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FRC issues comment letter on IASB's Exposure Draft ED/2013/11 Annual Improvements to IFRSs 2012— 2014 Cycle

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20 Feb 2014

The Financial Reporting Council (FRC) has issued their final comment letter on the International Accounting Standard Board's (IASB's) Exposure Draft ED/2013/11 'Annual Improvements to IFRSs 2012–2014 Cycle' which was published on 11 December 2013. The FRC “supports the proposed amendments to International Financial Reporting standards (IFRSs) as part of the annual improvements project” but has expressed “reservations” over the detail of some of the proposed changes.

The IASB uses the annual improvements project to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of another major project.  The ED proposes amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting.  

The FRC has questioned whether there is a need for the proposed clarification in IFRS 5 concerning the reclassification of non-current assets or disposal groups between held for sale and held for distribution.  Whilst acknowledging that IFRS 5 is silent in respect of the measurement requirements on reclassifications, the FRC comment “in our view such transactions should be rare in practice and adding a new rule to IFRS 5 may be a disproportionate response”. 

Reservations are also expressed over the proposed amendment to IAS 19.  The proposed amendment to IAS 19 clarifies that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid (thus, the depth of the market for high quality corporate bonds should be assessed at currency level). 

The FRC “understand the IASB’s rationale for making the change and generally agree that in some jurisdictions, such as those within the Eurozone, the proposed clarification may be beneficial”.  However they express concern “that the use of a discount rate of a foreign currency bond might be seen to be incompatible with other required inputs such as inflation or might lead to uncertainty as to which inflation rate to apply” in the context of paragraph 78 of IAS 19.  Consistent with the views expressed by the European Financial Reporting Advisory Group (EFRAG) in their draft comment letter, the FRC would recommend that further work is carried out before finalising the amendment “to ensure there are no unintended consequences and to ensure there is common understanding of mutually compatible inflation, discount rates and other assumptions where the discount rate is derived from a bond issued in a foreign currency”. 

Further comments are made regarding the changes proposed to paragraph B30A of IFRS 7 and also in relation to transitional provisions where the FRC recommends prospective rather than retrospective application of the proposed amendment to IAS 34. 

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