During the meeting the EFRAG Supervisory Board received a report from the EFRAG Chairman on the status of key IASB projects, including the upcoming endorsement of IFRS 15 ‘Revenue from Contracts with Customers’ and IFRS 9 ‘Financial Instruments’.

Additionally the EFRAG Supervisory Board was updated on the developments in relation to the call for candidates of the President of the EFRAG Board and the evaluation of the IAS Regulation.

An update was provided on the EFRAG reform and it was noted that members of the new EFRAG Board including the President of the EFRAG Board will be appointed on 31 October 2014.

Finally, the EFRAG Supervisory Board reviewed the comments received as part of EFRAG’s due process on the EFRAG draft comment letter on the IASB’s quality control procedures prior or post issuance of a final standard or major amendment to a standard.  A number of respondents supported the EFRAG’s request for a public fatal flaw and at the meeting the EFRAG supervisory Board approved the letter to the IASB recommending such a public fatal flaw prior to finalisation of a standard or a major amendment to a standard.

The full meeting minutes are available on the EFRAG website.

Issued in July, the Discussion Paper is intended to contribute to the global discussion on how goodwill should be accounted for and disclosed.

Whilst we recognise the conceptual merits of the current model of non-amortisation coupled with a full annual impairment test, its application imposes significant costs on the preparers of financial statements. Specifically, we continue to see a significant proportion of the resources for preparing and auditing financial statements of many entities devoted to the annual impairment review of both goodwill and indefinite-life intangible assets. Similarly, we are aware of concerns over the costs of identifying and valuing separate intangible assets. We are not convinced that this level of cost is justified by the resulting information provided to users of financial statements.

We encourage the IASB to re-open its deliberations (with global convergence in mind) on these areas of business combination accounting and to re-examine the value of information provided by an annual impairment review of unamortised goodwill and indefinite-life intangible assets.

Click for the full comment letter.

The meeting's discussions were based on a staff paper made available beforehand. The intention behind the meeting was not to re-open IFRS 9, which has just been published in its final version, but to discuss issues around the application of the standard to Islamic Finance und thus to address uncertainties and possibly reduce diversity in practice.

The discussions focused on three questions:

1. Which IFRS applies to the accounting of Islamic financial instruments? Are these contracts with customers that fall within the scope of IFRS 15 Revenue from Contracts with Customers?
2. Do some of the instruments common in Islamic finance meet the characteristics-of-the-instrument test in IFRS 9?
3. How should the revenue from Islamic finance instruments be described and measured?

Please click to access the recording and the report from the meeting on the IASB website.

The topics discussed were as follows (click through to access detailed Deloitte observer notes for each topic):

TUESDAY, 16 SEPTEMBER 2014 (13:00-17:05)

Items for continuing consideration

• IFRS 11 – Classification of joint arrangements
• IFRS 5 – Non-Current Assets Held for Sale and Discontinued Operations
  
  • Cover note
  • Summary of the issues
  • Other IFRS 5 issues that the IASB had previously considered but not addressed
  • Feedback from former IASB staff and members
  • Further analysis using complex fact patterns
  • Considerations of next steps
• IAS 12 – Measurement of income tax on uncertain tax positions
• IFRIC 14 – Availability of refunds from a defined benefit plan managed by an independent trustee
• Conceptual Framework – Transition requirements for the revised Conceptual Frameworks

Administrative session

• Interpretations Committee work in progress
• Review of Interpretations Committee activities

WEDNESDAY, 17 SEPTEMBER 2014 (9:00-11:45)

New items

• IFRIC 21 – Levy on PPE of service provider
• IAS 28 – Assessment of fund manager's significant influence over funds
• IFRS 12 – Disclosures for a subsidiary with a material non-controlling interest and for a material joint venture or associate
• IAS 39 – Accounting for embedded foreign currency derivatives in host contracts
• IFRS 13 – The Fair Value Hierarchy – Using quoted prices provided by third parties

The guide that was published in a draft version in February 2014 builds on the qualitative characteristics of useful financial reporting and recommends that supplementary financial measures should be relevant, complete, neutral, transparent, understandable and verifiable, comparable, and timely. The guide also offers recommendations on the disclosure of such measures:

• The definition and purpose of the measure should be explained.
• Changes in composition of a supplementary financial measure should be disclosed including the reasons for the changes.
• A quantitative reconciliation to the most directly comparable GAAP measure should be provided.
• The measure should be given context.
• Supplementary financial information should complement but not overshadow GAAP measures.

Additionally, the guide recommends that companies should consider obtaining internal or external assurance on their supplementary financial information voluntarily where obtaining assurance on these is not mandated.

The disclosure of non-GAAP information is currently widely discussed and there are several initiatives under way. In December 2013, the Financial Reporting Council (FRC) issued a press release calling for consistency in the reporting of exceptional items.  Following this, in February 2014 the European Securities and Markets Authority (ESMA) launched a consultation on Guidelines on Alternative Performance Measures and earlier this month the International Organization of Securities Commissions (IOSCO) issued a proposed Statement on Non-GAAP Financial Measures.

Please click for more information on the finalised International Good Practice Guidance, Developing and Reporting Supplementary Financial Measures on the IFAC website:

• Press release
• Access to an executive summary
• Access to the full length guidance

Following the introduction of the Local Audit and Accountability Act 2014 in January 2014, the Comptroller and Auditor General (CAG, the head of the NAO) will take on the role of preparing and maintaining the Code of Audit practice from the Audit Commission.

The CAG has taken this opportunity to put together a single unified code covering the audit of all different types of local public body.  The code is a principles rather than rules based framework.

The consultation seeks comments on aspects of the proposed new code by 31 October 2014.

The draft code, consultation document and details of how to respond to the consultation can be found on the NAO website.

In its Exposure Draft, the IASB proposed three changes to IAS 28 and IFRS 10:

• Exemption from preparing consolidated financial statements. The suggested amendments confirm that an entity can apply the consolidation exemption even if its parent entity measures its subsidiaries at fair value in accordance with IFRS 10.
• A subsidiary providing services that relate to the parent's investment activities. A subsidiary that provides services related to the parent's investment activities should not be consolidated if the subsidiary itself is an investment entity.
• Application of the equity method by a non-investment entity investor to an investment entity investee. When applying the equity method, a non-investment entity investor in an investment entity retains the fair value measurement applied by the associate to its interests in subsidiaries, unless the non-investment entity investor is a joint venturer where the joint venture is an investment entity.

ESMA agrees that a subsidiary that provides services related to the parent's investment activities should not be consolidated if the subsidiary itself is an investment entity.

Exemption from preparing consolidated financial statements

ESMA does not agree that an entity should be able to apply the consolidation exemption in IFRS 10 if its parent entity measures its subsidiaries at fair value. In ESMA's view, users of financial statements (in particular non-investors) might not be adequately informed about the financial position and performance of such a subsidiary in the absence of consolidated financial statements. ESMA does not believe that the disclosures required by IFRS 7, IFRS 12 and IFRS 13 in the financial statements of the investment entity parent, taken in combination with separate financial statements for the subsidiary, would provide sufficient information for the needs of such users. Furthermore, ESMA does not agree that the preparation of such accounts would result in significant additional costs, as they would expect that such consolidated information is being prepared for internal use in any case.

Application of the equity method by a non-investment entity investor to an investment entity investee

In relation to these amendments, ESMA partly supports the IASB's proposals but partly disagrees. It believes that a non-investment entity investor should, when applying the equity method, retain the fair value measurements used for investments in subsidiaries by an investment entity associate or joint venture. This is different to the IASB's position which would mandate this treatment for investments in subsidiaries held by associates but forbid it for joint ventures.

ESMA does not believe that there is sufficient difference in the practical relationship between an investor and its associate or joint venture investees to justify the introduction of a distinction between these two cases. Moreover, ESMA believes that the fair value measurements applied by a non-investment entity investor to investment entity associates and joint ventures provides useful information.

ESMA also makes several other observations, namely that:

• the proposed amendments should have clarified the equity method treatment of other associate and joint venture relationships with investment entities.
• the IASB should take this opportunity to amend IAS 28 and IFRS 10 to clarify differences in terminology which may cause uncertainty as to the correct accounting treatment in some situations.
• the high number of recent exposure drafts clarifying aspects of the equity method indicates the need for a broader project on the equity method. As a result ESMA is supportive of the IASB's current research project on this topic.

ESMA has also submitted a response to the consultation on EFRAG's response to this IASB consultation, expressing the same views.

The response to the IASB and response to EFRAG can both be downloaded from the ESMA website.