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July

Joint outreach event on the conceptual framework (Amsterdam)

31 Jul 2015

On 5 October 2015, the EFRAG, the Dutch Accounting Standards Board, and the IASB will host a joint outreach event on the Conceptual Framework in Amsterdam.

The event is designed to offer an opportunity to discuss the proposals in the IASB Exposure Draft ED/2015/3 Conceptual Framework for Financial Reporting. The event will feature IASB Chairman Hans Hoogervorst and EFRAG Chairman Francoise Flores.

Please click to access the formal invitation on the EFRAG website.

July 2015 IASB meeting notes posted — part 2

31 Jul 2015

The IASB met at its offices in London on 20 and 22-23 July 2015. We have posted the Deloitte observer notes from the sessions on dynamic risk management, revenue, financial instruments with characteristics of equity, and the agenda consultation.

Please click through for direct access to the notes:

Wednesday, 22 July 2015

Thursday, 23 July 2015

You can also access the pre­lim­i­nary and un­of­fi­cial notes taken by Deloitte observers for the entire meeting.

We comment on the FRC Discussion Paper on proposals to improve the quality of reporting by smaller listed and AIM-quoted companies

31 Jul 2015

We have published our comment letter on the Financial Reporting Council Discussion Paper on proposals to improve the quality of reporting by smaller listed and AIM-quoted companies.

The Discussion Paper provides the results of the first phase of an FRC project launched in July 2014 which aims to achieve a step change in the quality of financial reporting by smaller listed and AIM-quoted companies over a three year period.  The first phase focused on gathering and assessing evidence of the issues that smaller listed and AIM-quoted companies face (including being attractive to investors), understanding the barriers to higher quality reporting and then exploring ways that the FRC might assist such companies to address the quality of their reporting so as to improve confidence in the integrity of their financial statements and of the markets as a whole.
 
Overall we support the FRC’s initiative to explore ways in which the quality of reporting by smaller listed and AIM quoted companies (‘smaller quoted companies’) could be improved.  Our key comments are: 
  • we recognise and relate to the issues raised in the Discussion Paper and the challenges faced by smaller quoted companies;
  • despite these challenges we are pleased to note that the FRC has concluded that the quality of reporting by smaller quoted companies is generally of good standard, so the focus is on improving;
  • we agree a company wanting the benefits of being quoted must comply with the additional regulation and transparency that it brings. However, we agree that this is more challenging for smaller quoted companies which typically have fewer resources to dedicate to this compared to their larger counterparts;
  • the success of the proposals relies on buy-in from the smaller quoted companies. They need to understand and recognise the benefit of good corporate reporting, including a reduced cost of capital. In that regard, active investor engagement and feedback on company annual reports is critical to changing behaviour;
  • we believe the tone of any communications or guidance to smaller quoted companies should balance the technical reminders with the desire for clear and concise reporting, i.e. that companies are not being asked to do more, but in light of the changes to IAS 1 on materiality, freeing up time to do the things that matter better; and
  • in respect of the role of the auditor, we treat larger and smaller quoted companies equally. We have, however, taken the areas of suggested improvement, including consideration of the sophistication of the audited entity’s financial and narrative reporting resourcing and expertise, into account when developing our quality and learning plans for the current year.
Further comments and full responses to the questions raised in the Discussion Paper are contained within the full comment letter.

EFRAG issues feedback statement on outreach event regarding the potential deferral of the effective date for IFRS 9 for insurers

31 Jul 2015

The European Financial Reporting Advisory Group (EFRAG) has published a feedback statement summarising input received during its insurance specialist user outreach event on the potential deferral of the effective date of IFRS 9 ‘Financial Instruments’ for insurers.

IFRS 9 becomes effective for annual periods beginning on or after 1 January 2018, with earlier application permitted. As part of the public consultation on its draft endorsement advice on IFRS 9, EFRAG wished to gain more insight into the impact on users of the non-alignment of the effective dates of IFRS 9 and the future insurance contract standard, and further, on the advantages and drawbacks of a potential deferral of the effective date of IFRS 9 for insurance businesses.

EFRAG organised an outreach event for users that are following the insurance industry in order to gain a better understanding of the views of individual users.  In total 28 users were interviewed. 

The large majority (89%) expressed a preference of having both IFRS 9 and the future insurance contracts standard implemented by the insurance industry at the same time in a “big bang” approach.  Some had a preference for accelerating the implementation of the future insurance contracts standard or were neutral on a deferral of the effective date for the insurance industry.  Two thirds supported a deferral of the effective date of IFRS 9 for insurers with only 11% against.

The press release and full feedback statement are available on the EFRAG website.

IPSASB issues consultation paper on accounting for social benefits

30 Jul 2015

The International Public Sector Accounting Standards Board (IPSASB) has issued a consultation paper that requests feedback on recognition and measurement requirements for social benefits, which the paper broadly defines as “benefits provided to individuals and households, in cash or in kind, to mitigate the effect of social risks.”

The paper proposes three approaches to accounting for social benefits:

  • Obligating event approach — Social benefits are considered in the context of the definition of a liability in the IPSASB’s conceptual framework for public-sector entities.
  • Social contract approach — The benefits are viewed from the standpoint of a social contract between a state and its citizens (e.g., because citizens have agreed to pay taxes).
  • Insurance approach — This approach is based on the assumption that “some social benefits are similar in practice to insurance contracts.”

Comments on the consultation paper are due by 31 January 2016.

For more in­for­ma­tion, see the press release and con­sul­ta­tion paper on IFAC’s Web site. On 21 September 2015, the IPSASB offers a webinar to discuss key issues in the consultation paper.

EFRAG issues feedback statement on the IASB's exposure draft of amendments to IAS 1 regarding the classification of liabilities

30 Jul 2015

The European Financial Reporting Advisory Group (EFRAG) has published its feedback statement summarising the main comments received from constituents invited to respond to its draft comment letter in relation to the International Accounting Standards Board’s (IASB’s) Exposure Draft ED/2015/1 ‘Classification of Liabilities (Proposed amendments to IAS 1)’.

On 10 February 2015, the IASB issued ED/2015/1 Classification of Liabilities (Proposed amendments to IAS 1). The main objectives of the proposal are to (1) clarify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period, (2) makie the link clear between the settlement of a liability and the outflow of resources from an entity, and (3) reorganise the guidance in IAS 1 with respect to classification of liabilities as current or non-current.
 
EFRAG published its draft comment letter in March 2015 and its final comment letter in June 2015.

The feedback statement summarises the main comments received by EFRAG in relation to the draft comment letter and explains how those comments were considered by EFRAG in reaching its final position on the IASB ED set out in their final comment letter to the IASB.

The press release and full feedback statement are available on the EFRAG website.

Joint outreach event on the conceptual framework

30 Jul 2015

On 21 September 2015, the EFRAG, the Spanish Institute for Accounting and Auditing (ICAC), and the IASB will host a joint outreach event on the Conceptual Framework in Madrid.

The event is designed to offer an op­por­tu­nity to discuss the proposals in the IASB Exposure Draft ED/2015/3 Conceptual Framework for Financial Reporting. The event will start with an in­tro­duc­tion and an ex­pla­na­tion of the key issues in the paper and will be followed by an open debate from the floor.

Please click to access the formal in­vi­ta­tion on the EFRAG website.

ICAEW publishes Discussion Paper on assurance over bank capital numbers

30 Jul 2015

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a Discussion Paper calling for auditors to be ready to provide independent assurance over bank capital numbers. The paper, which discusses the nature and extent of assurance to be provided, is the first stage in an ICAEW project to design an assurance framework for banks’ capital information.

Regulatory capital ratios are key measures of a bank’s safety and soundness and are among the most important balance sheet measures that banks produce. The focus on them has increased since the financial crisis. They are derived from complex calculations using data from a number of sources and a variety of judgements on this data. They are important measures used by regulators, investors, creditors and other stakeholders. It is therefore important that banks and these users have confidence in the robustness of controls, processes and governance surrounding the production of these capital ratios; something that the ICAEW Discussion Paper suggests that external assurance from auditors can contribute towards.

The Discussion Paper Reporting on regulatory capital: choices for assurance :

  • sets out the potential benefits of assurance over bank capital ratios and risk-weighted assets; and
  • discusses the issues involved in designing an assurance engagement on capital ratios and related information. These issues include assurance reporting issues and scoping issues.

The ICAEW intends to develop a standard scope for an assurance report over regulatory capital so that banks can obtain assurance on a consistent basis. However, it is not proposing a requirement for banks to obtain such assurance; this, it suggests, should be derived from market demand.

Comments on the Discussion Paper are requested by 16 October 2015.  Following the responses the ICAEW intends to issue an Exposure Draft of guidance on assurance reports on regulatory capital towards the end of 2015 with guidance following in 2016.

The full Discussion Paper is available on the ICAEW website.

IASB proposes clarifications to IFRS 15

30 Jul 2015

The International Accounting Standards Board (IASB) has published an Exposure Draft (ED/2015/6) with proposed clarifications of IFRS 15 'Revenue from Contracts with Customers'. Comments are requested by 28 October 2015.

 

Background

On 28 May 2014, the IASB issued IFRS 15 Revenue from Contracts with Customers. After issuing the new revenue standard, which is substantially the same as the FASB's ASU 2014-09, the IASB and the FASB formed the joint Revenue Transition Resource Group to support the implementation of the new standard. The substantial majority of the issues discussed by the TRG were resolved without the need for standard-setting activity. However, five topics (identifying performance obligations, principal versus agent considerations, licensing, collectability, and measuring non-cash consideration) were identified as requiring consideration by the Boards. In addition, some stakeholders asked for practical expedients. After considering the five topics and possible practical expedients, the IASB has decided to propose targeted amendments in three areas of IFRS 15 as well as some transition relief.

 

Suggested changes

The amendments proposed in ED/2015/6 Clarifications to IFRS 15 (proposed amendments to IFRS 15) address three of the five topics identified (identifying performance obligations, principal versus agent considerations, and licensing) and aim at transition relief for modified contracts and completed contracts. The IASB concluded that it was not necessary to amend IFRS 15 with respect to collectability or measuring non-cash consideration. In all its decisions, the IASB considered the need to balance helping entities with implementing IFRS 15 and not disrupting the implementation process.

Identifying performance obligations. IFRS 15 requires an entity to identify performance obligations on the basis of distinct promised goods or services. To clarify the concept of 'distinct', the IASB is proposing to amend the illustrative examples in IFRS 15.

Principal versus agent considerations. When another party is involved in providing goods or services to a customer, IFRS 15 requires an entity to determine whether it is the principal in the transaction or the agent on the basis of whether it controls the goods or services before they are transferred to the customer. To clarify how to assess control, the IASB is proposing to amend and extend the application guidance on this issue, amend some of the existing examples, and to add two more examples.

Licensing. When an entity grants a licence to a customer that is distinct from other promised goods or services, the entity has to determine whether the licence is transferred at a point in time or over time on the basis of whether the contract requires the entity to undertake activities that significantly affect the intellectual property to which the customer has rights. To clarify when an entity's activities significantly affect the intellectual property, the IASB is proposing to amend and extend the application guidance on this issue and some examples. Additionally, the IASB is proposing to extend the application guidance with respect to the application of the royalties constraint.

Transition relief. The IASB is proposing two additional practical expedients on transition to IFRS 15.

  • An entity may use hindsight in identifying the satisfied and unsatisfied performance obligations in a contract that has been modified before the beginning of the earliest period presented and in determining the transaction price.
  • An entity electing to use the full retrospective method does not have to apply IFRS 15 retrospectively to completed contracts at the beginning of the earliest period presented.

Other topics. In the ED the IASB expressly asks whether constituents agree with the assessment that amendments to IFRS 15 with respect to collectability, measuring non-cash consideration and a practical expedient with respect to the presentation of sales taxes are not required.

 

Alternative view

One Board member voted against the publication of the ED. This Board member supports all proposed clarifications and the additional transition relief, but disagrees with the proposal to require an entity to apply the amendments retrospectively.

 

FASB

The FASB has decided to propose more extensive amendments to its revenue standard. A first proposed Accounting Standards Update (ASU) on identifying performance obligations and on licensing was published in May 2015. A second proposed ASU relating to clarifications on principal versus agent considerations, collectability, measuring non-cash consideration and practical expedients relating to transition and the presentation of sales taxes is expected later in 2015. The Basis for Conclusions of the IASB's ED notes where differences in outcomes may arise as a consequence of the different decisions reached by both Boards.

 

Next steps

The IASB expects to complete its redeliberations by the end of 2015. The ED does not include a proposed an effective date, but the IASB’s objective is to finalise the proposed amendments with sufficient time to set an effective date that aligns with the revised effective date of IFRS 15.

 

Additional information

Please click for:

 

EFRAG supports the IASB’s deferral of IFRS 15

29 Jul 2015

On 17 March 2015, the European Financial Reporting Advisory Group (EFRAG) submitted an endorsement advice letter to the European Commission (EC) that recommended IFRS 15 be adopted "with the effective date set by the IASB". This phrase means that if the IASB should at a future point of time decide to delay the effective date, it will also be delayed in Europe. With the IASB’s decision at its 22 July 2015 meeting to defer the effective date of IFRS 15 by one year; the EFRAG has notified the EC that it recommends the 1 January 2018 effective date, as set by the IASB, for application in Europe.

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

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