May

We comment on FREDs 58 - 60

06 May, 2015

We have published our comment letter on the Financial Reporting Council’s (FRC’s) Financial Reporting Exposure Drafts (FREDs) 58 ‘Draft FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime’, FRED 59 ‘Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – Small entities and other minor amendments’ and FRED 60 ‘Draft amendments to FRS 100 Application of Financial Reporting Requirements and FRS 101 Reduced Disclosure Framework’.

The three FREDs propose changes to the existing UK financial reporting framework resulting from the UK implementation of the EU Accounting Directive.

Overall, we are supportive of the proposals and have the following key comments:

  • the section numbering should be kept consistent between FRS 102 and FRS 105 but FRS 105 should otherwise be drafted as a separate, standalone standard with paragraphs within sections numbered sequentially. We do not believe that the proposed approach is sufficiently clear for users to understand and follow;
  • the requirements of Sections 11 and 12 of draft FRS 105 should be combined into a single financial instruments section for ease of use. The drafting of these sections should be reconsidered bearing in mind that the unstated objective of the proposals is to permit micro-entities to continue to apply the historical cost accounting practices that they have previously adopted under the FRSSE. It is likely to be more successful using familiar language taken from the FRSSE or FRS 4 than artificially using FRS 102 terminology which is not appropriate to the circumstances or the audience.
  • we are pleased that in line with our previously expressed views, the FRC does not propose to address accounting for service charges by residents' management companies in the body of either FRS 102 or FRS 105. However, we are concerned about the statements made in the Accounting Council's Advice to the FRC which we believe misrepresent the legal advice obtained by the ICAEW and the FRC and incorrectly imply that the legal advice resolves the accounting issue which it does not; and
  • we do not agree with the proposed Section 1A of FRS 102. It is almost impossibly difficult to understand, particularly as the audience is small companies and their advisers. We believe that it should be completely restructured. 

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

CRD releases landscape map providing clarity across frameworks and standards

06 May, 2015

The Corporate Reporting Dialogue (CRD), which brings together organisations that have significant international influence on the corporate reporting landscape, has published a landscape map that provides a snapshot of a comparison of their frameworks, standards and related requirements through the lens of integrated reporting. Among the CRD members are the IASB and the FASB.

The CRD was introduced in June 2014 with the aim to work together to respond to market calls for better alignment and reduced burden in corporate reporting by promoting proactive engagement between the key organisations. As an initial unified response, the Dialogue has now developed an online map to show how the frameworks, standards and related requirement of its participants are seen through the lens of integrated reporting. The map has three levels:

  • Purpose. Offering a brief description of the purpose of each standard or framework.
  • Scope. Explaining how each reporting initiative relates to the six capitals of integrated reporting.
  • Content. Explaining each reporting initiative relates to the content elements of integrated reporting.

The map is intended to be a simple navigational tool providing insights into the degree of coverage of the capitals and content elements in each of the standards or frameworks. It lists all applicable standards, however, source documents are not included as the main purpose is to demonstrate how frameworks, standards and related requirements could be used together to enhance corporate reporting.

Please click to access the map on the CRD website.

IASB issues latest edition of ‘The Essentials’ newsletter

05 May, 2015

The IASB has issued the third edition of its newsletter “The Essentials,” which is intended to increase investors’ awareness of IFRSs and enhance their insights into IFRS financial statements.

This issue discusses how investors can leverage the notes to the financial state­ments to compare banks’ balance sheets and U.S. GAAP–IFRS dif­fer­ences related to the treatment of off­set­ting arrange­ments.

Issue 3 of The Essentials, as well as an archive of previous issues, is available on the IASB’s website.

FRC to focus on the quality of explanations given for non-compliance with the UK Corporate Governance Code

05 May, 2015

The Chairman of the Financial Reporting Council (FRC), Sir Win Bischoff has highlighted, at a recent governance event, that the FRC will conduct “further work” to monitor the quality of explanations made by companies that choose not to comply with aspects of the UK Corporate Governance Code.

The UK has a ‘comply or explain’ code-based approach to corporate governance which companies can follow by either complying with the provisions in the UK Corporate Governance Code or explaining why they have not complied in the annual report.

Speaking at a Governance event, Sir Win Bischoff commented:

I would like to remind both companies and investors that simply complying without giving due consideration to what is appropriate and relevant reduces the flexibility that this approach [‘comply or explain'] aims to achieve. To this end, further work will be conducted during the rest of this year to monitor reporting by companies on explanations given when they are not compliant with the Code.

A number of other areas of focus, consistent with the FRC Plan and Budget for 2015/16 were also highlighted including:

  • Culture and tone from the top.  The FRC will focus on assessing how effective companies are at establishing company culture and practices.  A number of roundtable meetings are scheduled to be held over the summer with stakeholders to “discuss and promote good Board practice in determining and ensuring appropriate culture”.
  • Investor Stewardship.  The FRC seeks an improvement in “the quantity and quality of engagement; for asset managers to be more accountable to their clients, who should in turn generate the demand for stewardship; and for proxy advisors to be more accountable for the quality of their advice”.  The FRC will work to influence the new EU Shareholder Rights Directive and work closely with the newly formed Investor Forum to “facilitate and stimulate engagement”. 

The full speech can be downloaded from the FRC website.

IASB issues work plan update

05 May, 2015

After its April meeting, the IASB has updated its work plan. The revised plan narrows the expected issuance of the leases standard to the fourth quarter of 2015, shifts the expected issuance of an exposure draft for annual improvements 2014-2016 and redeliberations for classification and measurement of share-based payment transactions to the third quarter of 2015, and shows redeliberations for the disclosure initiative (amendments to IAS 7) project to occur in the second quarter of 2015. In addition, two projects have been added on the transfer of investment property, which has a target ED in the third quarter of 2015, and uncertainties in income taxes, which has a target draft interpretation in the second quarter of 2015.

Current status

The revised timetable for the major pro­jects is now as follows:

Project Current status Next project step Ex­pected timing
Con­cep­tual Frame­work — Com­pre­hen­sive IASB project Re­de­lib­er­a­tions Ex­po­sure draft Q2 2015
Fi­nan­cial in­stru­ments — Macro hedge ac­count­ing Comment letter analy­sis Re­de­lib­er­a­tions Q2 2015
In­sur­ance con­tracts Re­ex­po­sure Re­de­lib­er­a­tions Q2 2015
Leases Re­ex­po­sure Target IFRS Q4 2015*
Dis­clo­sure ini­tia­tive — Prin­ci­ples of dis­clo­sure Board dis­cus­sion Target dis­cus­sion paper Q4 2015
Dis­clo­sure ini­tia­tive — Rec­on­cil­i­a­tion of li­a­bil­i­ties from fi­nanc­ing ac­tiv­i­ties ED Redeliberations Q2 2015*
IFRS for SMEs — Com­pre­hen­sive review Re­de­lib­er­a­tions Target IFRS Q2 2015
Rate-reg­u­lated ac­tiv­i­ties Dis­cus­sion paper Board dis­cus­sion Q2 2015

* In­di­cates a change since the pre­vi­ous work plan update on 24 March 2015.

Minor updates re­gard­ing the research pro­jects include:

  • Renaming of the general disclosure review project to “Standards—level review of disclosures” and setting board discussions to the fourth quarter of 2015.
  • Moving the target draft practice statement for the materiality project to the third quarter of 2015.

The revised IASB work plan is avail­able on the IASB's Web site. We have updated our project pages to reflect the updated work plan and other known de­vel­op­ments.

Agenda for the May 2015 IFRS Interpretations Committee meeting

05 May, 2015

The IFRS Interpretations Committee will meet at the IASB's offices in London on 12 May 2015. The agenda for the meeting is now available.

The Committee will:

  • continue discussion of issues arising on IAS 21, IAS 16, IFRS 5, IAS 32, IFRS 13, and IFRS 10;
  • consider finalising a tentative agenda decision on IAS 24;
  • consider new issues on IFRS 12 and IAS 23.

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.

IFRS Foundation Annual Report 2014

05 May, 2015

The IFRS Foundation (IFRSF) under which the IASB operates has published its Annual Report for 2014, titled 'Financial reporting standards for the world economy'.

The report for 2014 incorporates the Foundation's newly developed mission statement as well as reports from the Chair of the IFRS Foundation Monitoring Board, the Chair of the Trustees of the IFRS Foundation, and the Chair of the International Accounting Standards Board (IASB).

The report also sets out the organisation's strategic priorities for 2015-2017, broken down into four strategic goals:

  • develop a single set of high quality, globally enforceable accounting standards,
  • pursue the goal of global adoption of IFRS,
  • support consistent application and implementation of IFRS, and
  • ensure continued independence, stability and accountability of the IFRS Foundation

Please click to download the report from the IASB's website.

EFRAG concludes that adoption of IFRS 9 is conducive to the European public good

05 May, 2015

The European Financial Reporting Advisory Group (EFRAG) has published a draft endorsement advice on IFRS 9 'Financial Instruments'. Endorsement of IFRS 9 had been "postponed" in the European Union, however, following the publication of the final version of IFRS 9 in July 2014 the European Commission requested the EFRAG to deliver its opinion on the new standard.

In the draft endorsement advice published now for comment, EFRAG states that it has come to the following overall conclusion:

IFRS 9 meets the qualitative characteristics of relevance, reliability, comparability and understandability required to support economic decisions and the assessment of stewardship, leads to prudent accounting, and therefore is not contrary to the true and fair view principle. We have also concluded that IFRS 9 is conducive to the European public good.

In assessing whether IFRS 9 Financial Instruments is conducive to the European public good EFRAG came to the following conclusions:

  • Except for classification and measurement of financial assets where a clear conclusion cannot be made, IFRS 9 is an improvement over IAS 39 for all other areas.
  • In the area of convergence with US GAAP which has not been achieved, IFRS 9 will lead to higher quality financial reporting than the equivalent US GAAP standards.
  • There are certain requirements of IFRS 9 that may have potential impacts on investor and issuer behaviour.
  • There are reasonable grounds to believe that a deferral of the effective date of IFRS 9 for insurers until the future insurance contracts standard is effective would be conducive to the European public good.
  • The EU carve-out for macro hedging from IAS 39 will continue to be available for the purposes it was intended.
  • One-off costs connected with IFRS 9 implementation are likely to be significant both for preparers and users whereas only preparers are likely to incur significant ongoing costs. Both users and preparers are likely to benefit from IFRS 9. Overall, the benefits are likely to outweigh the costs.

As regards the conclusion that a deferral of the effective date of IFRS 9 for insurers until the future insurance contracts standard is effective would be conducive to the European public good, EFRAG has come to the preliminary conclusion to recommend to the European Commission to ask the IASB to globally open an option to defer the effective date of IFRS 9 for insurance businesses and align it with the effective date of the future insurance contracts standard. EFRAG stresses that it is ready to assist the IASB in designing the scope of such an option. In the invitation to comment EFRAG expressly invites all quantitative evidence that can supplement this assessment, including evidence gathered by those who oppose the deferral.

Please click to access the following information on the EFRAG website:

Comments on the draft endorsement advice are requested by 30 June 2015.

EFRAG has updated its endorsement status report to reflect the issuance of the draft endorsement advice. Final endorsement of IFRS 9 is currently expected in the second half of 2015.

IFRS Foundation Trustees hold April 2015 meeting

01 May, 2015

The Trustees of the IFRS Foundation met in Toronto, Canada, on 14–16 April 2015.

Meeting ac­tiv­i­ties in­cluded the fol­low­ing:

  • Ex­ec­u­tive session The Trustees agreed to respond to the European Commission’s Green Paper, Building a Capital Market Union, and to draft a consultation document on the review of structure and effectiveness of the IFRS Foundation. In ad­di­tion, updates were given on (1) the review of the ASAF’s op­er­a­tions, (2) developments in the United States, (3) Canada’s perspective on financial reporting issues, (4) commercial opportunities, and (5) other administrative matters.
  • IASB chair­man’s report — IASB Chair­man Hans Hooger­vorst gave an update on the IASB’s progress related to its leases project and the work of the Revenue Transition Resource Group.
  • Report of the Due Process Over­sight Com­mit­tee (DPOC) — Michael Prada, chair­man of the IFRS Foun­da­tion Trustees, led a dis­cus­sion about the DPOC’s April 2015 meeting with the IASB. For more in­for­ma­tion, see our related news item.
  • Re­gional out­reach ac­tiv­ity — The IFRS Foun­da­tion jointly hosted an event with the AcSOC, the AcSB and CPA Canada.

The full report on the IFRS Foun­da­tion Trustees’ meeting is avail­able on the IASB’s website.

Due Process Oversight Committee holds April 2015 meeting

01 May, 2015

The Due Process Oversight Committee (DPOC) of the IFRS Foundation trustees met in Toronto, Canada, on 14 April 2015.

Meeting ac­tiv­i­ties in­cluded the fol­low­ing:

  • Updates on tech­ni­cal ac­tiv­i­ties — The DPOC was updated on (1) a due-process issue related to post­ings of papers about IASB meet­ings, (2) some of the IASB’s major pro­jects, in­clud­ing in­sur­ance con­tracts, leases, the con­cep­tual frame­work, macro hedging, rate-reg­u­lated ac­tiv­i­ties, and the dis­clo­sure ini­tia­tive, (3) research projects on the IASB’s work plan, (4) progress of the IFRS Taxonomy due process trials, and (5) other implementation and maintenance projects.
  • Leases — The DPOC an­a­lyzed a report on the due-process steps in the IASB’s review of its project on leases and con­firmed that all steps have been com­pleted.
  • Post-Implementation Review of IFRS 3 — The DPOC an­a­lyzed a report on the due-process steps in the IASB’s post-implementation review of IFRS 3 and con­firmed that all steps have been com­pleted.
  • Education material — The DPOC reviewed the levels of peer review planned by the staff for its educational material.
  • Con­sul­ta­tive group meet­ings — The DPOC was pro­vided with a sched­ule of future IASB con­sul­ta­tive group meet­ings and asked which group meet­ings should be pri­or­i­tized for ob­ser­va­tion.
  • Cor­re­spon­dence — No new correspondence has been received since its previous meeting.

The full report on the DPOC meeting is avail­able on the IASB’s website.

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