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2016

Summary of the October 2016 ITCG meeting

19 Dec 2016

The IASB has published notes to the IFRS Taxonomy Consultative Group (ITCG) meeting held on 25 October 2016.

The ITCG discussed:

  • an update on activities;
  • priniciple-based reporting and the technological world;
  • the progress made by the entity-specific disclosures task force;
  • IFRS Taxonomy content and other areas;
  • the UK Financial Reporting Lab's project on digital future; and
  • IFRS Technology and the ITCG.

For more information, see the meeting summary on the IASB's website.

IASB posts webcast on IFRS Taxonomy

19 Dec 2016

The IASB has made available a webcast titled 'Taxonomy doesn't have to be taxing', which features IASB Board member Stephen Cooper explaining the IFRS Taxonomy and its benefits.

The webcast also includes information on the Taxonomy and how to become more involved in Taxonomy development.

The webcast and slides are available on the IASB's website.

Investment Association calls on companies to cease quarterly reporting

19 Dec 2016

The Investment Association (IA) has issued a Public Position Statement that calls for companies to cease quarterly reporting and “refocus reporting on a broader range of strategic issues”.

In November 2014, the Financial Conduct Authority (FCA) published policy statement PS14/15, which updated the Disclosure and Transparency Rules (DTR) to remove the requirement for companies to publish interim management statements (IMSs).  However companies still choose to prepare such reports. 

The IA indicates that its members see quarterly reporting “as a distraction” which shifts “company resources away from long-term strategic considerations”.  It also states that “apart from the cost and administrative burden of preparing and disseminating quarterly reports, their value to investors is questionable”.  It further states 

When evaluating a company, our members need to be able to assess the health of the business, its growth potential, and the long-term sustainability of its earnings.  The additional resource required to analyse quarterly reports when they are often largely formulaic, or contain excessive redundant information, tends to impact on our member’s ability to do this, and can serve to undermine the trust and confidence between companies and their shareholders which is so essential to long-term value creation. 

The IA also highlights, that in its opinion, ceasing quarterly, although reducing time spent with management teams, will not lead to a deterioration in relationships with those teams but might lead to “a better articulation overall of business strategies, market dynamics, and innovation drivers, which are linked to the key metrics that drive business performance and long-term, shareholder value”. 

The IA therefore indicates that companies should cease quarterly reporting and focus on “improvements in reporting on the long-term drivers of sustainable value creation and shift resources towards improved reporting on long-term strategy and capital management”.  Where companies wish to continue to report quarterly, it calls on them to “publicly explain this position, and how it is relevant to the achievement of their long-term strategy”. 

The full Position Statement is available on the IVIS website.

HM Treasury issues new financial reporting manual (FReM)

19 Dec 2016

HM Treasury has issued a revised version of the government financial reporting manual (FReM) applicable for accounting periods commencing on or after 1 January 2017.

The Government Financial Reporting Manual (FReM) is the technical accounting guide to the preparation of financial statements. It complements guidance on the handling of public funds published separately by the relevant authorities in England and Wales (HM Treasury and the Welsh Assembly Government respectively), Scotland (the Scottish Government) and Northern Ireland (the Executive Committee of the Northern Ireland Assembly). The FReM is prepared following consultation with the Financial Reporting Advisory Board (FRAB) and is issued by the relevant authorities. 

The FReM applies to “all entities, and to funds, flows of income and expenditure and any other accounts that are prepared on an accruals basis and consolidated within Whole of Government Accounts (with the exception of the accounts of any reportable activities that are not covered by an Accounts Direction)”.  It does not apply to Local Government, those Public Corporations that are not Trading Funds, and NHS Trusts, NHS Foundation Trusts and Clinical Commissioning Groups.  

The press release and latest version of the FReM can be accessed on the HM Treasury website, here.

New SORP published for the audit of public sector bodies

17 Dec 2016

The Public Audit Forum (PAF) has issued a revised Statement of Recommended Practice (“the revised SORP”) setting out guidance on the audit of financial statements of public sector bodies in the United Kingdom. The revised SORP comes into effect from 22 November 2016.

The revised SORP replaces the previous SORP issued in October 2010. It is supplementary to, and should be read in conjunction with, International Standards on Auditing (ISAs) (UK) and International Standard on Quality Control 1 (ISQC 1) (UK) which apply to all audits undertaken in the United Kingdom. Where no special considerations arise from a particular ISA or ISQC 1, no material has been included in the revised SORP and users should consequently refer to relevant auditing standards.

Revised Auditing Standards and a Revised Ethical Standard were issued in June 2016 and are effective for audits of financial statements for periods commencing on or after 17 June 2016. The revised SORP refers to these revised auditing standards and will therefore be relevant if auditors apply the revised standards early. If auditors do not apply these revised standards early, the guidance in the revised SORP will still be relevant except that auditors will need to also refer to the requirements on reporting material uncertainty in relation to going concern in ISA 570 and extended reporting in ISA 700.

The revised SORP can be accessed on the Public Audit Forum's website here.

IASB updates work plan

16 Dec 2016

Following its December 2016 meeting, the IASB has updated its work plan. In particular, the IASB has split its project on materiality into two parts to reflect mandatory guidance (definition of materiality) and non-mandatory guidance (materiality practice statement).

Research projects

  • Primary financial statements — the issuance of a discussion paper or exposure draft is expected after six months.

Standard setting and related projects

  • Disclosure initiative: materiality (split into two parts):
    • Materiality practice statement — current activity has changed from analysis to drafting.
    • Definition of materiality — currently in the drafting phase with an exposure draft expected within six months.
  • Insurance contracts — expected issuance of the IFRS is expected within three months (March 2017).

Nar­row-scope amend­ments and IFRIC In­ter­pre­ta­tions

IFRS Taxonomy

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

New UK GAAP application for reporting periods ending 31 December 2016

16 Dec 2016

For periods beginning on or after 1 January 2015, three new Financial Reporting Standards (FRSs 100, 101 and 102) are in force, bringing with them a number of new options for all UK entities and groups. These new Standards replace old UK GAAP.

For those companies that have not transitioned to the new UK GAAP framework, our 'New UK GAAP' collection of resources, will provide helpful guidance.  For those that are already applying it there are amended versions of FRSs 100, 101 and 102 which incorporate changes as a result of the UK implementation of the EU Accounting Directive to be aware of.  Additionally, there are significant changes to the financial reporting regime for smaller and micro companies who can no longer follow the FRSSE.  These changes are applicable for accounting periods beginning on or after 1 January 2016. 

The table below reflects new and revised new UK GAAP financial reporting requirements that need to be considered for financial reporting periods ending on 31 December 2016 and therefore assumes that reporters have adopted those requirements effective for accounting periods beginning on or after 1 January 2015.  For those reporters who want to understand new UK GAAP application for earlier periods please select one of the following:

Pronouncement Effective date Application for quarters ending 31 December 2016?
1st qtrs.* 2nd qtrs.** 3rd qtrs.*** Full yrs****
FRS 100
Periods beginning on or after 1 January 2016 (see note 4) Mandatory (see note 4) Mandatory (see note 4) Mandatory(see note 4) Mandatory (see note 4)
FRS 101
See note 2 Mandatory (see note 2) Mandatory (see note 2) Mandatory (see note 2) Mandatory (see note 2)
The amendments are available from when an entity applying FRS 101 first applies IFRS 15.  However the change in company law to permit the equity method in individual financial statements is effective from 1 January 2016 (or from 1 January 2015 if it is adopted early). NA (see note 5)/Choice permitted by change in company law optional NA (see note 5)/Choice permitted by change in company law optional NA (see note 5)/Choice permitted by change in company law optional NA (see note 5)/Choice permitted by change in company law optional
The amendments are effective for accounting periods beginning on or after 1 January 2016. Mandatory Mandatory Mandatory Mandatory
FRS 102
Applicable for periods beginning on or after 1 January 2016, with early adoption permitted and required if and only if the entity is early adopting the new Accounting Regulations (or from 1 January 2015 if the entity is not subject to company law) - see note 3 Mandatory (see note 3) (section 1A optional - see note 1 Mandatory (see note 3) (section 1A optional - see note 1 Mandatory (see note 3) (section 1A optional - see note 1) Mandatory (see note 3) (section 1A optional - see note 1)
These amendments apply for accounting periods beginning on or after 1 January 2017. Early application is permitted with immediate effect provided this is disclosed. Optional Optional Optional Optional
The amendments are effective for accounting periods beginning on or after 1 January 2016. Mandatory Mandatory Mandatory Mandatory
FRS 103
 The amendments are applicable for accounting periods ending on or after 1 January 2016.  Early adoption is not permitted. Mandatory Mandatory Mandatory Mandatory
FRS 105
FRS 105 is effective for periods beginning on or after 1 January 2016. Early adoption is permitted  Optional (see note 1) Optional (see note 1) Optional (see note 1) Optional (see note 1)
Effective for periods beginning on or after 1 January 2016.  Early application is permitted for accounting periods beginning on or after 1 January 2015 Optional (see note 1) Optional (see note 1) Optional (see note 1) Optional (see note 1)

* 1st quarter ending on 31 December 2016 (accounting period began on 1 October 2016).

** 2nd quarter ending 31 December 2016 (accounting period began 1 July 2016).

*** 3rd quarter ending 31 December 2016 (accounting period began 1 April 2016).

**** 4th quarter ending 31 December 2016 (accounting period began 1 January 2016).

Note 1 - For accounting periods beginning on or after 1 January 2016 those previously applying the FRSSE 2015 will either have to follow the recognition and measurement requirements of FRS 102 and the presentation and disclosure requirements within 'Section 1A Small Entities' or apply FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime  (if they qualify as micro-entities).  

Note 2 - The July 2015 amendments to FRS 101 are effective for periods beginning on or after 1 January 2015, other than those arising from revisions to the Accounting Regulations which are effective periods beginning on or after 1 January 2016, with early adoption permitted and required if and only if the entity is early adopting the new Accounting Regulations.  

Note 3 - The July 2015 amendments to FRS 102 are applicable for periods beginning on or after 1 January 2016, with early adoption permitted and required if and only if the entity is early adopting the new Accounting Regulations (or from 1 January 2015 if the entity is not subject to company law).  

Note 4 - FRS 100 does not contain accounting requirements in itself but rather provides direction as to the relevant standard(s) for an entity to apply (whether EU-adopted IFRSsFRS 101FRS 102, or FRS 105). FRS 100 was updated in July 2015 as a result of consequential amendments arising from the implementation of the EU Accounting Directive, introduction of FRS 105 and withdrawal of the FRSSE.  

Entities should apply the version of FRS 100 that corresponds to the edition of FRS 101, FRS 102 or FRS 105 to which they are applying.  For instance if an entity applies the edition of FRS 101 applicable for accounting periods beginning on or after 1 January 2016, it must also apply the revised version of FRS 100 published in July 2015.

Note 5 - IFRS 15 is applicable to an entity's first annual IFRS financial statements for a period beginning on or after 1 January 2018. 

New and revised pronouncements as at 31 December 2016

16 Dec 2016

Our popular summary of new and revised financial reporting requirements, updated for financial reporting periods ending on 31 December 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 March 2017, 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 16 December 2016 and will be updated through to March 2017 to reflect new and revised financial reporting requirements that need to be considered for financial reporting periods ending on 31 December 2016. For accounts approved after March 2017, 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 31 December 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 31 December 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 (Oct 15) Already adopted in prior year (July 15) Already adopted in prior year (April 15) 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 (Oct 15) Already adopted in prior year (July 15) Already adopted in prior year (April 15) Yes
Annual Improvements 2012-2014 Cycle
1 January 2016 1 January 2016 Yes Yes Yes Yes
 Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)
1 January 2016 1 January 2016 Yes% Yes% Yes% Yes
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)
1 January 2016 1 January 2016 Yes Yes Yes Yes
 Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)
1 January 2016 1 January 2016 Yes Yes Yes Yes
 Equity Method in Separate Financial Statements (Amendments to IAS 27) 1 January 2016 1 January 2016 Yes Yes Yes Yes
Disclosure Initiative (Amendments to IAS 1)  1 January 2016 1 January 2016 Yes Yes Yes Yes
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 Yes Yes

* 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 31 December 2016 (accounting period began on 1 October 2016).

*** 2nd quarter ending 31 December 2016 (accounting period began 1 July 2016).

**** 3rd quarter ending 31 December 2016 (accounting period began 1 April 2016).

***** 4th quarter ending 31 December 2016 (accounting period began 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.

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 31 December 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).  Optional Optional Optional Optional

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).  Optional Optional Optional Optional

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).  Optional Optional Optional Optional

 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.  Optional Optional Optional Optional

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. Optional Optional Optional Optional

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.

 

New or revised interpretations

New or revised interpretation When effective Application at 31 December 2016:

IFRIC 22 Foreign Currency Transactions and Advance Consideration

The interpretation addresses foreign currency transactions or parts of transactions where:

  • there is consideration that is denominated or priced in a foreign currency;
  • the entity recognises a prepayment asset or a deferred income liability in respect of that consideration, in advance of the recognition of the related asset, expense or income; and
  • the prepayment asset or deferred income liability is non-monetary.

The Interpretations Committee came to the following conclusion:

  • The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability.
  • If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.

Issued: 8 December 2016 (article) 

Effective for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted.  Not yet endorsed for use in the EU.

Amendments

New or revised pronouncement When effective Application at 31 December 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 (Oct 15) Already adopted in prior year (July 15) Already adopted in prior year (April 15) 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 (Oct 15) Already adopted in prior year (July 15) Already adopted in prior year (April 15) 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 Mandatory Mandatory

 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 Mandatory Mandatory

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 Mandatory Mandatory

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, September 2016 and December 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 Mandatory Mandatory

 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 Mandatory Mandatory

 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 Mandatory Mandatory
 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 Mandatioy Mandatory
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.

Annual Improvements 2014-2016 Cycle
Makes amendments to the following standards:
  • IFRS 1 - Deletes the short-term exemptions in paragraphs E3–E7 of IFRS 1, because they have now served their intended purpose
  • IFRS 12 - Clarifies the scope of the standard by specifying that the disclosure requirements in the standard, except for those in paragraphs B10–B16, apply to an entity’s interests listed in paragraph 5 that are classified as held for sale, as held for distribution or as discontinued operations in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
  • IAS 28 - Clarifies that the election to measure at fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that is a venture capital organisation, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition

Issued: 8 December 2016 (article)

The amendments to IFRS 1 and IAS 28 are effective for annual periods beginning on or after 1 January 2018, the amendment to IFRS 12 for annual periods beginning on or after 1 January 2017.  Not yet endorsed for use in the EU.

'Transfers of Investment Property (Amendments to IAS 40)'
The amendments to IAS 40 Investment Property:
  • Amends paragraph 57 to state that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management’s intentions for the use of a property by itself does not constitute evidence of a change in use.
  • The list of examples of evidence in paragraph 57(a) – (d) is now presented as a non-exhaustive list of examples instead of the previous exhaustive list.

Issued: 8 December 2016 (article)

The amendments are effective for periods beginning on or after 1 January 2018. Earlier application is permitted. An entity applies the amendments to changes in use that occur on or after the beginning of the annual reporting period in which the entity first applies the amendments. Retrospective application is also permitted if that is possible without the use of hindsight.  Not yet endorsed for use in the EU.

 

NAO publishes updated Auditor Guidance Note 1 covering integrity, objectivity and independence

16 Dec 2016

Under the Local Audit and Accountability Act 2014 (the Act), the Comptroller and Auditor General (C&AG) publishes a Code of Audit Practice which must be complied with by local auditors – those auditing English local public bodies including NHS bodies, police bodies and local authorities. The Act also requires local auditors to have regard to any guidance issued by the C&AG when carrying out an audit under the Code. The National Audit Office publishes the Code and related guidance on their website.

The NAO has published an updated Auditor Guidance Note 1 (AGN/01), which adds material on integrity, objectivity and independence, to which auditors must have regard when applying the Code. AGN/01 states that:

  • if a local public body is a public interest entity (PIE) as defined in the FRC’s Revised Ethical Standard, its auditor must follow the PIE requirements of that standard;
  • if a local public body is not a PIE,  If not, then the local auditor follows the non-PIE requirements of that standard and the requirements of the annex to AGN/01.

 The additional requirements in the Annex include:

  • Clarification that all audit work under the Code, including consideration of arrangements to secure value for money or to consider the exercise of other powers and duties under the Act is audit work.
  • Application of a cap on non-audit services for a year. Fees for permitted non-audit services (with certain exceptions) cannot exceed 70% of the audit fee for the year in question; this is by contrast with the FRC test which is based on a rolling three year average of audit fees. Exceptions to the cap for permitted services include:
    1. audits of examinations of controlled entities;
    2. services to parent bodies that are government bodies (e.g. Department of Health) or relevant national bodies (e.g. NHS England) that are inconsequential and remote from the decision-making of the local audited body;
    3. other assurance (e.g. work on the quality accounts of local health bodies or grant claim certification for local authorities) mandated by legislation, a national body or regulator which are required to be performed by the auditor; and
    4. other services required by EU or national legislation to be performed by the auditor.
  • Specific rules on personal relationships with audited bodies relating to governance roles, employment and political activity.
  • For smaller bodies, for which a limited assurance review is carried out rather than an audit, the full Ethical Standard does not apply. However, prohibited non-audit services cannot be provided and non-audit fees cannot exceed the higher of £250 and 20% of the fee for work carried out under the Code.

The 12 December 2016 version of AGN/01 applies to periods commencing on or after 17 June 2016 – for most public bodies this will mean it will first apply for the year from 1 April 2017-31 March 2018.

A copy of the revised AGN/01 is available here.

 

New EFRAG Vice President

16 Dec 2016

The General Assembly of the European Financial Reporting Advisory Group (EFRAG) has appointed Andreas Barckow, President of the Accounting Standards Committee of Germany (ASCG), as Vice President of the EFRAG Board.

The main tasks of the Vice President are to chair the technical and public sessions of the monthly Board meetings and to step in for the President in his absence.

Professor Barckow is a former Deloitte partner who gave up his position as Head of Deloitte's IFRS Centre of Excellence in Frankfurt two years ago to become President of the ASCG.

Please click for the English language press release on the ASCG website.

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