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2017

Financial Reporting Lab publishes quarterly newsletter

19 Dec 2017

The Financial Reporting Lab ("the Lab") has published its quarterly newsletter providing highlights of its activities from the last three months.

The newsletter includes:

The full newsletter is available on the FRC website here.

ESMA comment letter on the IASB’s Exposure Draft on proposed amendments to IAS 8 regarding accounting policies and accounting estimates

19 Dec 2017

The European Securities and Markets Authority (ESMA) has issued its comment letter on the IASB’s Exposure Draft, ED/2017/5 Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8).

ESMA “generally agrees” with the clarifications on how accounting estimates and accounting policies relate to each other”. However it believes that improvements are still required.

ESMA indicates that the proposed definition of accounting policy could be enhanced further to explain how the term ‘practices’ shall be understood or by deleting it. It also comments that it is still “challenging” to distinguish between accounting policy and accounting estimate in certain circumstances. Additionally ESMA suggests that the IASB should explain the distinction between the change in estimate and the correction of an error in the basis for conclusions section accompanying the amended paragraph 34 of IAS 8.

The full comment letter is available on the ESMA website.

ESMA comment letter on the IASB’s Exposure Draft on proposed amendments to IAS 1 and IAS 8 regarding the definition of materiality

19 Dec 2017

The European Securities and Markets Authority (ESMA) has issued its comment letter on the IASB’s Exposure Draft, ED 2017/6 Definition of material (proposed amendments to IAS 1 and IAS 8).

ESMA is supportive of the proposed amendments to the definition of material information and the accompanying explanations. However it believes that the IASB should consider providing additional clarifications and illustrative examples on how the notion of ‘obscuring’ material information should be understood in practice.

The full comment letter is available on the ESMA website.

Updated IASB work plan — Analysis

18 Dec 2017

Following the IASB's December 2017 meeting, we have analysed the IASB work plan to see what changes have resulted from the meeting and other developments in December. Changes are numerous.

Below is an analysis of all changes made to the work plan since our last analysis on 17 November 2017.

Maintenance projects

  • Accounting policies and accounting estimates (amendments to IAS 8) — exposure draft feedback is now expected March 2018 (previously set to Q1 2018).
  • Accounting policy changes (amendments to IAS 8) — an exposure draft is now expected March 2018 (previously set to Q1 2018).
  • Property, plant and equipment: proceeds before intended use (amendments to IAS 16) — next milestone is now an IFRS amendment. No expected date provided.

Standard-setting projects

  • Conceptual framework — issuance is now expected March 2018 (previously set to Q1 2018).
  • Definition of material (amendments to IAS 1 and IAS 8) — Discussions on feedback of the exposure draft are now expected March 2018 (previously set to February 2018).
  • Rate-regulated activities — a discussion paper or exposure draft is now expected in 2019 (previously set to H1 2018).

Research projects

  • Dynamic risk management — discussion paper pushed to 2019 (previously set to H2 2018).
  • Post-implementation review of IFRS 13 Fair Value Measurement — request for information feedback is now expected in January 2018 (previously set to December 2017).
  • Principles of disclosure — Discussions on feedback of the discussion paper are now expected March 2018 (previously set to Q1 2018).

Other projects

  • IFRS Taxonomy Update — 2017 Annual Improvements — issued the proposed update in November 2017. The project is now in the feedback stage with comments due by 29 January 2018. Discussions on feedback of the exposure draft are expected in February 2018
  • IFRS Taxonomy Update — IFRS 17 Insurance contracts — final update is now expected in January 2018 (previously December 2017).
  • IFRS Taxonomy Update — Prepayment features with negative compensation (amendment to IFRS 9) — Discussions on feedback of the proposed update are now expected February 2018 (previously set to Q1 2018).

The IASB has also added two new projects to its website as a result of discussions at its December meeting, although these don't show in the work plan yet:

In addition, changes to the work plan due to the issuance of the Annual Improvements to IFRS Standards 2015–2017 include the roll-off of (1) borrowing costs eligible for capitalisation, (2) income tax consequences of payments on instruments classified as equity (amendments to IAS 12), and (3) previously held interests in a joint operation (amendments to IFRS 3 and IFRS 11).

The above is a faithful comparison of the IASB work plan at 17 November 2017 and at 18 December 2017. For access to the current IASB work plan at any time, please click here.

FRC updates taxonomies to reflect recent changes to UK GAAP

18 Dec 2017

The Financial Reporting Council (FRC) has published amendments to its suite of taxonomies last published in December 2015.

The updates reflect amendments made to UK GAAP in December 2017. All reporters may elect to use the updated taxonomy versions. Those reporters not early-adopting the amendments to UK GAAP who wish to continue to report using the previous versions of the taxonomies may continue to do so.

The press release and updated taxonomies are available on the FRC website.

FRC publishes revised guidance for auditors when agreeing to the publication of preliminary announcements

18 Dec 2017

The Financial Reporting Council (FRC) has published revised guidance for auditors when agreeing to the publication of preliminary announcements.

The publication, Bulletin: The Auditor’s Association with Preliminary Announcements made in accordance with UK Listing Rules, provides guidance for the auditor concerning its responsibilities with regard to preliminary announcements. The updated Bulletin reflects:

  • changes to the UK listing rules since 2008;
  • changes to International Standards on Auditing (ISAs) (UK);
  • new guidance from the European Securities and Markets Authority (ESMA) about alternative performance measures; and
  • changes to the UK Corporate Governance Code and the principle that the board should present a fair, balanced and understandable assessment of the company’s position and prospects.

A press release and the Bulletin are available on the FRC website.

EFRAG issues draft endorsement advice on amendments to IAS 28

18 Dec 2017

The European Financial Reporting Advisory Group (EFRAG) has issued for comment its draft endorsement advice for the use of 'Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)' in the European Union (EU).

In October 2017 the International Accounting Standards Board (IASB) published Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) to clarify that an entity applies IFRS 9 Financial Instruments 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.

EFRAG recommends the endorsement of the amendments. EFRAG’s initial assessment is that the amendments meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.

EFRAG also considers that the overall benefits of the amendments are likely to outweigh the associated costs to implement them.

Comments are requested by 16 February 2018.

For more information, see the press release, draft endorsement advice letter and the invitation to comment on the EFRAG’s website. EFRAG has also updated its endorsement status report that is available here.

EFRAG TEG meeting December 2017

15 Dec 2017

The European Financial Reporting Advisory Group (EFRAG) will hold a TEG meeting on 18 and 19 December 2017 in Brussels.

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

December 2017 IASB meeting notes posted

15 Dec 2017

The IASB met at its offices in London on 13 and 14 December 2017. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The Board discussed seven topics.

Wednesday 13 December

The meeting started with a continuation of the discussion on the Primary Financial Statements. There were three topics: objective of, and suitable locations for, the management performance measure; classification of interest and dividends in the statement of cash flows; and initial thoughts on other targeted improvements to the statement of cash flows. The staff had recommended that the Board:

  • explore how to present unusual or infrequently occurring items; and
  • require that the management performance measure be presented as a subtotal in the statement of financial performance, or in a separate reconciliation directly following the statement of financial performance.

The Board decided that the management performance measure would need to be reconciled to the IFRS sub-totals unless it “fits naturally within the statement of financial performance”. The Board discussed the other issues at length, including where such a number should be presented, but made no other decisions.

In relation to the cash flow statement, the Board approved recommendations to:

  • prescribe that interest paid on financing activities, regardless of whether it is capitalised, be classified as financing cash flows, dividends paid be classified as financing cash flows and interest and dividends received be classified as investing cash flows; and
  • not seek to align the operating sections of the income and cash flow statements; but
  • rejected a suggestion to explore further improvements to the statement of cash flows on the grounds that there are no widespread calls to address other issues.

The Board began considering feedback on its Discussion Paper Disclosure Initiative—Principles of Disclosure. The Board received 108 comment letters, and the staff provided a high-level overview of the views expressed on those letters. The overall impression is that respondents think the DP lacked focus and depth. There was also concern over a lack of cohesiveness between the different Disclosure Initiative projects. As an education session, the Board was not being asked to make any decisions. However, some Board members were sceptical about objective-based disclosure requirements and about using less prescriptive language.

Thursday 14 December

The Board continued its discussions on accounting for Goodwill. The Board voted 11-3 to explore the updated headroom approach further and, by the same margin, rejected a reintroduction of amortisation. 

The Board was given a project plan for the development of an accounting model for Dynamic Risk Management (DRM). The staff intend to focus on developing the areas that are core to the model (target profile, asset profile, DRM derivative instruments and performance assessment and recycling) which they will test with external stakeholders before addressing extensions of the concepts. No significant comments were made by Board members. The Staff expect that the discussion of the core model will take between six to eight sessions.

The Consultative Group for Rate Regulation met on 26 October 2017.  The staff summarised the Board the feedback from this meeting. The consultative group encouraged the Board to develop an exposure draft as the next consultative document. There was no discussion of this paper.

The Board considered four IFRS Implementation Issues. The Board:

  • was updated on the IFRS Interpretation Committee’s decision to add to its agenda a project to clarify which costs should be considered in assessing whether a contract is onerous;
  • supported a recommendation that the ED proposing to lower the threshold for relief from retrospective application of a change in accounting policy arising from agenda decisions also propose that the change to IAS 8 would be applied prospectively.
  • supported a recommendation from the IFRS Interpretation Committee to amend IFRS 1 to subsidiaries that apply adopt IFRS later than their parent with additional relief for measuring cumulative translation differences; and
  • discussed a summary of feedback on the proposed amendments to IAS 16 in relation to accounting for the proceeds from sales from testing—many respondents disagreed with the proposed amendments, considering them to be ineffective, costly to apply and require significant judgement.

During this session some concerns were raised that the agenda decisions of the IFRS Interpretations Committee are getting longer and are starting to answer specific fact patterns. These Board members were concerned about the risks that this poses to the Interpretations Committee.

The meeting concluded with a continuation of the Board’s discussions on the Business Combinations Under Common Control (BCUCC) project. The Board supported including within the project scope transactions that are preceded by an external acquisition and/or followed by an external sale of one or more of the combining entities and transactions that are conditional on a future sale such as in an IPO. Board members also indicated that one method should be used to account for BCUCCs and no choice should be given.

Please click to access the detailed notes taken by Deloitte observers for the entire meeting.

FRC publishes amendments to FRS 102

15 Dec 2017

The Financial Reporting Council (FRC) has published incremental improvements and clarifications to (FRS) 102 ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’. The FRC indicates that “as a result of these amendments, FRS 102 will be clearer and easier to use, some accounting policies will be simplified and additional choices and exemptions will be introduced”.

The amendments, which were consulted on within Financial Reporting Exposure Draft (FRED) 67 and FRED 68, have arisen as a result of the first triennial review of FRS 102 and after taking into account stakeholder feedback on the implementation of FRS 102 and recent developments in financial reporting.

The majority of the amendments are editorial in nature. Other significant amendments that have an impact on the financial statements include:

  • introducing a description of a basic financial instrument to support the detailed conditions for classification as basic. As a result additional financial instruments will be considered ‘basic’ (and thereby measured on a cost rather than fair value basis) beyond those meeting the prescriptive conditions, if they are consistent this new principle-based description.
  • confirming the simplification of the measurement of directors’ loans to small entities, following the interim relief granted earlier this year. As a result small entities will no longer need to estimate a market rate of interest when measuring loans from a director who is also a shareholder;
  • requiring fewer intangible assets to be separated from goodwill in a business combination. Entities may choose to separately recognise additional intangible assets acquired in a business combination if this provides useful information to the entity and the users of the financial statements;
  • permitting investment property rented to another group entity to be measured by reference to cost (less depreciation and impairment), rather than fair value as an accounting policy choice; and
  • simplifying the definition of a financial institution to remove references to ‘generate wealth’ and ‘manage risk’. As a result, fewer entities should meet the definition of a financial institutions. Stockbrokers have also been removed from the definition of a financial institution.

Amendments are also made to: 

The effective date for most of the amendments to FRS 102 is for accounting periods beginning on or after 1 January 2019, with early application permitted provided all amendments are applied at the same time. The only exceptions to this are the amendments relating to directors’ loans and the tax effects of gift aid payments, for which early application is permitted separately. Limited transitional provisions are also available. The amendments to disclosure requirements under Section 1A for small entities in the Republic of Ireland are effective for accounting periods beginning on or after 1 January 2017.  However, early application is permitted for companies in the Republic of Ireland that apply the Companies (Accounting) Act 2017 is applied from the same date.

Consequential amendments have also been made to the other UK and Ireland accounting standards, such as FRS 100 Application of financial reporting requirements and FRS 101 Reduced disclosure framework.

The changes to disclosure requirements in FRS 105 for micro entities in the UK are applicable for accounting periods beginning on or after 1 January 2017; all other amendments to FRS 105 as a result of the triennial review are applicable for accounting periods beginning on or after 1 January 2019. Early application for UK micro-companies is permitted provided that all the amendments to FRS 105 are applied at the same time. 

With respect to the Republic of Ireland, the changes to incorporate FRS 105 are applicable to accounting periods beginning on or after 1 January 2017.  Earlier application is permitted for companies in the Republic of Ireland that apply the Companies (Accounting) Act 2017 is applied from the same date.  All other amendments to FRS 105 as a result of the triennial review are applicable for accounting periods beginning on or after 1 January 2019. Early application of the other amendments is permitted provided that all of these other amendments are applied at the same time.

Click for (all links to FRC 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.