IASB issues "Investor Perspectives" article on leases

29 Jan 2016

The IASB has issued the latest issue of "Investor Perspectives." In this edition, Sue Lloyd (IASB board member) discusses the key features in the new leases standard.

This issue features:

  • A discussion on why there was a change in the accounting for leases and what these changes mean to investors.
  • A comparison between the requirements in IFRS 16, previous IFRS guidance, and future US GAAP requirements.
  • Illustrative examples.

For more in­for­ma­tion, see the press release and Investor Per­spec­tives article on the IASB’s Web site.

IASB finalises amendments to IAS 7 under its disclosure initiative

29 Jan 2016

The International Accounting Standards Board (IASB) has published amendments to IAS 7 'Statement of Cash Flows'. The amendments are intended to clarify IAS 7 to improve information provided to users of financial statements about an entity's financing activities. They are effective for annual periods beginning on or after 1 January 2017, with earlier application being permitted.



The IASB added an initiative on disclosure to its work programme in 2013 to complement the work being done in the Conceptual Framework project. The initiative is, inter alia, made up of a number of smaller projects that aim at exploring opportunities to see how presentation and disclosure principles and requirements in existing standards can be improved short-term. Among them was a narrow scope project on IAS 7 Statement of Cash Flows to improve information provided to users of financial statements about an entity's financing activities and liquidity. In October 2015, the IASB decided to split the liquidity part of project off, which would need additional and broader analysis, and to proceed only with the liabilities reconciliation for the time being. This part of the project has now been completed.



The amendments in Disclosure Initiative (Amendments to IAS 7) come with the objective that entities shall provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities.

To achieve this objective, the IASB requires that the following changes in liabilities arising from financing activities are disclosed (to the extent necessary): (i) changes from financing cash flows; (ii) changes arising from obtaining or losing control of subsidiaries or other businesses; (iii) the effect of changes in foreign exchange rates; (iv) changes in fair values; and (v) other changes.

The IASB defines liabilities arising from financing activities as liabilities "for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows from financing activities". It also stresses that the new disclosure requirements also relate to changes in financial assets if they meet the same definition.

The amendments state that one way to fulfil the new disclosure requirement is to provide a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities. This is a departure from the December 2014 exposure draft that had proposed that such a reconciliation should be required.

Finally, the amendments state that changes in liabilities arising from financing activities must be disclosed separately from changes in other assets and liabilities.


Dissenting opinion

One Board member voted against the publication of the amendments as this Board member believes that (i) the amendments may provide incomplete information about an entity’s management of liquidity, (ii) the amendments do not meet the needs of users of financial statements, and (iii) the costs of preparing the disclosure will be considerable and may outweigh the benefits.


Effective date and transition requirements

The amendments are effective for annual periods beginning on or after 1 January 2017. Earlier application is permitted. Since the amendments are being issued less than one year before the effective date, entities need not provide comparative information when they first apply the amendments.


Additional information

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IPSASB publishes proposed guidance on public sector combinations

29 Jan 2016

The International Public Sector Accounting Standards Board (IPSASB) has released for comment Exposure Draft ED 60 'Public Sector Combinations'.

ED 60 classifies public sector combinations as either amalgamations or acquisitions taking into account control and other factors. Gaining of control over an operation creates a rebuttable presumption that the combination is an acquisition. If the acquisition presumption is rebutted, then the transaction is treated as an amalgamation. This approach is different to that proposed in the June 2012 consultation paper on the same topic and addresses concerns raised by stakeholders.

For recognition and measurement of amalgamations, ED 60 proposes use of the “modified pooling of interests” method of accounting. This method recognises the amalgamation on the date it takes place. For acquisitions, ED 60 proposes use of the “acquisition” method of accounting, applying the same approach as in IFRS 3 Business Combinations. This is supplemented with guidance for public sector-specific situations such as public sector combinations lacking a profit motive, often being conducted by non-exchange transactions, and the frequent involuntary imposition of such combinations by law or other authority.

Please click to access the press release and ED 60 on the IPSASB website. Comments are requested by 30 June 2016.

FRC publishes its second survey of extended auditor reporting

28 Jan 2016

The Financial Reporting Council (FRC) has today published the results of its second survey into extended auditor reporting. The survey of 278 FTSE 350 extended auditor’s reports in the UK, which follows an initial survey that was carried out in March 2015, is “intended to highlight new trends, innovations and good practice and to highlight how extended auditor’s reports have continued to develop”. As well as reviewing the extended auditor’s reports, the FRC also engaged directly with investors “in order to identify those areas of best current practice and those where there is scope for further improvement”.

In response to calls from investors to make audits more transparent, the Financial Reporting Council (FRC) issued revisions to ISA 700 (UK and Ireland) The Independent Auditor’s Report on Financial statements in June 2013. The revisions require auditors reporting on companies which comply with the UK Corporate Governance Code to provide significantly increased disclosure around risks, materiality and scope of the audit.  The revisions are designed to complement changes to the UK Corporate Governance Code in October 2012 and are effective for the audits of financial statements for periods commencing on or after 1 October 2012.

The results of the first survey indicated that auditors had met the new requirements and “in many cases had made, sometimes quite radical, further changes to auditor’s reports going beyond the changes required by the FRC”.  The FRC comments that in the second year of extended auditor reporting “the pace of innovation has unsurprisingly slowed”.  However it does indicate that there has been a continued development of good quality auditor reporting with more transparent and accessible reporting of audit findings and disclosure of materiality.

Key findings of the survey include:

Investors welcome the information included in extended auditor’s reports, and particularly for smaller companies where there tends to be less independent information available.

In general, auditors have continued to move away from generic language and descriptions of risk, making their reports more relevant and insightful.

The reports which have earned the greatest praise from investors tend to be well structured, signposting key information and often make innovative use of graphics, diagrams and colour.

The survey suggests that “investors feel that more could still be done to enhance auditor’s reports” in areas such as:

Providing more complete information about the sensitivity ranges used in audit testing.

Giving greater insight into the auditor’s assessment of the quality of an entity’s internal controls informing their significant risk assessment.

Being more explicit about the auditor’s view on the appropriateness of management estimates.

The FRC comments

investors would prefer greater transparency about assumptions made by management and benchmarks used by auditors. However this has to be balanced against the potentially competing demands of clarity and conciseness, as well as preserving the importance of reading an overall true and fair opinion.

The survey also identifies additional areas where auditor’s reports could be further enhanced including:

More frequent inclusion of commentary about what the auditor found as a result of the work done on risks of misstatement.

Explanations of changes to the audit approach, materiality or risk assessment over time.

More auditor’s to include information about ‘performance materiality’ – how it is derived and how it impacts on the audit.

The press release and the full survey, Extended auditor’s reports: A further review of experience, are available on the FRC website.

EBA launches an impact assessment of IFRS 9 on banks

28 Jan 2016

The European Banking Authority (EBA) is launching an impact assessment of IFRS 9 'Financial Instruments' on a sample of approximately 50 institutions across the European Union.

The assessment is aimed at estimating the impact of IFRS 9 on regulatory own funds. In addition, it will support the EBA in assessing the interaction between IFRS 9 and other prudential requirements.

Please click for more information in the press release on the EBA website.

We comment on the IASB's annual improvements to IFRSs 2014-2016 cycle ED

27 Jan 2016

We have responded to the IASB's Exposure Draft, "Annual Improvements to IFRSs 2014-2016 Cycle" that was IASB published in November 2015 and makes proposes amendments to three IFRSs.

We believe the annual improvement project is efficient and effective method of handling isolated issues with IFRSs and support the amendments proposed in the exposure draft. In addition, we provided recommendations for drafting changes and amendments to transitional provisions.

Audit exemption thresholds to be aligned with revised small company accounting thresholds

26 Jan 2016

The government has announced today that the threshold for audit exemption will be aligned with the revised thresholds to determine whether a company is small which are included in ‘The Companies and Groups (Accounts and Reports) Regulations 2015’ (“the Regulations”).

The Regulations, which came into force in April 2015, implement chapters 1-9 of the EU Accounting Directive in the UK and state that a company will be small if it meets at least two of: total assets <£5.1m, turnover <£10.2m, and <50 employees at the balance sheet date.

The Department for Business, Innovation and Skills (BIS) consulted in December 2014 on implementing the EU Audit Directive (2014/56/EU) and Audit Regulation (Regulation 537/2014) in the UK.  As a result of the implementation of the Regulations in the UK and the changing of the limits for accounting, the thresholds for audit exemption would have increased automatically.  BIS sought views as to whether action should be taken to introduce separate limits for audit exemption purposes.

Following a Written Ministerial Statement today, the government has confirmed that the same size limits will be used to determine whether a company is exempt from audit (subject to assessing whether they are otherwise excluded from using the exemption).

The audit exemption changes take effect for accounting periods beginning on or after 1 January 2016.  They cannot be early adopted unlike the accounting requirements of the Regulations which may be early adopted for accounting periods beginning on or after 1 January 2015.

The Written Ministerial Statement is available on the Parliament website.

Summary of the December 2015 ASAF meeting now available

22 Jan 2016

The staff of the International Accounting Standards Board (IASB) have made available a summary of the discussions of the Accounting Standards Advisory Forum (ASAF) meeting held in London on 7–8 December 2015.

The topics covered during the meeting were the following (numbers in brackets are ref­er­ences to the cor­re­spond­ing para­graphs of the summary):

  • AASB-KASB joint research project on IFRS implementation (1-4). ASAF members discussed the results of researched conducted on accounting judgments on using IFRS.
  • Disclosure initiative — draft materiality practice statement (5-8). ASAF members provided their views on Exposure Draft IFRS Practice Statement, Application of Materiality to Financial Statements. ASAF members had mixed comments on whether to issue mandatory or non-mandatory guidance on materiality.
  • Conceptual framework — recognition criteria (9-20). ASAF members discussed a paper, Recognition Criteria in the Conceptual Framework, prepared by the Accounting Standards Board of Japan and debated the proposal of whether to keep the probability criterion in the recognition criteria.
  • Post-employment benefits research project (21-27). ASAF members were provided with an update by the IASB staff on its research project for post-employment benefits.
  • Goodwill and impairment (28-29). ASAF members were updated on the initial discussions related to this project and provided feedback.
  • Different effective dates of IFRS 9 and new insurance contracts (30–39). ASAF members provided their views on the proposed overlay approach in an upcoming exposure draft which addresses the consequences of having different effective dates for IFRS 9 and the new insurance contracts.
  • Business combinations under common control (BCUCC) (40–55). ASAF was provided with results from a discussion paper by the Hong Kong Institute of Certified Public Accountants related to BCUCC in Hong Kong. In addition, the IASB staff provided an updated on this project.
  • Role of post-implementation reviews (56–62). ASAF provided their views on the process implemented by the IASB when performing post-implementation reviews.
  • Disclosure initiative — next steps (63). The IASB staff provided an update on the disclosure initiative project, which included the principles of disclosure and the standards-level review of disclosures projects, and its next steps.
  • Equity method (64–69). ASAF members discussed the scope of the equity method of accounting project.
  • Project updates and agenda planning (70–72). ASAF members were updated on current IASB projects which included its primary financial statements research project and changes in accounting policies project.

A full report of the meeting is available on the IASB's website.

IASB updates work plan

22 Jan 2016

Following its January 2016 meeting, the IASB has updated its work plan. As mentioned before, directly tracing the Board's progress on the individual projects has become impossible since the change of the work plan format in July, unless the Board makes definite progress or has to make larger corrections. Of these, only a few can be identified since the previous work plan.

On major projects, the only change the Board notes is that a decision on the direction of the Conceptual Framework is now expected within three months (was: within six months). For all other projects the next project steps may or may not have been pushed back by one month since the last work plan update.

Updates regarding the im­ple­men­ta­tion projects are:

For research projects, the work plan now provides more details into the initial work that will be done in the Primary Financial Statements project. Lastly, the work plan has replaced its entry for the 2011-2012 Agenda Consultation with the 2015 Agenda Consultation. The 2015 Agenda Consultation is currently in the analysis phase with a feedback statement expected after six months.

The revised IASB work plan is available on the IASB's website.

IASB says TRG not scheduled to meet again

22 Jan 2016

The IASB has announced that the Transition Resource Group for Revenue Recognition (TRG) is not scheduled to meet again.

The IASB has completed its decision making on amendments to IFRS 15 this week. The clarifications are expected to be published in March 2016 and the effective date of the amendments will be 1 January 2018 (effective date of IFRS 15).

Regarding the TRG the Board states:

The Board is now of the view that stakeholders need to know that they can continue their implementation process with the confidence that IFRS 15 will not be subject to further changes. Accordingly, the Board does not plan to schedule further meetings of the IFRS constituents of the TRG. However, the TRG will not be disbanded and will be available for consultation by the Board if needed. In addition, there is still scope for IFRS stakeholders to submit issues through the website.

The IASB also notes that it will continue to collaborate with the FASB and will monitor any discussions that the FASB may have in the future with the US GAAP constituents of the TRG. However, the IASB also stresses that companies reporting using IFRS standards are not required to consider pronouncements or public discussions of the FASB.

For additional information, please see our meeting notes and the press release on the IASB website.

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