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EFRAG TEG meeting December 2016

05 Dec 2016

The European Financial Reporting Advisory Group (EFRAG) will hold a TEG meeting on 19 and 20 December 2016 in Brussels.

An agenda and details on how to register for the meeting can be found on the EFRAG website.

Pre-meeting summaries for the December IASB meeting

05 Dec 2016

The International Accounting Standards Board (IASB) will meet at its offices in London on 13–14 December 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.

Tuesday 13 December

The last meeting for 2016 starts with a brief oral update on IFRS 15 Revenue from Contracts with Customers.

Two implementation issues are being discussed. The first is a proposal to amend IAS 19 Employee Benefits and IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The second is to discuss whether or how to address issues that have arisen in the application of IFRS 9 Financial Instruments in relation to prepayment options and the assessment of the SPPI condition.

The Financial Instruments with the Characteristics of Equity Project has a discussion of derivatives on ‘own equity’, assessing how application of the model being proposed would be affected by seven variables.

The Rate Regulated Activities project returns to the Board for its first substantive discussion since July 2015. This is an education session, which means that the Board will not be asked to make any technical decisions. The session includes an analysis of the model being proposed.

Wednesday 14 December

The Wednesday sessions begin with a session on the Conceptual Framework. They will discuss papers on Measurement—redrafting the factors to consider in selecting a measurement basis; Business activities and long-term investment; Concepts of capital and capital maintenance; and Derecognition.

The Board will discuss its project on the Primary Financial Statements, focusing on the scope of the planned discussion paper. The staff are proposing a narrow scope project, with targeted improvements. The main focus will be on the Statement of Comprehensive Income, with some possible changes to the Statement of Cash Flows. The staff are also examining developing templates for a small number of industries.

The Disclosure Initiative has two topics—materiality and disclosures about restrictions on cash and cash equivalents.

The Board will conclude its discussions on the materiality practice statement and are recommending that the final document be prepared. Relatedly, the staff are now recommending that the Board issue a separate exposure draft to amend the definition of materiality in IAS 1 Presentation of Financial Statements. Previously the Board had decided to wait until they had received feedback on the Principles of Disclosure discussion paper.

For disclosures about restrictions on cash and cash equivalents, the staff are now recommending that the Board not proceed with the proposed amendments to IAS 7 Statement of Cash Flows that were exposed in 2014.

The meeting concludes with an education session to inform the Board of the upcoming release of the IFRS Taxonomy Update for the 2015/2016 common practice project, which focused on agriculture, leisure, franchises, retail, and financial institutions.

More information

Our pre-meeting summaries are available on our December meeting note page and will be supplemented with our popular meeting notes after the meeting.

IASB asked to consider adding a limited-scope project on IFRS 9 to its agenda

05 Dec 2016

A paper for the upcoming IASB meeting dealing with IFRS 9, symmetric ‘make whole’ and fair value prepayment options, and the assessment of the SPPI criterion has been posted to the IASB's website.

The issue arose from a submission to the IFRS Interpretations Committee related to whether a debt instrument with a symmetric make whole prepayment option or a fair value prepayment option could meet the ‘solely payments of principal and interest on the principal amount’ (SPPI) criterion for measurement at amortised cost under IFRS 9. The IFRS IC discussed the issue at its November 2016 meeting where the majority of members concluded that the prepayment options described in the submission do not meet the requirements in IFRS 9.B4.1.11(b) which states:

Contractual provisions that permit the issuer or holder to extend the contractual term of a debt instrument (ie an extension option) result in contractual cash flows that are solely payments of principal and interest on the principal amount outstanding only if:

(a) [...]; and

(b) the terms of the extension option result in contractual cash flows during the extension period that are solely payments of principal and interest on the principal amount outstanding.

As a consequence the IFRS IC concluded that the IASB should consider changing the requirements in IFRS 9 in this respect (taking into account the broader range of prepayment options that exist in practice and not only the options described in the submission) as well as the measurement basis that would provide the most relevant and useful information about particular financial assets that would otherwise meet the SPPI condition, but fail it because of the existence of a symmetric ‘make whole’ prepayment option. Nevertheless, the IFRS IC Chairman cautioned against the extent of the expectation that the Committee should have on how far the Board would take the issue given past decisions on similar issues.

The staff has now prepared a paper for the upcoming IASB meeting detailing the background to the issue, the staff analysis and conclusion, the feedback from the Interpretations Committee, and the original submission received. The staff recommendation is that the Board considers adding a limited-scope project on this issue to its agenda. The Board will discuss this recommendation on 13 December 2016.

Please click to access the staff paper on the IASB website.

IIRC publishes the results of its Stakeholder Feedback survey

05 Dec 2016

The International Integrated Reporting Council (IIRC) has published the results of its Stakeholder Feedback survey.

The purpose of the survey was to “obtain views on Integrated Reporting <IR> and on the work of the IIRC, to enable <IR> to continue to develop as a global movement and inform future strategy and plans”.  A total of 535 responses were received.

Key findings include:

Global views on Integrated Reporting

  • 62% of respondents believe that the IIRC is making ‘excellent’ or ‘good’ progress towards the global adoption of <IR>.
  • 78% of respondents agree that the <IR> Framework is a ‘very high quality’ or ‘high quality’ reporting framework for reporting value creation over time.
  • 87% of respondents ‘strongly agree’ or ‘agree’ that <IR>promotes a more joined-up and efficient approach to corporate reporting.
  • The top three areas which respondents indicated would improve the adoption of <IR> in their market were; stronger endorsement from regulators/policy makers, provision of more examples of integrated reports and further endorsement from leading companies. 

Global views on the corporate reporting system

  • 59% of respondents consider that the current elements of corporate reporting are only ‘quite joined up’ or ‘not joined up’ at all. Only 28% believed that the current elements are ‘joined up’ or ‘highly joined up’.
  • The biggest concerns for stakeholders were a perceived poor linkage of reporting to corporate strategies and governance and insufficient focus on the medium or longer term.
  • 61% of respondents felt that the IIRC was being successful in achieving a change in the global corporate reporting landscape. 

Responses were also provided on Stakeholder’s views on the work of the IIRC including on its institutional arrangements and composition of the IIRC Board and Council. 

The full results of the Stakeholder Feedback survey, including findings at a regional level, are available on the IIRC website.

December 2016 IASB meeting agenda posted

02 Dec 2016

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 13–14 December 2016.

The meeting will include discussions on:

  • Revenue from contracts with customer — Update.
  • IFRS implementation issues.
  • Financial instruments with characteristics of equity — Summary of discussions to date.
  • Rate-regulated activities
  • Conceptual framework — Measurement and concepts of capital and capital maintenance.
  • Primary financial statements — Project scope.
  • Disclosure initiative — Restrictions on cash and cash equivalents.
  • IFRS Taxonomy — Education session.

The full agenda for the meeting can be found here. We will post any updates to the agenda, our comprehensive pre-meeting summaries as well as observer notes from the meeting on this page as they become available.

Chair of the IFRS Advisory Council reappointed

01 Dec 2016

The Trustees of the IFRS Foundation have announced that Joanna Perry has been reappointed as Chair of the IFRS Advisory Council.

The IFRS Advisory Council provides a forum for the IASB to consult a wide range of interested parties affected by the IASB's work, with the objective of advising the Board on agenda decisions and priorities in the Board's work, informing the Board of the views of the organisations and individuals on the Council on major standard-setting projects, and giving other advice to the Board or to the Trustees. The Council used to meet three times a year, however, yesterday's changes to the constitution of the IFRS Foundation saw the numer of meetings of the Council reduced to two a year.

Ms Perry's second term begins on 1 January 2017. Please see the press release on the IASB website for more information.

FRC appoints Paul Druckman to its Board

30 Nov 2016

The Financial Reporting Council (FRC) has announced the appointment of Paul Druckman to the FRC Board.

He will join the Codes and Standards Committee and become Chair of the Corporate Reporting Council with effect from 1 January 2017. 

Please click here for the corresponding press release on the FRC website.

Trustees update IFRS Foundation Constitution

30 Nov 2016

The Trustees of the IFRS Foundation have announced amendments to the IFRS Foundation Constitution. These amendments include the reduction of Board members from 16 to 14 and a reclassification of the geographical distribution of Board members and Trustees.

In July 2015, the Trustees began its review of the structure and effectiveness of the IFRS Foundation. The review focused on three strategic areas: (1) relevance of IFRS, (2) consistent application of IFRS, and (3) governance and financing of the IFRS Foundation. In June 2016, the Trustees completed its review and issued an exposure draft with the proposed amendments. After reviewing feedback on its amendments, the Trustees agreed in October 2016 to update the Constitution. The updated Constitution is effective on 1 December 2016.

For more information, see the press release and the updated Constitution on the IASB’s website.

The Investment Association publishes Guidelines on Viability Statements

30 Nov 2016

The Investment Association has published guidelines setting out institutional investors’ expectations with respect to the longer-term viability statement introduced as part of the updates to the UK Corporate Governance Code in 2014.

The requirements for the longer-term viability statement come from Code provision C2.2 which states: 

Taking into account the company’s current position and principal risks, the directors should explain in the annual report how they have assessed the prospects of the company, over what period they have done so and why they consider that period to be appropriate.  The Directors should state whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, drawing attention to any qualifications or assumptions as necessary. 

The Financial Reporting Council (FRC) has published its Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (link to FRC website) to assist directors when preparing the longer-term viability statement. 

The Investment Association highlights that the Guidelines have been developed with the benefit of one year’s experience of company’s producing longer-term viability statements and will be reviewed in light of best practice as it evolves.  Although the Guidelines are directed at companies whose shares are admitted to the Premium segment of the Official List of the UK Listing Authority, the IA does indicate that they can be considered best practice for other companies. 

The Guidelines include:

  • Period for the viability statement. The IA highlights that the majority of companies have adopted a three year timeframe with a few adopting a longer term of five years.  The IA indicates that “three or five years seems to have become standard practice” and encourages companies to consider longer term time frames “given the long-term nature of equity capital and directors’ fiduciary duties”.  The IA also highlights that it is important that directors are clear in why they have selected a particular timeframe.  It states that investors value disclosure that make it clear how directors have considered wider factors such as specifics of a company’s business and sector rather than that the assessment is purely based on the medium-term business plan which is what the IA has seen frequently so far.
  • Consider prospects and risks when assessing viability. The Guidelines:
    • recommend that directors do not limit the consideration of viability to medium or long-term risks but should also look at the current state or affairs of the business. Investors would also welcome the viability assessment addressing the sustainability of dividends.
    • indicate that it is the risks that threaten the day to day operations and the company’s existence that should be considered for the longer-term viability statement. These risks should be distinguished from those that impact its performance and which could prevent it from delivering its strategy.
    • Highlight that investors would welcome disclosure that address the likelihood of risks occurring and possible impact.
  • Description of risks. The IA indicates that “too often the description of risks lacks structure or is presented as a shopping list to cover all bases”.  It indicates that risks should be prioritised and should only include “those that are most pertinent to the business and the company’s strategy”.  The IA note that directors should exercise judgement in determining which principal risks are important and it is helpful if disclosure includes ranking of risks (for example low, medium, high) and changes in the level (e.g. likelihood) from a previous period.
  • Stress testing. Investors would welcome greater transparency around the stress testing that has been undertaken by the company in assessing viability. 

The Guidelines are available on the IVIS website.

Recent sustainability and integrated reporting developments

30 Nov 2016

A summary of recent developments at the IIRC and FEE.

The International Integrated Reporting Council (IIRC) has released the latest in its Creating Value series, Creating Value: The cyclical power of integrated thinking and reporting. The publication explores how integrated thinking is an integral component of integrated reporting. For organisations to truly adopt integrated reporting they need to embrace the concept of integrated thinking throughout the organisation. The publication also picks up on the release by the Italian Network for Business Reporting of a handbook on integrated thinking, giving step by step stages for companies to follow in order to 'make integrated thinking concrete and usable'. Please click for for the new creating value publication on the IIRC website and access to the handbook on integrated thinking.

The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has released a publication providing practical guidance to companies that will have to comply for the first time with the EU Directive on the disclosure of non-financial and diversity information by certain large undertakings and groups. The publication applies the Directive’s requirements in a ‘mock-up’ management report of a fictional company in the food industry. This will especially help companies without prior experience in reporting on non-financial and diversity information. Please click to access Disclose what truly matters on the FEE website.

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