January

IASB issues interim standard on rate regulation

30 Jan, 2014

The International Accounting Standards Board (IASB) has published IFRS 14 'Regulatory Deferral Accounts'. This Standard is intended to allow entities that are first-time adopters of IFRS, and that currently recognise regulatory deferral accounts in accordance with their previous GAAP, to continue to do so upon transition to IFRS. The Standard is intended to be a short-term, interim solution while the longer term rate-regulated activities project is undertaken by the IASB. The IASB has stated that by publishing this Standard, they are not anticipating the outcome of the comprehensive rate-regulated activities project which is in its early stages.

 

Background

In September 2012, the IASB started a comprehensive rate-regulated activities project, starting with a research phase to develop a Discussion Paper.  In December 2012, the IASB decided to add an additional phase to the rate-regulated activities project to develop this limited-scope Standard.

In April 2013, the IASB published the Exposure Draft ED/2013/5 Regulatory Deferral Accounts (the ‘ED’), with comments due by 4 September 2013. 

The IASB received comments on the ED which lead to some clarifications and edits, including additional disclosure requirements; however, the main proposals in the ED were not changed substantially in the final Standard.

 

Scope

Initial application of IFRS 14 must coincide with the application of IFRS 1 First-time Adoption of International Financial Reporting Standards. This means, IFRS 14 cannot be applied by entities that have previously adopted IFRSs. Entities applying this interim standard must also meet specified eligibility criteria. Specifically, the entity has to conduct 'rate-regulated activities' (as defined by IFRS 14), and it must have recognised amounts that qualify as regulatory deferral account balances in its financial statements in accordance with its previous GAAP.

 

Overview of the key requirements

  • IFRS 14 requires the balances reflecting the effects of rate regulation to be described as “regulatory deferral account debit balances” and “regulatory deferral account credit balances” (collectively they are referred to as “regulatory deferral account balances”) and these balances cannot be referred to as, or presented with, assets and/or liabilities because  the determination of whether these balances meet the definition of assets or liabilities in the Conceptual Framework must be addressed as part of the IASB's comprehensive conceptual framework project
  • The effects of rate regulation must be separately presented in the statement of financial position and statement(s) of profit or loss and other comprehensive income, and the Standard provides illustrative examples of these presentation requirements
  • All assets and liabilities, balances and transactions have to comply with all other IFRS standards so the regulatory deferral account balances represent the effects of rate regulation only after the requirements of other IFRS standards have been met
  • IFRS 14 includes some specific guidance on how other Standards such as IAS 10 Events After the Reporting Period, IAS 12 Income Taxes, IAS 33 Earnings Per Share, IAS 36 Impairment of Assets, IFRS 3 Business Combinations and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations should be applied to regulatory deferral balances and/or movements in such balances
  • There are specific disclosure requirements to (a) enable users to evaluate the nature of, and the risks associated with, the specific rate regulation regime and (b) enable users to understand how the regulatory deferral account balances are recognised and measured both initially and subsequently.

 

Effective date and transition

The Standard can be applied in an entity's first annual IFRS financial statements for periods beginning on or after 1 January 2016.  Earlier application is permitted. Application of the standard is voluntary. However, an entity that elects to apply the standard in its first IFRS financial statements continues to apply it in all its subsequent financial statements.

 

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FRC issues revised guidance on the audit of housing associations

30 Jan, 2014

The Financial Reporting Council (FRC) has today issued a revised Practice Note 14 on the audit of housing associations in the UK.

Practice Note 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 Practice Note consists of four sections including a section on the business risks and audit risks in the housing sector. 

Along with revised Practice Note 14, the FRC has also published a summary of the feedback received from their consultation on the proposed changes.  The FRC comment that “all of the comment letters expressed strong support for the proposed structure and content of the Practice Note and agreed that the proposed Practice Note was suitable for publication”. 

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IASB publishes Request for Information on the post-implementation review of IFRS 3

30 Jan, 2014

The International Accounting Standards Board (IASB) has issued a Request for Information (RFI) seeking comments from stakeholders to identify whether IFRS 3 'Business Combinations' provides information that is useful to users of financial statements; whether there are areas of IFRS 3 that are difficult to implement and may prevent the consistent implementation of the standard; and whether unexpected costs have arisen in connection with applying or enforcing the standard.

The post-implementation review process for IFRS 3 was originally expected to commence in 2012 but it was only formally announced to begin on 25 July 2013. Since then the IASB has been gathering information to determine the scope of the review and to identify the main questions that need to be answered before the implementation of IFRS 3 can be assessed.

The RFI published today includes those questions and forms part of the formal public consultation. After the comment period ends, the IASB will consider the comments received along with information gathered through other consultation activities and findings from research on the topic. The final conclusions of the IASB will be presented in a report and a feedback statement which will also set out the steps the IASB believes should be taken as a result of the review.

The technical questions in the RFI address the following areas:

  • Definition of a business,
  • Fair value,
  • Separate recognition of intangible assets from goodwill and the accounting for negative goodwill,
  • Non‐amortisation of goodwill and indefinite life intangible assets,
  • Non‐controlling interests,
  • Step acquisitions and loss of control,
  • Disclosures, and
  • Any other matters the stakeholders wish to raise.

Comment deadline is 30 May 2014. The request for information and a corresponding press release are available on the IASB website.

Latest edition of EFRAG Insider

30 Jan, 2014

The European Financial Reporting Advisory Group (EFRAG) has published a new edition of the publicly available newsletter 'EFRAG Insider'.

In this edition, the EFRAG discusses their support for the business model to play a role in financial reporting; a view which is contained within their draft comment letter on the International Accounting Standard Board’s (IASB’s) discussion paper ‘A Review of the Conceptual Framework for Financial Reporting’ and their other comment letters on the Insurance and Financial Instrument projects of the IASB.

It also addresses the exposure drafts on leases and insurance contracts, particularly the field tests carried out with the National Standard Setters from UK, France, Germany and Italy which were used by EFRAG to formulate their final comment letters to the IASB. 

Additionally this edition covers initial input gathered from European analysts on the post-implementation review of International Financial Reporting Standard (IFRS) 3 'Business Combinations', the IASB’s Rate-Regulated Activities project and provides a spotlight on the recommendations of the Maystadt Review.

 The December 2013 edition of EFRAG Insider is available on the EFRAG website

Meeting notes from IFRS Foundation Trustees meeting

28 Jan, 2014

The IFRS Foundation Trustees held an open meeting on 28 January 2014 in Milan. We have posted Deloitte observer notes from the meeting covering Mr Prada's summary of the joint IFRS Foundation Trustees / IFRSF Monitoring Board meeting held on 27 January 2014, and Mr Scott Evans report on an earlier meeting of the Due Process Oversight Committee.

Click through for direct access to the notes for each session:

IFRS Foundation Trustees meeting (15:00-15:30)

Charity Commission and the Office of the Scottish Charity Regulator publish guidance to trustees on preparing Strategic Reports

28 Jan, 2014

The Charity Commission for England and Wales (‘Charity Commission’) and the Office of the Scottish Charity Regulator (‘OSCR’) have today published guidance to help trustees of large company charities apply the Strategic Report requirements set out in The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 (the ‘narrative reporting regulations’). The narrative reporting regulations are applicable for periods ending on or after 30 September 2013.

The narrative reporting regulations require all companies (except small companies) to prepare a Strategic Report which will replace the current business review.  The existing guidance on the business review is contained within the Accounting Standard Board’s Reporting Statement: Operating and Financial Review (RS) published in January 2006.  

The requirements will apply only to those larger charities set up as companies and the Charity Commission and the OSCR have indicated that “the overwhelming majority of charities registered in England, Wales and Scotland, are not affected by the change”.  Many of these charities will not have turnover in excess of £6.5m to be considered medium or large. 

The guidance ‘Information sheet 5: The Strategic Report and company charities’ identifies that the Strategic Report of a charity that is a company should meet three objectives: 

to provide context for the related financial statements;

to provide an analysis of the charity's past performance; and

to provide insight into the charity's main objectives and strategies, and the principal risks it faces and how they might affect future prospects. 

The guidance covers: 

  1. What charities are affected, explaining that it is only those companies that are classified as medium or large as defined in the Companies Act 2006.  Small companies are exempt.
  2. The legislative requirements.
  3. The requirement that the Strategic Report be separately approved by the company directors.  The guidance notes that “the Strategic Report should be included within the Trustees’ Annual Report as a separate clearly delineated section headed Strategic Report”.  The guidance then states that “in approving the Trustees’ Annual Report, the trustees must include a clear statement that they are also approving the Strategic Report in their capacity as company directors”.
  4. Information required and the structure of the Trustees’ Annual Report.  The guidance explains that the Strategic Report should contain:
    • A balanced and comprehensive review of the charity’s development and performance in the financial year, using information from the current ‘achievements and performance’ section of the Trustees’ Annual Report;
    • A balanced and comprehensive review of the financial position at the end of the year, using information from the ‘financial review’ section of the Trustees’ Annual Report;
    • A description of the principal risks and uncertainties facing the charity, using information from the ‘structure, governance and management’ section of the Trustees’ Annual Report; and
    • A description of the charity’s future plans. 

Although the charity SORP is currently under review, the Charity Commission and the OSCR have indicated that no changes are required to the current SORP (SORP 2005) to meet the requirements for producing a Strategic Report. 

Additional guidance for directors on preparing Strategic Reports and applying the requirements of the narrative reporting regulations has been provided by the Financial Reporting Council in their Exposure Draft: ‘Guidance on the Strategic Report’

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January 2014 IASB meeting notes — Part 2 (concluded)

28 Jan, 2014

The IASB's meeting was held in London on 21-23 January 2014, some of it a joint meeting with the FASB. We have posted the final Deloitte observer notes from the meeting, covering the discussions on classification & measurement and impairment.

Click through for direct access to the notes:

Wednesday, 22 January 2014

Thursday, 23 January 2014

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

ESAs disagree with suggested voting model in the new EFRAG Board

28 Jan, 2014

In a joint letter to Michel Barnier, European Commissioner for Internal Market and Services, the three European Supervisory Authorities (ESAs) - ESMA, EBA and EIOPA - have voiced serious concerns regarding the voting model in the new EFRAG Board proposed in Philippe Maystadt's report with recommendations for enhancing the EU’s role in promoting high quality accounting standards. The ESAs have announced to decline the offers of membership they have received should they not be given the sole right to decide on endorsement advice to the EU Commission on new and revised IFRSs.

The three ESAs have issued their letter in the middle of the deliberations on the EFRAG reform, where EFRAG is currently discussing the implementation of the reform with the European national standard-setters, the EFRAG member organisations and the organisations funding EFRAG in order to propose the details of the reformed structure to the EU Commission.

In his final report Mr Maystadt proposed to replace the current Supervisory Board with a high-level Board, which would approve the comment letters addressed to the IASB and the endorsement advice letters to the Commission, relying on the work of a technical group. The Board would consist of 16 members: four European public institutions (including the ESAs), five stakeholders representing private interests and seven national standard-setters. The Board is expected to express a single view and individual members would only have the possibility of abstaining or remaining silent should they not agree with the majority view.

The ESAs are convinced that this voting model might lead to cases where the voting results do not reflect the public interest as the objectives of the private stakeholders or national standard-setters "are unlikely to be always aligned" to the objective of protecting the public interest. They therefore suggest that only the public authorities represented in the proposed board should decide on final endorsement advice to the European Commission. Input from the members representing private interests and the results of the public consultation process would be considered by the public authorities when coming to their final conclusion.

In the final paragraph of the letter, the ESAs declare that they will only join the new Board as observers and continue with their present way of acting should their concerns not be addressed.

 

Consequently, in the absence of any changes to the proposed voting model, the three ESAs will refrain from accepting membership but ask for an observer status in the new EFRAG SB. Furthermore, the three ESAs will reserve the right to submit their opinion on the endorsement advice on the use of existing, new and amended IFRS to the EC. In line with current practice the ESAs will also continue to submit their own comment letters to the IASB by bringing their own perspectives to the development of new financial reporting standards and thus fulfilling their obligations from their respective founding regulations.

Click to download the full letter from the ESMA website.

IFRS Foundation Monitoring Board announces new members

28 Jan, 2014

Following its 2012 ‘Final Report on the Review of the IFRS Foundation’s Governance’, the Monitoring Board decided to expand its membership by up to four permanent members, primarily from major emerging markets, and two rotating members. The first two new permanent members were announced today.

The appointments of the Comissão de Valores Mobiliários (CVM) of Brazil and the Financial Services Commission (FSC) of Korea will become effective once they become signatories of "Charter of the IFRSF Monitoring Board". Applications for additional permament seats on the Monitoring Board are still being analysed. The Monitoring Board also intends to start the process for appointing the two rotating seats as soon as possible.

All applications were and will be evaluated against the criteria and assessment processes for membership which were completed at the Monitoring Board's 6 February 2013 meeting.

Please click for the Monitoring Board's press release on the IOSCO website.

IASB work plan update for January 2014

28 Jan, 2014

Following its recent meeting, the International Accounting Standards Board (IASB) has updated its work plan. The target date for publication of the impairment and limited classification and measurement amendments to IFRS 9 have been clarified as being expected in the second quarter of 2014, the release of a Request for Information on the post-implementation review of IFRS 3 brought forward to the first quarter of 2014, and expected redeliberation periods in a number of projects clarified. The work plan also reflects the commencement of preliminary work on the research project on the equity method of accounting.

Current status

The revised time table for the major projects is now as follows:

Project Current status Next project step Expected timing

Conceptual Framework — Comprehensive IASB project

Discussion paper

Redeliberations

Q1–Q3 2014*

Financial instruments — Impairment

Redeliberations

Finalised IFRS

Q2 2014*

Financial instruments — Macro hedge accounting

Research/deliberations

Discussion paper

Q1 2014

Financial instruments — Limited reconsideration of IFRS 9 (classification and measurement)

Redeliberations

Finalised IFRS

Q2 2014*

Insurance contracts

Re-exposure

Redeliberations

Q1 2014

Leases

Re-exposure

Redeliberations

Q1 2014

Rate-regulated activities — interim IFRS

Exposure draft

Finalised IFRS

Q1 2014

Rate-regulated activities — Comprehensive project

Research/deliberations

Discussion paper

Q2 2014

Revenue recognition

Redeliberations

Finalised IFRS

Q1 2014

* Indicates a change since the prior work plan update.

Changes concerning narrow scope projects are:

In addition, the IASB's research project on the equity method of accounting has been moved to 'preliminary work conducted' section of the research agenda.

Click for the IASB work plan dated 27 January 2014 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

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