May

Summary of the April 2016 ASAF meeting now available

13 May, 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 April 2016.

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

  • 2015 Agenda Consultation (1-10): ASAF members discussed the feedback received regarding the request for views on the 2015 agenda consultation. In addition, ASAF members discussed the post-implementation review process and whether more resources should be allocated to PIRs, TRGs, and other activities.
  • Conceptual framework — strategy and measurement (11-20): ASAF members provided their views regarding the strategy of the conceptual framework project and evaluated the EFRAG’s paper on certain areas of measurement proposed in the exposure draft.
  • Rate-regulated activities (21-37): ASAF members discussed how to define performance as it relates to rate regulation and identify which activities should lead revenue recognition.
  • Inflation (38-40): ASAF members were presented a paper by the Group of Latin American Standard-Setters which addressed the effects of inflation, in particular, the requirement to pay dividends based on retained earnings in certain jurisdictions.
  • Business combinations under common control (41-45): ASAF members provided their views to the IASB staff regarding the accounting for business combinations under common control.
  • Amendments to IFRS 4 (46-52): The ASAF provided feedback on decisions made during the March 2016 Board meeting which confirmed the (1) temporary exemption, (2) optional temporary exemption for some entities, and (3) eligibility for the temporary exemption will be assess at the reporting entity level.
  • Next steps in IFRS 2 (53-65): ASAF members discussed the results of a research project on IFRS 2 which evaluated what is causing complexity in the Standard and why it has attracted many interpretation requests.
  • Project updates and agenda planning (66-72): ASAF members were updated on current IASB projects.

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

IASB posts seventh webinar on insurance contracts standard

13 May, 2016

The IASB has posted the seventh instalment of its weekly webinar series on the upcoming insurance contracts standard.

The series, hosted by IASB member Darrel Scott, discusses the following topics related to the upcoming insurance contracts standard:

For more information as well as presentation slides, see the webinar page on the IASB’s website.

ACCA report concludes that the fragmentation of the sustainability reporting landscape undermines its potential

13 May, 2016

A new report from the Association of Chartered Certified Accountants (ACCA) and the Climate Disclosure Standards Board (CDSB) suggests that despite progress made in sustainability reporting and its growing importance, the fragmentation of the landscape might mean that the discipline is "lost in the right direction".

The author of the report, who is the Founding Director of CDSB and responsible for CDSB’s work to develop a framework to report environmental information in mainstream corporate reports, examines the changing corporate sustainability reporting landscape, outlines its components, discusses current challenges and proposes development opportunities. She also considers the trends, levers and drivers influencing the reporting landscape and concludes that new and evolving expectations about corporate performance, new measurement criteria, and the means by which companies are assessed are calling into question the role of the corporation and the definition of corporate performance.

Please click to access the report on the ACCA website.

BIS publishes government response to the consultation on measures to implement the EU Audit Regulation and Directive

12 May, 2016

The Department for Business, Innovation and Skills (BIS) has published the government’s response to its earlier consultation on measures to implement the EU Audit Directive (2014/56/EU) (‘the Directive’) and Audit Regulation (537/2014) (‘the Regulation’) in the UK as well as other changes that to enhance confidence and strengthen the audit regime.

The Directive and Regulation were published in the Official Journal of the European Union in May 2014.  The Directive which amends the Statutory Audit Directive (Directive 2006/43/EC) (link to Europa website) applies to all audits required by EU law and the Regulation applies to all audits of “Public Interest Entities” (PIEs).

The consultation in October 2015, focused on “identifying legislative, and non-legislative, actions necessary to: 

  • strengthen standards for the audit of PIEs;
  • improve confidence in the independence of auditors;
  • avoid excessive concentration in the audit market; and
  • make audit reporting more informative.

The consultation included draft implementing regulations and draft amendments to the Companies Act to implement changes in a number of areas.  Key areas that were consulted on included:

  • Definition of a PIE
  • Rotation and tendering
  • Regulation of auditors
  • Restrictive clauses in contracts

Overall there was support for the proposals.  Key highlights of the implementation of the Directive and Regulation include: 

  • Definition of a PIE.  BIS intends not to include additional entities in the definition of a PIE.  BIS are, as previously announced, retaining the PIE definition as the EU minimum – in the UK, entities with debt or equity traded on an EEA regulated market, banks, building societies and insurance undertakings will fall within this definition.
  • Rotation and tendering.  PIEs will need to put their audit out to tender at least every ten years and change their auditor at least every 20 years.
  • Regulation of auditors.  The Financial Reporting Council (FRC) will be the Single Competent Authority responsible for the regulation of statutory audits, delegating tasks to the ICAEW and other Recognised Supervisory Bodies (RSBs) in line with a ministerial direction. The Direction will require delegation of functions in respect of non-public interest entities unless the FRC and RSBs agree; the FRC’s Scope of Independent Inspection 2016/17 indicates that the only entities where non-delegation has been agreed are the larger AIM companies (broadly those with an average market capitalisation > €200m).  The ministerial direction, issued on 17 June, is available on the Department for Business, Energy and Industrial Strategy (BEIS, formerly BIS) website here
  • Limited Liability Partnerships.  Changes for the regulatory mechanism for auditors of LLPs will take place at the same time as for companies, so that only one regulatory regime will be in place at any one time.

The government’s response follows the publishing by the FRC of “final drafts” of the 2016 UK Corporate Governance Code, the revised Guidance on Audit Committees, the Ethical Standard 2016 and revised International Standards on Auditing (UK and Ireland) arising from the UK implementation of the EU Audit Regulation and Directive. 

The Financial Conduct Authority and Prudential Regulation Authority are expected to issue responses to their consultations on changes to audit committee requirements as a result of EU audit reform in due course.

*Update 10/06/2016 - A revised version of the UK regulations to implement the EU Audit Directive and Regulation has been laid before Parliament.  A link to these regulations is here.*

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Department of Health consults on 2016-2017 Group Accounting Manual

12 May, 2016

The Department of Health have issued a consultation on the Department of Health Group Accounting Manual 2016-17. The consultation is open until 1 July 2016.

The Department of Health Group Accounting Manual (DH GAM) includes mandatory accounting guidance for all NHS bodies on completing their statutory annual report and accounts.  The DH GAM requires departmental group bodies to follow the requirements of International Financial Reporting Standards (IFRS), as adopted by the EU, and the HM Treasury Financial Reporting Manual (FReM).

The DH GAM contains detailed accounting guidance for when departmental group bodies are required to depart from/make specific disclosures in addition to IFRSs and the FReM or when faced with particular circumstances that IFRSs or the FReM do not address.

In previous years Monitor and the Department of Health issued separate manuals for this purpose; one targeted at NHS foundation trusts and the other at the remainder of bodies within the Department of Health accounting boundatry (including NHS trusts, clinical commissioning groups and arm's length bodies).  This year, the two manuals have been merged into one. 

The consultation is seeking views on the following specific principal changes that have been proposed for the 2016-17 DH GAM:

  • Director benefits disclosures (applicable to NHS foundation trusts only).  The consultation proposes to remove the requirements for NHS foundation trusts to make the disclosures set out in the Companies Act 2006 section 412.  This would remove divergence with the FReM;
  • IAS 39 Financial Instruments: Recognition and Measurement (applicable to NHS foundation trusts only).  The consultation proposes to withdraw of the FReM divergence on the discount rate applicable to the measurement of fair value of future cash flows from financial instruments.  It is proposed that NHS foundation trusts follow the FReM in this respect;
  • Revisions to the guidance on parliamentary accountability and audit reports (not applicable to NHS foundation trusts); and
  • Capitalisation thresholds for non-current assets.  The consultation proposes that all entities within the accounting boundary apply a £5,000 de minimis capitalisation threshold for non-current assets.

The DH is also seeking comments on some more minor proposed amendments to the DH GAM in addition to any general comments. The press release and related documents are available on the DH website.

Two Trustees of the IFRS Foundation reappointed

12 May, 2016

The IFRS Foundation has announced the reappointments of Maria Helena Santana and Lynn Wood as Trustees of the IFRS Foundation. Both will serve a second three-year term from 1 January 2017.

Mrs Santana is a former Chair and President of the Brazilian Securities and Exchange Commission and Ms Wood is a former Chairman of the Australian Financial Reporting Council and member of the Foreign Investment Review Board.

Please click to access the press release on the IASB website.

Inaugural forum for public sector standard-setters

12 May, 2016

On 15-16 March 2016, the US Governmental Accounting Standards Board (GASB) and the International Public Sector Accounting Standards Board (IPSASB) jointly hosted an inaugural event that assembled key public sector standard-setters from around the world to build a dialogue, exchange ideas, and discuss critical issues in standard-setting.

The forum provided attendees with the opportunity to discuss current IPSASB projects with the board’s members and staff:

  • Social benefits;
  • Revenues;
  • Non-exchange expenses;
  • Heritage assets;
  • Infrastructure assets;
  • Public sector measurement; and
  • Leases.

Additionally, issues outside of the IPSASB work plan were also discussed:

  • “IPSAS lite” (IPSAS for small and medium-sized entities);
  • Tax expenditures;
  • Natural resources accounting;
  • Consolidation;
  • Financial performance measures;
  • Service performance reporting; and
  • Implementation issues.

Based on the success of the inaugural event, the IPSASB is planning a second forum. This is to be held in Zurich, Switzerland July 3-4, 2017.

Please click for the press release on the event including a short video on the IPSAB website.

IASB Chairman discusses non-GAAP measures

11 May, 2016

At the annual conference of the European Accounting Association in Maastricht, the Netherlands, IASB Chairman Hans Hoogervorst gave a speech titled ‘Performance reporting and the pitfalls of non-GAAP metrics’. He discussed (1) how the academic community can continue to help improve IFRS and (2) performance reporting and non-GAAP measures.

Mr Hoogervorst encouraged the academic community to continue providing the Board with its research; he noted that cooperation in the past has been very effective in helping the Board “separate out evidence from opinion.” He cited lease accounting, the IFRS 8 post-implementation review, and comment letter submissions as examples of effective cooperation between academia and the IASB, and he invited academics to become even more involved in years to come.

In the second half of his speech, Mr Hoogervorst discussed non-GAAP measures and explored “whether IFRS Standards provide sufficient criteria by which performance can be judged by users of financial statements.” He noted the increasing use of non-GAAP measures and research showing that these measures are becoming increasingly misleading. Mr Hoogervorst said:

The fact is that IFRS Standards prescribes very little in the way of formatting the income statement. Companies have considerable freedom in the way they present the components of income that make up profit or loss. As a result, there is little comparability above the bottom line, making it difficult for users to judge performance.

He went on to say that securities regulators are primarily responsible for cutting back the use of non-GAAP measures but that the IASB “should also look at its own role in this matter.” He admitted that the IASB provides “too little guidance” in formatting the income statement. He also suggested “potential remedies” for IASB consideration:

  • Defining more subtotals in the income statement;
  • Providing a principle-based definition of operating income which does not allow for obfuscating restructuring or impairment charges;
  • Creating a “rigorous definition” of earnings before interest and tax (EBIT);
  • Looking for better solutions for some elements of income and expense that are currently parked in other comprehensive income;
  • All of the above and more.

Mr Hoogervorst concluded:

[U]ltimately the number that counts most is the unadjusted bottom line, where all elements of income come together, both recurring items and exceptional items, whatever those may be. No-one can predict the extent to which seemingly extraordinary elements of income are recurring and not. That is why it is important that the bottom line is as inclusive as possible and that it shows everything, warts and all.

The full text of Mr Hoogervorst’s speech is available on the IASB’s website.

May 2016 IFRS Interpretations Committee meeting notes posted

11 May, 2016

The IFRS Interpretations Committee met in London on 10 May 2016. We've posted Deloitte observer notes for the technical issues discussed during this meeting.

Please click through for the notes relating to the following issues:

It is worth noting that on the contentious issue around the derecognition of modified financial assets the Interpretations Committee approved issuing an agenda decision but also agreed that the staff would inform the Board about the concerns raised during the discussion.The Interpretations Committee members noted that the issue should be given more priority from the Board as the issue was considered to be of high importance.

The preliminary and unofficial notes taken by Deloitte observers for the entire meeting are also available.

FRAB minutes for March 2016 meeting released

10 May, 2016

The minutes of the Financial Reporting Advisory Board’s (FRAB’s) meeting of 17 March 2016 have been made available on the HM Treasury website.

The role of the Financial Reporting Advisory Board (FRAB) is “to ensure that government financial reporting meets the best possible standards of financial reporting by following Generally Accepted Accounting Practice (GAAP) as far as possible”.  The FRAB includes representatives from the accountancy profession in the private and public sectors, academia and government bodies.  The board meets regularly to consider proposed changes to policy and practice.

Key topics discussed during the meeting included:

  • A high level overview of IFRS 16 Leases and consideration of the proposed work plan and impact that the standard will have on the public sector.
  • An update on developments in International accounting, International Public Sector Accounting Standards (IPSAS) and the work of Eurostat in developing European Public Sector Accounting Standards (EPSAS).
  • IFRS 9 Financial Instruments.  The Board was presented with a paper discussing and interpreting the business model assessment in IFRS 9 and its applicability in the public sector context.  An update was also provided of the implementation progress of IFRS 9 including feedback from the IFRS 9 technical working group.
  • The International Accounting Standard Board’s (IASB’s) amendments to IFRS 4 Insurance Contracts to address concerns about the different effective dates of IFRS 9 and the new insurance contracts Standard that will replace IFRS 4.
  • An update on International Financial Reporting Standard (IFRS) 15 Revenue from Contracts with Customers implementation progress against the work plan.  It was confirmed that work was proceeding as expected.
  • A verbal update on current thinking with regards to the potential development of a ‘FReM lite’ which would aim to make reporting less onerous for smaller bodies. 

Click here for detailed minutes and other supporting documents on HM Treasury website. 

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