We comment on the IASB's proposed amendments to IAS 16

29 Sep, 2017

We have responded to the IASB's exposure draft, “Property, Plant and Equipment – Proceeds before Intended Use (Proposed amendments to IAS 16),” that was published in June 2017.

We do not agree with the proposed amendment to IAS 16 and share many of the concerns expressed in the Alternative View on the exposure draft and believe that the proposed amendments will likely have an effect primarily on entities in the energy and extractives industries, where construction of an asset can be a lengthy and complex process with many costs (including those of testing) attributable to bringing the asset to the condition necessary for it to be capable of operating in the manner intended by management.

We recommend that a thorough consideration of the issues arising from such activities (for example, the unit of account for property, plant and equipment relating to a large mining development and the point at which such an asset is determined to be available for use) and similar issues arising in other industries is necessary prior to making amendments to specific IFRSs as a very limited scope amendment such as the one proposed in the exposure draft cannot address those issues and carries the risk of unintended consequences. 

Please click to access the full comment letter.

The stakeholder voice in board decision making – new guidance from ICSA and the Investment Association

29 Sep, 2017

ICSA: The Governance Institute and the Investment Association has issued guidance on practical ways in which companies can engage with their employees and other stakeholders at board level.

Last month the Government issued its package of corporate governance reforms. Included within those reforms were measures to strengthen boardroom engagement with a broader group of stakeholders. The Government has committed to issuing secondary legislation that will require companies to explain how their directors have regard to employee and other stakeholder interests.

To help boards meet this new requirement, ICSA and the Investment Association has issued guidance on practical ways in which companies can engage with their employees and other stakeholders at board level.

The aim of the guidance is to help company boards think about how to ensure they understand and weigh up the interests of their key stakeholders when taking strategic decisions. After reminding directors of their statutory duties under sections 171 – 181 of the Companies Act 2006, the guidance sets out the different elements involved in understanding and assessing the impact on key stakeholders and provides a set of principles and considerations for each of the following:

  • Stakeholder identification
  • Board composition
  • Induction and training
  • Board discussion
  • Engagement mechanisms
  • Reporting and feedback

The guidance includes a number of examples of mechanisms for stakeholder engagement already being used in the largest UK companies.

The press release and guidance are available at ICSA website.  Our related Governance in brief publication is available here.

IASB issues podcast on latest Board developments

29 Sep, 2017

The IASB has released a podcast featuring Chair Hans Hoogervorst, Vice-Chair Sue Lloyd, and education director Matt Tilling to discuss the deliberations at the September 2017 IASB meeting.

The podcast features dis­cus­sions of the following topics:

  • Ma­te­ri­al­ity practice statement.
  • Primary financial statements project.
  • Education sessions on rate-reg­u­lated ac­tiv­i­ties, business combinations under common control and dynamic risk management.
  • Conceptual framework.
  • Maintenance of IFRSs by the IFRS Interpretation Committee.
  • Upcoming events.

The podcast can be accessed through the press release on the IASB website. More in­for­ma­tion on the topics discussed is available through our com­pre­hen­sive notes taken by Deloitte observers of the September 2017 Meeting.

ICAEW publication on the financial reporting implications of Brexit

29 Sep, 2017

The Institute of Chartered Accountants in England and Wales (ICAEW) has published 'Brexit: implications for financial reporting' as the ICAEW believes that the impact that Brexit will have on the UK’s financial reporting infrastructure and the related international ramifications have not yet been given sufficient attention.

The report addresses some of the key financial reporting issues the UK will face post-Brexit. It also offers 16 recommendations aimed at policymakers and their constituents in response to some of the principal questions that have been raised on the subject. These questions include:

  • What will Brexit mean for UK financial reporting?
  • Should the scope of the current regulatory framework be revisited?
  • How can the UK continue to be a major player in global standard-setting?

The report also examines three options available to the UK in its expected post-Brexit position as a country adhering to IFRS, but sitting outside EU jurisdiction:

  • EU-adopted IFRS continue to be applied by UK listed companies and the UK continues to participate in EFRAG decision making.
  • UK listed companies are required to use IFRS as issued by IASB, without any mechanism for rejecting new standards.
  • The UK establishes some form of national endorsement mechanism.

Please click to access the full report on the ICAEW website.  On 9 March 2018, the ICAEW wrote to BEIS to express its view on the future of IFRS post brexit.  The letter refers to a lot of the conclusions reached in the report and can be accessed on the ICAEW website here.

EFRAG conference on the use of fair value in financial reporting

29 Sep, 2017

The European Financial Reporting Advisory Group (EFRAG) is organising a conference on the use of fair value in financial reporting on 5 December 2017.

The conference will give participants the opportunity to hear the latest views of the use of fair value and will include a keynote speech from Sir David Tweedie, Chairman of the Board of Trustees of the International Valuation Standards Council (IVSC).

More details about the event are available on the EFRAG website.

EFRAG draft comment letter on proposed amendments to IAS 8

29 Sep, 2017

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB exposure draft ED/2017/5 'Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8)'.

EFRAG supports the IASB proposals; however, EFRAG recommends the development of some more illustrative examples in order to further clarify the distinction between an accounting policy and an accounting estimate

Comments on EFRAG's draft comment letter are requested by 7 December 2017. For more information, see the press release and the draft comment letter on the EFRAG website.

Agenda for October 2017 GPF meeting

28 Sep, 2017

Representatives from the International Accounting Standards Board (IASB) will meet with the Global Preparers Forum (GPF) in London on 4 October 2017. The agenda for the meeting has been released.

The full agenda for the meeting is sum­marised below:

Wednesday, 4 October 2017 (10:10-16:20)

  • IASB update.
  • Proposed amendments to IAS 16 on property, plant and equipment — the staff will discuss the exposure draft with the GPF and likely solicit feedback.
  • Reputation survey — the staff will discuss practical steps to take based off their research activities.
  • Proposed amendments to IAS 1 and IAS 8 on material — the staff will discuss the exposure draft with the GPF and likely solicit feedback.
  • Proposed amendments to IAS 8 on accounting policies and accounting estimates — the staff will discuss the exposure draft with the GPF and likely solicit feedback.

Agenda papers for this meeting are available on the IASB's website.

National standard-setters discuss wider corporate reporting and the way forward for the IASB

27 Sep, 2017

The International Forum of Accounting Standard Setters (IFASS) met in London on 26 and 27 September 2017. Among the topics discussed was also wider corporate reporting. Aspects considered were the dimensions of wider corporate reporting, the individual standard-setters’ experience, and ways forward for the IASB.

Current situation

IFASS members all agreed that wider corporate reporting has been gaining momentum, that non-financial information growing wild is a problem in many jurisdictions, yet that there clearly is a need for some non-financial information (also from the investors’ view), and that sometimes it is difficult to distinguish between financial information and non-financial information. Disclosure of non-financial information results from a wide range of reasons including regulators’ requirements, peer pressure in certain industries, and demands from society at large. There is currently no coordinated approach to dealing with this; there are many organisations active in the field without any clearly recognised leadership, and frameworks, standards or simply lists of requirements often overlap or even compete with each other. It was also added that in some IFASS member jurisdictions guidance is not observed as long as it is non-authoritative.

It was also pointed out that the objective behind the different reporting and disclosure requirements differs as some aim at providing unbiased decision-useful information while some can also be traced to the wish to change behaviour of preparers and/or users – which seemed to contradict the claim that the information produced is neutral. In this context members also noted the tension between reporting on the reasons for developments and their financial consequences.

Current IASB role and criticisms of this role

Members acknowledged that, currently, the IASB’s remit extends to the financial statements and the notes only. Its objective is to provide investors with decision-useful information. Members agreed that financial statements have their limitations and that some information that is relevant to investors is not captured. An example cited were intangibles. The IASB’s Practice Statement on Management Commentary contains additional guidance that reaches into the field of wider corporate reporting, however, this is non-authoritative guidance. On wider corporate reporting as such the IASB has so far chosen to take a monitoring stance, although there have been thoughts to potentially update the Practice Statement to incorporate more guidance on non-financial information recently.

Members maintained that financial statements in themselves cannot be understood without additional information and users therefore rely on other sources in addition to the financial statements. Some members feared that this might undermine the relevance of financial statements, especially with the range of non-financial information available continuing to grow. Others believed that financial statements still had a competitive advantage over information from other sources and that both kinds of information would supplement each other. Consequently, some members felt that the IASB should give up its monitoring stance and actively engage – before non-financial reporting without clear guidance gained even more ground. The longer the IASB waited the more other frameworks/standard-setters would emerge. The IASB might contribute to reducing the number of organisations active in the field and the resulting amount of different guidance. However, some members also felt that the IASB should stick to its monitoring stance as the field is still developing. They also cited a lack of resources and expertise. However, these members also agreed that there might be a trigger soon that would then require the IASB to change its role.

Suggested approaches

Those IFASS members who had expressed the conviction that the IASB should become more active offered views on different approaches that could be taken:

  • It was noted that the IASB cannot start empty-handed and has to offer something. It should also make sure it gets everybody on board.
  • It was suggested that the IASB should change the status of the Practice Statement on Management Commentary to authoritative rather than non-mandatory.
  • Most members noted that a more active role in this field requires strategical thinking and an objective – simply updating the Practice Statement wouldn’t do.
  • Members were also convinced that the IASB should focus on principles, not subject matters.
  • It was also felt that the IASB should restrict itself to information that relates to financial information.
  • A single member also suggested that the IFRS Foundation should create an additional Board that is dedicated to wider corporate reporting.
  • Generally, IFASS members felt that the IASB should not support a single organisation as there was currently no logical candidate for taking the lead in the field.

A suggested approach that received some attention was the suggestion that the IASB with its expertise in international standard-setting should develop a framework for wider corporate reporting that has all the characteristics of a framework: The resulting information should be complete and neutral and offer a faithful representation. It should also have an objective and be principles-based – similar to the existing Framework of the IASB. Such a framework would then allow for a “plug and play” approach so that additional reports could be added by and by. This way, not every subject would need to be addressed at the same time, and yet a consistent framework would later connect them all. It was noted that the TCFD recommendations were actually a good example of how this might work as they seemed to closely follow the IASB Framework and yet applied it to a different subject matter.

First preliminary reaction by IASB Chairman Hans Hoogervorst

IASB Chairman Hans Hoogervorst was present at the meeting and greeted the “good discussion without a clear conclusion”.

He admitted that financial statements in the narrow sense do not capture some financially relevant information that in some case could even be extremely relevant. And yet he noted that this information must be captured somewhere. In this context he entered a new term into the discussion – “broader financial reporting” –, which he believed to be in the remit of the IASB. Mr Hoogervorst noted that all information that is relevant for the long-term development of companies will sooner or later impact the financial statements of a company and is therefore financially relevant. He stated that he strongly believes that the IASB must provide good linkage between the narrow financial statements and broader financial reporting. However, he also stressed that the IASB will neither change its audience nor its remit. He also stated that any guidance the IASB issued would remain non-mandatory as it cannot overrule all the requirements, standards and frameworks that are already out there.

In a similar vein, Mr Hoogervorst had already commented on wider corporate reporting at an Accountancy Europe event earlier this month where he noted that the IASB has always been aware that financial reporting in the narrow sense has its limitations and tried to explain what the IASB can and cannot do to contribute to a bit more clarity.

The above summary is based on our observer notes from the meeting. The IFASS secretariat will provide a summary of all topics discussed at the meeting in due course.

International not-for-profit reporting platform launched

27 Sep, 2017

In connection with the International Forum of Accounting Standard Setters (IFASS) meeting currently being held in London, the Chartered Institute of Public Finance and Accountancy (CIPFA) has launched an international not-for-profit reporting platform developed for the Not-for-Profit Working Group of IFASS.

The new platform is an online resource which allows approaches to not-for-profit accounting and reporting across different countries to be compared directly for the first time. It aims to support standard-setters to see how transactions common to all not-for-profit organisations are accounted for and reported on, and the different standards and approaches which exist. It also aims to help users and preparers of not-for-profit financial statements determine how similar transactions would be accounted for and reported on in different jurisdictions around the world.

Please click to access the new platform on the CIPFA website.

IASB publishes editorial corrections

27 Sep, 2017

The IASB has published a batch of editorial corrections that impact consequential amendments and stand-alone standards as well as the Blue Book 2017, the Red Book 2017 and the Green Book 2017.

The editorial corrections regarding consequential amendments affect:

  • IFRS 9 Financial Instruments (July 2014)
  • IFRS 13 Fair Value Measurement
  • IFRS 16 Leases
  • IFRS 17 Insurance Contracts
  • IFRIC 22 Foreign Currency Transactions and Advance Consideration

The editorial corrections stand-alone standards affect:

The editorial corrections regarding the Blue Book 2017, the Red Book 2017 and the Green Book 2017 affect:

  • IFRS 15 Revenue from Contracts with Customers
  • IFRIC 12 Service Concession Arrangements

Editorial corrections do not change the meaning or application of pronouncements, but instead correct inadvertent errors. The editorial corrections can be viewed on the editorial corrections page of the IASB's website.

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.