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2015

Report on the November 2015 IFRS Advisory Council meeting

10 Dec 2015

The IFRS Advisory Council met in London on 2–3 November 2015. Highlights of the meeting were thorough discussions of the Review of structure and effectiveness of the IFRS Foundation and of the Agenda consultation 2015.

The report, prepared by Chair of the IFRS Advisory Council Joanna Perry, notes the following discussions:

  • IFRS adoption in Japan — Goro Kumagai, Vice-Chair of the IFRS Advisory Council, noted significant progress made in Japan around the acceptance and use of IFRS.
  • Trustee activities — Sheila Fraser, Vice-Chair of the Trustees, shared information around the responsibilities and processes of the Trustees’ nominating committee and noted that an informal review of the composition of the Council was being considered.
  • Review of the structure and effectiveness of the IFRS Foundation— The discussion of the review brought the most discussion and feedback from the members of the Council:
    • Members showed little support for the IASB extending its remit;
    • They supported the current approach on wider corporate reporting, the current three-tier structure, and the current approach regarding the taxonomy;
    • They recommended to ensure that the composition of the Trustees remains relevant;
    • There was discussion around how the IFRS Foundation as a whole could remain knowledgeable about technology; and
    • Members were split on the benefits of a smaller or larger IASB.
  • IASB activities — Members received a report of recent activities and raised the question about the length of time it takes the IASB to produce documents and whether there are more efficient and effective ways of doing so.
  • Exchange with the US Financial Accounting Standards Advisory Council (FASAC) — The Council received an update on the structure, the work and current initiatives of the FASAC and considered whether there were any learnings from FASAC, or initiatives that could be considered by the IFRS Advisory Council.
  • Agenda consultation — There was little feedback on the projects as such, however, pre-issue processes and translation questions were raised.
  • Members' communications — Members reported about activities at the Monitoring Board, the European Accounting Association, and the European Union.

The next meeting of the IFRS Advisory Council is scheduled for 23–24 Febraury 2016, in London. The full report on the council’s November meeting is available on the IASB's website.

New and revised pronouncements as at 31 December 2015

10 Dec 2015

Our popular summary of new and revised financial reporting requirements, updated for financial reporting periods ending on 31 December 2015. This listing can be used to perform a quick check that new financial reporting requirements such as new and revised accounting standards and interpretations, and amendments to standards and interpretations, have been fully considered in the reporting close process. We have highlighted the IASB mandatory adoption dates as well as those dates for which application is mandatory within the EU. Where an EU entity chooses to prepare financial statements in accordance with IFRSs as issued by the IASB, as well as in compliance with IFRSs as adopted by the EU, that entity should comply with the earlier IASB effective date for those items. The information below can also be used to assist with the disclosure requirements under paragraph 30 of IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors', which requires entities to disclose any new IFRSs that are in issue but not yet effective and which are likely to impact the entity. For accounts approved after March 2016, please also refer to subsequent versions of this document for any new and revised IFRSs that have additionally been issued that might require disclosure in the accounts under IAS 8:30.

The information below reflects developments to 29 January 2016 and will be updated through to March 2016 to reflect new and revised financial reporting requirements that need to be considered for financial reporting periods ending on 31 December 2015.  For accounts approved after March 2016, please also refer to subsequent versions of this document for any new and revised IFRSs that have additionally been issued that might require disclosure in the accounts under IAS 8:30. 

The information below is organised as follows:

Summary

The table below provides a summary of the pronouncements which will be mandatorily applied by entities for the first time at 31 December 2015, for various quarterly reporting periods.  Where an EU entity chooses to prepare financial statements in accordance with IFRSs as issued by the IASB, as well as in compliance with IFRSs as adopted by the EU, that entity should comply with the earlier IASB effective date for those items. The table below provides a summary of these pronouncements, and which reporting periods they apply to:

PronouncementIASB Effective date*EU effective date*EU Mandatory at 31 December 2015?
1st qtrs.**2nd qtrs.***3rd qtrs.****Full yrs*****
 Defined Benefit Plans: Employee Contributions (Amendments to IAS 19)
1 July 2014 Effective in the EU for annual periods beginning on or after 1 February 2015, however, earlier application is permitted so EU companies can adopt in accordance with the IASB effective date (1 July 2014). Yes Yes Yes No
 Annual Improvements 2010-2012 Cycle
1 July 2014^
All amendments are effective in the EU for annual periods beginning on or after 1 February 2015, however, earlier application is permitted so EU companies can adopt in accordance with the IASB effective date (1 July 2014).
Yes Yes Yes No
 Annual Improvements 2011-2013 Cycle
1 July 2014
The amendments are effective in the EU for annual periods beginning on or after 1 January 2015, however, earlier application is permitted so EU companies can adopt in accordance with the IASB effective date (1 July 2014).
Yes Yes Yes Yes
INTERPRETATIONS
 IFRIC 21 Levies
1 January 2014 IFRIC 21 was endorsed for use in the EU in June 2014 and is effective for accounting periods beginning on or after 17 June 2014. However earlier application is permitted so companies applying IFRSs as adopted in the EU will be able to adopt it in accordance with the IASB effective date of 1 January 2014. Already adopted in prior year (Oct 2014)    Already adopted in prior year (July 2014)   Yes Yes

* Generally annual reporting periods beginning on or after the date indicated, may only apply to first-time adopters in some limited cases (see below for full details).

** 1st quarter ending on 31 December 2015 (accounting period began on 1 October 2015).

*** 2nd quarter ending 31 December 2015 (accounting period began 1 July 2015).

**** 3rd quarter ending 31 December 2015 (accounting period began 1 April 2015).

***** 4th quarter ending 31 December 2015 (accounting period began 1 January 2015).

^ Annual improvements to IFRSs 2010-2012 Cycle issued in December 2013 amended a number of standards. The amendments to IFRS 2 apply prospectively to share-based payment transactions with a grant date on or after 1 July 2014. The amendments to IFRS 3 apply prospectively to business combinations for which the acquisition date is on or after 1 July 2014. All the other amendments have a mandatory effective date of periods beginning on or after 1 July 2014. Earlier application is permitted in all instances (subject to EU endorsement). Where applicable, entities should disclose if certain amendments within the improvements are effective whilst others are not.

More information about these pronouncements, and all new and revised pronouncements, is set out below.

Financial statement considerations in adopting new and revised pronouncements

Where new and revised pronouncements are applied for the first time, there can be consequential impacts on annual financial statements, including:

  • Updates to accounting policies. The terminology and substance of disclosed accounting policies may need to be updated to reflect new recognition, measurement and other requirements, e.g IAS 19 Employee Benefits may impact the measurement of certain employee benefits.
  • Impact of transitional provisions. IAS 8 Accounting Policies, Changes in Estimates and Errors contains a general requirement that changes in accounting policies are retrospectively applied, but this does not apply to the extent an individual pronouncement has specific transitional provisions.
  • Disclosures about changes in accounting policies. Where an entity changes its accounting policy as a result of the initial application of an IFRS and it has an effect on the current period or any prior period, IAS 8 requires the disclosure of a number of matters, e.g. the title of the IFRS, the nature of the change in accounting policy, a description of the transitional provisions, and the amount of the adjustment for each financial statement line item affected
  • Third statement of financial position. IAS 1 Presentation of Financial Statements requires the presentation of a third statement of financial position as at the beginning of the preceding period in addition to the minimum comparative financial statements in a number of situations, including if an entity applies an accounting policy retrospectively and the retrospective application has a material effect on the information in the statement of financial position at the beginning of the preceding period
  • Earnings per share (EPS). Where applicable to the entity, IAS 33 Earnings Per Share requires basic and diluted EPS to be adjusted for the impacts of adjustments result from changes in accounting policies accounted for retrospectively and IAS 8 requires the disclosure of the amount of any such adjustments.

Whilst disclosures associated with changes in accounting policies resulting from the initial application of new and revised pronouncements are less in interim financial reports under IAS 34 Interim Financial Reporting, some disclosures are required, e.g. description of the nature and effect of any change in accounting policies and methods of computation.

 

New or revised standards

The information below can be used to assist with the disclosure requirements under paragraph 30 of IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, which requires entities to disclose any new IFRSs that are in issue but not yet effective and which are likely to impact the entity

New or revised pronouncementWhen EU effectiveApplication at 31 December 2015 to
1st qtrs2nd qtrs3rd qtrsFull yrs

IFRS 9 Financial Instruments (2009)

IFRS 9 introduces new requirements for classifying and measuring financial assets, as follows:

  • Debt instruments meeting both a 'business model' test and a 'cash flow characteristics' test are measured at amortised cost (the use of fair value is optional in some limited circumstances)
  • Investments in equity instruments can be designated as 'fair value through other comprehensive income' with only dividends being recognised in profit or loss
  • All other instruments (including all derivatives) are measured at fair value with changes recognised in the profit or loss
  • The concept of 'embedded derivatives' does not apply to financial assets within the scope of the Standard and the entire instrument must be classified and measured in accordance with the above guidelines. 

* IFRS 9 (2014) was issued on 24 July 2014 and supersedes IFRS 9 (2009), but this version of the standard remains available for application if the relevant date of initial application is before 1 February 2015.

Issued: 12 November 2009 (article, newsletter)

No stated effective date (see notes in prior column).  Not yet endorsed for use in the EU. 

IFRS 9 Financial Instruments (2010)

A revised version of IFRS 9 incorporating revised requirements for the classification and measurement of financial liabilities, and carrying over the existing derecognition requirements from IAS 39 Financial Instruments: Recognition and Measurement.

The revised financial liability provisions maintain the existing amortised cost measurement basis for most liabilities. New requirements apply where an entity chooses to measure a liability at fair value through profit or loss – in these cases, the portion of the change in fair value related to changes in the entity's own credit risk is presented in other comprehensive income rather than within profit or loss.

* IFRS 9 (2014) was issued on 24 July 2014 and supersedes IFRS 9 (2009), but this version of the standard remains available for application if the relevant date of initial application is before 1 February 2015.

Issued: 28 October 2010 (article, newsletter)

No stated effective date (see notes in prior column).  Not yet endorsed for use in the EU. 

IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (2013)

A revised version of IFRS 9 which:

  • Introduces a new chapter to IFRS 9 on hedge accounting, putting in place a new hedge accounting model that is designed to be more closely aligned with how entities undertake risk management activities when hedging financial and non-financial risk exposures
  • Permits an entity to apply only the requirements introduced in IFRS 9 (2010) for the presentation of gains and losses on financial liabilities designated as at fair value through profit or loss without applying the other requirements of IFRS 9, meaning the portion of the change in fair value related to changes in the entity's own credit risk can be presented in other comprehensive income rather than within profit or loss
  • Removes the mandatory effective date of IFRS 9 (2013), IFRS 9 (2010) and IFRS 9 (2009), leaving the effective date open pending the finalisation of the impairment and classification and measurement requirements. Notwithstanding the removal of an effective date, each standard remains available for application.

* IFRS 9 (2014) was issued on 24 July 2014 and supersedes IFRS 9 (2009), but this version of the standard remains available for application if the relevant date of initial application is before 1 February 2015.

Issued: 19 November 2013 (article, newsletter)

No stated effective date (see notes in prior column).  Not yet endorsed for use in the EU. 

 IFRS 9 Financial Instruments (2014)

A finalised version of IFRS 9 which contains accounting requirements for financial instruments, replacing IAS 39 Financial Instruments: Recognition and Measurement. The standard contains requirements in the following areas:

  • Classification and measurement. Financial assets are classified by reference to the business model within which they are held and their contractual cash flow characteristics. The 2014 version of IFRS 9 introduces a 'fair value through other comprehensive income' category for certain debt instruments. Financial liabilities are classified in a similar manner to under IAS 39, however there are differences in the requirements applying to the measurement of an entity's own credit risk.
  • Impairment. The 2014 version of IFRS 9 introduces an 'expected credit loss' model for the measurement of the impairment of financial assets, so it is no longer necessary for a credit event to have occurred before a credit loss is recognised
  • Hedge accounting. Introduces a new hedge accounting model that is designed to be more closely aligned with how entities undertake risk management activities when hedging financial and non-financial risk exposures
  • Derecognition. The requirements for the derecognition of financial assets and liabilities are carried forward from IAS 39.

Note: Depending on the chosen approach to applying IFRS 9, the transition can involve one or more than one date of initial application for different requirements.

Note: IFRS 9 (2014) supersedes IFRS 9 (2009), IFRS 9 (2010) and IFRS 9 (2013), but these standards remain available for application if the relevant date of initial application is before 1 February 2015.

Issued: 25 July 2014 (Summary of IFRS 9,article, newsletter)

Effective for annual period beginning on or after 1 January 2018.  Not yet endorsed for use in the EU.

IFRS 14 Regulatory Deferral Accounts

IFRS 14 permits an entity which is a first-time adopter of International Financial Reporting Standards to continue to account, with some limited changes, for 'regulatory deferral account balances' in accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial statements.

Note: Entities which are eligible to apply IFRS 14 are not required to do so, and so can chose to apply only the requirements of IFRS 1 First-time Adoption of International Financial Reporting Standards when first applying IFRSs. However, an entity that elects to apply IFRS 14 in its first IFRS financial statements must continue to apply it in subsequent financial statements. IFRS 14 cannot be applied by entities that have already adopted IFRSs.

Issued: 30 January 2014 (Summary of IFRS 14, article)

 

Applicable to an entity's first annual IFRS financial statements for a period beginning on or after 1 January 2016 IASB effective date is 1 January 2016.  The European Commission has decided not to propose IFRS 14 Regulatory Deferral Accounts for endorsement in the EU because very few European companies would fall within its scope.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 provides a single, principles based five-step model to be applied to all contracts with customers.

The five steps in the model are as follows:

  • Identify the contract with the customer
  • Identify the performance obligations in the contract
  • Determine the transaction price
  • Allocate the transaction price to the performance obligations in the contracts
  • Recognise revenue when (or as) the entity satisfies a performance obligation.

Guidance is provided on topics such as the point in which revenue is recognised, accounting for variable consideration, costs of fulfilling and obtaining a contract and various related matters.  New disclosures about revenue are also introduced.

Issued: 28 May 2014 (Summary of IFRS 15, article, newsletter, revenue resources) 

Applicable to an entity's first annual IFRS financial statements for a period beginning on or after 1 January 2018.  See related news article. Not yet endorsed for use in the EU.  Endorsement expected Q2 2016. 

IFRS 16 Leases

IFRS 16 specifies how an IFRS reporter will recognise, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognise assets and liabilities for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Lessors continue to classify leases as operating or finance, with IFRS 16’s approach to lessor accounting substantially unchanged from its predecessor, IAS 17.
Issued: 13 January 2016 (Summary of IFRS 16, article, IFRS 16 resources)
Applicable to annual reporting periods beginning on or after 1 January 2019

Not yet endorsed for use in the EU.

 

Amendments

New or revised pronouncementWhen effectiveApplication at 31 December 2015 to
1st qtrs2nd qtrs3rd qtrsFull yrs

Defined Benefit Plans: Employee Contributions (Amendments to IAS 19)

Amends IAS 19 Employee Benefits to clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. In addition, it permits a practical expedient if the amount of the contributions is independent of the number of years of service, in that contributions, can, but are not required, to be recognised as a reduction in the service cost in the period in which the related service is rendered.

Issued: 21 November 2013 (article, newsletter)

Effective in the EU for annual periods beginning on or after 1 February 2015, however, earlier application is permitted so EU companies can adopt in accordance with the IASB effective date (1 July 2014). Mandatory Mandatory Mandatory Optional

Annual Improvements 2010-2012 Cycle

Makes amendments to the following standards:

  • IFRS 2 — Amends the definitions of 'vesting condition' and 'market condition' and adds definitions for 'performance condition' and 'service condition'
  • IFRS 3 — Require contingent consideration that is classified as an asset or a liability to be measured at fair value at each reporting date
  • IFRS 8 — Requires disclosure of the judgements made by management in applying the aggregation criteria to operating segments, clarify reconciliations of segment assets only required if segment assets are reported regularly
  • IFRS 13 — Clarify that issuing IFRS 13 and amending IFRS 9 and IAS 39 did not remove the ability to measure certain short-term receivables and payables on an undiscounted basis (amends basis for conclusions only)
  • IAS 16 and IAS 38 — Clarify that the gross amount of property, plant and equipment is adjusted in a manner consistent with a revaluation of the carrying amount
  • IAS 24 — Clarify how payments to entities providing management services are to be disclosed

Issued: 12 December 2013 (article, newsletter)

All amendments are effective in the EU for annual periods beginning on or after 1 February 2015, however, earlier application is permitted so EU companies can adopt in accordance with the IASB effective date (1 July 2014).
Mandatory Mandatory Mandatory Optional

Annual Improvements 2011-2013 Cycle

Makes amendments to the following standards:

  • IFRS 1 — Clarify which versions of IFRSs can be used on initial adoption (amends basis for conclusions only)
  •  
  • IFRS 3 — Clarify that IFRS 3 excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself
  •  
  • IFRS 13 — Clarify the scope of the portfolio exception in paragraph 52
  •  
  • IAS 40 — Clarifying the interrelationship of IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property

Issued: 12 December 2013 (articlenewsletter)

The amendments are effective in the EU for annual periods beginning on or after 1 January 2015, however, earlier application is permitted so EU companies can adopt in accordance with the IASB effective date (1 July 2014).
Mandatory Mandatory Mandatory Mandatory

 Annual Improvements 2012-2014 Cycle

Makes amendments to the following standards:

  • IFRS 5 — Adds specific guidance in IFRS 5 for cases in which an entity reclassifies an asset from held for sale to held for distribution or vice versa and cases in which held-for-distribution accounting is discontinued
  • IFRS 7 — Additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset, and clarification on offsetting disclosures in condensed interim financial statements
  • IAS 9 — Clarify that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid
  • IAS 34 — Clarify the meaning of 'elsewhere in the interim report' and require a cross-reference

Issued: 25 September 2014 (article)

Applicable to annual periods beginning on or after 1 January 2016.   Optional Optional Optional Optional

 Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)

Amends IFRS 11 Joint Arrangements to require an acquirer of an interest in a joint operation in which the activity constitutes a business (as defined in IFRS 3 Business Combinations) to: 

  • apply all of the business combinations accounting principles in IFRS 3 and other IFRSs, except for those principles that conflict with the guidance in IFRS 11
  • disclose the information required by IFRS 3 and other IFRSs for business combinations. 

The amendments apply both to the initial acquisition of an interest in joint operation, and the acquisition of an additional interest in a joint operation (in the latter case, previously held interests are not remeasured).

Note: The amendments apply prospectively to acquisitions of interests in joint operations in which the activities of the joint operations constitute businesses, as defined in IFRS 3, for those acquisitions occurring from the beginning of the first period in which the amendments apply. Amounts recognised for acquisitions of interests in joint operations occurring in prior periods are not adjusted.

Issued: 6 May 2014 (article).

Applicable to annual periods beginning on or after 1 January 2016 (see note in previous column).  Optional Optional Optional Optional

Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)

Amends IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets to:

  • clarify that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate for property, plant and equipment
  • introduce a rebuttable presumption that an amortisation method that is based on the revenue generated by an activity that includes the use of an intangible asset is inappropriate, which can only be overcome in limited circumstances where the intangible asset is expressed as a measure of revenue, or when it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated
  • add guidance that expected future reductions in the selling price of an item that was produced using an asset could indicate the expectation of technological or commercial obsolescence of the asset, which, in turn, might reflect a reduction of the future economic benefits embodied in the asset.

Issued: 12 May 2014 (article)

Applicable to annual periods beginning on or after 1 January 2016  Optional Optional Optional Optional

Editorial Corrections (various)

The IASB periodically issues Editorial Corrections and changes to IFRSs and other pronouncements. Since the beginning of calendar 2012, such corrections have been made in February 2012, July 2012, March 2013, September 2013, November 2013 and March 2014, September 2014, December 2014, March 2015, April 2015, September 2015, December 2015 and March 2016.

Note: For details of these editorial corrections, see our IASB editorial corrections page.

As minor editorial corrections, these changes are effectively immediately applicable under IFRS See comment in previous column

 Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)

The amendments bring bearer plants, which no longer undergo significant biological transformation, into the scope of IAS 16 so that they are accounted for in the same way as property, plant and equipment.

For the purpose of bringing bearer plants from the scope of IAS 41 into the scope of IAS 16 and therefore enabling entities to measure them at cost subsequent to initial recognition or at revaluation, a definition of a 'bearer plant' is introduced into both standards. A bearer plant is defined as "a living plant that:

  1. is used in the production or supply of agricultural produce;
  2. is expected to bear produce for more than one period; and
  3. has a remote likelihood of being sold as agricultural produce, except for incidental scrap sales."

The scope sections of both standards are then amended to clarify that biological assets except for bearer plants are accounted for under IAS 41 while bearer plants are accounted for under IAS 16.

The amendments also clarify that produce growing on bearer plants continues to be accounted for under IAS 41 and that government grants related to bearer plants no longer fall into the scope of IAS 41 but need to be accounted for under IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.

Issued: 30 June 2014 (article)

The amendments are effective for annual periods beginning on or after 1 January 2016.  Earlier application is permitted Optional Optional Optional Optional

 Equity Method in Separate Financial Statements (Amendments to IAS 27)

Amends IAS 27 Separate Financial Statements to permit investments in subsidiaries, joint ventures and associates to be optionally accounted for using the equity method in separate financial statements.

Issued: 18 August 2014 (article)

Applicable to annual periods beginning on or after 1 January 2016.  

 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)

Amends IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011) to clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture, as follows:

  • require full recognition in the investor's financial statements of gains and losses arising on the sale or contribution of assets that constitute a business (as defined in IFRS 3 Business Combinations)
  • require the partial recognition of gains and losses where the assets do not constitute a business, i.e. a gain or loss is recognised only to the extent of the unrelated investors’ interests in that associate or joint venture.

These requirements apply regardless of the legal form of the transaction, e.g. whether the sale or contribution of assets occurs by an investor transferring shares in an subsidiary that holds the assets (resulting in loss of control of the subsidiary), or by the direct sale of the assets themselves.

Issued: 11 September 2014 (article, newsletter)

Applicable on a prospective basis to a sale or contribution of assets occurring in annual periods beginning on or after 1 January 2016 (IASB effective date).  Effective date deferred indefinitely (see article)  EU endorsement halted.
Disclosure Initiative (Amendments to IAS 1) 

Amends IAS 1 Presentation of Financial Statements to address perceived impediments to preparers exercising their judgement in presenting their financial reports by making the following changes:

  • clarification that information should not be obscured by aggregating or by providing immaterial information, materiality considerations apply to the all parts of the financial statements, and even when a standard requires a specific disclosure, materiality considerations do apply;
  • clarification that the list of line items to be presented in these statements can be disaggregated and aggregated as relevant and additional guidance on subtotals in these statements and clarification that an entity's share of OCI of equity-accounted associates and joint ventures should be presented in aggregate as single line items based on whether or not it will subsequently be reclassified to profit or loss;
  • additional examples of possible ways of ordering the notes to clarify that understandability and comparability should be considered when determining the order of the notes and to demonstrate that the notes need not be presented in the order so far listed in paragraph 114 of IAS 1.

Issued: 18 December 2014 (article, newsletter).

Effective for annual periods beginning on or after 1 January 2016.  
 Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28) 

Amends IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities and IAS 28 Investments in Associates and Joint Ventures (2011) to address issues that have arisen in the context of applying the consolidation exception for investment entities by clarifying the following points:

  • The exemption from preparing consolidated financial statements for an intermediate parent entity is available to a parent entity that is a subsidiary of an investment entity, even if the investment entity measures all of its subsidiaries at fair value.
  • A subsidiary that provides services related to the parent's investment activities should not be consolidated if the subsidiary itself is an investment entity.
  • When applying the equity method to an associate or a joint venture, a non-investment entity investor in an investment entity may retain the fair value measurement applied by the associate or joint venture to its interests in subsidiaries.
  • An investment entity measuring all of its subsidiaries at fair value provides the disclosures relating to investment entities required by IFRS 12.
Issued: 18 December 2014 (article, newsletter).
 
Effective for annual periods beginning on or after 1 January 2016.  Not yet endorsed for use in the EU.
Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12)

Amends IAS 12 Income Taxes to clarify the following aspects:

  • Unrealised losses on debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the debt instrument's holder expects to recover the carrying amount of the debt instrument by sale or by use.
  •  
  • The carrying amount of an asset does not limit the estimation of probable future taxable profits.
  •  
  • Estimates for future taxable profits exclude tax deductions resulting from the reversal of deductible temporary differences.
  •  
  • An entity assesses a deferred tax asset in combination with other deferred tax assets. Where tax law restricts the utilisation of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the same type.
Issued:  19 January 2016 (article)
Effective for annual periods beginning on or after 1 January 2017
Not yet endorsed for use in the EU.
Disclosure Initiative (Amendments to IAS 7)

Amends IAS 7 Statement of Cash Flows to clarify that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities.
Issued: 29 January 2016 (article, publication)
Effective for annual periods beginning on or after 1 January 2017
Not yet endorsed for use in the EU.

 New and revised Interpretations

New or revised pronouncementWhen effectiveApplication at 30 September 2015 to
1st qtrs2nd qtrs3rd qtrsFull yrs

IFRIC 21 Levies

Provides guidance on when to recognise a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the levy is certain.

The Interpretation identifies the obligating event for the recognition of a liability as the activity that triggers the payment of the levy in accordance with the relevant legislation. It provides the following guidance on recognition of a liability to pay levies:

  • The liability is recognised progressively if the obligating event occurs over a period of time
  • If an obligation is triggered on reaching a minimum threshold, the liability is recognised when that minimum threshold is reached.

Issued: 20 May 2013 (articlenewsletter)

IFRIC 21 is effective in the EU for annual periods beginning on or after 17 June 2014, however, earlier application is permitted so EU companies can adopt in accordance with the IASB effective date (1 January 2014). Already adopted in prior year (Oct 2014)   Already adopted in prior year (July 2014)   Mandatory Mandatory

 

EFRAG Board meeting December 2015

10 Dec 2015

The European Financial Reporting Advisory Group (EFRAG) will hold a Board meeting on 16 December 2015 in Brussels.

An agenda with supporting papers and details on how to register for the public meeting can be found on the EFRAG website.

EFRAG report on survey results on the impact of the forthcoming new IFRS on leases on financial covenants in loan agreements

09 Dec 2015

EFRAG has issued a report summarising the results of a public survey conducted by the IASB and the National Standard Setters of France, Germany, Italy, Lithuania, and the UK on the potential impact of the forthcoming new IFRS on leases on financial covenants in loan agreements.

The survey asked lenders and non-lenders different questions related to the use of covenants. For lenders, the survey results indicate a diversity in practice but most agreed that their loan agreements included at least one of the following:

  • “automatic renegotiation clauses in the case of a change to accounting principles, at least for some of their agreements;
  • frozen GAAP provisions; or
  • adjustments for operating lease commitments in determining covenants.”

For this reason, they do not expect IFRS 16 to cause breaches of covenants. However, most lenders stated that they will reevaluate the terms and conditions of covenants when IFRS 16 is effective.

For non-lenders, most respondents expect that either (a) covenants will not be impacted with the issuance of IFRS 16 or (b) covenants will be renegotiated if IFRS 16 affects covenant ratios.

For more information, see the report on the EFRAG’s website.

FRC consults on revisions to the Audit Firm Governance Code

09 Dec 2015

The Financial Reporting Council (FRC) has issued a consultation on proposed revisions to the Audit Firm Governance Code (“the Code”).

The Code was developed by an independent working group constituted jointly by the FRC and the Institute of Chartered Accountants in England and Wales (ICAEW), in response to concerns raised by market participants about the preservation of an adequate supply of high quality audits in a highly concentrated market following the collapse of Arthur Andersen.  It applies to firms which audit more than 20 listed companies, although adoption is not a regulatory requirement.

The proposed revisions follow feedback received to a review of the Code in May 2015.  A total of 22 responses were received with a “vast majority” or respondents seeing the introduction of the Code as a positive development which has enhanced audit firm governance.  All respondents agreed that the Code should continue to operate on a “comply or explain” basis but were also keen that the Code be applied to the governance and oversight of firms’ non-audit businesses.  Audit firms believed that the Code was working well, advising against significant changes.  Investors called for enhanced transparency from the firms and clearer guidance about the role and responsibilities of the Independent Non-Executives (INEs) and increased oversight by the FRC on the firms’ application of the Code.

As a result of the feedback the FRC is proposing to make the following changes:

  • sharpen the Code’s purpose and ensure audit quality is clearly embedded in this;
  • promote a clear focus on audit quality in the work of the INEs;
  • strengthen investors’ engagement with the firms;
  • improve transparency in the firms’ reporting against the Code;
  • promote the adoption of some aspects of the Corporate Governance Code which it considers to be most applicable to audit firms, on a comply or explain basis; and
  • promote the adoption of independent challenge within the governance of the firms’ international networks. 

Comments on the proposed changes are invited until 11 March 2016.

The press release and full consultation are available on the FRC website.

IASB proposes amendments to address concerns about the different effective dates of IFRS 9 and the new insurance contracts standard

09 Dec 2015

The International Accounting Standards Board (IASB) has published an exposure draft (ED/2015/11) with proposed amendments to IFRS 4 'Insurance Contracts' that are intended to address concerns about the different effective dates of IFRS 9 'Financial Instruments' and the forthcoming new insurance contracts standard. Comments are requested by 8 February 2016.

 

Background

As it has become obvious that the effective date of the forthcoming IFRS on insurance contracts can no longer be aligned with the effective date of IFRS 9 Financial Instruments there have been calls for the IASB to delay application of IFRS 9 for insurance activities and align the effective date of IFRS 9 for those activities with the effective date of the new insurance contracts standard. Proponents of a deferral argue that:

  • The different effective dates will lead to accounting mismatches and volatility in profit or loss that users of financial statements might find difficult to understand.
  • Making decisions about applying the new classification and measurement requirements in IFRS 9 before the new insurance contracts standard is finalised is difficult as the decisions might differ from those companies would have made had all details of the new standard been known.
  • Having to cope with two major accounting changes in a relatively short time bears the potential of significantly increased costs and efforts (for preparers and for users).

The IASB acknowledges these concerns and therefore proposes amending IFRS 4 Insurance Contracts to address the concerns expressed about the different effective dates of IFRS 9 and the new insurance contracts standard.

 

Suggested changes

The amendments proposed in ED/2015/11 Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Proposed amendments to IFRS 4) are intended to provide two options for entities that issue insurance contracts within the scope of IFRS 4:

  • an option that would permit entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets; this is the so-called overlay approach;
  • an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4; this is the so-called deferral approach.

The application of both approaches would be optional and an entity would be permitted to stop applying them before the new insurance contracts standard is applied.

Overlay approach. The amendments that form the overlay approach would permit an entity to exclude from profit or loss and recognise in other comprehensive income the difference between the amounts that would be recognised in profit or loss in accordance with IFRS 9 and the amounts recognised in profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement provided that the entity issues contracts accounted for under IFRS 4, applies IFRS 9 in conjunction with IFRS 4, and classifies financial assets as fair value through profit or loss in accordance with IFRS 9 when those assets were previously classified at amortised cost or as available-for-sale in accordance with IAS 39. Application of the overlay approach requires disclosure of sufficient information to enable users of financial statements to understand how the amount reclassified in the reporting period is calculated and the effect of that reclassification on the financial statements. An entity would apply the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9.

Deferral approach. Under the amendments that make up the deferral approach, an entity would be permitted to apply IAS 39 rather than IFRS 9 for annual reporting periods beginning before 1 January 2021 if it has not previously applied any version of IFRS 9 and if its predominant activity is issuing contracts within the scope of IFRS 4. An entity would determine whether its predominant activity is issuing contracts within the scope of IFRS 4 by comparing the carrying amount of its liabilities arising from contracts within the scope of IFRS 4 with the total carrying amount of its liabilities. The IASB does not specify a particular quantitative threshold for predominance but indicates in the Basis for Conclusions that predominance is intended to be a high threshold and that 75% liabilities from insurance activities would not qualify as high. The IASB also maintains that an entity would need to assess predominance at the reporting entity level. Lastly, the IASB states that an entity that applies the deferral approach but falls beneath the predominance threshold in a subsequent reporting period would be required to apply IFRS 9 from the beginning of the next annual reporting period. An entity would apply the deferral approach for annual periods beginning on or after 1 January 2018. Application of the deferral approach needs to be disclosed together with the reasons for applying it. The deferral can only be made use of for the three years following 1 January 2018.

 

Alternative views

Three Board member voted against the publication of the ED because they do not agree with the proposal to provide entities with predominant insurance activity with a temporary exemption from applying IFRS 9. These Board members argue that the deferral approach will reduce comparability, including between entities that issue insurance contracts. They acknowledge the concerns voiced but are of the opinion that the overlay approach offers enough relief and makes a temporary exemption from applying IFRS 9 unnecessary. They are also concerned that delays might occur in the insurance contracts project that would exceed the three year span the deferral approach is intended to be limited to.

 

Next steps

ED/2015/11 Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Proposed amendments to IFRS 4) is only open for comment for 60 days. The IASB notes that the Due Process Handbook permits a comment period shorter than the standard minimum period of 120 days if the matter is narrow in scope and urgent, which the IASB believes is the case with these amendments. The IASB will consider the comments that it receives on the proposals and intends to complete its redeliberations as soon as possible in 2016.

 

Additional information

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Pre-meeting summaries for the December IASB meeting

09 Dec 2015

The International Accounting Standards Board (IASB) will meet at its offices in London on 15–16 December 2015. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. For each topic to be discussed we summarise the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

Check out the summaries for the forthcoming discussions on the effective date of amendments to IFRS 10 and IAS 28, the disclosure initiative, IFRS implementation issues, the definition of a business, the research programme, revenue from contracts with customers, and discount rates. We have added them to our meeting note page and will supplement them with our popular meeting notes after the meeting.

EBA launches consultation on FINREP using IFRS 9

09 Dec 2015

The European Banking Authority (EBA) has launched a consultation on using IFRS 9 'Financial instruments' for the reporting of financial information by institutions using IFRS.

The EBA is responsible for a standardised reporting framework for financial institutions in the European Union and has developed the FINREP package based on the accounting standards banks have to apply to achieve efficient regulation by aligning supervisory reporting of financial information with accounting standards. With IFRS 9 fundamental changes were introduced regarding the way financial instruments are accounted for and therefore the EBA proposes comprehensive changes to the FINREP package. While the EBA intends to keep FINREP reporting as much aligned as possible with the relevant accounting standards the changes proposed also related to the necessary information to obtain a comprehensive view of the risk profile of institutions’ activities and a view of systemic risks posed by institutions to the financial sector or the real economy.

The EBA stresses that the consultation is distinct from the on-going IFRS 9 endorsement process in the European Union.

The consultation will run until 8 March 2016. More information is available through the press release on the EBA website.

IPSASB establishes advisory body

09 Dec 2015

The International Public Sector Accounting Standards Board (IPSASB) has announced that it will establish a consultative group to offer advice to the board on setting financial reporting standards for the public sector.

The formation of the new body — the IPSASB Consultative Advisory Group (CAG) — responds to a key recommendation in the governance review group’s report and is intended to further strengthen the IPSASB’s standard-setting processes by enabling additional dialogue with key stakeholders.

The CAG will provide advice to the IPSASB on:

  • The IPSASB’s strategy and work plan;
  • IPSASB’s projects, including views on technical issues or matters that may impede adopting and implementation of International Public Sector Accounting Standards (IPSAS); and
  • Other matters relevant to the IPSASB standard-setting activities.

An inaugural chair of the IPSASB CAG has been appointed but the membership of the group still has to be determined. The IPSASB has issued a call for nominations and is especially encouraging users of public sector financial reports and representatives of governments and other public sector entities, including preparers, to apply. Nominations are also encouraged from parliamentarians, public sector auditors, regulators, non-governmental organisations, and other regional and international organisations.

The inaugural meeting of the CAG is currently planned for June 2016 in Toronto, Canada.

Please click for the following information on the IPSASB website:

AOSSG points out specific aspects of Islamic financial reporting in connection with the Conceptual Framework

09 Dec 2015

In an appendix to the general comment letter of the Asian-Oceanian Standard-Setters Group (AOSSG) on the IASB's exposure draft ED/2015/3 'Conceptual Framework for Financial Reporting' the AOSSG's Islamic Finance Working Group (IF WG) points out some specific aspects relevant to Islamic accounting.

The IF WG especially welcomes the explicit 'substance over form' statement in the proposed Conceptual Framework as stakeholders in Islamic finance place high importance on the legal form(s) used to achieve a particular economic phenomenon (the legal form determines whether a transaction is permissible or prohibited). Nevertheless, given the importance of the underlying contracts in determining the permissibility of an Islamic financial transaction, the IF WG considers it appropriate to disclose information in the financial statements about the legal form of an economic phenomenon as part of the faithful representation of that phenomenon.

The comment letter also notes that the ED’s discussion on the reporting entity and the boundary of the reporting entity may be useful to current discussions on Islamic arrangements, where an entity is responsible for the economic activities of another non-legal entity, where it is important to comply with both the shariah assertion of separate entities and the IFRS requirement for consolidated financial statements, or where the presentation of related financial statements may be necessary to provide relevant and faithful representative information even in instances where control is not present.

On liability and equity the comment letter notes that the ED seems to focus more on the legal aspect in determining whether or not an entity has a present obligation to transfer economic resource while in the context of Islamic finance the concept of constructive obligations is of great importance as entities are often much more bound by societal expectations than by legal obligations. The IF WG suggests to retain the current definition of liability until the project on financial instruments with characteristics of equity has been completed and the definition of equity and its relation to liabilities is clear as the underlying principle that differentiates liability and equity is important in the context of Islamic finance products that contain elements of liability and equity such as Islamic bonds and profit-sharing accounts.

Please click to access the full letter of the IF WG on the AOSSG website.

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