May

May 2015 IFRS Interpretations Committee meeting notes posted — part 2 (concluded)

21 May, 2015

The IFRS Interpretations Committee met in London on 12 May 2015. We've posted the Deloitte observer notes for the sessions on IAS 23, IAS 24, IFRS 5, IFRS 11 and the administrative session.

The following topics were discussed at the meeting (click the links to access detailed Deloitte observer notes for each topic):

FEE advocates "proportionally applying IFRS to all companies listed on pan-European funding and trading platforms"

21 May, 2015

The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has responded to the European Commission's public consultation 'Building a Capital Markets Union' and the question whether there is value in developing a common EU level accounting standard for small and medium-sized companies. FEE believes that "using a common accounting framework would provide significant value for SMEs that intend to access pan-European funding and trading platforms" and also states that "the current patchwork of accounting frameworks based on the EU Accounting Directive cannot serve as the basis for such a single framework".

FEE argues that the lack of a common framework reduces comparability between financial statements and thereby hinders potential investors (both within and outside the EU) in making decisions about cross border investments. Therefore, FEE claims, the EU needs a high quality reporting framework that can be understood by investors from across the EU and from third countries. FEE advocates proportionate application of IFRS to all companies listed on pan-European trading platforms and intending to access cross border capital investment extending also to the individual financial statements of all listed entities including those which are not required to produce consolidated accounts.

In its assessment, FEE considered four alternatives:

    1. proportionate application of IFRS to all companies listed on pan-European trading platforms and intending to access cross border capital investment;
    2. maintenance of the status quo (no common framework);
    3. development of an EU specific common accounting standard; and
    4. using the IFRS for SMEs.

FEE concluded that 2. would not be an option as it hinders potential investors in making decisions about cross border investment, 3. would take too long and would lead to the inclusion of too many member state options and would also isolate the European market, and 4. expressly states that it is not suitable for listed companies and also differs in some key aspectss from full IFRSs. Therefore, FEE believes that 1. is the best option available. The comment letter states:

We envisage that this could be achieved through ongoing simplification of recognition and measurement requirements of IFRS, and reduced disclosures through the completion of the Disclosure Initiative project of the IASB. [...] However, it should be noted that, at present, it is not clear whether the benefits of such a framework would outweigh the costs for SMEs. Therefore a thorough impact assessment should be conducted.

Please click to access the full response on the FEE website.

Accounting for sovereign debt restructurings under IPSAS

21 May, 2015

The staff of the International Public Sector Accounting Standards Board (IPSASB) have developed a short audio podcast and an accompanying publication to highlight how International Public Sector Accounting Standards (IPSASs) reflect the accounting consequences of sovereign debt restructuring transactions.

Both, the podcast and the publication, use a question and answer format and highlight issues which may be encountered in a sovereign debt restructuring. They illustrate how IPSASs, at a high level of principle, capture the economic consequences of debt restructurings. The relevant standards (IPSASs 28–30) were developed in 2008 with reference to the IFRS financial instruments standards in place at that time (IAS 32, IAS 39, and IFRS 7); a project to update the standards with reference to the requirements of IFRS 9 has been added to the IPSASB's agenda.

Please click to access the podcast (6 minutes) and the accompanying publication (5 pages) on the IPSASB website.

EFRAG draft comment letter on the IASB's Exposure Draft amending the effective date of IFRS 15

20 May, 2015

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB exposure draft (ED) proposing deferral of the effective date of IFRS 15 Revenue from Contracts with Customers by one year.

The IASB issued ED/2015/2 Effective Date of IFRS 15 (proposed amendments to IFRS 15) on 19 May 2015.  This exposure draft only proposes changing the mandatory effective date of IFRS 15 from annual periods beginning on or after 1 January 2017 to annual periods beginning on or after 1 January 2018. Earlier application of IFRS 15 would continue to be permitted.

In its draft comment letter, EFRAG supports the proposal. It requests comments on its draft comment letter by 25 June 2015.

For more information, see the press release and draft comment letter on the EFRAG’s website.

EFRAG issues final endorsement advice on 'Disclosure Initiative - Amendments to IAS 1'

20 May, 2015

The European Financial Reporting Advisory Group (EFRAG) has submitted to the European Commission its endorsement advice letter on the IASB's 'Disclosure Initiative - Amendments to IAS 1'.

EFRAG supports the amendments. EFRAG's assessment is that the benefits for preparers and users of implementing the amendments outweigh the costs and therefore EFRAG recommends that the European Commission (EC) endorses the amendments.

The EFRAG press release and Endorsement Advice Letter to the EC (including Basis for Conclusions and Evaluation of costs and benefits) are both available from the EFRAG website.

The updated EFRAG endorsement status report can be found on our publications pages.


FRC responds to EC Green Paper: Building a Capital Markets Union

20 May, 2015

The Financial Reporting Council (FRC) has responded to the European Commission (EC) Green Paper: Building a Capital Markets Union. While the FRC welcomes in principle the EC's proposals to lower barriers to access and cross-border investment, and to remove restrictions on investment decisions, it caution against attempts artificially to direct how investors choose to invest their capital.

In its response, the FRC agrees that the issues raised in the Green Paper are important to the future of the European economy.  However, they warn that it is important to recognise the contribution of equity markets in this context and that measures to strengthen bond markets or encourage investment in infrastructure, for example, should not be taken at the expense of those markets.

The FRC also notes that, in its experience, non-legislative approaches to reporting problems can be extremely effective in improving transparency, supporting decision making and contributing to lower costs of capital.

In response to the EC's detailed questions, the FRC notes the following.

  • It does not believe that the need for new EU-wide accounting standards for unlisted SMEs has been demonstrated.  However, if there is clear evidence to suggest that such accounting standards would enable such entities to attract more cross-border investment, it recommends that the EC consider using either an "IFRS minus" (as used in the UK standard FRS 101) or an "IFRS for SMEs plus" (as used in FRS 102) basis to develop these.
  • In its recent project on Smaller listed and AIM company reporting, it has received feedback that some of the disclosures required by IFRSs are often of little interest to investors.  It suggests that the Capital Markets Union provides an opportunity to develop a differentiated disclosure framework for such entities.
  • It believes that the EC should adopt a "comply or explain" approach, similar to that used in the UK Stewardship Code, in implementing its proposed amendments to the Shareholder Rights Directive.
  • It believes that the "Lab" concept used in the UK to promote good practice, innovation and more effective communication in corporate reporting could usefully be adopted across Europe.

The FRC's full response can be downloaded from their website and the Green Paper can be obtained from the EC website.

Designated new EFRAG President will not take office

19 May, 2015

The European Commission had nominated Mr Wolf Klinz as President of the Board of the European Financial Reporting Advisory Group (EFRAG) in March. He was expected to take office by June after his nomination had been approved by the European Parliament and Council and after appointment by the General Assembly of EFRAG. However due to ill health Mr Klinz has decided not to accept the EFRAG Presidency.

Mr Roger Marshall will continue to act as President ad interim until a final President is appointed. The European Commission will nominate another candidate for the Presidency as soon as possible.

Please click to access the announcement on the EC website.

IASB officially proposes to defer the effective date of IFRS 15

19 May, 2015

The International Accounting Standards Board (IASB) has published the expected Exposure Draft (ED) aimed at deferring the effective date of IFRS 15 'Revenue from Contracts with Customers' to 1 January 2018. Comments are requested by 3 July 2015.

 

Background

On 28 May 2014, the IASB issued IFRS 15 with an effective date of 1 January 2017 with earlier application permitted. After issuing the new revenue standard, which is substantially the same as the FASB's ASU 2014-09 Revenue from Contracts with Customers, the IASB and the FASB formed the joint Revenue Transition Resource Group to support the implementation of the new standard. As result of the discussions of the resource group, the IASB has tentatively decided to propose some targeted amendments to IFRS 15. As some entities may wish to apply these amendments at the same time as they first apply IFRS 15, the IASB believes that a deferral of the effective date by one year would provide additional time for these entities to implement the amended standard. The IASB also acknowledges that IFRS 15 was issued later than had been intended, so implementation time was shorter than anticipated. Lastly, at the time of the IASB's discussion, the FASB had already decided to propose to defer the effective date of their revenue standard by one year (a proposed ASU to that effect has by now been published) and the IASB concluded that it would be less confusing for the market if both IFRS and US GAAP preparers apply the new standard at the same time.

 

Suggested changes

The amendments proposed in ED/2015/2 Effective Date of IFRS 15 (proposed amendments to IFRS 15) merely aim at changing the mandatory effective date of IFRS 15 from annual periods beginning on or after 1 January 2017 to annual periods beginning on or after 1 January 2018. Earlier application of IFRS 15 would continue to be permitted. Entities would also continue to be permitted to choose between applying the standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the standard recognised at the date of initial application.

The targeted amendments to IFRS 15 to clarify particular aspects of the requirements are not part of the Exposure Draft published today. Those proposed amendments will be included in a further Exposure Draft to be published later in 2015.

 

Additional information

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ASBJ publishes research paper on the amortisation of goodwill

19 May, 2015

The Accounting Standards Board of Japan (ASBJ) has published the Research Paper No.1 'Research on Amortisation of Goodwill' with a view to make a contribution to the global discussion regarding how goodwill should be accounted for.

The research paper provides preliminary results of the research by the staff of the ASBJ into the following aspects:

  • Review of public disclosures regarding the accounting practice of how to determine goodwill amortisation periods under the Japanese accounting standards;
  • Suvery to find recent accounting practices of major Japanese listed companies relating to goodwill amortisation;
  • Limited review of academic literature; and
  • Discussion with financial statements users in Japan regarding their views on the amortisation of goodwill.

Based on these research activities, the paper notes the following observations:

    1. The review of public disclosures and responses to the survey from major Japanese listed companies indicated that 5 years was often estimated as the amortisation period for many business combinations. However, for goodwill arising from larger scale business combinations, many companies estimated longer periods (such as 10 years and 20 years) to reflect the longstanding effect that the goodwill is expected to have.
    2. As a result of the review of academic literature, the ASBJ staff found that, at least, it is difficult to immediately conclude that the impairment-only approach is superior to the amortisation and impairment approach.
    3. The majority of Japanese financial statement users expressed support for the amortisation and impairment approach.

The ASBJ anticipates that this paper will inform the work jointly carried out by the ASBJ, EFRAG and the OIC with regard to how goodwill should be accounted for and disclosed. The ASBJ also hopes that the paper will help stimulate the global discussion of accounting requirements for goodwill.

Please click to download the paper from the ASBJ website.

EFRAG, EFFAS/ABAF, and IASB announce joint outreach event on profit or loss and OCI

19 May, 2015

The European Financial Reporting Advisory Group (EFRAG), the European Federation of Financial Analysts Societies (EFFAS) and the Association Belge des Analystes Financiers (ABAF), and the International Accounting Standards Board (IASB) have announced a new joint outreach event will be held on 1 July 2015 to discuss how profit or loss (P&L) could become more useful and what the role of other comprehensive income (OCI) is.

In particular, the outreach event is seeking input from investors on ways to improve the usefulness of P&L and will discuss the following questions with the participants:

  • Is P&L the starting point in your analysis? If not, what is?
  • Are there items included in the P&L that you eliminate? What are they?
  • Are there elements that you need but that you do not find in the P&L statement?
  • Are there items shown in OCI that you include in your analysis? If you do not use OCI, why not?
  • Should bad news (adverse litigation, for example) be reflected earlier than good news that is expected but still uncertain?
  • When assets are measured at fair value through P&L, how do you treat the gains and losses associated with the changes in value during the period?
  • Do you trust P&L items more than balance sheet items?

Registration for this event is requested by 24 June 2015.

For more information, see the press release on the EFRAG website.

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