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June

IASB issues work plan update

30 Jun 2015

Following its June meeting, the IASB has updated its work plan. The revised plan announces the expected issuance of an exposure draft (ED) on eliminations of gains arising from 'downstream' transactions in the third quarter of 2015, moves the target ED date for clarifications arising from the post-implementation review of IFRS 8 up one quarter, and extends redeliberations for several projects to the third 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 Exposure draft Redeliberations* Q1 2016*
Financial instruments — Macro hedge accounting Comment letter analysis Redeliberations Q3 2015*
Insurance contracts Revised exposure draft Redeliberations Q3 2015*
Leases Revised exposure draft Target IFRS Q4 2015
Disclosure initiative — Principles of disclosure Board discussion Target discussion paper Q4 2015
Disclosure initiative — Changes in accounting policies and estimates Board discussion Target ED Q4 2015
Disclosure initiative — Materiality Board discussion Draft Practice Statement Q3 2015
Rate-regulated activities Discussion paper Board discussion Q3 2015*

* Indicates a change since the previous work plan update on 27 May 2015.

Updates regarding the implementation and research projects include:

  • Clarifications arising from the post-implementation review of IFRS 8 will see an ED in the third quarter of 2015 (pulled forward);
  • IAS 28 — Eliminations of gains arising from 'downstream' transaction will see an ED in the third quarter (moved back));
  • Two research projects have moved from the assessment phase to the development phase:
    • Business combinations under common control;
    • Equity method of accounting.
  • Two research projects have been added to the development phase as a result of the post-implementation review of IFRS 3:
    • Definition of a business;
    • Goodwill.
  • The research project on performance reporting is now called primary financial statements.

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.

FRC to coordinate with professional bodies on future inspection work

30 Jun 2015

In a speech at a recent Federation of European Accountants’ (FEE) audit conference, Financial Reporting Council (FRC) chief executive, Stephen Haddrill indicated that responsibility for regulating audit firms will not pass solely to the FRC as a result of the implementation of the EU Audit Directive and Audit Regulation into UK law.

In the speech, Stephen Haddrill stated that currently the FRC inspect the largest ten UK firms but as a result of the UK implementation of the EU Audit Directive and Audit Regulation in the UK, the FRC will be required to review all firms who undertake Public Interest Entity (PIE) audits. 

Many of the audit firms that will come under the FRC’s scope are currently inspected by recognised supervisory bodies (RSBs) such as the ICAEW. 

The Department for Business, Innovation and Skills (BIS) in December 2014 proposed that the FRC should be responsible for all inspections but delegate these back to RSBs for most non-public interest entities.

However, in his speech, Stephen Haddrill indicated that regulatory activities will continue to be carried out by the RSBs including those firms who undertake PIE audits. 

He commented that the FRC will adopt a “proportionate” approach to inspection and will “coordinate with the professional bodies who do a perfectly good job of inspecting such firms already”. 

Stephen Haddrill commented that as many of these firms only have “one or two PIE audits” the risk to the public interest of delegating their inspection to RSBs would be “minimal”.

He commented:

We must be alive to the risk of independent inspection driving firms out of the PIE market and reducing competition.  We must keep inspection costs in check and we must also consider whether our normal open reporting on firm performance is appropriate in relation to a small firm given that we will only inspect a small sample of its work.

 The full speech is available on the FRC website.

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

30 Jun 2015

The Institute of Chartered Accountants in England and Wales (ICAEW) has published its 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 comment letter the ICAEW supports the proposal to defer the effective date of IFRS 15 by one year to periods beginning on or after 1 January 2018.  However the ICAEW indicates that the decision to defer the effective date of IFRS 15 after it had been issued should not be seen as setting a precedent for future standards. 

The full comment letter is available on the ICAEW website.

ACCA publishes report on the role of corporate governance in SMEs

30 Jun 2015

The Association of Chartered Certified Accountants (ACCA) has published a report on the role of corporate governance in SMEs. The report details why corporate governance matters for SMEs, how good corporate governance looks for these businesses and how they can benefit from good corporate governance, the value and impact of boards, the triggers of change and the challenges of introducing corporate governance.

The report Governance for all: the implementation challenge for SMEs argues that “a one-size fits all approach to corporate governance for SMEs will not work”.  It suggests that established corporate governance frameworks have been developed with large, listed companies in mind and these may not suit the individual characteristics of SMEs.  The report argues that although corporate governance matters to all companies, the “aims and nature of the corporate governance framework applied are likely to vary from one company to another”.  The ACCA comments that “for corporate governance to work in small businesses the framework needs to take into account the diverse needs for them – they are not all run in the same way”. 

The report identifies a range of benefits of establishing a good corporate governance framework for SMEs including enhanced access to credit and greater resilience to fraud, theft or other financial costs due to poor controls.  However it also identifies a number of challenges to introducing better corporate governance in SMEs including a lack of understand of what changes are needed and also cost considerations.   

The report concludes; “there are many challenges to understanding the role that corporate governance can play in helping SMEs to grow.  More research needs to be undertaken to understand the impact of corporate governance on SMEs and the various barriers that stand in the way of greater implementation of effective corporate governance”. 

The press release and full report are available on the ACCA website.

ESMA publishes final guidelines on alternative performance measures

30 Jun 2015

The European Securities and Markets Authority (ESMA) has published its final Guidelines on Alternative Performance Measures (APMs) for listed issuers. The guidelines apply to issuers with securities traded on regulated markets, and persons responsible for drawing up a prospectus. They are effective from 3 July 2016.

In February 2014, ESMA published proposed guidelines to improve the transparency and comparability of financial information, reduce information asymmetry among the users of financial statements, and contribute coherent use and presentation of alternative performance measures. However, respondents found that compliance with the proposed guidelines would increase the disclosure overload, especially since ESMA had proposed a very ambitious scope. To respond to the criticism, ESMA has revised the scope of the proposed guidelines and amended the definition, the presentation and the reconciliation principles for the APMs. Financial statements have now been excluded from the scope, considering that they are already covered by the applicable financial reporting framework.

The below is a short extract of the main points of the new guidelines.

  • An APM is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework.
  • Issuers should define the APM used and its components as well as the basis of calculation adopted.
  • Issuers should disclose the definitions of all APMs used in a clear and readable way.
  • APMs should be given meaningful labels reflecting their methodology and basis of calculation in order to avoid conveying misleading messages to users.
  • APMs should be reconciled to the most relevant amount presented in the financial statements, separately identifying and explaining each reconciling item.
  • Issuers should also present the most directly reconcilable line item, subtotal or total presented in the financial statements relevant for that specific APM.
  • Issuers should explain the use of APMs in order to allow users to understand their relevance and reliability.
  • APMs should be accompanied by comparatives for the corresponding previous periods.
  • Issuers should present reconciliations for all comparatives presented.
  • The definition and calculation of an APM should be consistent over time. In exceptional circumstances where issuers decide to redefine an APM, the issuer should:
    • Explain the changes;
    • explain the reasons why these changes result in reliable and more relevant information on the financial performance, and
    • provide restated comparative figures.
  • If an issuer stops disclosing an APM, the issuer should explain the reason for considering that this APM no longer provides relevant information.
  • Where permitted, disclosure principles set out in the guidelines may be replaced by a direct reference to other documents previously published which contain these disclosures on APMs and are readily and easily accessible to users.

The above guidelines will be translated into the official languages of the EU and will be published on ESMA's website in the course of 2015. They are effective for documents issued on or after the effective date of 3 July 2016.

The guidelines are included as Annex IV in the Final Report on the ESMA Guidelines on Alternative Performance Measures published today. The report also offers an executive summary, general remarks, a feedback statement, and a cost-benefit analysis. Please click to access the final report and a corresponding press release on the ESMA website.

Speech at Paris IFRS conference on the European view of IFRSs

30 Jun 2015

At the IFRS Foundation's IFRS conference currently held in Paris, the Chairman of the French standard-setter Autorité des Normes Comptables (ANC) Patrick de Cambourg spoke about the crucial importance of international accounting standards and the objective of establishing 'a confident and level playing field dialogue with the IASB'.

In his speech, Mr de Cambourg evaluated the 10 years of IFRS implementation in Europe and observed that Europe (and the world in general) is moving into a new stage of standard-setting. He stressed that extra attention needs to be paid to the general principles underlying standard-setting, if understanding and buy-in is to be encouraged. Therefore, he pointed out, standard-development needs to be pursued in a coherent manner, has to address emerging issues and has to avoid over-complexity.

The full transcript of Mr de Cambourg’s speech is available on the ANC website.

ESMA opposes IFRS 9 deferral for insurance companies

29 Jun 2015

The European Securities and Markets Authority (ESMA) has responded to the EFRAG draft endorsement advice on IFRS 9 'Financial Instruments'.

In its response to the draft endorsement advice published in May 2015, ESMA agrees with the conclusion that adoption of IFRS 9 is conducive to the European public good and should be adopted for the use in the European Union in a timely manner "in order to respond to the concerns raised during the financial crisis".

In one point, however, ESMA diagrees with EFRAG: the potential deferral of IFRS 9 for insurance business activities while the IASB finalises its forthcoming insurance standard. The letter states:

ESMA is of the view that in light of significant uncertainty about the timing of the finalisation of the new standard on insurance contracts, there should be no delay in the application of IFRS 9 for insurance industry. Furthermore, ESMA is of the view that EFRAG should explicitly acknowledge that the IASB already considered and tentatively rejected deferring the mandatory effective date of IFRS 9 for entities that issue insurance contracts in January 2015.

ESMA believes that deferral of IFRS 9 for insurance companies would be inconsistent with the generic nature of IFRSs that apply across all industries. ESMA also fears a lack of comparability, confusion among financial statement users, potential earnings management, a loss of credibility of financial reporting, conceptual repercussions and other unintended consequences.

Please click to access the full comment letter on the ESMA website.

In a recent comment letter, the Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) had supported a deferral.

Hans Hoogervorst speaks about historical cost and fair value

29 Jun 2015

At the IFRS Foundation's IFRS conference currently held in Paris, IASB Chairman Hans Hoogervorst spoke about the question of how assets and liabilities should be measured, a topic he called "one of the most difficult topics in accounting".

Mr Hoogervorst pointed at the fact that the recently published Exposure Draft containing proposals for topical areas where the IASB considers a revision and amendment of the existing Conceptual Framework necessary also includes a chapter on measurement offering a description of different measurement bases, the information that they provide and their advantages and disadvantages. In this chapter, the IASB has have divided the measurement techniques into two categories: historical cost and current value. However, Mr Hoogervorst pointed out that "the dichotomy between historical cost and fair value is not as stark as one would expect". He listed four aspects where the assumed stability of historical cost and the often cited vulnerability of current value are not necessarily that far apart. He cited

  • the fact that, for many transactions, historical cost starts and ends with fair value (or values that come very close to it);
  • that, despite its name, historical cost gets updated too (depreciation/amortisation);
  • that the alleged stability resulting from historical cost accounting can be extremely misleading; and
  • that the stability of historical cost can be interrupted by steep cliff effects.

He summed up:

In conclusion, historical cost is to some extent based on fair value; it needs a degree of current measurement to maintain its relevance, it is not free from subjective updating requirements; and it is not necessarily stable. Moreover, historical cost is also vulnerable to abuse. In sum, all the vulnerabilities that are often attributed to fair value accounting can be equally pertinent to historic cost.

However, Mr Hoogervorst also stated that it would not do to abandon historical costs completely in favour of fair value. Instead, he noted in "very broad brushstrokes indeed" the following general conclusions as to when the different categories of measurement bases should be applied:

  • If the nature of business activities is to use assets in combination with other assets to produce goods or services, this generally points in the direction of historical cost.
  • If the nature of business activities is to trade assets or liabilities in active markets, this would generally point in the direction of current value measurement.
  • If the characteristics of an asset of a liability are such that they are highly sensitive to market factors or to other risks in the item, this would generally point in the direction of current value measurement.

He also noted of course that more factors than these will need to be taken into consideration, such as the cost of performing the measurement, the degree of measurement uncertainty, faithful presentation and the avoidance of accounting mismatches. He encouraged his audience to comment on the proposals in the IASB's Exposure Draft.

The full transcript of Chairman Hoogervorst’s speech is available on the IASB’s website.

Second ASBJ and EFRAG bilateral meeting

29 Jun 2015

Representatives of the European Financial Reporting Advisory Group (EFRAG) and the Accounting Standards Board of Japan (ASBJ) held a bilateral meeting in Brussels on 22 and 23 June 2015. The EFRAG and ASBJ provided updates on their respective projects and exchanged views on the development of accounting standards.

EFRAG and ASBJ discussed the following topics:

In addition, the ASBJ and EFRAG discussed how they can work together more effectively on research activities including the topic of impairment and amortisation of goodwill on which both parties and the Organismo Italiano di Contabilità (OIC) have been working together.

The next meeting between the EFRAG and ASBJ will be held in Tokyo in 2016.

A press release is available on the EFRAG website.

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

29 Jun 2015

The European Securities and Markets Authority (ESMA) has published its 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 comment letter, ESMA supports the proposal on the basis of the factors considered by the IASB in the ED such as the importance and persuasiveness of revenue in the financial statements, the ability that issuers can apply the amendments at the time of first application of IFRS 15 and the desire to maintain convergence with the equivalent US standard. 

ESMA is also of the view that the deferral of the mandatory effective date will allow sufficient time for high-quality implementation of IFRS 15.

The full comment letter is available on the ESMA website.

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