The paper, which is intended to stimulate debate, provides recommendations that

• suggest changes in boards’ roles and practice
• propose legislative and non-legislative actions by EU and national policymakers and regulators

Comments and feedback on the paper are welcome by 1 October 2019.

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

The guidance is designed to help companies and other interested parties to understand the new reporting requirements in the Regulations, which were made on 22 May 2019 and took effect from 10 June 2019. It provides an overview of the changes and addresses some frequently asked questions, including explaining the scope of the Regulations and the timing of application.

The guidance is available on the Government website.

For our previous news item on the Regulations, please click here.

EFRAG agrees that most IASB proposals will improve the Due Process Handbook; however, it proposes that major projects should have detailed effect analysis reports issued when key due process documents are issued. In ad­di­tional, the EFRAG suggests that the IASB should “ensure in its due process that agenda decisions only contain explanatory material and references to the mandatory content of IFRS Standards and that diversity in practice and IFRS-like guidance is addressed through standard-setting such as through the annual improvements process.”

Comments on EFRAG's draft comment letter are requested by 12 July 2019. For more in­for­ma­tion, see the press release and the draft comment letter on the EFRAG website.

New Issues

The Committee decided to publish seven new tentative Agenda Decisions. These summaries reflect our understanding from the Committee’s discussions. The tentative decisions will be published in due course.  

IFRS 16 Leases — Incremental borrowing rate —The definition of incremental borrowing rate does not explicitly require a lessee to determine its incremental borrowing rate to reflect the interest rate in a loan with a similar payment profile to the lease payments.

IFRS 16 Leases — Lease term and useful life of leasehold improvement — (a) An  entity considers the economics of a contract when determining the enforceable period of the lease, and not only any contractual termination payment (such as the cost of abandoning or dismantling leasehold improvements). (b) IAS 16 provides sufficient guidance to enable an entity to determine the useful life of non-removable leasehold improvements. The life is not limited to the lease term of the related lease but the lease term must be considered in determining the useful life.

IFRS 9 Financial Instruments — Fair value hedge of foreign currency risk on non-financial assets — Foreign currency risk can be a separately identifiable and reliably measurable risk component of a non-financial asset held for consumption  that an entity can designate as the hedged item in a fair value hedge accounting relationship. 

IAS 7 Statement of Cash Flows — Changes in liabilities arising from financing activities — The requirements in IAS 7 for information about changes in liabilities arising from financing activities required by IAS 7 are clear.

IAS 1 Presentation of Financial Statements — Presentation of an uncertain tax position — A liability related to uncertain tax treatments is a current (or deferred) tax liability and not a provision.

IFRS 15 Revenue from Contracts with Customers — Compensation for delays or cancellations — An an obligation to compensate customers for delayed or cancelled flights (as set out in legislation) is recognised as part of the transaction price and not an obligation in accordance with IAS 37.

IAS 41 Agriculture — Subsequent expenditure — IAS 41 allows an entity to Capitalise or expense the costs related to the biological transformation of biological assets.

Agenda decisions finalised

The Committee finalised four tentative agenda decisions.

IFRS 15 Revenue from Contracts with Customers — Costs to fulfil a contract — When revenue is recognised over time (in this case from a property sale, using the output method to measure progress) any costs incurred to fulfil the performance obligation are recognised as an expense when they are incurred.

IFRS 16 Leases — subsurface rights — When a contract between a land owner and another party gives the other party the right to place an oil pipeline in a specified underground space, with the land owner retaining the right to use the surface area of the land above the pipeline, that contract contains a lease.

IAS 19 Employee Benefits — Effect of a potential discount on plan classification — The existence of a potential discount on the contribution an entity is obliged to make to a post-employment benefit plan, if the ratio of plan asserts to plan liabilities exceeds a set level, does not preclude the plan from being a defined contribution plan.

Holdings of a cryptocurrency — A cryptocurrency does not meet the definitions of cash or a financial asset. It meets the definition of an intangible asset is accounted for in accordance with IAS 38, unless it the cryptocurrency is held for sale in the ordinary course of business—in which case IAS 2 applies.

Continuing discussions

The Committee discussed potential narrow-scope amendments to IAS 21 to define “exchangeability” and a “lack of exchangeability” and specify the requirements that would apply when there a lack of exchangeability in a currency.

Work in progress

The staff have received requests in relation to the definition of a lease and foreign operations in consolidated financial statements. The staff are in the process of analysing those matters.

More information

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

As part of its ongoing endorsement activities relating to IFRS 17 Insurance Contracts, the European Financial Reporting Advisory Group (EFRAG) is considering the interaction of IFRS 9 Financial Instruments with IFRS 17 specifically in the area of hedge accounting.

The questionnaire considers the following aspects:

• Current economic hedging strategies
• Accounting for current economic hedging strategies
• Future economic hedging strategies
• Application of IFRS 9 (including continued use of IAS 39 hedge accounting)
• Economic mismatches
• IFRS 9 and risk mitigation under IFRS 17

Responses to the questionnaire are requested by 16 September 2019.

Please click for more information on the EFRAG website.

Goodwill and impairment: The staff aim to begin the process for preparing a Discussion Paper in July or September and to publish it towards the end of this year.  At this meeting the staff will ask the Board to decide which preliminary views it wishes to express in the DP and are recommending:

• a) New disclosure objectives about the rationale for the business combination and disclosure requirements about how the entity plans to assess whether the combination is meeting its objectives and the measures reported to the CDOM
• b) That the amortisation of goodwill not be reintroduced.
• c) That the requirement to undertake a quantitative impairment test annually be removed and replaced with an impairment-indicator approach (for goodwill and intangible assets with indefinite useful lives or not yet available for use).
• d) removing the requirement to exclude from the calculation of value-in-use cash flows that are expected to arise from a future restructuring or enhancement, but with a ‘more likely than not’ threshold for the inclusion of cash flows associated with future restructurings or enhancements and a requirement to disclose information about future restructurings or enhancements.
• e) Removing references to pre-tax cash flows and discount rates and instead requiring that the assumptions about cash flows and discount rates be internally consistent.

The staff will also ask the Board if it wants to include a preliminary view that a subtotal of total equity before goodwill be presented in the statement of financial position?

Primary Financial Statements: This is the last meeting planned before the staff intend to begin the process of preparing an exposure draft that will propose a replacement of, or revisions to, IAS 1. At this meeting, the staff recommend that:

• a) exchange differences and gains and losses on derivatives be classified into the section (i.e operating, financing or investing) to which they relate, with special guidance for derivatives;
• b) incremental expenses related to an investment (those expenses that would not have been incurred if the investment had not been made) be classified as investing;
• c) the income tax effect of MPM adjustments be based on a reasonable pro-rata allocation of the current and deferred tax of the entity in the tax jurisdiction, or another method which achieves more appropriate allocation, and the approach taken disclosed;
• d) entities not be required to disclose how and why the MPM differs from the total of the measure of profit or loss for the reportable segments, which would reverse a previous decision; and
• e) the requirements not be effective for at least two years after publication and that comparative information would be required to be reclassified.

Proposed amendments to IAS 16: The staff recommend that the Board finalise the proposal to require that proceeds generated when testing if an asset is functioning be recognised in income (rather than a reduction of the cost of the asset) and to clarify the meaning of ‘testing’. 

Rate-regulated activities: The staff aim to begin the process for preparing an exposure draft in July or September and to publish it in the first quarter next year. At this meeting, the staff recommend that:

• a) the model not include a statement that the unit of account is individual timing differences;
• b) the descriptions of the scope criteria and the definitions of regulatory assets and liabilities be refined, a reference to fines payable be included in the explanation of total allowed compensation and that the Board retain its earlier decisions about recognition and not develop further derecognition requirements;
• c) regulatory assets and liabilities be measured by discounting the estimated future cash flows arising from the regulatory assets (including the cash flows relating to the regulatory interest or return), using the regulatory interest or return rate unless there is any indication that that rate is not adequate. An exception is regulatory assets and liabilities that relate to expenses or income that will be included in/deducted from the future rate(s) when cash is paid/received. They are adjusted for risks that are not present in the related liability or asset.
• d) the model not include a separate step to assess whether the effects of the time value of money and risks inherent in the cash flows are significant or a practical expedient that would avoid the need for discounting if the effects of the time and risks are not significant.
• e) an indicator-based approach be used to assess whether the regulatory interest rate or return rate is adequate. The minimum adequate rate is one that the entity would expect to receive for a stream of cash flows with the same timing and uncertainty as those of the regulatory asset. If the rate provided by the agreement is inadequate the minimum adequate rate is used for initial and subsequent measurement. The same measurement requirements apply to regulatory liabilities and assets, except in the limited circumstances when that rate is affected by an identifiable event or transaction that should be recognised separately.
• f) Regulatory income and expense that is related to a particular income or expense line item be presented immediately above or below that line item (for both profit or loss and OCI line items) with all other regulatory income and expenses presented immediately below the revenue line in profit or loss. Regulatory interest or returns accrued on regulatory assets or liabilities must be disclosed as a separate caption (either in the breakdown of regulatory income/expense for the period or the regulatory asset and liability reconciliations).

There are also papers summarising the similarities and differences between the proposed model and US GAAP requirements and the Board’s tentative decisions to date.

Business Combinations under Common Control: The staff will explain why they think that distinguishing between combinations in which the non-controlling shareholders of the receiving entity get a residual interest in the transferred entities or businesses is a viable approach to explore in determining when to apply a current value approach, and when to apply a form of a predecessor approach.

Financial instruments with the characteristics of equity: The staff will present detailed analysis of the comment letter feedback received about the Discussion Paper on a selection of topics: The Board’s preferred approach; Classification of non-derivative financial instruments; Classification of derivative financial instruments; Compound instruments and redemption obligation arrangements; the Puttable exception; and IFRIC 2 instruments. 

Comprehensive review of the IFRS for SMEs Standard: The Board plans to issue a Request for Information (RFI) in the second half of 2019. The staff are recommending that the RFI propose that IFRS 13 Fair value Measurement, IFRS 9 Financial Instruments and IFRS 16 Leases be incorporated in the SME Standard, with some simplifications but that IFRS 14 Regulatory Deferral Accounts not be incorporated.

More information

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

Under the enhanced collaboration, both organisations promote the SDGs as a framework "to translate global needs and ambitions into business solutions, helping companies to better manage operational and regulatory risks while also unlocking potentially historic market opportunities".

Under the updated MoU, UNCTAD and the IIRC will collaborate around the methodology for SDG Indicator 12.6.1 and to increase support for the SDGs in the market.  The collaboration also reaffirms the role of business in helping to achieve the SGD's, in particular SDG Target 12.6, which is to encourage companies, especially large and transnational companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle.

For further information read the announcement on the IIRC website.

The agenda is sum­marised below:

Agenda papers for this meeting are available on the IASB website.

The following new translations are now available:

• Farsi translation of the 2018 Blue Book; available on the IASB’s eIFRS website;
• Japanese translations of the following exposure drafts:
  • Exposure Draft ED/2019/1 Interest Rate Benchmark Reform (Proposed amendments to IFRS 9 and IAS 39) - available on the IASB's open to comment website;
    
  • Exposure Draft Proposed amendments to the IFRS Foundation Due Process Handbook - available on the IASB's open to comment website;
  • Exposure Draft ED/2019/2 Annual Improvements to IFRS Standards 2018–2020 - available on the IASB's open to comment website; and
  • Exposure Draft ED/2019/3 Reference to the Conceptual Framework (Proposed amendments to IFRS 3) - available on the IASB's open to comment website;
• Romanian translation of IFRS 17 Insurance Contracts and IFRIC 23 Uncertainty over Income Tax Treatments - available through the IASB's webshop or eIFRS Professional (neither access free of charge);
• Serbian translation of the  2015 IFRS for SMEs - available through the IASB's webshop (access not free of charge); and
• Spanish translation of Exposure Draft ED/2019/1 Interest Rate Benchmark Reform (Proposed amendments to IFRS 9 and IAS 39) - available on the IASB's open to comment website.

In most cases the consultation revealed a difference of opinion between on the one hand report preparers and on the other hand supervisory and enforcement authorities and users of reported information. In general, preparers argued for fewer recommended disclosures, while non-governmental organisations and supervisory and enforcement authorities supported most of the proposals contained in the consultation document and in some cases suggested that they be strengthened in various ways. Investors and financial sector companies were generally supportive of the proposed disclosures as far as investee companies were concerned, but also argued that they themselves would find it difficult to meet the expectations expressed in the consultation document until disclosure by investee companies improved.

Please click to access the full report on the EC website.  To access the final guidelines published in June 2019 click here.