September

IFRS Interpretations Committee holds September 2017 meeting

13 Sep, 2017

The IFRS Interpretations Committee met in London on Tuesday 12 September 2017. We have posted Deloitte observer notes for the technical issues discussed during this meeting.

IASB publishes proposed amendments to IAS 8 regarding accounting policies and accounting estimates

12 Sep, 2017

The International Accounting Standards Board (IASB) has published an exposure draft 'Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8)' to help entities to distinguish between accounting policies and accounting estimates. Comments are requested by 15 January 2018.

 

Background

The requirements in IFRSs, in particular in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, make a distinction between how an entity should present and disclose different types of accounting changes in its financial statements. Changes in accounting policies must be applied retrospectively while changes in accounting estimates are accounted for prospectively.

Companies sometimes struggle to distinguish between accounting policies and accounting estimates and enforcers have identified divergent practices. Therefore, the Interpretations Committee received a request to clarify the distinction. The Interpretations Committee observed that it would be helpful if more clarity were given and brought the issue to the IASB’s attention for future consideration.

 

Suggested changes

The changes proposed in ED/2017/5 Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8) are focused on three areas:

  • Relation of accounting policies and accounting estimates to each other.
    • The ED proposes to clarify the exisiting definition of accounting policies by removing the terms ‘conventions’ and ‘rules’ as the Board feels that their meanings are not clear and because these terms are not used elsewhere in IFRSs. Also, the Board proposes to clarify the term ‘bases’ by using ‘measurement bases’ instead.
    • The ED proposes to add a definition of accounting estimates because so far a defintion has not been provided. The definition makes clear that accounting policies are the overall objectives and accounting estimates are the inputs used in achieving that objective by stating that "accounting estimates are judgements or assumptions used in applying an accounting policy when, because of estimation uncertainty, an item in financial statements cannot be measured with precision".
  • Selecting an estimation technique or valuation technique. The ED proposes to clarify that selecting an estimation technique or valuation technique (the ED deliberately uses both terms as both terms are used in IFRSs) used when an item cannot be measured with precision constitutes making an accounting estimate.
  • IAS 2 Inventories. In developing the ED, the Board concluded that that selecting one of the two cost formulas for interchangeable inventories is not an attempt to estimate the actual flow of these inventories, therefore it does not constitute making an accounting estimate but selecting an accounting policy.

In addition, the ED proposes deleting an example form the implementation guidance for IAS 8, namely Example 3 – Prospective application of a change in accounting policy when retrospective application is not practicable.

 

Effective date

The exposure draft does not contain a proposed effective date which the IASB intends to decide on after the exposure. However, the Board has already concluded that an entity should apply the amendments only to changes in accounting policies and changes in accounting estimates that occur on or after the start of the first annual period in which the entity applies the amendments.

 

Additional information

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European Commission publishes a report on developments in the provision of statutory audit services to PIEs following EU audit reform

12 Sep, 2017

The European Commission has published a report on developments in the provision of statutory audit services to Public Interest Entities (PIEs) following EU audit reform.

The report, which assesses market concentration levels, risks to audit quality and measures to mitigate them and performance of audit committees, provides a baseline for monitoring the impact of new statutory audit regulation throughout the EU.

The report, submitted to the Council, the European Central Bank, the European Systematic Risk Board and the European Parliament, is available on the European Commission website.

Pre-meeting summaries for the September IASB meeting

11 Sep, 2017

The IASB will meet at its offices in London on 20–21 September 2017. 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.

There are seven topics on the agenda.

Wednesday 20 September

The meeting starts with a continuation of the background sessions designed to help the Board understand dynamic risk management. This session focuses on prepayment risk and the concept of capacity (whether an entity has enough hedged items against which derivatives could be designated in a hedging relationship).

The Board will discuss three implementation projects:

  • Discussions will continue on a potential Exposure Draft to amend IAS 8 to make it easier to apply a change in accounting policy arising from an agenda decision prospectively.
  • The staff are recommending that the Board finalise its proposed amendments to IAS 19 on plan amendments, curtailment or settlement amendments, but not the proposed amendments to IFRIC 14 in relation to the availability of a refund.
  • The staff are recommending that the IASB complete the 2015-2017 Cycle of its Annual Improvements: IAS 12 the income tax consequences of dividends; IAS 23, when specific borrowing remains outstanding after completion of the asset; and IFRS 3 and IFRS 11 the initial measurement when an entity gets control of a joint operation. The IFRS 3 and IFRS 11 amendments were exposed separately, but will be completed as part of Annual Improvements. The IASB expects to issue the amendments in December 2017.

The day concludes with a continuation of the discussions on rate-regulated activities. This session focuses on initial measurement when an entity incurs costs in excess of estimates and the regulatory agreement allows the entity to recover these costs over more than one reporting period by increasing the rate charged. The question is how time value of money and an entitlement to earn a return should be taken into account when measuring the regulatory asset.

Thursday 21 September

The Board will discuss business combinations under common control, for the first time since April 2016. The purpose of the session is to give the Board a recap of previous discussions. The staff plan to bring papers back to the Board with the goal of developing a Discussion Paper for release in 2018.

The Board will be given a brief update on the research programme.

The Board will continue its discussions on primary financial statements. The staff are recommending that the Board give priority to developing an EBIT subtotal over developing a management performance measure—they plan to use the term ‘profit before financing and income tax’ rather than EBIT. The staff also recommend introducing an investing category into the statement of financial performance, although it would not be the same as the ‘investing activities’ category in the cash flow statement. The staff also think that cash and cash equivalents should be used as a proxy for cash and temporary investments of excess cash that form part of capital structure.  The papers also look at the requirement in IAS 1 to disclose expenses by nature or function.  The staff are recommending that the choice be retained but with additional disclosure. Additionally, by nature must be used when an entity is unable to allocate natural components to functions on a consistent and non-arbitrary basis.

The last agenda item is Conceptual Framework. The current draft has been undergoing a fatal flaw review. In that draft, the Basis for Conclusions alludes to the trade-off between relevance and faithful representation, but the Framework does not have an explicit principle, or any guidance on how to assess any such trade-off. This was identified as a weakness by reviewers. The staff are recommending that the Framework acknowledge the trade-off but not add any guidance on how to make that trade-off when the IASB sets Standards.

More information

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

New FRC appointment

11 Sep, 2017

The Financial Reporting Council (FRC) has announced the appointment of Claudia Mortimore as Interim Executive Counsel of Enforcement from 1 November 2017.

Claudia Mortimore has been appointed following the resignation of Gareth Rees QC.

The press release is available on the FRC website.

September 2017 IASB meeting agenda posted

08 Sep, 2017

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 20 and 21 September 2017. There are seven topics on the agenda.

The Board will discuss the following:

  • Dynamic risk management (education session)
  • IFRS im­ple­men­ta­tion issues
  • Rate-regulation activities (education session)
  • Business combinations under common control (education session)
  • Research update
  • Primary financial statements
  • Conceptual framework

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.

Study on providing financial information in a structured format

08 Sep, 2017

The CFA Institute, a global association of investment professionals, has published 'The Cost of Structured Data: Myth vs. Reality'.

The study notes that the potential benefits of using structured data have not been realised yet although the use of such data can potentially improve the way financial information can be consumed by investors, regulators, and other users. The authors argue that this is primarily the case because companies mainly see structured data and reporting as a cost burden.

Therefore, the study looks first at what companies are saying about the costs associated with their XBRL filings and then goes through several case studies to demonstrate how, with proper implementation, companies can benefit from structured data. The authors conclude that if companies

  • bring structured reporting in-house instead of using outside vendors to prepare their regulatory filings,
  • implement inline XBRL so that the data is both human and machine readable, and
  • curtail the use of company-specific tags

they can reduce costs, allowing both companies and users to benefit from structured reporting.

Please click to access the full study on the CFA Institute website.

Businesses urged to increase transparency around workplace diversity

07 Sep, 2017

Ahead of the first meeting of the Business Diversity and Inclusion Group, Business Minister Margot James has urged the UK’s largest companies to increase transparency about the diversity of their workforce.

The Business Diversity and Inclusion Group was set up to bring together business leaders and organisations to coordinate action to remove barriers in the workplace and monitor employers’ progress.  It also aimed to build upon the work of a number of government-backed reviews into workplace diversity including the Hampton-Alexander Review, the McGregor-Smith Review and the Parker Review.

A press release is available on the BEIS website.

EFRAG Board meeting September 2017

07 Sep, 2017

The European Financial Reporting Advisory Group (EFRAG) will hold a Board meeting on 14 September 2017 in Brussels.

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

Agenda for the upcoming IFASS meeting

07 Sep, 2017

The International Forum of Accounting Standard Setters (IFASS) will meet in London on 26 and 27 September 2017. One topic of discussion will be wider corporate reporting and the way(s) forward for the IASB and the national standard setters.

The meeting will directly follow the the 2017 World Standard-Setters (WSS) meeting.

The agenda is summarised below:

Tuesday, 26 September 2017 (14:00-18:15)

  • Opening remarks
  • Administrative matters
    • Participant/observer status
    • IFASS chairmanship
    • Taipei meeting assessment
  • Cooperation of IFASS participants
  • Two simultaneous optional sessions
    • IFRS for SMEs
    • Public Sector accounting
  • Two simultaneous optional sessions
    • Not-for-profit working group (and other interested participants)
    • IFRS 9 for separate financial statements


Wednesday, 27 September 2017 (09:00-16:15)

  • BCUCC: Mergers & Acquisitions – The premise for separate accounting methods
  • Wider corporate reporting – Ways forward for IASB & NSS?
  • Research on pensions: Hybrid plans
  • Interpretation issues
    • IAS 24 Related Party Disclosures
    • IAS 12 Income Taxes
  • Closing remarks

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.