June

IASB member discusses principle-based accounting

21 Jun, 2016

In an article published by Compliance Week, IASB member Gary Kabureck discusses keys to a successful principle-based approach.

Mr Kabureck focused on the following key aspects:

  • The importance of a robust conceptual framework.
  • An understanding that rules will not be able to cover all situations.
  • Use of reasonable judgement in the decision making process.
  • Comparability in the application in accounting rules and the benefit to primary users of financial statements.

For more information, see the article on the IASB’s Web site.

IFRS Foundation trustees seeks IASB Board members

21 Jun, 2016

The IFRS Foundation trustees are currently seeking nominations for two vacancies in the IASB’s Board. The Board is comprised of 14 members containing a mix of experience in standard-setting, financial reporting, and education.

The new members will initially serve a five-year term with the possibility of being renewed for another three years. Nom­i­na­tions for IASB board mem­ber­ship close on 8 July 2016. For more information, see the press release on the IASB’s Web site.

The Financial Reporting Council (FRC) has designated the Public Audit Forum as the SORP-making body

21 Jun, 2016

The Financial Reporting Council (FRC) has designated the Public Audit Forum as the SORP-making body for the revision of Practice Note 10 (Revised): Audit of financial statements of public sector bodies in the United Kingdom. This is in accordance with the FRC’s Policy on Developing Statements of Recommended Practice.

  • FRC has approved PAF (the members of which are Audit Scotland, the National Audit Office (NAO), the Northern Ireland Audit office (NIAO) and the Wales Audit Office)  as a SORP making body for the first auditing SORP - this is a new departure for the FRC following the revision to the policy on developing SORPs in March. In future, matters which were previously dealt with in sector-specific practice notes issued by the FRC may be dealt with a SORP developed by an approved body and reviewed by the FRC.
  • The key changes in the proposed SORP compared to the extant PN10 are:
    • removing references to the Audit commission and referring to the new local audit arrangements that apply in England under the Local Audit and Accountability Act 2014;
    • updating, where appropriate, references to the Codes of Audit practice issued by the national audit agencies which require public sector audits to comply with the auditing standards in their work on financial statements; and
    • making the guidance more principles-based and applicable to all public sector auditors, whether these are audit agencies or auditing firms.
    • updating PN 10 (revised) for the new auditing standards issued on 17 June 2016.
  • Comments are welcome by 23 September
  • The press release can be found on the FRC website.
  • Click for further information on draft PN.

 

HMRC revises guidance on director’s loans

21 Jun, 2016

HMRC has revised their 'directors' loan accounts toolkit' in light of the change to UK GAAP accounting rules for debt instruments to clarify the tax impact of these changes

In their revised toolkit, HMRC notes that, when making loans to/from directors/employees where there is no explicit interest rate or if the rate is not charged at market rate, the prescribed accounting treatment depends on which accounting framework has been adopted by an entity.

  • Where an entity applies either FRS 102 Financial Reporting Standard applicable in the UK and Ireland or FRS 102 Section 1A Small Entities then such loans are required to be accounted for as if they were a loan with a market rate of interest.
  • Where a company applies FRS 105 Financial Reporting Standard applicable to the Micro-entities Regime, there is no requirement to account for such loans as if they were a loan with a market rate of interest. Instead such loans would initially be recorded at the amount borrowed/advanced.

However, the choice of accounting treatment does not affect the amount chargeable for tax purposes, which is still determined by Section 455 of the Corporation Tax Act 2010.

S455 is a key anti-avoidance weapon for owner-managed companies. Without it, owner managers could easily avoid a tax charge by arranging for ‘their’ company to lend them funds (as opposed to paying a ‘taxable’ bonus or dividend).

The updated guidance is available on the HMRC website.

IASB clarifies the classification and measurement of share-based payment transactions

20 Jun, 2016

The International Accounting Standards Board (IASB) has published final amendments to IFRS 2 'Share-based Payment' that clarify the classification and measurement of share-based payment transactions. The amendments address several requests that the IASB and the IFRS Interpretations Committee received and that the IASB decided to deal with in one combined narrow-scope project.

Background

The IASB and the IFRS Interpretations Committee received a number of requests related to IFRS 2 Share-based Payment. Respondents asked for clarification on:

  • the accounting for cash-settled share-based payment transactions that include a performance condition;
  • the classification of share-based payment transactions with net settlement features; and
  • the accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

After debating the issues in earlier meetings, the IASB decided in April 2014 to address them together in one narrow-scope project, which has now been completed.

Changes

Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2) contains the following clarifications and amendments:

Accounting for cash-settled share-based payment transactions that include a performance condition

Until now, IFRS 2 contained no guidance on how vesting conditions affect the fair value of liabilities for cash-settled share-based payments. IASB has now added guidance that introduces accounting requirements for cash-settled share-based payments that follows the same approach as used for equity-settled share-based payments.

Classification of share-based payment transactions with net settlement features

IASB has introduced an exception into IFRS 2 so that a share-based payment where the entity settles the share-based payment arrangement net is classified as equity-settled in its entirety provided the share-based payment would have been classified as equity-settled had it not included the net settlement feature.

Accounting for modifications of share-based payment transactions from cash-settled to equity-settled

Until now, IFRS 2 did not specifically address situations where a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions. The IASB has intoduced the following clarifications:

  • On such modifications, the original liability recognised in respect of the cash-settled share-based payment is derecognised and the equity-settled share-based payment is recognised at the modification date fair value to the extent services have been rendered up to the modification date.
  • Any difference between the carrying amount of the liability as at the modification date and the amount recognised in equity at the same date would be recognised in profit and loss immediately.

Effective date and transition requirements

The amendments are effective for annual periods beginning on or after 1 January 2018. Earlier application is permitted. The amendments are to be applied prospectively. However, retrospective application is allowed if this is possible without the use of hindsight. If an entity applies the amendments retrospectively, it must do so for all of the amendments described above.

Additional information

Please click for:

New and revised pronouncements as at 30 June 2016

20 Jun, 2016

Our popular summary of new and revised financial reporting requirements, updated for financial reporting periods ending on 30 June 2016. 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 September 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 23 September 2016 and will be updated through to September 2016 to reflect new and revised financial reporting requirements that need to be considered for financial reporting periods ending on 30 June 2016.  For accounts approved after September 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 30 June 2016, 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:

Pronouncement IASB Effective date* EU effective date* EU Mandatory at 30 June 2016?
1st qtrs.** 2nd qtrs.*** 3rd qtrs.**** Full yrs*****
IFRS 14 Regulatory Deferral Accounts
1 January 2016 IASB effective date is 1 January 2016. # # # # #
 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). Already adopted in prior year (April 15) Yes Yes Yes
 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). Already adopted in prior year (April 15) Yes Yes Yes
 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). Already adopted in prior year (April 15) Already adopted in prior year (Jan 15) Yes Yes
Annual Improvements 2012-2014 Cycle
1 January 2016 1 January 2016 Yes Yes No No
 Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)
1 January 2016 1 January 2016 Yes% Yes% No No
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)
1 January 2016 1 January 2016 Yes Yes No No
 Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)
1 January 2016 1 January 2016 Yes Yes No No
 Equity Method in Separate Financial Statements (Amendments to IAS 27) 1 January 2016 1 January 2016 Yes Yes No No
Disclosure Initiative (Amendments to IAS 1)  1 January 2016 1 January 2016 Yes Yes No No
Investment Entities: Applying the Consolidation Exception (Amendments to IFRS 10, IFRS 12 and IAS 28)  1 January 2016 Effective for annual periods beginning on or after 1 January 2016.   Yes Yes No No

* 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 30 June 2016 (accounting period began on 1 April 2016).

*** 2nd quarter ending 30 June 2016 (accounting period began 1 January 2016).

**** 3rd quarter ending 30 June 2016 (accounting period began 1 October 2015).

***** 4th quarter ending 30 June 2016 (accounting period began 1 July 2015).

# 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.

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.

% 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.

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 provisionsIAS 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 positionIAS 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 pronouncement When EU effective Application at 30 June 2016 to
1st qtrs 2nd qtrs 3rd qtrs Full 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 (articlenewsletter)

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 (articlenewsletter)

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 (articlenewsletter)

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,articlenewsletter)

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 14article)

 

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 15articlenewsletterrevenue 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 H2 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 16articleIFRS 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 pronouncement When effective Application at 30 June 2016 to
1st qtrs 2nd qtrs 3rd qtrs Full 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 (articlenewsletter)

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). Already adopted in prior year (April 15) Mandatory Mandatory Mandatory

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 (articlenewsletter)

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). Already adopted in prior year (April 15) Mandatory Mandatory Mandatory

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). Already adopted in prior year (April 15) Already adopted in prior year (Jan 15) 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.   Mandatory Mandatory 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).  Mandatory Mandatory 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  Mandatory Mandatory 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, March 2016, May 2016 and September 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 Mandatory Mandatory 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.   Mandatory Mandatory Optional Optional

 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 (articlenewsletter)

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 (articlenewsletter).

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

Amends IFRS 10 Consolidated Financial StatementsIFRS 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 (articlenewsletter).
 Effective for annual periods beginning on or after 1 January 2016. 
Mandatory Mandatory Optional Optional
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 (articlepublication)
Effective for annual periods beginning on or after 1 January 2017
Not yet endorsed for use in the EU.
Clarifications to IFRS 15 'Revenue from Contracts with Customers' 
 
Amends IFRS 15 in three areas:
  • Identification of performance obligations – changes clarify the application of the concept of 'distinct‘ in this context.
  • Whether an entity is acting as principal or agent – changes clarify the application of the principal of ‘control’ in making this determination.
  • Licensing – changes assist in determining whether an entity’s activities ‘significantly affect’ intellectual property during the period for which it has been licensed to a customer. 
The amendments also provide some transition relief for modified contracts and completed contracts.
Issued: 12 April 2016 (articlenewsletter)
Effective for annual periods beginning on or after 1 January 2018
Not yet endorsed for use in the EU.
Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
 
Amends IFRS 2 to clarify the classification and measurement of share-based payment transactions with respect to:
  • the accounting for cash-settled share-based payment transactions that include a performance condition;
  • the classification of share-based payment transactions with net settlement features; and
  • the accounting for modifications of share-based payment transactions from cash-settled to equity-settled.

Issued: 20 June 2016 (article, newsletter)

Effective for annual periods beginning on or after 1 January 2018.  Earlier application is permitted.  Not yet endorsed for use in the EU.
Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4)
Amends IFRS 4 Insurance Contracts provide two options for entities that issue insurance contracts within the scope of IFRS 4:
  • an option that permits 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 is optional and an entity is permitted to stop applying them before the new insurance contracts standard is applied.
Issued: 12 September 2016 (article, newsletter)

Overlay approach to be applied when IFRS 9 is first applied. Deferral approach effective for annual periods beginning on or after 1 January 2018 and only available for three years after that date.

Not yet endorsed for use in the EU.

 

We comment on the ICAEW and ICAS exposure draft of updated guidance on realised and distributable profits under the Companies Act 2006

20 Jun, 2016

We have published our comment letter on TECH 05/16BL: Exposure draft of updated guidance on the determination of realised profits and losses in the context of distributions under the Companies Act 2006.

Overall we support the proposals.  Our key comments, which are expanded upon, where necessary, in the appendix to the comment letter, are as follows:

·        Although the existing guidance in TECH 02/10 has stood the test of time, we welcome the amendments that are proposed to remove obsolete material and update references as a result of changes to IFRSs and UK Accounting Standards (notably the introduction of FRS 102).  In this context we also fully support the complete re-write of the guidance on retirement benefit schemes in the context of IAS 19 Employee Benefits.

·        We welcome the additional guidance concerning the definition of a distribution for the purposes of Part 23 of the 2006 Act, clarifying that no matter what ‘label’ is put on a transaction it is the purpose and substance of a transaction that is required to be considered in determining whether a distribution has been made.  This clarification is especially important when considering off-market intragroup loans under both IFRSs and FRS 102 as the guidance now confirms that as well as being accounted for as a distribution under the relevant standards, such transactions at an undervalue are also distributions as a matter of law.  This is something that may have been overlooked in the past because a distribution was not recognised for accounting purposes.  

·        The draft guidance addresses a number of new issues that have arisen in practice.  However, there are two additional issues which we believe should also be addressed in the updated technical release as more fully explained in the appendix:

-        Whether a profit arising on a debt for equity swap can be regarded as a realised profit even if it is legally represented by share capital or share premium. This does not affect the amount of profits available for distribution because these amounts are legally capital.  However, the question of whether they are realised profits affects whether they can be included in the profit and loss account for Companies Act accounts (including those prepared under FRS 101 and FRS 102) as more fully explained in the Appendix.

-        The implications of the transfer of tax losses for nil consideration within a group and whether such a transfer is to be regarded as a distribution for the purposes of Part 23 of the 2006 Act. 

·        We support the conclusions reached on the distributable profits implications of loans made between group companies at below market rate.  The conclusions reached in the exposure draft are dependent on the transactions not being regarded as linked.  Although justification for this is provided in paragraph 9.51 we would welcome further explanatory material supporting the conclusions reached. We also note that the conclusion concerning interest receivable being a realised profit is dependent on an assumption that the loan will be repaid at its face amount in cash at maturity.  The guidance should make this an explicit assumption and highlight the consequences which may follow if this is not the case.

·        We have some concerns regarding the guidance contained within the new paragraph 3.17D on the treatment of credits in profit and loss for deferred tax which have not arisen as a result of a realised loss.  The guidance suggests that where such profits result in the recognition of a deferred tax asset they will be regarded as unrealised.  Such circumstances are likely to be rare and may be difficult to identify.  We believe that generally accepted accounting practice is to treat such deferred tax credits recognised in profit or loss as realised profits.  If this were not so, they would have to be excluded from the profit and loss account for Companies Act accounts.  In practice, such adjustments are not made.

·        Although supportive of the drafting in TECH 05/16BL, we highlight in the appendix some suggested drafting improvements.

Please click to access the full comment letter.

Pre-meeting summaries for the June IASB meeting

17 Jun, 2016

The International Accounting Standards Board (IASB) will meet at its offices in London on 20 and 22 June 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.

On Monday 20 June the IASB will be joined by video by the FASB for a joint education session, their first joint meeting since September 2015. The focus of the sessions is their work on business combinations, following on from their respective post-implementation reviews of their converged standards. Both boards have projects focusing on the goodwill and intangible assets recognised in a business combination.

On Wednesday 22 June the IASB will discuss three topics. They will continue their consideration of comments on the Conceptual Framework exposure draft, focusing on profit or loss and other comprehensive income (OCI). They will also consider some matters that have emerged during the drafting of the new insurance contracts standard. Because they are being brought back after the staff were given permission to prepare the draft for review by the Board they are called sweep issues. And finally, they will consider a recommendation from the IFRS Interpretations Committee to make a minor amendment to IAS 12 Income Taxes.

Our pre-meeting summaries are available on our meeting note page and will sup­ple­ment them with our popular meeting notes after the meeting.

FRC issues revised ISAs and Corporate Governance Code

17 Jun, 2016

The Financial Reporting Council (FRC) has issued the 2016 UK Corporate Governance Code ("the Code"), the revised Guidance on Audit Committees, the Ethical Standards 2016 and revised International Standards on Auditing (UK).

In May 2016, the FRC issued "Final drafts" of all of these documents, which are necessary to fulfil its obligations regarding the implementation of the EU Audit Regulation and Directive, together with parts of the Competition & Markets Authority’s (CMA’s) final Order.the EU Audit Regulation and Directive, together with parts of the Competition & Markets Authority’s (CMA’s) final Order. At that stage they were unable to publish completely final versions as these changes also rely on the introduction of The Statutory Auditors and Third Country Auditors Regulations 2016, which are expected to be published imminently.

As expected, there are only minor differences between the "final draft" and "final" versions of these documents, the most significant being that the ISAs and Ethical Standards published by the FRC will now apply only in the UK and not also in Ireland, as previous versions have done.

Stephen Haddrill, Chief Executive of the FRC, commented that:

New UK auditing and ethical standards published today provide auditors with a comprehensive basis to comply with their updated obligations. The changes to the ethical standard set out the principles that underpin high quality, independent audit and, particularly for the audits of Public Interest Entities, strengthen auditor independence by prohibiting or restricting a range of engagements that could result in a conflict of interest. Reflecting the FRC’s commitment to proportionate regulation, the revised standards contain some flexibility to allow an auditor to provide some additional assistance to smaller and medium-sized entities

Our previous UK Accounting Plus news article on the publication of the "final drafts" has more detail on the changes from previously effective versions of these documents. A list of the amendments made to the "final drafts" can be obtained from the FRC website, as can their press release announcing these changes. Final versions of all of the documents can be obtained from the FRC's publications pages.

For more detail on audit reform, visit our UK Accounting Plus project page.

 

Click for:

the EU Audit Regulation and Directive, together with parts of the Competition & Markets Authority’s (CMA’s) final Orderthe EU Audit Regulation and Directive, together with parts of the Competition & Markets Authority’s (CMA’s) final Order.

The implementation of IFRS 9 impairment requirements by banks

17 Jun, 2016

The introduction of new requirements for the accounting for expected credit losses in IFRS 9 'Financial Instruments' will be a significant change to the financial reporting of banks when required in 2018.

The Global Public Policy Committee (GPPC)1 have issued a report titled The implementation of IFRS 9 impairment requirements by banks.

The paper is addressed primarily to the audit committees of systemically-important banks, although much of its content will be relevant to other banks and financial institutions, and aims to promote the implementation of accounting for expected credit losses to a high standard.

The paper is structured in a way to assist the two key groups within a bank that will be instrumental in ensuring a high-quality implementation of IFRS 9:

  • Those charged with governance, who will oversee implementation. Section 1 of the paper addresses the key areas of focus for this group, such as governance and controls, sophistication and proportionality and transition issues.
  • Those finance, risk management, IT and other executives who are charged with implementing the new requirements. Section 2 of the paper discusses key components of implementing expected credit loss accounting, including expected credit loss methodology, default, probability of default, exposure, loss given default, discounting, staging assessment, macro-economic forecasts and forward-looking information.

Please click to access The implementation of IFRS 9 impairment requirements by banks and a corresponding press release.

____________________

1 The Global Public Policy Committee (GPPC) of the six largest international accounting networks comprises representatives of BDO, Deloitte, EY, Grant Thornton, KPMG and PwC, and focuses on public policy issues for the profession.

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