July

Agenda for inaugural meeting of the Joint Transition Resource Group for Revenue Recognition

08 Jul, 2014

The agenda has been released for the upcoming inaugural meeting of the Joint Transition Resource Group for Revenue Recognition (TRG), which is being jointly held at the offices of the International Accounting Standards Board (IASB) and United States Financial Accounting Standards Board (FASB) on 18 July 2014. The TRG will discuss a number of issues related to the recently issued IFRS 15 'Revenue from Contracts with Customers' and United States Accounting Standards Update No. 2014-09, 'Revenue from Contracts with Customers'.

The TRG was formed in June 2014 and is responsible for soliciting, analysing, and discussing stakeholder issues arising from implementation of the new standards in order to assist the IASB and the FASB to determine what, if any, action will be needed to address those issues.

The agenda for the meeting is as follows:

Friday, 18 July 2014 (13:00-17:00 BST, 08:00-12:00 US Eastern)

  • Introductory remarks
  • Gross versus net revenue
  • Gross versus net revenue: amounts billed to customers
  • Sales-based and usage-based royalties in contracts with licenses and goods or services other than licences
  • Impairment testing of capitalised contract costs

 

Agenda papers from this meeting are available on the IASB's website.

We comment on the FRC's XBRL accounts taxonomies consultation

08 Jul, 2014

We have published our comment letter on the Financial Reporting Council's (FRC’s) consultation on drafts of three proposed new XBRL accounts taxonomies to support XBRL reporting under new UK GAAP and EU-adopted IFRS (“the consultation”). Overall we welcome the FRC’s proposals.

Taxonomies are used when tagging accounts for electronic filing and for other analytical purposes. Electronic tagging helps users of financial information in corporate reports to extract the information they want and analyse it more efficiently.  The consultation seeks comments from “users, preparers and others” on three taxonomies to reflect full EU adopted IFRS and the new financial reporting standards for the UK and Ireland – Financial Reporting Standard (FRS) 101 and Financial Reporting Standard (FRS) 102.  

Our key points in response to the consultation are:

  • We commend the FRC for taking on the governance of the UK XBRL taxonomies. A strong governance process with due process is needed, given the increased move towards online filing.
  • We suggest that the FRC publish a timeline for when other specialist parts of taxonomy will be prepared and by whom. At the moment these taxonomies do not contain tags for banks, insurance companies and charitable companies preparing financial statements under FRS 102. We also ask the FRC to commit to timely maintenance of the taxonomies as and when UK GAAP, IFRS or company law is updated as early adopters may need to be able to file their financial statements with HMRC and/or Companies House.
  • We comment on the tagging of material within the annual report other than the financial statements. The FRC explained the principles as to how it decided for which information it will develop tags for. However, it is not clear from the detailed draft taxonomies that these principles have been applied consistently. We suggest that this may be useful to discuss with users via the FRC’s Financial Reporting Lab – ultimately there is a balance between tagging information at a granular level (making it easy to find) and imposing a rigid structure which may stifle innovation in reporting. 

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter

FRC issues comment letter on the IASB's proposed amendments to IAS 1 as a result of the Disclosure initiative

08 Jul, 2014

The Financial Reporting Council (FRC) has issued its comment letter on the International Accounting Standard Board's (IASB's) Exposure Draft ED/2014/1 ‘Disclosure Initiative (Proposed amendments to IAS 1)’ which was published in March 2014.

The amendments result from the IASB’s ‘Disclosure Initiative’ project which comprises several smaller projects to improve presentation and disclosure requirements in existing standards.  The amendments aim at clarifying IAS 1 'Presentation of financial statements' to address perceived impediments to preparers exercising their judgment in presenting their financial reports.  The ED proposes amendments to the following areas of IAS 1:

  • Materiality and aggregation;
  • Presentation in the statement of financial position and statement of profit or loss and other comprehensive income;
  • Notes structure; and
  • Disclosure of accounting policies.

The amendments also include proposals relating to the presentation of items of Other Comprehensive Income (OCI) arising from equity-accounted investments.

The FRC are of the view that the proposed amendments to IAS 1 “provide useful clarification on the application of materiality to IFRS financial statements (including the notes), the flexibility available in structuring disclosures and the presentation of information in the primary financial statements”. 

The key comments of the FRC are as follows:

  • The FRC welcome the proposals that materiality considerations should apply when determining the level of disclosure that is appropriate.  However the FRC comments that certain changes are required to the proposed amendments to “make it clearer that the assessment of the materiality of information should determine which information is presented and disclosed”.  The FRC adds that the IASB “should ensure the language in IAS 1 consistently encourages entities to omit disclosures that are not material (either individually or in aggregate) as “disclosure of immaterial information can impair understandability and obscure useful information”.
  • The definitions of ‘present’ and ‘disclose’ defined in paragraph BC7 of the ED are “problematic”.  The FRC “urge the IASB to reconsider these definitions as clarity in this area is critical to the effective communication of information, the progress of the broader ‘Disclosure Initiative’ project and to the development of the Conceptual Framework”.
  • That paragraph 114 of IAS 1 should be deleted as this “undermines” the aim of the proposed amendments to IAS 1 of allowing flexibility in determining an appropriate structure and order for the notes.

A number of drafting changes are also suggested in relation to the proposals for presentation in the statement of financial position and statement of profit or loss and other comprehensive income and the proposals relating to the presentation of items of Other Comprehensive Income (OCI) arising from equity-accounted investments.

The full comment letter can be accessed from the FRC website. 

Agenda for the July 2014 IFRS Interpretations Committee meeting

08 Jul, 2014

The IFRS Interpretations Committee will meet at the IASB's offices in London on 15–16 July 2014. The agenda for the meeting is now available.

The Committee will:

  • Continue discussion on a number of issues related to IFRS 11, IAS 12, IAS 16, IAS 19, and IFRIC 14
  • Consider finalising tentative agenda decisions on IAS 1, IAS 39, IAS 34, IFRS 2 and IAS 12
  • Consider new issues on IFRS 12, IAS 16, IAS 39 and IAS 21.

The full agenda for the meeting can be found here. We will update this page for any changes to the agenda, and our Deloitte observer notes from the meeting as they become available.

Survey on developments in securitisation markets

04 Jul, 2014

The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) have announced that they are co-leading a task force that will undertake a wide-ranging survey of global securitisation markets.

The task force has been established in consultation with the International Association of Insurance Supervisors (IAIS) and the International Accounting Standards Board (IASB). It has been set up to survey securitisation markets with the aim of understanding how they are evolving in different parts of the world, identify factors that may be hindering the development of sustainable securitisation markets, assess whether there are factors inhibiting the participation of investors, particularly non-bank investors, and develop criteria to identify and assist in the development of simple and transparent securitisation structures.

Securitisation played a significant role in the American subprime mortgage crises which led to the financial crisis. The regulators reacted with different measures to the financial crisis (IFRS 9 Financial instruments expected to be issued in its completed version later this month was the IASB's response to the crisis to improve the accounting for financial instruments), and the work of the task force is designed to determine how the measures have influenced the developments in securitisation markets since the crisis and how the development of orderly and sustainable securitisation markets, which could provide an alternative source of funding for economic activity and recovery, can be supported.

To this end, the task force has developed a questionnaire to seek the views of market participants. Among other questions, participants are asked in the survey for their assessment of the developments in securities markets, whether accounting changes have helped or hindered development in these markets and whether they believe that further accounting changes could lead to an increased activity in them.

The questionnaire and a corresponding press release are available on the IOSCO website. The questionnaire should be completed by 25 July 2014.

Agenda for the July 2014 IFRS Foundation Trustees meeting

04 Jul, 2014

An agenda has been released for the upcoming meeting of the IFRS Foundation Trustees, which is to be held in London on 10 July 2014. The meeting will consider reports from the Chairs of the IFRS Foundation and International Accounting Standards Board (IASB), receive a technical update on IFRS 9 'Financial Instruments', and discuss a number of matters during a report from the Due Process Oversight Committee (DPOC).

The agenda for the meeting is summarised below:

THURSDAY, 10 JULY 2014

IFRS Foundation Trustees meeting (12:15-13:45 BST)

  • Report of the Chair of the IFRS Foundation
  • Report of the Chair of the International Accounting Standards Board (IASB)
  • Technical update – IFRS 9 Financial Instruments
  • Report of the Due Process Oversight Committee (DPOC)
    • Introduction
    • Update on technical activities
    • Effects analysis – update on the proposed report of the Effects Analysis Consultative Group
    • IFRS Taxonomy – update on revised due process proposals
    • Annual review of consultative groups (including an update on DPOC engagement)
    • Reporting protocol – general reports (comment letters, availability of meeting papers, market and prudential regulators)
    • Correspondence – update
    • Summary/any other business/wrap up

 

Agenda papers for the meetings are available on the IASB's website.

Summary of the ASAF June meeting

03 Jul, 2014

A summary of the Accounting Standards Advisory Forum (ASAF) June 2014 meeting has been made available by the IASB staff. During the meeting, the members discussed various IASB projects, such as the disclosure initiative, equity method of accounting, insurance contracts, macro hedging and the conceptual framework.

 

Disclosure initiative

The ASAF members discussed an Exposure Draft published by the Brazilian Accounting Standards Committee proposing that immaterial information should not be disclosed and that this should be enforced. They also considered a comment letter by the European Financial Reporting Advisory Group (EFRAG) on the consultation on alternative performance measures launched by the European Securities and Markets Authority (ESMA) and discussed whether the IASB was the appropriate organisation to address non-IFRS information. Finally, they considered the FASB's work on its disclosure framework project.

 

Equity method of accounting

The ASAF discussed a paper introduced by the IASB staff that sought input from ASAF members on the scope of the research project on the equity method of accounting. During the discussion, some ASAF members suggested that it might be useful to consider the project in two stages: a short-term simplification project and a long-term conceptual review of the application of the equity method. The discussion also made reference to the EFRAG paper and the KASB paper on this topic.

 

Insurance contracts

The ASAF considered the release of the contractual service margin for non-participating contracts, contracts with participating features, whether the IASB should develop a separate model for contracts with participating features, whether the shareholders' share of returns from underlying items should unlock the contractual service margin, and whether there should be specific requirements for options and guarantees.

 

Macro hedging

The IASB staff wanted to gather initial feedback from the ASAF members on the main areas of the Discussion Paper DP/2014/1 Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging. The discussion assessed the need for an accounting approach, the scope of the application of the portfolio revaluation approach and other risks. There was overall agreement that before going ahead with the approach, there would need to be acceptance of the consideration of behaviouralisation. ASAF members also considered issues in connection with revaluation and transfer pricing transactions as well as operational complexity and OCI.

 

Conceptual framework

ASAF members discussed the reporting of income and expenses and the choice of measurement based on a paper by the Financial Reporting Council (UK), suggesting a justification for a mixed measurement model and principles for distinguishing between profit or loss and other comprehensive income.


A full summary of the meeting is available on the IASB's website. The ASAF's next meetings will be on  25 and 26 September 2014 and on 4 and 5 December 2014.

Investor Forum appoints board members

03 Jul, 2014

The Investor Forum, the formation of which was announced in December 2013, has been formally launched with the appointment of Simon Fraser as Chairman and Andy Griffiths as Executive Director.

The formation of the Investor Forum was announced in December 2013 by The Collective Engagement Working Group, a group established by the Association of British Insurers (ABI), the Investment Management Association (IMA) and the National Association of Pension Funds (NAPF). The forum is intended to “promote shared commitment to long-term strategies and sustainable wealth creation among asset owners, asset managers and companies” and its creation was one of the recommendations of Professor Kay in his review of the UK equity market in 2012 (the “Kay Review”).  The ‘Kay Review of UK Equity markets and long-term decision making’, published in July 2012, sought to address the issue of short-termism in the equity market.

Click to read:

We comment on proposed revisions to the UK Corporate Governance Code

03 Jul, 2014

We have published our comment letter on the FRC's consultation on changes to the UK Corporate Governance Code. Overall, we support the proposed revisions to the UK Corporate Governance Code (“the Code”). Given the importance of implementing the Sharman principles without further delay, we have aimed to provide practical and specific comments on the proposals.

Our key points in response to this consultation are that we:

  • support the changes around remuneration and AGM results subject to clarification of the wording in the Main Principle;
  • continue to believe that the proposed amendments around risk management and internal control represent good business practice and should serve to increase confidence in the governance of UK listed companies;
  • support the proposed introduction of a new future viability statement which allows boards the flexibility to look forward over a period which best fits their business planning and investment cycles; and
  • support the retention of the specific statement on the appropriateness of the going concern basis of accounting. The FRC’s introduction of this statement in its current form in 2008 has done much to promote good discipline in the board’s involvement in forecasting.

In our view, without further guidance, some elements of the proposed new disclosures and practices could result in differing interpretations being adopted by companies.   We believe that this is particularly true of the requirement to explain what actions have been or are being taken to remedy any significant failings or weaknesses identified in the review of the systems of risk management and internal control; in this area we think that executive directors, audit committees and auditors would welcome guidance on interpretation. This would provide clarity into what might otherwise be difficult conversations in the boardroom and provide investors with confidence that the principles have been applied consistently across their portfolio.

Further comments and a full response to all questions raised in the invitation to comment are contained within the full comment letter.

Finalised framework on public sector governance released

03 Jul, 2014

The International Federation of Accountants (IFAC) and the Chartered Institute of Public Finance and Accountancy (CIPFA) have released a finalised international framework on governance in the public sector. The framework contains seven key principles designed to ensure that public sector entities achieve their intended outcomes whilst acting in the public interest at all times. The framework encourages a focus on sustainable economic, social and environmental outcomes and the links between governance and public financial management, and supports the use of International Public Sector Accounting Standards (IPSAS) and Integrated Reporting.

The finalised framework, titled International Framework: Good Governance in the Public Sector, was developed by an 'international reference group' of individuals drawn from a wide range of organisations and follows the publication of an exposure draft in June 2013. The stated aim of the framework is "to encourage better service delivery and improved accountability by establishing a benchmark for aspects of good governance in the public sector". It is designed to be used by those who develop and set public sector governance codes when existing codes at the national or sectoral level are updated or new codes are put in place.

The framework considers governance as comprising the arrangements put in place to ensure that intended outcomes for stakeholders are defined and achieved. It seeks to do this by setting out seven principles covering topics such as ethics, openness, defining outcomes and how they are achieved, capability development, risk management and strong financial management.

The seventh principle focuses on implementing good practices in transparency, reporting and audit to deliver effective accountability. Specific recommendations related to the seventh principle include:

  • Accountability reports should be written and communicated in an open and understandable style appropriate to the intended audience, whilst striking a balance between the right amount of information and imposing onerous requirements on the entity to prepare
  • Public sector entities should report publicly at least annually in a timely manner, and performance information and accompanying financial statements should be prepared on a consistent and timely basis, with International Public Sector Accounting Standards (IPSAS) prepared by the International Public Sector Accounting Standards Board (IPSASB) seen as providing "the most complete suite of accrual-based international financial reporting standards developed specifically for the public sector"
  • Integrated reporting is also seen as supporting public sector entities in engaging with stakeholders in a more integral and coherent manner
  • The provision of assurance through external audit is an essential element of a public sector entity's accountability, whilst internal audit can also contribute to accountability mechanisms.

Click for press release (link to IFAC website).

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