test are requested to complete a questionnaire that will asks participants to identify those financial assets for which the measurement basis would change as a result of the transition to IFRS 9, as amended by the ED. Information from the field-test will be shared in discussions between the EFRAG, NSS, the European Commission and the IASB.

More information on the field-test is available on the EFRAG website.

Click through for direct access to the notes:

Wednesday, 20 February 2013

• Conceptual framework (IASB)
  • Recognition and derecognition

Thursday, 21 February 2013

• Conceptual framework (IASB)
  • Measurement principles
  • Initial and subsequent measurement
  • Elements of financial statements – definition of equity and distinction between liabilities and equity instruments

Friday, 22 February 2013

• IAS 41 Agriculture — Bearer biological assets (IASB)
• Rate-regulated activities (IASB)

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

Yael Almog, Executive Director of the IFRS Foundation, explained in an extended session on the ASAF the background of the proposal and the results of the consultation and also stated that the Memorandum of Understanding and Terms of Reference would be amended to clarify that membership of the Forum would be open to jurisdictions that had not adopted IFRSs, but were otherwise qualified (i.e., had the technical capacity and infrastructure to make a significant contribution to the ASAF).

Please click to access the preliminary and unofficial notes taken by Deloitte observers during the first day of the meeting.