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HMRC consults on changes to lease taxation as a result of IFRS 16

05 Dec 2017

HMRC has issued a consultation on the legislative changes required to ensure that the tax treatment of leases reflects lease accounting rules upon the implementation of IFRS 16 ‘Leases’.

The focus of the consultation, which follows an earlier consultation in August 2016, is on the accountancy and tax interaction of leasing, particularly in relation to plant and machinery, but it also considers the wider tax implications of IFRS 16.

Concurrently HMRC has also issued a consultation on options for legislative changes required to ensure that the Corporate Interest Restriction Rules in Part 10 Taxation (International and Other Provisions) Act (‘TIOPA’) 2010 work as intended following the proposed repeal of section 53 Finance Act 2011 and the introduction of IFRS 16.

Both consultations run until 28 February 2018.

Click for (all links to HMRC website):

UPDATE 11 JULY 2018 - responses to both of the above consultations have been published on the HMRC website as follows:

FRC to delay finalisation of Strategic Report guidance

04 Dec 2017

The Financial Reporting Council (FRC) has today announced that it is to delay the publication of its amended Guidance on the Strategic Report (“the Guidance”) until after the government has announced its legislative changes in respect of reporting on section 172.

The amended guidance, which was consulted on in August 2017, would aim to amend the FRC’s Guidance on the Strategic Report to incorporate the requirements of the Non-Financial Reporting Regulations and enhance the link between the strategic report and the directors’ section 172 duty to promote the success of the company.

The government legislative changes, expected in March 2018, are likely to result in amendments to the existing strategic report guidance and further amendments will also be required to incorporate them.

A decision has therefore been taken by the FRC to delay its finalised Guidance. However the FRC indicates that it “remains committed to promoting better reporting in respect of section 172 and it encourages boards to continue to develop their thinking in this critical area”.

The FRC has also prepared a set of frequently asked questions, in response to feedback from preparers, which seek to clarify the changes resulting from the introduction of the Non-Financial Reporting Regulations and assist companies with implementing them. The frequently asked questions should be read alongside the 2014 version of the FRC’s Guidance on the Strategic Report and are intended to serve as a guide in the interim period whilst the FRC finalises its update to the Guidance.

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Pre-meeting summaries for the December IASB meeting

04 Dec 2017

The IASB will meet at its offices in London on 13–14 December 2017. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. For each topic to be discussed we summarise the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

There are seven topics on the agenda.

Wednesday 13 December

The meeting starts with a continuation of the discussion on the Primary Financial Statements. There are three topics at this meeting: 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 are recommending that the Board:

  • explore how to present unusual or infrequently occurring items;
  • 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;
  • 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.

The Board will begin considering feedback on its Discussion Paper Disclosure Initiative—Principles of Disclosure. The Board received 108 comment letters, and the staff have 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. This is an education session, so the Board is not being asked to make any decisions.

Thursday 14 December

The Board will continue its discussions on accounting for Goodwill. The staff are recommending that the Board not reintroduce goodwill amortisation and instead focus on improving the impairment test. The Board is being asked to clarify whether, in relation to the impairment test, it wants to take no further action; modify the VIU calculation by removing the explicit requirement to use pre-tax inputs and the requirement to exclude estimated cash flows from uncommitted future restructuring and from improving or enhancing the asset’s performance; use a single method to determine the recoverable amount; and/or apply the updated headroom approach. Additionally, the Board will be asked whether it wishes to develop disclosure requirements in relation to the headroom in a CGU to which goodwill is allocated and a breakdown of goodwill by past business combination, explaining why the carrying amount of goodwill is recoverable.

The Board will discuss 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.

The Consultative Group for Rate Regulation met on 26 October 2017.  The staff will summarise for the Board the feedback from this meeting. The consultative group encouraged the Board to develop an exposure draft as the next consultative document.

The Board will consider four IFRS Implementation Issues. The Board will:

  • be 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;
  • consider 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.
  • consider 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
  • discuss 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.

The meeting concludes with a continuation of the Board’s discussions on the Business Combinations under Common Control (BCUCC) project. The papers review related projects and recommend that the project include within its 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. The staff are also recommending that the project focus on the acquisition method and predecessor accounting as the potential methods of accounting.

More information

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

FCA quarterly consultation proposes changes to clarify where diversity reporting may be located under corporate governance reporting requirements

04 Dec 2017

The Financial Conduct Authority (FCA) has, as part of its quarterly consultation procedure, proposed changes to clarify where diversity reporting may be located under corporate governance reporting requirements.

As currently drafted, section 7.2.1R of the DTR on corporate governance statements, does not explicitly indicate that the requirements for reporting by certain issuers on their diversity policy in accordance with the provisions of the Accounting Directive (AD) and specified in DTR 7.2.8AR, should be included, where applicable, within the corporate governance statement required under DTR 7.2.1R.

Additionally DTR 7.2.9R which gives the option to the issuer to set out its corporate governance statement in a separate report published together with its annual report, or alternatively in a document published on the company’s website, currently does not indicate that the information on diversity policy must also be included, where applicable in the chosen form of communication.

The FCA therefore proposes to change the wording of DTR 7.2.9R and DTR 7.2.1R to address this omission.

The full consultation – see chapter 3 is available on the FCA website.

December 2017 IASB meeting agenda posted

02 Dec 2017

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 13 and 14 December 2017. There are seven topics on the agenda with the longest slots (two hours each) reserved for primary financial statements and goodwill and impairment.

The Board will discuss the following:

  • Primary financial statements
  • Principles of Disclosure
  • Goodwill and impairment
  • Rate-regulated activities
  • Dynamic risk management
  • IFRS implementation issues
  • Business combinations under common control

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

We comment on the IASB's proposed amendments to IAS 1 and IAS 8

02 Dec 2017

We have responded to the IASB's exposure draft ED/2017/6 'Definition of Material (Proposed amendments to IAS 1 and IAS 8)' that was published in September 2017.

While we agree that there is merit to defining 'material' so it is consistent in the revised Conceptual Framework and the standards it shapes, we urge the IASB to consider five adjustments before the exposure draft is finalised. We feel that these items can be easily remedied, without undermining the objective of the proposal.

Please download the full comment letter here.

Follow-up survey on the PIE definitions applicable in European countries

01 Dec 2017

Accountancy Europe has conducted a second survey on the definitions of Public Interest Entities (PIEs) applicable in Europe. The definitions have significant impact on the accounting and audit requirements for companies active in the European market.

A first survey conducted in 2014 had revealed that there is a wide diversity of definitions of PIEs applicable across European countries and that, as a consequence, the number of PIEs per European country is very variable.

The follow-up survey was conducted to see what has changed with the new EU rules on statutory audit that became applicable in June 2016. The findings of the survey demonstrate that the audit reform has resulted in more harmonised and reduced definitions of PIEs. This has led to an overall decrease in the number of PIEs across Europe.  

Please click to access the survey on the Accountancy Europe website.

IFRS Foundation publishes proposed IFRS Taxonomy for issues identified in the context of annual improvements

30 Nov 2017

The IFRS Foundation has published a proposed IFRS Taxonomy update 'IFRS Taxonomy 2017 — Annual Improvements'.

The proposed Taxonomy Update contains proposed improvements to the IFRS Taxonomy 2017 relating to:

  • enhancements to the data model to support consistent tagging of reporting related to continuing and discontinued operations;
  • changes to better reflect the disaggregation of disclosures in IAS 19 Employee Benefits; and
  • changes to better reflect disclosures in IFRS 7 Financial Instruments: Disclosures relating to the initial application of IFRS 9 Financial Instruments.

Comments on the proposed Taxonomy Update are requested by 29 January 2018.

For more information, see the press release and proposed Taxonomy Update on the IASB’s website.

Summary of the October 2017 GPF meeting

30 Nov 2017

Representatives of the IASB met with the Global Preparers Forum (GPF) in London on Wednesday, 4 October 2017. Notes from the meeting have now been released.

The topics discussed at the meeting included:

  • IASB Update. Members discussed goodwill and impairment, transition resource groups in general, and investor feedback on the post-implementation review of IFRS 13. The IASB staff also provided an update on how GPF members’ feedback on educational materials during the November 2016 meeting was addressed.
  • Proposed amendments to IAS 16 on property, plant and equipment. GPF members expressed mixed views on the proposed amendments, with some supporting them and some disagreeing with them. It was questioned whether the benefits from the change would outweigh the costs and it was noted that dealing with such changes would be unwelcome when entities are implementing several new IFRSs.
  • Reputation survey. The staff sought feedback from the GPF members on how the IFRS Foundation can improve its engagement with its stakeholders, how the members think the GPF could be better utilised as ambassadors for the Foundation, and how they think the Foundation can improve timeliness without adversely affecting the quality of IFRSs.
  • Proposed amendments to IAS 1 and IAS 8 regarding materiality. The GPF members generally agreed with the Board’s intention to align and refine the definition of material in IFRSs and the Conceptual Framework, although some GPF members expressed concerns about the practical implications of some proposed changes to the definition.
  • Proposed amendments to IAS 8 on accounting policies and accounting estimates. Overall, GPF members tentatively supported the proposals in the exposure draft and said that it would provide clarity on the distinction between accounting policies and accounting estimates. However, some detailed points were raised.

The next GPF meeting will be held on 6 March 2018.

The full meeting summary is available on the IASB's website.

Fourth IASB Research Forum - report

29 Nov 2017

The International Accounting Standards Board (IASB) hosted its fourth Research Forum on 28 and 29 November 2017 in Brussels. We have put together a short report that provides you with an overview of the papers presented and topics discussed.

On 28 and 29 November 2017 the IASB held its annual Research Forum in association with the European Accounting Review and Accounting in Europe, both journals of the European Accounting Association. This year’s Research Forum took place in Brussels with the participations of 50 academics and 50 practitioners from various countries. On the first day, five academic papers were presented by the authors and after each presentation the papers were commented by two discussants, one from the academic world and one from the IASB. Following these discussions, all participants had the opportunity to ask questions and challenge the approach and the findings presented. The participants have actively done so and lively discussions took place on the different topics.

After some introductory remarks by an IASB member, the authors of the first paper presented an empirical study on the impact of the change of pension accounting on the investment decisions of affected companies in Germany. Specifically, they examined IAS 19R, which increased expected pension-induced equity volatility by eliminating the so-called “corridor method”, a smoothing device for actuarial gains and losses. Supported by interview evidence, the findings suggest that IAS 19R led companies to reconsider their pension investment decisions, shifting their pension assets from equity instruments into bonds, relative to control companies. Thus, the study analyzed some important “real” effects of accounting standards within the context of defined benefit pension plans.

The next agenda item was the IFRS Conceptual Framework and two presenters dealt with this topic. In the first paper, the authors identified gaps in the Conceptual Framework that according to their understanding are still present in the Exposure Draft currently discussed by the IASB. The authors argued that the Conceptual Framework does surprisingly little to help the IASB (or preparers) determine which assets, liabilities, income and expenses should be recognized, and how they should be measured. The Framework’s focus on assets and liabilities, the presenters continued, implies that the accounting can, and should, be determined from the balance sheet although many current financial reporting requirements focus initially on the income statement. In the second paper presented, the authors look at the mixed valuation and transactions approach to income determination that can be found in the current Framework Exposure Draft and critically point out that the Framework does not clearly choose between single or dual concepts of profit, which renders the Framework Exposure Draft’s financial accounting model somewhat incoherent.

In the fourth paper of the day, the authors analyzed conceptual problems in current accounting for deferred taxes. In order to make IFRS deferred tax numbers more relevant, they suggest, that deferred taxes should only be recognized for temporary differences that will result in actual future tax payments and/or tax receipts. The presenters critically dealt with the various exceptions in IAS 12 and further argued that a probability threshold should apply for both deferred tax assets and liabilities and that discounting should be introduced into deferred tax accounting. The first day of the Research Forum was concluded by a paper discussing the question, if more IFRS principles of disclosures would improve the currently sometimes poor disclosure practice. Based on a comprehensive review of the literature, the authors argued that introducing more principles of disclosure must be accompanied by a clarification of the role of the specific disclosure requirements in IFRS.

On the second day of the IASB Research Forum, no papers were presented but instead the participants were introduced to two topics that are currently on the IASB’s agenda and approached related questions by working on case studies. The morning was dedicated to financial instruments with the characteristics of equity and the participants were asked to discuss five examples. Among others, the questions to be answered were, what were the features of the respective financial instrument and if it should be classified as liability or equity. In the afternoon the participants tried to identify what is “interest” in EBIT and approached this question by dealing with seven scenarios.

This Research Forum was the fourth organized by the IASB. The fifth IASB Research Forum will take place in 2018 and be held in Sydney in association with the accounting journal Abacus.

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