February

New Conceptual Framework bulletin on complexity in financial statements

10 Feb, 2014

The European Financial Reporting Advisory Group (EFRAG) and the National Standard Setters of France, Germany, Italy and the United Kingdom have published the latest issue of their joint publication series on the IASB's Conceptual Framework project. This bulletin explores the complexity found in financial statements and what can be done to the conceptual framework to reduce some of these complexities.

The Conceptual Framework Bulletins are intended to promote discussion and to inform about European views on the IASB's Conceptual Framework project. They are also designed to elicit feedback on these views therefore come with specific questions at the end of each issue.

This bulletin discusses:

  • Unavoidable and avoidable issues of complexity in financial statements.
  • Possible causes for complexity.
  • Suggested guidance to the conceptual framework that may reduce the complexity.

The bulletin on complexity in financial statements can be accessed here.

Constituents wishing to comment on the views in the bulletins are invited to do so by 30 April 2014.

We have also created an archive of all bulletins available. We are grateful to EFRAG and the National Standard Setters for giving us permission to host them on IAS Plus.

FRC publishes second edition of quarterly newsletter on financial reporting

07 Feb, 2014

The Accounting and Reporting Policy team of the Financial Reporting Council (FRC) has today published the second edition of their quarterly newsletter on financial reporting. The newsletter covers the period October 2013 to January 2014 and details the activities of the FRC since the last newsletter was published which covered the period June to September 2013.

The newsletter “Setting the Standard” covers the following key areas:  

Updates are also provided on the following Financial Reporting Exposure Drafts (FREDs), published by the FRC:

  • FRED 49: Draft FRS 103 Insurance Contracts;
  • FRED 50: Draft FRC Abstract 1 – Residential Management Companies’ financial statements;
  • FRED 51: Draft amendments to FRS 102 – Hedge Accounting;
  • FRED 52: Draft amendments to the FRSSE – Micro-entities;
  • FRED 53: Amendments to FRS 101. 

The newsletter also highlights that FRED 54 on the classification of financial instruments under FRS 102 is to be published by the FRC in February 2014.  An indication is also provided on a future Financial Reporting Standard for Smaller Entities (FRSSE) project which will entail a review of the FRSSE in light of the new EU Accounting Directive and to consider how the FRSSE is aligned with the new UK GAAP framework.  An exposure draft is expected in June 2014.  The FRC comment: 

the tentative view is that the FRSSE should be withdrawn and instead small entities and micro-entities brought within the scope of FRS 102, so that a consistent framework and principles apply to all entities.  

Consultations open for comment are also listed. 

Please click here for the full newsletter on the FRC website.

Agenda for February 2014 IASB meeting

07 Feb, 2014

The International Accounting Standards Board (IASB) will meet at its offices in London on 19–20 February 2014. The IASB will discuss rate-regulated activities, issues by the IFRS Interpretations Committee, bearer plants, fair value measurement, impairment, and classification and measurement.

The full agenda for the meeting, dated 7 February 2014, can be found here.  We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

GRI updates

07 Feb, 2014

The Global Reporting Initiative (GRI) has released updates relating to its G4 Sustainability Reporting Guidelines.

The GRI has announced the availability of a new Content Index Tool which will create customised Content Index templates based on a reporter’s preferences. Also, a new G4 brochure has been developed to guide new reporters on sustainability reporting and the GRI. For more information, see the press release on the GRI website.

In addition, the GRI has developed linkage documents that align the guidance between G4 and other internationally-recognised frameworks. The linkage documents are:

Additional linkage documents are currently under development. For more information, see the press release on the GRI website.

The GRI has also developed “Sector Disclosures” documents which transition G3 and G3.1 Sector Supplements to be compatible with G4. Currently, Sector Disclosures are available for the following sectors: (1) financial services, (2) oil and gas, (3) mining and metals, and (4) electric utilities. It is expected that six additional Sector Disclosures on airport operators, construction and real estate, event organisers, food processing, media, and NGO will be completed by the end of February. For more information, see the press release on the GRI website.

Further, the GRI has initiated a G4 XBRL Reports Program to promote the benefits of the GRI Taxonomy 2013, increase the interest in its voluntary filing program, and provide examples of XBRL-tagged reports. For more information, see the press release on the GRI website.

EFRAG final comment letter on the IASB’s Conceptual Framework discussion paper

06 Feb, 2014

The European Financial Reporting Advisory Group (EFRAG) has issued their final comment letter on the International Accounting Standard Board’s (IASB’s) Discussion Paper: (DP/2013/1) ‘A Review of the Conceptual Framework for Financial Reporting’. EFRAG “agrees with the high priority the IASB has given to this project” and “appreciates the work that the IASB has done in analysing areas that have proven problematic in the past”. However, while EFRAG supports the practical approach taken in the project aimed at completing the project within a few years, they “do not agree with all of the proposed solutions” and thinks that in some cases “issues should be addressed on a more conceptual basis”.

The IASB’s Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements.  The Conceptual Framework identifies the principles for the IASB to use when it develops and revises International Financial Reporting standards (IFRSs).  The DP was published in July 2013 and contained proposals for topical areas where it considered that amendments to the existing Conceptual Framework were necessary. Included in the DP were proposals to revise the definitions of an asset and a liability, to introduce guidance on derecognition, to clarify the objective and purpose of other comprehensive income and to set a framework for presentation and disclosure. 

The comments of EFRAG are consistent with those expressed in the draft comment letter in September 2013.  The key comments of EFRAG are: 

  • EFRAG disagrees with the decision not to reconsider Chapters 1 and 3 of the existing Conceptual Framework. EFRAG believes that especially the approaches regarding stewardship, reliability and prudence should be opened for discussion again they “do not support how the existing chapters deal with stewardship, reliability and prudence”.
  • EFRAG appreciates the IASB’s preliminary view that financial statements can be made more relevant if the IASB considers how an entity conducts its business activities.  EFRAG considers it important that “no standard ends up preventing entities from reflecting their business models” and also agrees with the approach to measurement in the DP.
  • EFRAG believes that the Conceptual Framework should “provide a definition/description of what profit or loss should depict” and this would provide clarity of the distinction between profit or loss and other comprehensive income (OCI), helping to clarify when and how recycling should take place.
  • EFRAG “generally” agrees with the proposed new definitions of assets and liabilities in the DP but recommends that the IASB “tests possible interpretations” to ensure that they are interpreted in a consistent manner.  However they comment that “constructive obligations are defined too narrowly in the proposals” and favours an approach to liabilities “where an obligation is present when it has arisen from past events and is practically unconditional”.  EFRAG also comments that more assets may be recognised under the new definition and proposes that the IASB considers probability thresholds for recognition on a standards level.  They do not feel that probability thresholds should be included within the Conceptual Framework but that the Conceptual Framework “should provide guidance on how uncertainty affects relevance and reliability”.
  • EFRAG also welcomes that the DP addresses the distinction between liabilities and equity but EFRAG does not support “either of the approaches as described in the DP”. 

The comments of EFRAG echo those of the Financial Reporting Council (FRC), the Association of Chartered Certified Accountants (ACCA)and the ICAEW who have also called for the re-introduction of the concepts of stewardship, reliability and prudence within the Conceptual Framework. 

EFRAG is giving the conceptual framework project a lot of attention and has found several ways of contributing to the discussion and of soliciting constituents’ views. A publication series has been developed that discusses issues that arise in the course of the IASB's project - so far seven of the Conceptual Framework bulletins have been published, among them bulletins on accountability, reliability and prudence. EFRAG has also initiated a series of outreach events that have been held across Europe to discuss the proposals in the DP. 

The full comment letter can be accessed from the EFRAG website below.   

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New appointment to the AAT

06 Feb, 2014

Jane Scott Paul OBE is to retire as the Chief Executive of the Association of Accounting Technicians (AAT) on 28 March 2014.

She will be replaced by Mark Farrar.

The press release can be found on the AAT website, here.

FRC record of Open Meeting on 29 January 2014

05 Feb, 2014

The Financial Reporting Council (FRC) has published the transcript and proceedings of the Open Meeting held on Wednesday 29 January 2014. The meeting gave stakeholders the opportunity to put questions to the FRC including commenting on the FRC priorities for 2014/15.

Stephen Haddrill, Chief Executive Officer, provided an update on the current environment of corporate governance, reporting and auditing against the FRC strategic priorities for 2013/16 and also discussed the FRC priorities for 2014/15.  

In terms of the current environment of corporate governance and reporting the FRC commented that: 

  • The standards of corporate governance and reporting were high amongst “most large companies” but there were still areas that needed to be addressed such as the quality and effectiveness of internal controls and risk and lack of clarity in reporting of strategy, business models and risks;
  • There are still “concerns” over the quality of reporting by smaller and AIM listed companies;
  • There is “considerable room for improvement” of engagement by investors with companies;
  • The quality of auditing was “improving but remained variable overall”, with “concerns” over the banking sector being addressed (link to FRC website); and
  • There are questions over the value of audit and a “need to understand better what people really wanted from audit”. 

Key priorities for 2014/15 were discussed which were taken from the document Draft plan and budget and levy proposals 2014/15 published by the FRC in December 2013. 

A review of the monitoring and enforcement activities of the FRC was also given.  It was noted that along with business as usual reviews by the Conduct Committee, there had been a “welcome response” to supervisory enquiries carried out and a “good response” to the first thematic reviews carried out into materiality and fraud.  The FRC recognise that due to the “significant increase in the scope of audit inspection activity” there will be “upward pressure on the 2014/15 budget” and a need for additional resource which would present a challenge. 

Attendants were then given the opportunity to put questions to the FRC.  A number of questions were raised on topics such as the FRC’s response to the International Accounting Standard Board’s (IASB’s) Discussion Paper: (DP/2013/1) ‘A Review of the Conceptual Framework for Financial Reporting’, how the FRC was going to address the quality of reporting by AIM companies and the FRC plan for improving bank audits. 

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Applicants invited for IFRIC membership

05 Feb, 2014

The Trustees of the IFRS Foundation have invited applications for candidates to fill up to four vacancies on the International Financial Reporting Interpretations Committee (IFRIC) for terms that will expire on 30 June 2014. IFRIC is the interpretative body of the IASB.

Members are expected to attend approximately six two-day meetings each year held in London. Terms of membership will begin on 1 July 2014 and will expire on 30 June 2017. Membership is unpaid, but the IFRS Foundation meets members' expenses of travel on IFRIC business.

Applications are accepted until 8 March 2014.

Please click for more information on the IASB's website.

Speech by Hans Hoogervorst on Profit or Loss and OCI

05 Feb, 2014

At an Accounting Standards Board of Japan (ASBJ) seminar in Tokyo IASB Chairman Hans Hoogervorst gave a speech entitled 'Defining Profit or Loss and OCI... can it be done?' in which he detailed some of the main topics in the IASB's review of the conceptual framework.

Mr Hoogervorst opened his speech by commenting on the situation in Japan and the relationship between the ASBJ and the IASB. Japanese representatives serve in all levels of the IASB's governance structure and Japan is among the top financial contributors and intellectual contributors to the IASB's work. As before, Mr Hoogervorst took this as an opportunity to invite Japan to fully embrace IFRSs.

The IASB Chairman then turned to the current work programme and mentioned that an end is in sight on three major standards many constituents have been waiting for: revenue recognition, leases and financial instruments. He promised that the new revenue recognition standard would be issued "in the next few months" and that the final standard would be almost identical between IFRS and US GAAP. On the topic of leases, he admitted that the standard was controversial and many concerns were being voiced. He added however: "We take these concerns very seriously." and pointed out that the IASB had already made some decisions designed to reduce implementation costs. Lastly, Mr Hoogervorst noted that the IASB has finalised its deliberations on financial instruments classification and measurement and impairment.

The main topic of Mr Hoogervorst's speech was the IASB's work on the conceptual framework. Feedback on the IASB's discussion paper published in July 2013 had made very clear that there is still work to be done on measurement. Although constituents had voiced support for the IASB's choice for mixed measurement, they were looking for more in-depth analysis on the different measurement bases and the information they provide.

Turning to the title of his speech, Mr Hoogervorst admitted that another hotly-debated topic in the comment letters was the question of Profit or Loss versus Other Comprehensive Income (OCI). Many constituents asked the IASB to define Profit or Loss as an element and to draw a clear distinction with OCI. Yet while many constituents asked for such a definition very few had suggestions as to how that might be achieved. At this point, Mr Hoogervorst pointed to a discussion paper (link to IASB website) the ASBJ presented at the meeting of the Accounting Standards Advisory Forum (ASAF) in December 2013. Unfortunately, he said, there had been very little consensus among ASAF participants on the details of the paper, yet he described it as "a courageous effort" and "an important contribution to the beginning of the path forward".

The IASB, Mr. Hoogervorst noted, considers Profit or Loss the ‘primary source of information about the return an entity has made on its economic resources in a period’ and should be as inclusive as possible. He added: "It is absolutely vital that Profit or Loss contains all information that can be relevant to investors and that nothing of importance gets left out." Yet he also admitted that a broad definition of Profit or Loss comes at the price of being somewhat rough. As a way out, he suggested accepting that preparers and analysts "may need non-GAAP measures to fine-tune their presentation or assessment of an entity", which he mentioned was acceptable as long as these additional measures build on IFRSs and can be reconciled with the IFRS numbers.

On OCI, Mr Hoogervorst commented that it was obvious from the comment letters received that many constituents struggled with this subject. It was even suggested that the IASB should not even deal with OCI on a conceptual level as it was unlikely that a sound conceptual basis could be found. Stressing that his comments were personal and very preliminary, Mr. Hoogervorst voiced the opinion that Profit or Loss should be the primary indicator of performance in a time period, and that the IASB should be very disciplined in its use of OCI as resorting to OCI too easily would undermine the credibility of net income. Therefore OCI should only be used as an instrument of last resort. He even added the hope that "a future financial presentation project may produce better ways of presenting income of a more uncertain nature, without having to resort to the use of OCI".

Please click for the full text of Mr Hoogervorst's speech on the IASB website.

IVSC consults on investment property

04 Feb, 2014

The International Valuation Standards Council (IVSC) has issued two exposure drafts on investment property. Both spring from the publication of a discussion paper on the valuation of investment property that was published in December 2012.

In the discussion paper, various options for improving the way in which the standards relate to this class of real property were examined. After analysis of the comments made by respondents, the IVSC Standards Board tentatively agreed that the additional requirements for valuing investment property that had been identified as needing consideration would best be dealt with by making amendments to the existing IVS 200 Real Property Interests and by including a section of investment property in IVS 300 Valuations for Financial Reporting.

The discussion paper also raised the view that the current IVS 233 Investment Property under Construction is an anomaly among the standards series as it deals with a subset of an asset class and only a specific type of valuation required under limited circumstances. The Board is suggesting to withdraw the current IVS 233 and to replace it with more broadly based guidance on the valuation of any type of real property that is either in the course of construction or where construction is contemplated.

Comments on both exposure drafts are invited before 30 April 2014. They are available on the IVSC website:

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.