October

IFRS Foundation issues case study report on disclosure improvements

05 Oct, 2017

The IFRS Foundation has issued a case study report, “Better Communication in Financial Reporting — Making disclosures more meaningful.” The case study report looks at six companies from varied industries and describes their process to improve disclosures.

The case study report provides illustrations before and after the companies implemented a change in the way they communicated the information and connects the changes to relevant principles within the IASB’s Discussion Paper Disclosure Initiative — Principles of Disclosure.

For more information, see the press release and case study report on the IASB’s website.

The Bruce Column — making s172 more accessible

05 Oct, 2017

There has been growing pressure to make S172 of the Companies Act more effective in encouraging directors to explain how they have carried out their responsibilities and how the long-term sustainability of companies is achieved. Robert Bruce, our resident regular columnist takes a look at the latest developments.

Often the easiest way of bringing about change is to take an existing piece of legislation and reinvigorate its purpose. This is what is happening to S172 of the Companies Act. What the section says is that the duty of company directors requires them to act in a way that is most likely to promote the success of the company for the benefit of its members as a whole.

Earlier in the year the Financial Reporting Council suggested to the Government that this should be linked to the reputation and brand values of companies and so encourage directors and responsible shareholders to engage in a full consideration of these wider factors. And now the Government, through the thoughts of the Department for Business, Energy and Industrial Strategy, (BEIS), has agreed.

Originally S172 was about providing enough information to shareholders to assess how the directors had performed their duty to promote the success of their company. Now it expands it to how they have had regard to the matters set out in S172. They will have to provide, for example, details of how the matters have been actively considered and clearly minuted. But the fundamentals remain. The financial statements are prepared for a particular type of user, the investors, the providers of risk capital and credit, and the information has to be provided through that lens. It was clear from the majority of the respondents to the original BEIS paper that all this could be made to work more effectively through improved reporting and that change would be best achieved through the existing ‘comply or explain’ approach.

And this is what the Financial Reporting Council will be putting together as part of its review of the existing corporate governance code, due towards the end of the year. At present S172 says that it is about directors promoting the success of the company for the benefit of its members as a whole. It also says that directors should have regard for suppliers, customers, employees, and the likely consequences of any decision in the long-term. And the Government also expects the forthcoming reporting requirements to ‘explain how the company has identified and sought the views of key stakeholders, why the mechanisms adopted were appropriate and how this information has influenced decision-making in the boardroom’.

What the Government now hopes is that ‘a formal requirement [to report] will impel directors to think more carefully about how they are taking account of these wider matters’. The hope is that ‘more transparency will also help to reassure investors, creditors and others that companies are being run with a view to their long-term sustainability’. And there is another goal, a hoped-for knock-on effect. ‘Better reporting should improve the visibility of good boardroom practice’, the BEIS says, ‘allowing it to be replicated and adopted more widely’. The end result should be greater clarity all round.

FRC's Financial Reporting Lab publishes a follow up report on disclosure of dividend policy and practice

05 Oct, 2017

The Financial Reporting Council’s (FRC's) Financial Reporting Lab (Lab) has published its second report ("the report") into disclosure of dividend policy and practice by companies. The objective of the report is to assess how companies have responded to suggestions for enhanced disclosures included within the Lab's November 2015 report. The Lab indicates that it is "encouraged by the continuing improvements made by companies" and are "particularly pleased" that such companies are responding to investor calls to "add clarity to disclosures around distributable profits/reserves".

The Lab undertook an implementation study to assess the extent to which disclosure practice in those FTSE 350 companies that were part of its previous study had changed (313 companies in total).  The implementation study covered the following areas:

Key findings include:

  • 132 companies have implemented some of the Lab's disclosure recommendations.
  • 58% of FTSE 100 companies now disclose information about distributable profits or distributable reserves, an increase from 40% in 2015.  48% of those companies also disclosed:
    • the specific level of distributable profits/reserves of the holding company; or
    • the elements of distributable profits/reserves which are not distributable; or
    • reference to distributable reserves as sufficient or insignificant.

Findings were less positive for the FTSE 250 companies reviewed with only 30% of companies making such disclosures.  The Lab highlights that such companies "might benefit from implementing our original findings".

The report identifies a number of areas where the Lab feels that further improvements can be made including:

  • identifying the explicit links between the dividend policy and the potential impact of the company's principal risks and viability; 
  • enhancing the disclosure on any constraining factors to dividend payments;
  • explaining more fully what the policy means in practice; and
  • clarifying where profit is generated in the group, how profits might flow to the top of the company and any relevant constraints (current or potential) to that flow.

The press release and full report can be obtained from the FRC's website. 

Recent sustainability and integrated reporting developments

03 Oct, 2017

A summary of recent developments at IIRC/ICAS, WBCSD and GRI.

The International Integrated Reporting Council (IIRC) and the Institute of Chartered Accountants of Scotland (ICAS) have published a new report describing how businesses can achieve Sustainable Development Goals (SDGs). The report argues that corporate reporting frameworks can play a critical role in enhancing corporate contribution to the SDGs. Please click to download the report from the IIRC website.

The World Business Council for Sustainable Development (WBCSD) has launched the Reporting Exchange, a free, online platform designed to help businesses find trustworthy, up to date and accessible sustainability-related information – making it easier for businesses to know what, when and how to report. The Reporting Exchange can be accessed here.

The Global Reporting Initiative (GRI) celebrates its 20th anniversary and has created a special 20th Anniversary hub with more information about GRI's role in driving global change over the past two decades. Please click to access the hub.

IASB posts webcast on IFRS 16 lease term requirements

02 Oct, 2017

As part of the IASB webcast series on IFRS 16 implementation, the IASB staff has made available a webcast related to IFRS 16 lease term requirements.

This webcast is hosted by IASB Board member Darrel Scott and address four implementation questions raised by stakeholders.

The webcast is available on the IFRS 16 im­ple­men­ta­tion page on the IASB’s website.

New and revised pronouncements as at 30 September 2017

02 Oct, 2017

Our popular summary of new and revised financial reporting requirements, updated for financial reporting periods ending on 30 September 2017. 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.

The information below reflects developments to 13 December 2017 and will be updated through to December 2017 to reflect new and revised financial reporting requirements that need to be considered for financial reporting periods ending on 30 September 2017. For accounts approved after December 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 30 September 2017, 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 30 September 2017?
1st qtrs.** 2nd qtrs.*** 3rd qtrs.**** Full yrs*****
IFRS 14 Regulatory Deferral Accounts
1 January 2016 IASB effective date is 1 January 2016. # # # # #
Annual Improvements 2012-2014 Cycle
1 January 2016 1 January 2016 Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) Yes
 Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)
1 January 2016 1 January 2016 Already adopted in prior year (July 16) % Already adopted in prior year (April 16) % Already adopted in prior year (Jan 16) % Yes%
Clarification of Acceptable Methods of Depreciation and Amortisation (Amendments to IAS 16 and IAS 38)
1 January 2016 1 January 2016 Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) Yes
 Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)
1 January 2016 1 January 2016 Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) Yes
 Equity Method in Separate Financial Statements (Amendments to IAS 27) 1 January 2016 1 January 2016 Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) Yes
Disclosure Initiative (Amendments to IAS 1)  1 January 2016 1 January 2016 Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) 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.   Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) Yes
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) 1 January 2016 1 January 2016.  Effective date deferred indefinitely (see article)  EU endorsement halted. Effective date deferred indefinitely (see article)  EU endorsement halted. Effective date deferred indefinitely (see article)  EU endorsement halted. Effective date deferred indefinitely (see article)  EU endorsement halted. Effective date deferred indefinitely (see article)  EU endorsement halted.
Recognition of Deferred Tax Assets for Unrealised Losses (Amendments to IAS 12) 1 January 2017 Effective for annual reporting periods beginning on or after 1 January 2017.   Yes Yes Yes No
Disclosure Initiative (Amendments to IAS 7) 1 January 2017 Effective for annual reporting periods beginning on or after 1 January 2017.  Yes Yes Yes No
Annual Improvements to IFRS Standards 2014–2016 Cycle – Amendments to IFRS 12~ 1 January 2017 Effective for annual reporting periods beginning on or after 1 January 2017.  Not yet endorsed for use in the EU. Yes - Not yet endorsed for use in the EU. Yes - Not yet endorsed for use in the EU. Yes - Not yet endorsed for use in the EU. No

* 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 30 September 2017 (accounting period began on 1 July 2017).

*** 2nd quarter ending 30 September 2017 (accounting period began 1 April 2017).

**** 3rd quarter ending 30 September 2017 (accounting period began 1 January 2017).

***** 4th quarter ending 30 September 2017 (accounting period began 1 October 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.

% 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.

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.

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 30 September 2017 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 

IFRS 17 Insurance Contracts

IFRS 17 requires insurance liabilities to be measured at a current fulfillment value and provides a more uniform measurement and presentation approach for all insurance contracts. These requirements are designed to achieve the goal of a consistent, principle-based accounting for insurance contracts. IFRS 17 supersedes IFRS 4 Insurance Contracts as of 1 January 2021.

Issued: 18 May 2017 (Summary of IFRS 17, Article, Newsletter).

Applicable to annual reporting periods beginning on or after 1 January 2021

Not yet endorsed for use in the EU.

 

New or revised interpretations

New or revised interpretation When effective Application at 30 September 2017:

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.

IFRIC 23 Uncertainty over Income Tax Treatments

The interpretation sets out how to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates when there is uncertainty over income tax treatments under IAS 12 Income Taxes.

The Interpretation requires an entity to:

  • determine whether uncertain tax positions are assessed separately or as a group; and
  • assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings:
    • If yes, the entity should determine its accounting tax position consistently
      with the tax treatment used or planned to be used in its income tax filings.
    • If no, the entity should reflect the effect of uncertainty in determining its accounting tax position.

Issued: 7 June 2017 (article)

Effective date: annual periods beginning on or after 1 January 2019. Entities can apply the Interpretation either on a fully retrospective or modified retrospective approach (where comparatives are not permitted or required to be restated).
 

Not yet endorsed for use in the EU.

Amendments

New or revised pronouncement When effective Application at 30 September 2017 to
1st qtrs 2nd qtrs 3rd qtrs Full yrs

 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.   Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) 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).  Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) 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  Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) 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, December 2016, September 2017 and November 2017.

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 Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) 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.   Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) 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.   Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) 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. 
Already adopted in prior year (July 16) Already adopted in prior year (April 16) Already adopted in prior year (Jan 16) 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 Mandatory Mandatory Mandatory Optional
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 Mandatory Mandatory Mandatory Optional
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 Optional Optional Optional Optional
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.

 

Optional

Optional

Optional

Optional

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.

Annual Improvements 2015-2017 Cycle
Makes amendments to the following standards:
  • IFRS 3 Business Combinations and IFRS 11 Joint Arrangements - The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business.
  • IAS 12 Income Taxes - The amendments clarify that all income tax consequences of dividends (i.e. distribution of profits) should be recognised in profit or loss, regardless of how the tax arises.
  • IAS 23 Borrowing Costs - The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings.

 

The amendments published today are all effective for annual periods beginning on or after 1 January 2019.  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.

Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)
The amendments clarify that an entity applies IFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.
The amendments in Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) are:
  • Paragraph 14A has been added to clarify that an entity applies IFRS 9 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.
  • Paragraph 41 has been deleted because the Board felt that it merely reiterated requirements in IFRS 9 and had created confusion about the accounting for long-term interests.
Issued:12 October 2017 (article)

The amendments are effective for periods beginning on or after 1 January 2019. Earlier application is permitted. This will enable entities to apply the amendments together with IFRS 9 if they wish so but leaves other entities the additional implementation time they had asked for.

The amendments are to be applied retrospectively but they provide transition requirements similar to those in IFRS 9 for entities that apply the amendments after they first apply IFRS 9. They also include relief from restating prior periods for entities electing, in accordance with IFRS 4 Insurance Contracts, to apply the temporary exemption from IFRS 9. Full retrospective application is permitted if that is possible without the use of hindsight.

Not yet endorsed for use in the EU.

Prepayment Features with Negative Compensation (Amendments to IFRS 9)
The amendments address concerns about how IFRS 9 Financial Instruments classifies particular prepayable financial assets. In addition, the IASB has clarified an aspect of the accounting for financial liabilities following a modification.
The amendments are:
 
Changes regarding symmetric prepayment options
 
Under the current IFRS 9 requirements, the SPPI condition is not met if the lender has to make a settlement payment in the event of termination by the borrower (also referred to as early repayment gain).
 
Prepayment Features with Negative Compensation amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments.
 
Under the amendments, the sign of the prepayment amount is not relevant, i. e. depending on the interest rate prevailing at the time of termination, a payment may also be made in favour of the contracting party effecting the early repayment. The calculation of this compensation payment must be the same for both the case of an early repayment penalty and the case of a early repayment gain.
  
Clarification regarding the modification of financial liabilities
 
The final amendments also contain (in the Basis for Conclusions) a clarification regarding the accounting for a modification or exchange of a financial liability measured at amortised cost that does not result in the derecognition of the financial liability. The IASB clarifies that an entity recognises any adjustment to the amortised cost of the financial liability arising from a modification or exchange in profit or loss at the date of the modification or exchange. A retrospective change of the accounting treatment may therefore become necessary if in the past the effective interest rate was adjusted and not the amortised cost amount.
Issued: 12 October 2017 (article)

 

The amendments are to be applied retrospectively for fiscal years beginning on or after 1 January 2019, i. e. one year after the first application of IFRS 9 in its current version. Early application is permitted so entities can apply the amendments together with IFRS 9 if they wish so. Additional transitional requirements and corresponding disclosure requirements must be observed when applying the amendments for the first time.

 

New UK GAAP application for reporting periods ending 30 September 2017

02 Oct, 2017

The table below reflects new and revised new UK GAAP financial reporting requirements that need to be considered for financial reporting periods ending on 30 September 2017

For those that are applying the new UK GAAP framework 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. 

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. 

A number of changes have also been made to the accounting and reporting requirements for LLPs in law, to align with the changes made for companies and qualifying partnerships.

The table below reflects new and revised new UK GAAP financial reporting requirements that need to be considered for financial reporting periods ending on 30 September 2017.  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 30 September 2017?
1st qtrs.* 2nd qtrs.** 3rd qtrs.*** Full yrs****
FRS 100
Periods beginning on or after 1 January 2016 (see note 4) Already adopted in prior year (July 2016) (see note 4) Already adopted in prior year (April 2016) (see note 4) Already adopted in prior year (Jan 2016) (see note 4) Mandatory (see note 4)
FRS 101
See note 2 Already adopted in prior year (July 2016) (see note 2) Already adopted in prior year (April 2016) (see note 2) Already adopted in prior year (Jan 2016) (see note 2) July 2015 amendments other than those arising from revisions to the Accounting Regulations already adopted in prior year.  Changes as a result of revisions to the Accounting Regulations 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. Already adopted in prior year (July 2016) Already adopted in prior year (April 2016) Already adopted in prior year (Jan 2016) Mandatory
The amendments are available from when an entity applying FRS 101 first applies IFRS 16. NA - The amendments are available from when an entity applying FRS 101 first applies IFRS 16. Note 6  NA - The amendments are available from when an entity applying FRS 101 first applies IFRS 16.NA - The amendments are available from when an entity applying FRS 101 first applies IFRS 16. Note 6 NA - The amendments are available from when an entity applying FRS 101 first applies IFRS 16.NA - The amendments are available from when an entity applying FRS 101 first applies IFRS 16. Note 6 NA - The amendments are available from when an entity applying FRS 101 first applies IFRS 16.NA - The amendments are available from when an entity applying FRS 101 first applies IFRS 16. Note 6
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 Already adopted in prior year (July 2016) (see note 3) (section 1A optional - see note 1 Already adopted in prior year (April 2016) (see note 3) (section 1A optional - see note 1 Already adopted in prior year (Jan 2016) (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. Mandatory Mandatory Mandatory Optional
The amendments are effective for accounting periods beginning on or after 1 January 2016. Already adopted in prior year (July 2016) Already adopted in prior year (April 2016) Already adopted in prior year (Jan 2016) Mandatory
Amendments to FRS 102 - Directors' loans Effective immediately with retrospective application available Optional (see note 7) Optional (see note 7) Optional (see note 7) Optional (see note 7)
FRS 103
 The amendments are applicable for accounting periods ending on or after 1 January 2016.  Early adoption is not permitted. Already adopted in prior year (July 2016) Already adopted in prior year (April 2016) Already adopted in prior year (Jan 2016) 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 30 September 2017 (accounting period began on 1 July 2017).

** 2nd quarter ending 30 September 2017 (accounting period began 1 April 2017).

*** 3rd quarter ending 30 September 2017 (accounting period began 1 January 2017).

**** 4th quarter ending 30 September 2017 (accounting period began 1 October 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. 

Note 6 - IFRS 16 is applicable to an entity's first annual IFRS financial statements for a period beginning on or after 1 January 2019.  It has not yet been endorsed for use in the EU. 

Note 7 - Effective immediately with retrospective application available; it shall not be applied directly, or by analogy, to any other transaction, event or condition.  As it is an interim measure, this amendment will be deleted as part of the finalisation of FRED 67.  It will then be replaced with permanent requirements based on the proposals in FRED 67 after considering the outcome of the consultation process.  

EFRAG draft comment letter on the proposed amendments to IAS 1 and IAS 8 regarding the definition of materiality

02 Oct, 2017

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB exposure draft ED/2017/6 'Definition of Material (Proposed amendments to IAS 1 and IAS 8)'.

EFRAG supports the IASB proposals as regards aligning the definition of 'material' in the Conceptual Framework and in the IFRSs and as regards replacing the threshold ‘could influence’ with ‘could reasonably be expected to influence’. However, EFRAG suggests defining 'material' information more directly as information that can reasonably be expected to influence the economic decisions that the primary users of financial statements make.

Comments on EFRAG's draft comment letter are requested by 5 January 2018. For more information, see the press release and the draft comment letter on the EFRAG website.

Research into the local implementation of the EU Directive on disclosure of non-financial and diversity information

02 Oct, 2017

On 22 November 2017, Accountancy Europe, CSR Europe, and GRI will present and discuss their new research looking at the local implementation of the EU Directive on non-financial and diversity information reporting.

The research outlines the principal elements of the 28 Member States’ laws, and will provide insight on the direction non-financial reporting is headed in Europe. The 22 November event will address how the implementation of the Directive can positively contribute to the integration of sustainability factors into companies.

Please click for more information and registration on the Accountancy Europe website.

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