IASB issues an ‘Investor Perspectives’ article on hedge accounting

30 Jun, 2014

The International Accounting Standards Board (IASB) has released another edition in its 'Investor Perspectives' series. In this edition, Patricia McConnell (IASB Board member) discusses the benefits of the new hedge accounting model will have on the investor community.

The article provides information on (1) when to apply the new hedge accounting model, (2) the reasoning behind the amendments, and (3) the enhanced disclosure requirements.                    

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EFRAG and the European National Standard Setters invite companies to share their views on lessee accounting

30 Jun, 2014

The European Financial Reporting Advisory Group (EFRAG) and the European standard setters (ANC, ASCG, FRC and OIC) are performing an additional public consultation on the two different approaches for lessees proposed by the IASB and FASB.

The objective of the consultation is to obtain examples where contracts or transactions could qualify as leases under a single-model approach (IASB) or a dual-model approach (FASB), but are viewed by constituents as in-substance services. In addition, the EFRAG and European standard setters are seeking input on which of the two alternative approaches is preferred.

During the March 2014 joint meeting, the IASB and FASB did not reach a consensus regarding lessee accounting. The IASB supported a single-model approach under which lessees would account for all leases as Type A (or finance-type) leases, while the FASB supported a dual-model approach; however, lessees would classify a lease by using criteria similar to the lease classification criteria in IAS 17. The FASB also indicated that they expect most current capital leases to be treated as “Type A” leases and most operating leases to be treated as “Type B” leases.

The public consultation will begin on 30 June 2014 and will last until 22 August 2014. The feedback received will be shared among the EFRAG and the National Standard Setters.

For more information, see:

Updated EFRAG endorsement status report includes newly issued amendments to IAS 16 and IAS 41

30 Jun, 2014

The European Financial Reporting Advisory Group (EFRAG) has updated its Endorsement Status Report to include 'Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)' bringing bearer plants into the scope of IAS 16.

The IASB issued the amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture on 30 June 2014. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted. The updated status report indicates that final endorsement of the amendments for use in the European Union is currently expected in the first quarter of 2015.

The endorsement status report, dated 30 June 2014, is available here.

IASB brings bearer plants into the scope of IAS 16

30 Jun, 2014

The International Accounting Standards Board (IASB) has published 'Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)'. The amendments bring bearer plants, which are used solely to grow produce, into the scope of IAS 16 so that they are accounted for in the same way as property, plant and equipment. The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.



The IASB received feedback from stakeholders expressing concerns about the relevance and usefulness of information provided to users for certain biological assets accounted for at fair value. Especially mature bearer biological assets, which no longer undergo significant biological transformation and are used solely to grow produce, were perceived to be more akin to property, plant and equipment and their operation similar to that of manufacturing. Therefore, the IASB published Exposure ED/2013/8 Agriculture: Bearer Plants proposing to bring biological assets that meet the definition of a 'bearer plant' within the scope of IAS 16 Property, Plant and Equipment rather than using the fair value measurement approach prescribed by IAS 41 Agriculture. The amendments published today update and finalise proposals in the ED.



For the purpose of bringing bearer plants from the scope of IAS 41 into the scope of IAS 16 and therefore enabling entities to measure them at cost subsequent to initial recognition or at revaluation, a definition of a 'bearer plant' is introduced into both standards. A bearer plant is defined as "a living plant that:

  1. is used in the production or supply of agricultural produce;
  2. is expected to bear produce for more than one period; and
  3. has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales."

The scope sections of both standards are then amended to clarify that biological assets except for bearer plants are accounted for under IAS 41 while bearer plants are accounted for under IAS 16.

The amendments also clarify that produce growing on bearer plants continues to be accounted for under IAS 41 and that government grants related to bearer plants no longer fall into the scope of IAS 41 but need to be accounted for under IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.


Other considerations

The IASB explains in the Basis for Conclusion that it decided on a 'no-alternative-use model' for bearer plants instead of a 'predominant-use model' (thereby excluding from the amendments biological assets that have both bearer and consumable attributes) as a predominant-use model would be more difficult to apply because it would require judgement to be applied and as reclassifications between IAS 16 and IAS 41 might become necessary if the predominant use changes.

The IASB also excluded livestock from the scope of the amendments as a cost model would be more complex for livestock. Also, the IASB argued that an active market would usually exist for livestock, resulting in fair value information being readily available and easier to apply than cost measurement.


Dissenting opinions

Two IASB members dissented from the publication of the amendments because they believe that the amendments will eliminate information about the fair value changes in bearer plants and the underlying assumptions used to estimate those changes. They believe that the amendments are no improvement to IFRSs and lower the quality of the information available in the financial statements of entities engaged in agricultural activities. Therefore, they conclude that the amendments fail to meet the Board's own criteria for new or amended standards.


Effective date and transition

The amendments are effective for annual periods beginning on or after 1 January 2016. Earlier application is permitted.

On the initial application of the amendments, entities are permitted to use the fair value of items of bearer plant as their deemed cost as at the beginning of the earliest period presented. Also, an entity need not disclose the quantitative information required by paragraph 28(f) of IAS 8 for the current period. However, entities are required to provide these disclosures for each prior period presented.


Additional information

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ESMA comment letter on the role of the business model in financial statements

27 Jun, 2014

The European Securities and markets authority (ESMA) has published a comment letter in response to the research paper published by the European Financial Reporting Advisory Group (EFRAG), the French Autorité des Normes Comptables (ANC), and the Financial Reporting Council (FRC) on the role of the business model in financial statements (“the research paper”).

The research paper, published in December 2013, concludes that the business model should continue to play a role in financial reporting, that it is time for a change to the current ad-hoc use and that the concept of the business model should be included in the Conceptual Framework with appropriate guidance for standard-setting.

ESMA agrees that the use of the business model at a standard level “could result in more relevant information on the financial performance, financial position and cash flows of any entity and assist investors in their risk assessment and economic decisions”.  However ESMA comments that “the use of different accounting treatments for different business models could harm comparability amongst issuers”.  It argues that when deciding upon such an approach “there should be a duly justified trade-off between relevance and comparability of the information” and that this decision should be made at a standards level.

Regarding inclusion of the business model concept in the Conceptual Framework, ESMA believe that “a general provision that the ‘business model’ should be assessed when setting individual standards could be sufficient”.  It comments that introducing a too broad a definition of ‘business model’ “might lead to too many different accounting models not justified by fundamental differences between business models”.

The full comment letter can be accessed on the ESMA website.

Latest IASB 'Investor Perspectives' published

27 Jun, 2014

The International Accounting Standards Board (IASB) has released another edition in its 'Investor Perspectives' series. In this edition, Patricia McConnell (member of the IASB) provides her perspectives on the new accounting requirements for revenue recognition.

With revenue as the ‘top line’ metric that is crucial to many investment decisions, the issuance of IFRS 15 Revenue from Contracts with Customers providing a single, principles based five-step model to be applied to all contracts with customers is a significant milestone in financial reporting.

Click to view Investor PerspectivesRevenue recognition: finally, a Standard approach for all (link to IASB website). All Investor Perspectives are archived on the IASB's website.

IASB launches newsletter for investors

26 Jun, 2014

The IASB has launched a new newsletter, "IASB Investor Update," to provide investors with quick access to information on current accounting and financial reporting issues. The newsletter aims to keep investors informed on new and changing guidance.

The first issue features:

  • Request for comments on current projects;
  • Spotlight on disclosures;
  • Insights on the changes to revenue recognition;
  • IASB profile on Pat McConnell, a retiring Board member; and
  • An events calendar.

The IASB Investor Update newsletter is available on the IASB's website.

First meeting of the expert group on the evaluation of the IAS Regulation

26 Jun, 2014

The European Commission's (EC’s) expert group set up to advise and assist the EC in conducting the retrospective evaluation of the IAS Regulation will meet for the first time on 15 July 2014.

The expert group will discuss their mandate and timetable and will also focus on feedback received to a public consultation on the evaluation of the IAS Regulation.

The full agenda for this non-public session can be found on the European Commission website.

Government introduces the Small Business, Enterprise and Employment Bill into Parliament

26 Jun, 2014

The Government has introduced the Small Business, Enterprise and Employment Bill (“the Bill) into Parliament which will bring in measures aimed at making it easier for small firms to establish and grow in the UK.

The Bill, consisting of 11 parts, covers a wide range of topics including company filing requirements and corporate trust and transparency upon which the Department for Business, Innovation and Skills (BIS) has previously consulted.

Company filing requirements  

In October 2013, BIS published proposals aimed at reducing the amount of information that companies need to file and the frequency with which it is sent to Companies House.  Following a period of consultation, BIS published updated proposals in April 2014.  Measures within the Bill (Part 8) will:

give companies flexibility to confirm whether their basic company information is correct and complete at any point in a year - instead of requiring an annual return to be completed at a set point – and simplify the process by allowing companies to check and confirm the information;

allow companies to opt out of the requirement to keep certain company registers and, instead, keep the information on the public register if that is easier for them;

simplify the financial information contained in the statement of capital;

simplify filing requirements where directors are appointed and provide a new means of resolving disputes about directors’ appointments;

suppress part of the director’s date of birth shown on the public register to make identity theft more difficult;

implement a faster ‘strike off’ regime to get defunct companies off the public register and keep it up to date;

make it simpler to remove inaccurate registered office addresses from the public register; and

allow companies to make additional information available on the public register, if they wish to do so. 

Corporate trust and transparency

In July 2013 (link to BIS website), BIS published proposals aimed at a enhancing the transparency of UK company ownership and increasing trust in UK business.  Following a period of consultation, updated proposals were published in April 2014 which are now included in Part 7 of the Bill.  The measures will:

  • Require UK companies to keep a register (a ‘Person with significant control (PSC) register’) of people with significant control over the company (those individuals who own or controls more  than 25 per cent of a company’s shares or voting rights or who otherwise exercises control over a company or its management).  The PSC register will include details on the individuals including name, date of birth, nationality, address and details of their interest in the company.  Companies will be required to keep the PSC register up to date.
  • Improve transparency of company ownership and control including:
    • Prohibiting UK companies from issuing bearer shares.
    • Limiting the use of corporate directors (one company as the director of another).
    • Increasing the accountability of those who control company directors.

The introduction of the Bill into Parliament is the first step in making these proposals into law.

*Update 15 January 2015 - BIS have now published a provisional implementation plan as to how parts 7 and 8 of the Bill will be implemented into law - see here (link to BIS website)*. 

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Fourth Global IFRS Banking Survey — Ready to land

26 Jun, 2014

Deloitte has issued its 'Fourth Global IFRS Banking Survey — Ready to Land'. The report captures the current views of 54 major banking groups'—including 14 global systemically important financial institutions (G-SIFIs)—on recent accounting and regulatory changes.

It summarises key findings such as:

  • Three years is most frequently cited as the necessary lead time for all phases of IFRS 9 Financial Instruments.
  • There is an increasing expectation that banks' pricing will be affected by the accounting change.
  • More than half of banks surveyed believe that the expected loss approach will result in banks' provisions increasing by up to 50% across all loan asset classes.
  • 70% of banks surveyed anticipate their IFRS 9 expected loss provision to be higher than current regulatory expected loss. Capital planning uncertainty will continue, as regulators' responses to change are not yet known.
  • The key implementation challenges cited were resource constraints and coordinating multi-disciplinary effort including finance, credit, risk and IT.
  • 56% of banks surveyed are concerned about credit data reconciliation and credit data quality.

Please click to download Fourth Global IFRS Banking Survey — Ready to land.

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