November

IASB video on collaboration in international standard-setting

15 Nov, 2016

The IASB has released a short video filmed during the Word Standard-setters (WSS) meeting held in London in September 2016. It offers short statements of the IASB Chairman and standard-setters from around the world.

The national standard-setters agree that increased cooperation between the standard-setters around the world including the IASB is not only nice to have but an absolute must. They state that the cooperation with the IASB has improved over the last years with increased and more open dialog. However, while IASB Chairman Hans Hoogervorst seems to be satisfied with the situation as is and with the standard-setters being the ear on the ground for the IASB, the standard-setters believe that there is still room for improvement and that the dialog should not only be going one way.

Please click to access the short video (slightly over five minutes) on the IASB website.

Report published into the ethnic diversity of UK Boards

15 Nov, 2016

A report has been published by Sir John Parker that considers the ethnic diversity of UK Boards (“the report”). The findings of the report have been published “for the purpose of consultation, and debate amongst business leaders, regulators and lawmakers”.

In 2015, the government supported a review by Sir John Parker into the ethnic and cultural diversity of UK Boards.  At that time significant attention had only been focused on gender diversity led by Lord Davies in his 2011 review of Women on Boards (link to BIS website).

The report highlights: 

As a general matter, the Boardroom of Britain’s leading public companies do not reflect the ethnic diversity of either the UK or the stakeholders that they seek to engage and represent.  The ethnic minority representation in the Boardrooms across the FTSE 100 is disproportionately low, especially when looking at the number of UK citizens of colour.  

The report therefore calls for changes in Boardroom composition and “highlights clear business reasons for increasing ethnic diversity on UK Boards”.  It sets out both internal and external benefits for increasing ethnic diversity on UK Boards.  These changes, the report indicates, are necessary “in order for corporate Britain to reflect the progress that is being made in diversity, equality and inclusion generally”.

Key findings from the FTSE 100 include:

  • UK citizens of colour represent only about 1.5% of the total director population - in contrast approximately 14% of the overall UK population is a person of colour.
  • 53 out of the FTSE 100 companies do not have any directors of colour.
  • Only nine people of colour hold the position of Chair or CEO.

A number of recommendations, which are published for consultation, are made in the report including:

  • Each FTSE 100 Board should have at least one director of colour by 2021; and each FTSE 250 Board should have at least one director of colour by 2024.
  • Nomination Committees of all FTSE 100 and FTSE 250 companies should require their human resource teams or search firms to identify and present qualified people of colour to be considered for Board appointment when vacancies occur.
  • The principles of the “Standard Voluntary Code of Conduct” for executive search firms should be extended to apply to recruitment of minority ethnic candidates as Board directors of FTSE 100 and FTSE 250 companies.
  • There should be mechanisms within FTSE 100 and FTSE 250 companies to enable them to identify, develop and promote people of colour from within their organisations and create a pipeline of Board capable candidates over time.
  • The company’s annual report should include a description of the Board’s policy on diversity including a description of the company’s efforts to increase ethnic diversity within its organisation including at Board level.
  • There should be a disclosure in the annual report as to why companies have not been able to comply with Board composition recommendations.

In order to reach an ethnically diverse mix similar to the overall adult working population by 2021 (approximately 15%) the report highlights that one in five new Board appointments would need to be a person of colour. 

The report includes two appendices – A Questions for Directors and B The Directors’ Resource Toolkit to help UK companies enhance the ethnic diversity of their Boards and to help existing Boards to deliver on the report recommendations. 

The consultation period runs until 28 February 2017.  A report will then be published containing final recommendations. 

The press release and report are available on the Department for Business, Energy and Industrial Strategy (BEIS) website.

IFRS Foundation Trustees hold October 2016 meeting

14 Nov, 2016

The IFRS Foundation Trustees met in New Delhi on 12–14 October 2016.

Meeting ac­tiv­i­ties included the following:

  • Executive session — The Trustees discussed a number of important strategic issues:
    • Feedback on the Constitutional review — The Trustees review feedback on the Exposure Draft IFRS Foundation Review of Structure and Effectiveness: Amendments to the Constitution and made conclusions on 10 proposals.  
    • Agenda con­sul­ta­tion — The Trustees were updated on the progress on the Board’s Agenda Con­sul­ta­tion and the near-final draft of the 2015 agenda consultation feedback statement.
    • Pre­sen­ta­tion on IFRS in India — The Trustees received a pre­sen­ta­tion on the status of IFRSs in India and the development of Indian Accounting Standards.
    • Other issues — The Trustees discussed progress on the Foundation’s new website, the UK referendum on leaving the EU, intellectual property, fundraising activities in the USA, developments in Asia-Oceania, and the preparations for the Trustees’ next meeting in January 2017.
    • Committee reports — The Trustees discussed reports from the Due Process Oversight Committee, Audit and Finance Committee, the Human Capital Committee, and the Nom­i­nat­ing Committee.
  • IASB Chairman’s report — The Chair of the IASB provided the Trustees with an update on a number of the IASB’s technical ac­tiv­i­ties, agenda consultation, IFRS 9 endorsement, and other issues.
  • Events in Delhi — The Institute of Chartered Accountants of India (ICAI) hosted a stakeholder event with the Trustees.

The full report on the IFRS Foun­da­tion trustees’ meeting is available on the IASB’s website.

 

Due Process Oversight Committee holds October 2016 meeting

14 Nov, 2016

The Due Process Oversight Committee (DPOC) met in New Delhi on 13 October 2016.

Meeting ac­tiv­i­ties included the following:

  • Updates on technical ac­tiv­i­ties — The DPOC was presented with a report that outlined the due process ac­tiv­i­ties for all projects on the IASB’s current agenda. Specif­i­cally, the DPOC discussed (1) outreach conducted on performance reporting and debt/equity presentation for the conceptual framework project and (2) the decision on an issue regarding the interaction of IAS 28 and IFRS 9.
  • 2015 Agenda Consultation: summary of the consultation process — The DPOC confirmed that the requirements of the Due Process Handbook have been meet.
  • Effect Analysis — The DPOC discussed the challenges of assessing insurance products and macroeconomic consequences of applying the expected loss model under IFRS 9.
  • Strategic Work Plan 2016 — The DPOC discuss benchmarking of its due process procedure against other organisations.
  • Consultative groups — The DPOC agreed that the annual review of consultative groups was in accordance with the Due Process Handbook.
  • Reporting protocol — The DPOC discussed the annual review and the handling of comment letters.
  • IFRS education initiative due process report — The DPOC agreed that the development and level of review for the IFRS education initiative was consistent with the Due Process Handbook.
  • Cor­re­spon­dence — No new cor­re­spon­dence has been received since the DPOC’s previous meeting.

The full report on the DPOC meeting is available on the IASB’s website.

Agenda for IASB meeting changed

14 Nov, 2016

The IASB has changed the agenda for its meeting this week. The insurance contracts and Conceptual Framework sessions have been swapped. The Conceptual Framework will now be discussed on Tuesday morning, insurance contracts on Wednesday afternoon.

The Conceptual Framework session will focus on:

  • Summary of tentative decisions
  • Liability definition and supporting concepts
  • Testing the proposed asset and liability definitions — illustrative examples
  • Effects of the proposed changes to the Conceptual Framework on preparers

The insurance contracts session will discuss:

  • Methodology - external testing of draft IFRS 17
  • Results - external testing of draft IFRS 17
  • Level of aggregation
  • Experience adjustments
  • Transition issues
  • Mitigating financial risks reflected in insurance contracts
  • Other sweep issues
  • Mandatory effective date of IFRS 17

Please click for the updated agenda.

Summary of the September 2016 ASAF meeting now available

11 Nov, 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 29 September 2016.

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

  • Research report Information Needs of Users of New Zealand Capital Markets Entity Reports (1-20): This was a research report from New Zealand. In addition to the research results the ASAF members also discussed the research methodology (small sample, limitations regarding the questions asked), which does not necessarily make the research results applicable in other jurisdictions. ASAF members supplemented the results with insights from their own jurisdictions.
  • Rate-regulated activities (20-36): ASAF members discussed to agenda papers on this topic: (i) Research on the economic value of financial information on rate-regulated activities (prepared by Canada) and (ii) Accounting for rate-regulated activities from a conceptual perspective (prepared by Korea). During the discussion of the Canadian paper, ASAF members explained the situation in their respective jurisdictions. ASAF members agreed that it is important for users of financial statements to receive information about the entity’s rights and obligations created by the rate regulation. Where that information should be made availabe (primary financial statements or notes) remained contentious. The Korean paper explored how the Conceptual Framework and IFRS 15 could be used as a starting point for developing a new accounting model to report the financial effects of rate regulation. ASAF members agreed that developing a new accounting model might be useful and thought the Korean approach promising. However, concerns and comments were also voiced.
  • Conceptual Framework (37-62): ASAF members discussed the Conceptual Framework project comprehensively. Several papers had been submitted for discussion: (i) a paper on measurement prepared and presented by EFRAG (different ASAF memebrs supported different points raised in this paper), (ii) an IASB staff draft of proposed revisions to the discussion of factors to be considered in selecting a measurement basis (the new wording rather met with resistance from ASAF members), (iiI) an update on the Board’s tentative decisions on presenting info rmation about financial performance, and (iv) a paper on financial performance and measurement prepared by the ASBJ.
  • Definition of a business (63-71): ASAF members were informed about the corresponding FASB project and compared it with the IASB exposure draft. They encouraged IASB and FASB to align the wording of their amendments as much as possible and suggested that IASB clarify in the basis for conclusions that even though the IASB wording is different from the FASB wording, it is intended to have the same outcome. Regarding the IASB exposure draft, some inconsistencies and unintended consequences were pointed out.
  • Project updates and agenda planning (72-73): ASAF members were updated on current IASB projects. Topics suggested for the agenda of the next meeting were cryptocurrencies, an update on the forthcoming insurance contracts standard, and a general discussion on their research activities.
  • Working with National standard-setters (74-78): Discussion of this topic was short and onesided as ASAF members were only asked to identify entities in their jurisdictions that have improved how they communicate in their financial statements and would be willing to be included as examples in a report of the IASB staff. ASAF members asked clarifying questions and pointed out other reports that have been published in this area.
  • Feasibility Studies (79-80): This point merely clarified what the IASB staff calls feasibility studies: An informal label to reflect that the staff is looking into whether limited amendments can be achieved with a given approach where implementing the approach is not expected to require extensive drafting.

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

EFRAG final comment letter on proposed amendments on the application of the definition of a business and accounting for previously held interests

10 Nov, 2016

The European Financial Reporting Advisory Group (EFRAG) has issued its final comment letter on the IASB exposure draft ED/2016/1 'Definition of a Business and Accounting for Previously Held Interests '.

EFRAG “welcomes the IASB’s efforts to provide clarity on the definition of a business, and to help distinguish between a business and a group of assets” and supports the proposals.

EFRAG supports the idea of a ‘screening test’, but feels that, as currently drafted, it may, in some instances “result in inappropriate conclusions”.  It indicates that the screening test should only be retained “as a determinative assessment only if its relative simplicity can be maintained while avoiding inappropriate outcomes”.  Should the IASB retain the screening test in the proposed form, EFRAG identifies a number of concerns which it feels should be addressed.  

Regarding the proposed guidance on evaluating whether an acquired process is substantive, EFRAG agrees with having two sets of criteria depending on whether the set of activities and assets has outputs.  However, EFRAG has concerns on the presence of goodwill as an indicator, the guidance on acquired contracts and the role of the organised workforce. 

EFRAG also agrees with using illustrative examples but highlights that these should have a greater focus on guidance that requires significant judgement.  EFRAG also encourages a converged approach by the IASB and FASB regarding the proposals. 

On accounting for previously held interests, EFRAG is supportive:

  • of the IASB’s proposal to clarify the accounting for previously held interests in the assets and liabilities of a joint operation when an entity obtains control over a joint operation that meets the definition of a business; and
  • of the proposed accounting for previously held interests in respect to the transactions described in paragraph B33C of the ED on the amendments to IFRS 11 Joint Arrangements

The press release and final comment letter are available on the EFRAG website.

Pre-meeting summaries posted for the IASB's November meeting

10 Nov, 2016

The International Accounting Standards Board (IASB) will meet at its offices in London on 14–16 November 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 14 November, the IASB will discuss topics raised by respondents and to consider what changes, if any, should be made to the final Practice Statement (‘PS’) related to its project on disclosure initiative: materiality.

On Tuesday 15 November, the IASB will discuss elements of the draft IFRS 17, Insurance Contracts, which include level of aggregation, experience adjustments, transition issues, mitigating financial risks reflected in insurance contracts, sweep issues, and effective date. In addition, the IASB will be provided with a summary of research work on primary financial statements and discuss IFRS implementation issues.

On Wednesday 16 November, the IASB will discuss its financial instruments with characteristics of equity project. Specifically, the IASB will receive a summary of discussions to date and discuss the exception of paragraphs 16A–16D of IAS 32. In addition, the IASB will discuss topics related its conceptual framework project, which include liability definition and support concepts as well as the effects of the proposed changes to the conceptual framework on preparers.

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

ESMA calls for consistent application of IFRS 9

10 Nov, 2016

The European Securities and Markets Authority (ESMA) has published a Public Statement aimed at promoting the consistent application of IFRS 9 'Financial Instruments' by European issuers listed on regulated markets.

In light of the expected impact and importance of the implementation of IFRS 9, ESMA highlights the need for consistent and high-quality implementation of IFRS 9 and the need for transparency on its impact to users of financial statements. The statements addresses the following topics:

  • Transparency on implementation and effects of IFRS 9;
  • Specific considerations for financial institutions/credit institutions;
  • Illustrative timeline and good practices of disclosures for financial institutions; and
  • Next steps.

Please click to download the press release and the IFRS 9 public statement from the ESMA website.

In July 2016, ESMA published a similar statement on the application of IFRS 15. ESMA expects that the statements will be taken into account and reflected in the 2016 and 2017 annual and 2017 interim financial statements.

BEIS responds to feedback from its consultation on implementation of the EU non-financial reporting directive

10 Nov, 2016

The Department for Business, Energy and Industrial Strategy (BEIS) has published its response to feedback received in response to its consultation on the implementation of the EU non-financial reporting directive in the UK.

In February 2016 the Department for Business, Innovation and Skills (the predecessor of BEIS) published a consultation on the implementation of the EU Non-financial Reporting Directive (the Directive) in the UK, which is required by EU law to occur by 6 December 2016.  Despite the result of the referendum on the UK's membership of the EU, government policy is to continue to implement EU legislation in accordance with EU law until the UK formally leaves the EU.

The consultation sought views on a variety of topics, regarding both the implementation of the Directive and other questions relating to UK non-financial reporting. In response to the feedback received, BEIS has set out the following plans for further action.

  • The consultation document proposed implementation of the requirements of the Directive in place of the non-financial elements of the current UK strategic reporting framework for large quoted companies, and the extension of these new requirements to include large unquoted public interest entities (PIEs). It also proposed two options for smaller quoted companies (those within the scope of the non-financial elements of the current UK strategic reporting framework but not the scope of the Directive): retention of the existing requirements; or removal of the existing requirements. Neither of these options were favoured by more than a handful of respondents, with a significant proportion proposing as a third option the application of the new requirements to smaller quoted companies as well. This would create a single regime for all entities rather than requiring implementation of a dual approach. In response to the feedback BEIS is pressing ahead with the first option, as they do not wish to 'gold-plate' EU requirements. However, smaller quoted companies will be given the option to apply the requirements applicable to large quoted companies if they wish to do so.
  • There was little appetite from respondents for reporting non-financial information in a separate report outside the existing annual report, so BEIS will not pursue this option any further. Respondents did, however, express interest in allowing flexibility in the placement of detailed supporting information, as long as the relevant information is still included in the annual report.
  • Although some respondents were in favour of requiring mandatory third-party verification of the information reported, the majority were not, so BEIS will not make such verification mandatory.
  • Respondents were generally in favour of promoting digital reporting and so the Government will look to clarify legislation concerning sending annual reports electronically and to encourage innovative digital reporting.
  • Two approaches to redefining 'senior managers' as currently defined in the strategic report's gender reporting requirements were proposed by respondents. The Government will explore these approaches with business and other stakeholders.
  • The Government will consider further various other suggestions for regulatory reform received from respondents.

The full outcome document can be obtained from the UK Government website.  Draft regulations have also been laid which can be obtained here.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.