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2018

IFRS Foundation announces technology initiative

05 Nov 2018

The IFRS Foundation has announced the launch of its technology initiative. The technology initiative will consider how changes in technology may affect the work done by the IASB in certain areas.

Specifically, the technology initiative will investigate how automation, AI, and the consumption of big data may affect accounting, financial reporting, standard-setting process, and stakeholder engagement.

For more information, see the press release on the IASB’s website.

FRC publishes the results of IFRS 9 and 15 thematic reviews

05 Nov 2018

The Financial Reporting Council (FRC) has published the results of its thematic reviews looking at the disclosures made by companies on the impact of IFRS 9 ‘Financial Instruments’ and IFRS 15 ‘Revenue from Contracts with Customers’ in their June 2018 interim reports.

It is hoped that the results of the thematic reviews will help companies improve the quality of their corporate reporting in relation to the new accounting standards. By using the better practice examples companies will also be able to benchmark the quality of their own disclosures in their upcoming annual reports and accounts.

IFRS 15 thematic review

The FRC’s review consisted of a limited scope desktop review of the interim financial statements of a sample of companies. The sample was skewed towards those industries which the FRC considered the impact of IFRS 15 would be felt most – telecommunications, aerospace and defence and software industries. The FRC assessed the adequacy of disclosures regarding the effect of the transition to IFRS 15 in the first year of adoption.

The FRC’s review identified a number of areas where disclosure could be improved especially with respect to explanations of the impact of adoption of IFRS 15. It highlights that the best disclosures were those that were specific to the company and that provided additional detail for the benefit of providing a relevant and robust explanation of the impact of IFRS 15. The FRC indicates that it expects much improved disclosures in December 2018 year-end reports.

Companies are encouraged to invest sufficient time during their year-end preparation to ensure that:

  • explanations of the impact of transition are comprehensive and linked to other relevant information in the annual report and accounts;
  • changes to revenue policies are clearly described and explained, reflecting company specific information – as are any associated management judgements;
  • performance obligations are identified and explained, with a focus on how they have been determined and the timing of delivery to the customer; and
  • the impact of the standard on the balance sheet is also addressed, including accounting policies for contract assets and liabilities.

IFRS 9 thematic review

The FRC’s review consisted of a limited scope desktop review of the interim financial statements of a sample of companies. The sample was skewed towards banking entities including one building society and also one life insurance company who had adopted the deferral method.

The main impact of IFRS 9 will be felt by banks and the FRC thematic review focused on the adequacy of disclosures regarding the effect of the transition to IFRS 9 in the first year of adoption.

The FRC review highlights some areas where disclosure could be improved and some areas where no disclosure had been provided at all. In particular, the FRC highlights that some smaller banks did not sufficiently explain the impact of adopting IFRS 9. As with IFRS 15, the FRC expects much improved disclosures in December 2018 year-end reports.

Companies are encouraged to invest sufficient time during their year-end preparation to ensure that:

  • explanations of the impact of transition are comprehensive, and are linked to other information disclosed in the annual report;
  • changes made to accounting policies (including the reasons for these changes and associated judgements) are clearly articulated and convey company-specific information;
  • disclosures are sufficiently granular to enable users to understand the impact on the business and key portfolios; and
  • there is clear linkage to the business model and risk management strategy which underpin the classification and hedging requirements of IFRS 9.

The FRC has indicated that it will challenge companies who do not provide an adequate level of disclosure about the impact of new standards through its regular accounts review process next year. It will also perform follow up reviews on companies’ disclosures around IFRS 9 and IFRS 15 and their impact in a sample of annual reports where compliance will be assessed against the more extensive set of year end disclosure requirements.

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November 2018 IASB meeting agenda posted, IFRS 17 effective date to be discussed

03 Nov 2018

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 14 and 15 November 2018. There are seven topics on the agenda, most notably IFRS 17 'Insurance Contracts' and a possible deferral of the effective date of the standard.

The paper prepared by the staff on IFRS 17 provides background to the discussion and considers the implications of exploring amendments to IFRS 17 on the effective date of IFRS 17 and on the fixed expiry date for the temporary exemption to IFRS 9. It then asks two questions of the Board:

  • Given the Board plans to consider whether to explore amendments to IFRS 17, should the mandatory effective date of IFRS 17 be deferred by one year to 2022?
  • If the Board were to defer the mandatory effective date of IFRS 17 by one year, should the fixed expiry date for the temporary exemption to IFRS 9 in IFRS 4 also be deferred to 2022?

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. The IFRS 17 paper is available here on the IASB website.

FRC calls for participants for its new project on the future of corporate reporting

02 Nov 2018

The Financial Reporting Council (FRC) is calling for participants for its next project on the future of corporate reporting. The project will challenge the existing thinking about corporate reporting and how companies should better meet the information needs of shareholders and stakeholders.

The FRC will review current financial and non-financial reporting practices, consider what information investors and other stakeholders require and the purpose of corporate reporting and the annual report.  The project will also consider the different types of corporate communication produced by companies.

It is expected that the FRC will publish a thought leadership on the outcome of this project during the second half of 2019.  The project will be supported by an advisory group and the FRC is calling for up to 15 participants to join the group.  The deadline for nominations is 15 November 2018.

The FRC press release provides more information and details on how to join the advisory group.

EFRAG publishes October 2018 issue of 'EFRAG Update'

02 Nov 2018

The European Financial Reporting Advisory Group (EFRAG) has published an 'EFRAG Update' summarising public technical discussions held and decisions made during October 2018.

Stephen Haddrill to step down as Chief Executive Officer of the FRC

02 Nov 2018

Stephen Haddrill the Chief Executive Officer of the Financial Reporting Council (FRC) has informed the Board of the FRC that he intends to step down from his role in late 2019.

A press release with further details is available on the FRC website.

Insurance contracts transition resource group meeting rescheduled

01 Nov 2018

The meeting for the next transition resource group (TRG) for IFRS 17 ‘Insurance Contracts’ has been rescheduled from 4 December 2018 to 4 April 2019.

The TRG meeting has been rescheduled to allow additional time for submission of implementation questions and due to the limited number and narrow scope of submissions received since the September 2018 TRG meeting. For more information, see the press release on the IASB’s website.

EFRAG publishes two FICE bulletins

01 Nov 2018

The European Financial Reporting Advisory Group (EFRAG) has issued two bulletins to help constituents better understand the IASB’s discussion paper DP/2018/1 'Financial Instruments with Characteristics of Equity' and participate in the debate on it.

The two bulletins cover (1) the classification criteria included in the DP and (2) the presentation and disclosure requirements included in the DP.

Both bulletins can be accessed through the press release on the EFRAG website.

IASB issues summary of share-based payment research project

31 Oct 2018

The International Accounting Standards Board (IASB) has issued 'Share-based Payment — Research on Sources of Accounting Complexity’, which summarises the work performed and conclusions reached in the share-based payment research project.

Specifically, the project summary provides the following information:

  • At a glance — a high-level look at why the board performed this research, summary of findings, and feedback and conclusions.
  • Sources of information — sources used by the staff to conduct their research.
  • Research findings — summaries on variety and complexity of terms and conditions of share-based payments, grant-date fair value measurement, and disclosures.
  • Feedback on research findings and conclusions.
  • Measurement models in IFRS 2.
  • A look at what the information required by IFRS 2 tell users of financial statements.
  • Implications of other projects and IFRS Standards to IFRS2.

For more information, see the press release and project summary on the IASB’s Web site.

IASB finalises amendments to IAS 1 and IAS 8 regarding the definition of materiality

31 Oct 2018

The International Accounting Standards Board (IASB) has issued 'Definition of Material (Amendments to IAS 1 and IAS 8)' to clarify the definition of ‘material’ and to align the definition used in the Conceptual Framework and the standards themselves.

 

Background

The materiality project arose as part of the IASB's Disclosure initiative started in 2012. The first document published as part of this project was the May 2013 feedback statement Discussion Forum – Financial Reporting Disclosure, which outlined the IASB's intention to consider a number of further initiatives, including a project on materiality, seeking to develop application guidance or educational material on materiality, with input from an advisory group.

A draft practice statement on materiality was published on 28 October 2015, however, subsequently it became clear that some of the proposed guidance needed to be authoritative to have the desired effect, so the project was split up into a part that would see a practice statement published and a part that was intended to result in amendments to IAS 1 and IAS 8. The finalised Practice Statement Making Materiality Judgements was published in September 2017 at the same time as an exposure draft ED/2017/6 Definition of Material (Proposed amendments to IAS 1 and IAS 8), which is being finalised today.

 

Changes and reasoning behind the changes

The changes in Definition of Material (Amendments to IAS 1 and IAS 8) all relate to a revised definition of 'material' which is quoted below from the final amendments:

Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.

Three new aspects of the new definition should especially be noted:

  • Obscuring. The existing definition only focused on omitting or misstating information, however, the Board concluded that obscuring material information with information that can be omitted can have a similar effect. Although the term obscuring is new in the definition, it was already part of IAS 1 (IAS 1.30A).
  • Could reasonably be expected to influence. The existing definition referred to 'could influence' which the Board felt might be understood as requiring too much information as almost anything ‘could’ influence the decisions of some users even if the possibility is remote.
  • Primary users. The existing definition referred only to 'users' which again the Board feared might be understood too broadly as requiring to consider all possible users of financial statements when deciding what information to disclose.

During redeliberations, the Board spent a lot of time on discussing what constitutes obscuring information. The amendments stress especially five ways material information can be obscured:

  • if the language regarding a material item, transaction or other event is vague or unclear;
  • if information regarding a material item, transaction or other event is scattered in different places in the financial statements;
  • if dissimilar items, transactions or other events are inappropriately aggregated;
  • if similar items, transactions or other events are inappropriately disaggregated; and
  • if material information is hidden by immaterial information to the extent that it becomes unclear what information is material.

The new definition of material and the accompanying explanatory paragraphs are contained in IAS 1 Presentation of Financial Statements. The defintion of material in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors has been replaced with a reference to IAS 1.

 

Effective date

The amendments are effective for annual reporting periods beginning on or after 1 January 2020. Earlier application is permitted.

 

Additional information

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