January

We comment on a number of tentative agenda decisions of the IFRS Interpretations Committee

19 Jan, 2016

We have published our comment letters on IFRS Interpretations Committee agenda decisions on IAS 16, IAS 20, IAS 32, IAS 26, and IFRS 9, as published in the November 2015 IFRIC Update.

More information about the issues is set out below:

IssueAgenda decision supported?More information
IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets — Variable payments for asset purchases no
IAS 20 Accounting for Government Grants and Disclosure of Government Assistance — Accounting for recoverable cash payments yes
IAS 32 Financial Instruments: Presentation — Offsetting and cash pooling yes
IAS 36 Impairment of Assets — Recoverable amount and carrying amount of a cash-generating unit yes
IFRS 9 Financial Instruments — Determining hedge effectiveness for net investment hedges yes
IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement — Derecognition of modified financial assets no

You can access all our comment letters to the IASB, IFRS Foundation, and IFRS Interpretations Committee here.

IASB finalises amendments regarding the recognition of deferred tax assets for unrealised losses

19 Jan, 2016

The International Accounting Standards Board (IASB) has published final amendments to IAS 12 'Income Taxes'. The IASB had concluded that the diversity in practice around the recognition of a deferred tax asset that is related to a debt instrument measured at fair value is mainly attributable to uncertainty about the application of some of the principles in IAS 12. Therefore the amendments consist of some clarifying paragraphs and an illustrating example.

 

Background

 

Changes

The amendments in Recognition of Deferred Tax Assets for Unrealised Losses 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.

 

Transition requirements and effective date

The amendments are effective for annual periods beginning on or after 1 January 2017. Earlier application is permitted. As transition relief, an entitiy may recognises the change in the opening equity of the earliest comparative period in opening retained earnings on initial application without allocating the change between opening retained earnings and other components of equity. The Board has not added additional transition relief for first-time adopters.

 

Additional information

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ESMA comments on DI/2015/2

18 Jan, 2016

The European Securities and Markets Authority (ESMA) has issued its comment letter on the IFRS Interpretations Committee exposure draft DI/2015/2 'Foreign Currency Transactions and Advance Consideration'.

The IFRS Interpretations Committee observed some diversity in practice regarding the exchange rate used when reporting transactions that are denominated in a foreign currency in accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates in circumstances in which consideration is received or paid in advance of the recognition of the related asset, expense or income. As a consequence, the Interpretations Committee decided to develop an interpretation.

The ESMA “welcomes and supports” the guidance proposed in the Draft Interpretation.  However it recommends that the IFRS IC clarifies “how the proposed Interpretation would apply to situations in which there is a significant financing component due to a consideration being received before the transfer of goods or services”.

The full comment letter is available on the ESMA website. 

ESMA comment letter on DI/2015/1

18 Jan, 2016

The European Securities and Markets Authority (ESMA) has issued its comment letter on the IFRS Interpretations Committee exposure draft DI/2015/1 'Uncertainty over Income Tax Treatments'.

The IFRS Interpretations Committee observed diversity in practice regarding the recognition and measurement of current tax, deferred tax liabilities and deferred tax assets as defined by paragraph 5 of IAS 12 Income Taxes, when there are uncertainties in the amount of income tax payable (recoverable). As a consequence, the Interpretations Committee decided to develop an interpretation.  The draft interpretation proposes that the interpretation be applied to the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12.

The ESMA agrees with the Draft Interpretation.  It comments that it “addresses the existing diversity in practice” and “would enhance consistent application and enforceability of requirements of IAS 12”.

The full comment letter is available on the ESMA website.

FRC to withdraw Practice Note 20(I)

18 Jan, 2016

The Financial Reporting Council (FRC) has announced that it is to withdraw Practice Note 20(I) 'The Audit of Insurers in the Republic of Ireland' on 29 January as it is “very dated” and “no longer supports the FRC’s objective of providing standards and guidance which deliver high-quality audit”.

The FRC will develop a revised Practice Note 20(I) with Chartered Accountants Ireland at a similar time that it revises Practice Note 20 The Audit of Insurers in the United Kingdom.

European consultation on non-financial reporting guidelines

15 Jan, 2016

The European Commission has launched a public consultation to collect views from stakeholders on non-binding guidance on the methodology for reporting of non-financial information by certain large companies across all sectors.

The Directive on disclosure of non-financial and diversity information by large companies and groups addressing environmental, social, and governance (ESG) issues was published in the Official Journal of the EU on 15 November 2014. EU Member States should transpose the rules on non-financial reporting into national legislation by 6 December 2016. In this context, the European Commission is organising transposition workshops to assist national authorities and prepares non-binding guidelines on the methodology for reporting non-financial information by end-2016.

Please click to access the consultation page on the European Commission website.

Recording of the IASB web presentation on the new leases standard

15 Jan, 2016

On 13 January 2016, the day IFRS 16 'Leases' was issued, the staff of the IASB introduced the new standard in a web presentation. A recording of the presentation and the presentation slides are now available on the IASB website.

The 45-minute web presentation provided an overview of the new requirements and allowed participants to ask questions. Please click to access the recording and the slides here on the IASB website. Note that there is no charge to listen to the web presentation but a registration is required.

FRC publishes corporate governance and stewardship monitoring report 2015

14 Jan, 2016

The Financial Reporting Council (FRC) had today published its second report providing an assessment of corporate governance and stewardship in the UK (“the report”). The report highlights the quality of engagement with, and reporting against, the UK Corporate Governance and Stewardship Codes, provides findings on the quality of engagement between companies and shareholders and provides an indication as to where the FRC would like to see changes in governance behaviours and reporting.

The report indicates that compliance with the UK Corporate Governance Code “remains high” and that the quality of explanations for non-compliance with the UK Corporate Governance Code’s provisions has improved – the FRC sees this as a “more thoughtful approach to governance”.  However 2015 provided a “mixed picture of progress” regarding the Stewardship Code with reporting against the principles of the Stewardship Code of “inconsistent quality”.

Key findings from the report, which is based upon a number of reports and surveys, are as follows:

Governance, reporting and audit

  • 90 per cent of FTSE 350 companies comply with all, or all but one or two, of the UK Corporate Governance Code’s 54 provisions.  This is a slight fall from 94% in the prior year.
  • Code provision B.1.2 which states that at least half the board (excluding the chairman) should be independent, remains the area of most non-compliance amongst FTSE 350 companies.
  • There has been a “notable rise” in the quality of explanations for non-compliance with provisions of the UK Corporate Governance Code.  It was highlighted that “explanations were better where companies depart from the Code due to force of circumstances – such as directors leaving the board at short notice”.
  • Disclosures on external audit appointments improved including “better clarity on company policy and more detailed insight into the processes by which auditor effectiveness and independence are assessed”.  However “fewer companies disclosed the expected timing of their next audit tender” - the FRC expects this to increase next year.
  • The 2012 edition of the UK Corporate Governance Code introduced requirements for audit committees to provide more detail on the work they do.  Overall disclosures on the work in this area have improved – 72 per cent of FTSE 350 companies now give more detailed descriptions of the work they do versus 65 per cent in 2014.  However, there is still room for companies to improve their audit committee reporting.
  • The 2012 edition of the UK Corporate Governance Code brought in an expectation that companies should set out their policies on boardroom diversity and report on the progress against any measureable objectives they had set themselves.  The report highlights that there has been an increase in the number of FTSE 100 companies that provide details on their gender diversity policy.  Nevertheless, some still made no reference at all in both the FTSE 100 and FTSE 250.  Additionally, the report indicates that “there remain a disappointing number of companies (including 24 in the FTSE 100) who despite recognition of a broader concept of diversity in the Code, still make no reference to this subject”.
  • Only a “small number of companies” have decided to early adopt the requirements of the 2014 version of the UK Corporate Governance Code.  With respect to the revised Principle D.1, there has been an increase from 37 per cent to 51 per cent of FTSE 100 companies having longer share retention periods with regards to remuneration.  The FRC has indicated that it will continue to see how market practice develops in relation to the 2014 Code requirements.

Stewardship and engagement

  • The FRC highlights that it has “been pleased to see improvements in the quality and quantity of investor monitoring and engagement”.  However it also indicates that more is required “to promote best practice”.
  • The quality of signatory statements has seen to “vary considerably”.  The FRC wants to improve this and in December 2015 announced that it is to introduce a public tiering of signatories to the Stewardship Code in order to improve reporting against the Code and to assist investors.
  • Investor feedback in 2015 was positive on engagement between companies and investors with many indicating that companies were being more responsive.
  • Concerns were expressed in 2014 about the role of proxy advisors.  The FRC will continue to promote best practice in this area.
  • 2015 saw an increase in voting activities at companies meetings with 73 per cent voter turnout in the UK.

The report indicates that in 2016 the FRC will “continue to promote corporate governance and corporate cultures that support the long-term success of companies”.  It will also “encourage effective investor stewardship and engagement between companies and investors”.  Specifically the FRC will:

Analyse the responses to the Succession Planning Discussion Document and consider whether any further action is necessary.

Continue to monitor adoption of 2014 UK Corporate Governance Code provisions.

Complete [its] market-led review about how boards can most effectively establish company culture and practices that embed good corporate behaviour.

Introduce the limited changes to the UK Corporate Governance Code linked to the implementation of the EU Audit Regulation and Directive (ARD) in 2016, but otherwise avoid revising the UK Corporate Governance Code over the three year strategy period.

Promote effective investor stewardship by evaluating Stewardship Code signatories’ statements and making public our assessment, promoting stewardship and engagement activities and initiating implementation of the Shareholder Rights Directive. 

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Pre-meeting summaries for the January IASB meeting

14 Jan, 2016

The International Accounting Standards Board (IASB) will meet at its offices in London on 19–20 January 2016. 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 insurance contracts, discount rates, fair value measurements, and revenue. We have added them to our meeting note page and will supplement them with our popular meeting notes after the meeting.

Draft report on the IAS evaluation and on activities of IFRS Foundation, EFRAG and PIOB

14 Jan, 2016

The Committee on Economic and Monetary Affairs (ECON) of the European Parliament has made available a draft report on IAS evaluation and on activities of IFRS Foundation, EFRAG and PIOB. The report includes a motion for a European Parliament resolution.

The report states that the International Financial Reporting Standards (IFRS) are "essential for the efficient functioning of the internal market and of the capital markets", are considered a European "public good", and "strengthen accountability by reducing the information gap between investors and companies, protecting investment and bringing transparency through enhancing the international comparability and quality of financial information and enabling investors and other market participants to make informed economic decisions, and therefore influence the behaviour of actors in financial markets and impact the stability of these markets".

Of the individual points made in the report, especially the following deserve to be mentioned.

The European Parliament:

  • welcomes the European Commission’s IAS evaluation report on the application of the IFRS in the EU and its assessment that the objectives of the IAS Regulation have been met;
  • calls on the Commission to put forward proposals on how the Maystadt recommendation regarding expanding the ‘public good’ criterion will be taken into account during the endorsement process and urges the Commission, together with EFRAG, to issue clear guidelines on the meaning of the ‘public good’ and the ‘true and fair view’ in order to arrive at a common understanding of these endorsement criteria;
  • welcomes the intention of the IASB to reintroduce the principle of ‘prudence’ and re-inforce ‘stewardship’ in the new Conceptual Framework;
  • notes that the effects of an accounting standard must be fully understood and insists that it should be a priority for the IASB and EFRAG to strengthen their impact analyses and to assess the specific needs of investors and companies;
  • is concerned about the complexity of the IFRS and calls for this complexity to be reduced whenever appropriate and possible when developing new accounting standards;
  • believes that a healthy dialogue should continue between the IASB and the US accounting standards setter, despite the slow progress of the convergence process;
  • welcomes the intention of the Commission to explore with the IASB the possibility of developing common high quality and simplified accounting standards for SMEs which could be used at EU level by SMEs listed on Multilateral Trading Facilities (MTFs);
  • supports the Commission in urging the IFRS Foundation to ensure that use of the IFRS and the existence of a permanent financial contribution are conditions for membership of the governing and monitoring bodies of the IFRS Foundation and of the IASB;
  • welcomes the EFRAG reform which took effect on 31 October 2014 and calls on the Commission to propose the extension of the Union Programme for EFRAG for the period 2017-2020.

If the motion gets passed by Parliament, the President will be asked forward the resolution to the Council and the Commission. Please click to access the full draft report on the Parliament's website.

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