Updated IASB work plan — Analysis

17 Nov, 2018

Following the IASB's November 2018 meeting, we have analysed the IASB work plan to see what changes have resulted from the meeting and other developments since the work plan was last revised in October. Curiously, a project on IFRS 17 amendments is still missing from the work plan although the IASB has begun discussing possible amendments to IFRS 17 'Insurance Contracts' and has already tentatively decided to defer the effective date of the standard by one year.

Below is an analysis of all changes that were made to the work plan since our last analysis on 26 October 2018.

Standard-setting projects

  • Primary financial statements — a discussion paper or exposure draft is now expected in the second half of 2019 (was: first half of 2019)

Maintenance projects

  • Deferred tax related to assets and liabilities arising from a single transaction (Amendments to IAS 12) — newly added to the work plan; an exposure draft is expected in the first half of 2019
  • Disclosure Initiative — Definition of Material (Amendments to IAS 1 and IAS 8) — removed from the work plan as final amendments were published on 31 October 2018
  • Updating a Reference to the Conceptual Framework (Amendments to IFRS 3) — at its November meeting, the IASB decided to move forward with amendments, so the next project step is now an exposure draft (no date given)

Research projects

  • Financial instruments with characteristics of equity — feedback on the discussion paper is now expected in the first quarter of 2019 (was: first half of 2019)
  • Share-based payment — removed from the work plan as a research summary was published on 31 October 2018

Other projects

  • IFRS Taxonomy update — Common Practice (IFRS 13) — an analysis of the feedback received is now expected in January 2019 (was: first quarter of 2019)
  • Revisions to the Preface to IFRSs — newly added to the work plan; finalised wording is expected in December 2018

The above is a faithful comparison of the IASB work plan at 26 October 2018 and at 17 November 2018. For access to the current IASB work plan at any time, please click here.

EFRAG announces European Lab Steering Group membership

16 Nov, 2018

The European Financial Reporting Advisory Group (EFRAG) has announced the members to the European Lab Steering Group which will focus on non-financial reporting, including sustainability reporting.

The chairman of the European Lab Steering Group will be Jean-Paul Gauzès and vice-chairman will be Alain Deckers. The group’s membership includes:

  • Hilde Blomme, accountancy profession, Belgian
  • Ossian Ekdahl, company, Swedish
  • Simonetta Ferrari, company, Italian
  • Elisabeth Gambert, company, Austrian
  • Sebastien Godinot, civil society, French
  • Filip Gregor, civil society, Czech
  • Imre Guba, user, Hungarian
  • Albert Hasselmeyer, company, German
  • Nancy Kamp- Roelands, accountancy profession, Dutch
  • Esko Antero Kivisaari, financial services, Finnish
  • Arlene McCarthy, other stakeholders, Irish
  • Flavia Micilotta, user, Italian
  • Jason Mitchell, user, British
  • Linda Nielsen, academic, Danish
  • Steven Marcus Tebbe, civil society, German

The first meeting will occur on 27 November 2018. For more information, see the press release on the EFRAG’s website.

IASB tentatively decides to defer the IFRS 17 effective date

14 Nov, 2018

At its meeting currently held in London, the IASB discussed the effective date of IFRS 17 'Insurance Contracts' and tentatively decided to defer it to annual periods beginning on or after 1 January 2022. The IASB also tentatively decided to defer the fixed expiry date for the temporary exemption to IFRS 9 in IFRS 4 by one year so that all insurance entities must apply IFRS 9 for annual periods on or after 1 January 2022.

In its decision on the effective date of IFRS 17, the IASB followed the staff's line of argument that the Board plans to consider whether to explore amendments to IFRS 17 and that any uncertainty about those amendments could disrupt the progress of implementing IFRS 17. Together with the significant change that IFRS 17 will cause, this constitutes exceptional circumstances that justify the deferral. 14 Board members voted for deferring the effective date of IFRS 17.

The deferral of the fixed expiry date for the temporary exemption to IFRS 9 was a more contentious issue as the deferral would mean that some entities would not apply IFRS 9 up to four years after all other entities. However, the IASB concluded that without the deferral there would be two sets of major accounting changes in a short period of time resulting in significant cost and effort for preparers of financial statements. Avoidance of this had been the Board's original reason for providing the temporary exemption. 13 Board members voted for deferring the expiry date of the exemption.

The IASB has issued a press release noting the intended deferral.

Discussions at the fifth IASB Research Forum

12 Nov, 2018

The International Accounting Standards Board (IASB) hosted its fifth Research Forum on 11 and 12 November 2018 in Sydney. The meeting saw the presentation of six academic papers, responses by academics and standard-setters as well as panel discussions.

The first paper Non-GAAP Earnings and the Earnings Quality Trade-off used a large sample of earnings press releases by Australian firms and compared multiple attributes of non-GAAP earnings measures with their closest GAAP equivalent. The results, which other participants found to be "not surprising", were that, on average, non-GAAP earnings are more persistent, smoother, more value-relevant, and have higher predictive power than their closest GAAP equivalent. The tendency was also noted that they tend to be more positive than GAAP numbers. The question of what this research might contribute to the IASB's efforts quickly turned into the question of whether non-GAAP measures really are such a problem (opinions were divided) and whether it is at all possible to suppress them to a certain degree (by requiring more line items/subtotals/a defined management performance measure). Takeaways from the discussion seemed to be that there is no stopping of non-GAAP measures because even if all non-GAAP measures were declared GAAP, new non-GAAP measures would immediately be defined by companies. However, it was also acknowledge that there was simply not just one number that would satisfy all needs.

The second paper Disclosure Overload? An Empirical Analysis of IFRS Disclosure Requirements examined the disclosure overload problem by testing whether the disclosure reduction recommendations of the Excess Baggage Report issued by professional accounting bodies from Scotland and New Zealand in 2011 are associated with companies’ disclosure incentives and are value relevant for a sample of Australian listed companies. The discussion following the presentation seemed to be rather critical of the paper although it was acknowledged that it was important that the paper shows that there is substantial non-compliance with IFRS disclosure requirements in Australia. However, discussants continued to return to the point that while it is interesting to see that there is non-compliance it is more important to find out why. Also, the relevance of 2011 research checked against 2012 data in the year 2018 was questioned. The opinion was voiced that the disclosure overload problem has more or less gone away by itself thanks to technological development. The IASB is now focusing on the quality of disclosure, no longer on the amount of it.

The third paper Equity Financial Assets: A Tool for Earnings Management – A Case Study of Youngor Group was actually a case study illustrating how earnings were managed by a Chinese company by re-classifying its available-for-sale (AFS) assets as long-term equity investments to decrease the volatility of the company’s apparent profits. The paper claimed that China's adoption of IFRS converged standards in 2007 did not improve transparency about fair value. Among the reasons cited by the paper and by the discussants were an immature capital market, the cost of preparation, difficulties in level 3 estimates, generally unreliable numbers, cultural and legal differences (the term "Western standards" was used), and the "special treatment system" in China. Other participants added, however, that the same earnings management had been possible and had been done in other jurisdictions before IFRS 9 replaced IAS 39. Therefore, some of the earnings management might go away with an IFRS 9 equivalent that is being introduced in three stages in China and with the Chinese market maturing.

The fourth paper Accounting for Intangibles: Can Capitalization of R&D Reduce Real Effects and Improve Investment Efficiency?, which was later followed by a panel discussion on the same topic, investigated the potential for accounting rules to mitigate under-investment by requiring the capitalisation of some research and development costs or might such a capitalisation lead to over-investment? Panel members noted that as regards research and development costs, consistency and transparency was more important than the question of expensing vs. capitalisation. However, the investor representative noted, if asked directly, investors would probably prefer expensing. It was also noted that most industries move in unison on the question of whether and what to capitalise. The takeaway from the panel and the paper seemed to be that there is already a framework in place that if properly used and enforced can provide useful information. Participants even went as far as to say that there was no immediate pressing need for the IASB to take a project on intangibles onto its agenda.

The fifth paper Extractive Industries Reporting: A Research Review, again followed by a panel discussion, reviewed international diversity of accounting practices and the challenges facing information users and standard-setting processes and lobbying behaviour to explain why the IASB (and other standard-setters) have so far not succeeded in developing a rigorous standard for extractive activities and ESG factors. It was especially noted that the important aspect of reserves is only dealt with by disclosure although reserve estimates are required to be used in applying other standards. The paper argued that the IASB needs to take a comprehensive approach that also considers current values. The panel was less sure even though it admitted that there was diversity in practice. Nevertheless, panel members stressed the importance of disclosures and also voluntary disclosures. Mining companies needed to be in strong communication with their investors: "The better you disclose, the more the market will reward you." The panel and audience could also not quite conclude that an industry specific standard is needed for extractive activities although there was consensus that IFRS 6 is not satisfactory and consistency and comparability is needed.

The last paper Independently-certified Industry-specific Disclosures to the Capital Market: The JORC Code in the Australian Mining Industry investigate the compliance with the Australian JORC Code for the mining industry, the quality of the disclosure and its impact on the Australian capital market. The paper was very comprehensive, looking at two research questions and a large amount of data from multiple firms with various analyses. While the relevance of the research and its encouraging results (standard-setting can have a positive impact) were noted it was therefore suggested to split the paper actually into two papers. The relevance for standard-setting was then drilled into by asking after the impact of the standard-setting and the reasons for it, after disclosure vs. recognition and measurement, after the presentation inside or outside the financial statements and the user responses. Concluding, the Chair of the Australian standard-setter encouraged all academics in the audience: "Be brave!" She stressed that standard-setters are eager to be in dialogue with the research community and would always welcome the communication of research results when the findings were clear (also clear about definitions, methodologies, and limitations) and also included clear recommendations.

    All links to the papers above are to the IASB website. Final versions of the papers will be included in a special edition of ABACUS early next year.

    The IASB has issued a short press release on the Research Forum.

    Charity Commission and OSCR issue further ‘Update Bulletin’ amending the Charities SORP (FRS 102) as a result of changes to UK Accounting Standards

    08 Nov, 2018

    The Charity Commission for England and Wales (‘Charity Commission’) and the Office of the Scottish Charity Regulator (OSCR) have published a further ‘Update Bulletin 2’ which amends the Charities SORP (FRS 102) as a result of changes to UK Accounting Standards.

    The Charity Commission for England and Wales (‘Charity Commission’) and the Office of the Scottish Charity Regulator (OSCR) have published a further ‘Update Bulletin 2’ which amends the Charities SORP (FRS 102) as a result of changes to UK Accounting Standards.

    SORPs issued by the Charity Commission and OSCR apply to charities preparing accounts under UK GAAP to present a ‘true and fair view’ and are intended to supplement accounting standards and other legal and regulatory requirements to reflect transactions or circumstances that are unique within the charities sector.

    The Update Bulletin 2 amends the Charities SORP (FRS 102), that was issued in July 2014, in the following key areas:

    • Clarifying amendments – such amendments have been made to ensure that the Charities SORP (FRS 102) is consistent with existing requirements of FRS 102:
      • Module 3: Accounting standards, policies, concepts and principles, including adjustment of estimates and errors: clarifying the existing requirement to provide comparative information.
      • Module 5: Recognition of income, including legacies, grants and contract income: clarifying when payments by subsidiaries to their charitable parents that qualify for gift aid should be accrued in the individual accounts of the parent charity.
      • Module 10: Balance Sheet: removing the undue cost or effort exemption for depreciating assets comprising of two or more major components which have substantially different useful economic lives.
      • Module 13: Events after the end of the reporting period: clarifying when payments by subsidiaries to their charitable parents that qualify for gift aid are adjusting events occurring after the end of the reporting period.
    • Significant amendments (Section 4) - as a result of the Triennial review of FRS 102:
      • Accounting and Reporting by Charities: The Statement of Recommended Practice (SORP) - Scope and Application module: inserting the date from when the amendments in this Update Bulletin are effective;
      • Module 10: Balance Sheet:
        • permitting charities that rent investment property to another group entity to measure the investment property either at cost (less depreciation and impairment) or at fair value;
        • removing the undue cost or effort exemption for the investment property component of mixed use property to require measurement at fair value;
        • removing the disclosure of stocks recognised as an expense;
      • Module 14: Statement of cash flows: requiring charities to prepare a reconciliation of net debt as a note to the statement of cash flows;
      • Module 27: Charity mergers: including the transfer of activities to a subsidiary undertaking as an example of a charity reconstruction that should be accounted for as a merger; and
      • Appendix 1: Glossary: inserting a definition of the term service potential.

    Additionally a number of editorial amendments have been made which are set out in section 5 of the Update Bulletin 2. The amendments to Section 4 (significant amendments) and Section 5 (editorial and less significant amendments) are effective for accounting periods beginning on or after 1 January 2019. Early application is permitted provided all amendments in both sections are applied at the same time.

    As these changes are included within an Update Bulletin to the Charities SORP (FRS 102) rather than reissuing the Charities SORP (FRS 102), charities following the Charities SORP (FRS 102) will have to refer Update Bulletin 1 (issued in February 2016), Update Bulletin 2 and the Charities SORP (FRS 102) when preparing their accounts and reports.

    Click for:

    CRD announces two-year project for better alignment

    08 Nov, 2018

    At the World Congress of Accountants in Sydney, Australia, the Corporate Reporting Dialogue (CRD), which brings together organisations that have significant international influence on the corporate reporting landscape, has announced two-year project focused on aligning the standards and frameworks of its members.

    The Corporate Reporting Dialogue was launched in June 2014 as a way to achieve dialogue and alignment between some of the key standard-setters and framework developers around the world. It includes the Carbon Disclosure Project (CDP), the Climate Disclosure Standards Board (CDSB), the Financial Accounting Standards Board (FASB, observer), the International Accounting Standards Board (IASB), the Global Reporting Initiative (GRI), the International Organization for Standardization (ISO), the Sustainability Accounting Standards Board (SASB), and is convened by the International Integrated Reporting Council (IIRC).

    CRD participants hold regular meetings to share their views and provide further cooperation. They have already released a common map of the reporting landscape (May 2015) and a materiality statement (March 2016). Under the new project, participants will work on aligning their standards with the recommendations published by the Task Force on Climate-related Financial Disclosure (TCFD) in June 2017. They will map their respective sustainability standards and frameworks to identify the commonalities and differences between them, jointly refining and continuously improving overlapping disclosures and data points to achieve better alignment, taking into account the different focuses, audiences and governance procedures.

    Importantly, participants will also identify how non-financial metrics relate to financial outcomes and how this can be integrated in mainstream reports. This work will be undertaken with the overview of financial standard-setters with the ultimate aim of integrating financial and non-financial reporting.

    Please click for the participants' joint press release on the IIRC website.

    SASB issues industry-specific sustainability accounting standards

    08 Nov, 2018

    The US Sustainability Accounting Standards Board (SASB) has issued the world's first set of industry-specific sustainability accounting standards covering financially material issues in 77 industries. The standards aim at providing investors with in-depth information about the impact of a company’s actions on society and the environment - they come at a time of increased investor concern about companies' business practices.

    What makes the standards unique in the marketplace is their focus on industry specificity and financial materiality. By addressing the subset of sustainability factors most likely to have financially material impacts on the typical company in an industry, SASB’s industry-specific standards help investors and companies make more informed decisions. They are global in nature and contain concepts that are important for investors and businesses around the world.

    The release marks a six-year effort by the SASB. Over the course of those six years, the SASB released several sets of provisional standards for different industries, which have already been used by companies around the world. The SASB standards can be used alongside other sustainability frameworks and are well-aligned with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and are complementary to the Global Reporting Initiative (GRI).

    Please click to access the SASB press release. The SASB standards can be downloaded here.

    FRC Lab guidance on reporting performance metrics

    07 Nov, 2018

    The Financial Reporting Lab of the Financial Reporting Council (FRC) has published guidance for companies on the presentation of performance metrics in their reporting following calls for clarity from investors.

    Performance metrics – Principles and practice includes examples of how companies can apply the principles outlined in the Lab’s earlier project report Performance metrics - an investor perspective published in June 2018. That report found that investors wanted performance metrics to be aligned to strategy, transparent, in context, reliable and consistent.

    Please click to access the guidance on the FRC website.

    Summary of the October 2018 ASAF meeting now available

    07 Nov, 2018

    The staff of the International Accounting Standards Board (IASB) have made available a summary of the discussions of the Accounting Standards Advisory Forum (ASAF) meeting held in London on 4 October 2018.

    The topics covered during the meeting were the following (numbers in brackets are ref­er­ences to the cor­re­spond­ing para­graphs of the summary):

    • Financial in­stru­ments with char­ac­ter­is­tics of equity (1–18): The ASAF members discusses views and feedback on the Dis­cus­sion Paper Financial In­stru­ments with Char­ac­ter­is­tics of Equity issued in June 2018.
    • IFRS 3 Business Combinations reference to the Conceptual Framework (19–27): ASAF members discussed problems that could arise if an existing reference in IFRS 3 to the Framework for the Preparation and Presentation of Financial Statements were replaced with a reference to the 2018 Conceptual Framework.
    • Extended external reporting (28–36): ASAF members gave feedback on the New Zealand’s External Reporting Board’s research on preparers of corporate reports and users of EER information.
    • Accounting policies and accounting estimates (37–50): ASAF members provided their views on the definition of accounting estimate and accounting policy and were updated on feedback received from the IFRS Interpretations Committee.
    • Rate-regulated activities (51–58): ASAF members provided their views on disclosure objectives and requirements for defined rate regulation.
    • Extractive activities (59–64): The ASAF members provided information on what significant changes since the issuance of the 2010 Discussion Paper Extractive Activities.
    • Project updates and agenda planning (65–70): ASAF members discussed the proposed agenda for the December 2018 ASAF meeting, disclosure initiative, and goodwill and impairment.

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

    Pre-meeting summaries for the November IASB meeting

    07 Nov, 2018

    The IASB is meeting on Wednesday 14 and Thursday 15 November 2018. 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.

    The Wednesday sessions start with the Board considering whether to defer the effective date of IFRS 17 Insurance Contracts (and the the related temporary exemption to IFRS 9 Financial Instruments) by a year. 

    In the Primary Financial Statements discussion, the staff are recommending that EBITDA not be a required sub-total and that if an entity does use that term the measure must be calculated as “profit or loss minus all interest income and plus all interest expense, income tax, and depreciation and amortisation.”  They also recommend that the Board develop non-mandatory illustrative examples to accompany a revised IAS 1 Presentation of Financial Statements, remove the requirement in IAS 1:82(b) to present “finance costs” in the statement(s) of financial performance and clarify how the minimum line items are presented.

    The Board will discuss three implementation issues. The staff are recommending changes to the proposed amendments to IAS 16 Property, Plant and Equipment in relation to accounting for the proceeds from selling any items produced while testing an asset. The staff are now recommending that the proceeds not be recognised as income, but continue to be deducted from the cost of the asset. The staff are recommending that the Board not start a project on accounting for cryptocurrencies or ICOs. Instead, they think the Board should monitor developments in these areas and ask the IFRS Interpretations Committee to consider issuing an Agenda Decision on the accounting for cryptocurrency holdings. Lastly, the staff are recommending that the Exposure Draft proposing amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets in relation to costs of fulfilling a contract also propose that early application be permitted.

    The staff describe how they expect to manage the Management Commentary project using three work streams. The staff also set out the recommended objective of management commentary.

    The Thursday sessions start with recommendations on how the Board should finalise proposed amendments to IAS 1 in relation to Classification of Liabilities as Current or Non-current.

    The Board will consider a recommendation to update a reference to the Conceptual Framework in IFRS 3 Business Combinations

    The proposed model for Rate-regulated Activities supplements the information provided by applying current IFRS Standards. The staff have assessed how the proposed model interacts with those other Standards. The papers also include recommendations about what information should be presented about rate-regulated activities.

    More in­for­ma­tion

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

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