IASB issues podcast on latest Board developments

31 Jul, 2019

The IASB has released a podcast featuring Chair Hans Hoogervorst, Vice-Chair Sue Lloyd, and communications team member Kasia Gilewska to discuss the deliberations at the July 2019 IASB meeting as well as other recent developments.

The 18-minute podcast features discussions of the following topics in more detail:

  • the IASB's recent meeting with the Accounting Standards Advisory Forum (ASAF);
  • IASB projects on goodwill and impairment, primary financial statements and rate-regulated activities;
  • deliberations on stakeholders’ feedback on the Exposure Draft on interest rate benchmark reform (IBOR);
  • the dynamic risk management model;
  • progress on Management Commentary, the review of The IFRS for SMEs Standard, and the Disclosure Initiative.

The podcast can be accessed through the press release on the IASB website. More information on the topics discussed is available through our comprehensive notes taken by Deloitte observers at the July IASB meeting.

IASB issues 'Investor Update' newsletter

31 Jul, 2019

The IASB has issued the nineteenth edition of its newsletter 'Investor Update', which provides investors with quick access to information about current accounting and financial reporting topics.

This issue features:

  • Spotlight — Intangible resources and financial reporting—an evolving debate
  • In profile—Jacques De Greling, Scope Ratings
  • We need your views
  • Stay up to date
  • Resources for investors

The Investor Update newsletter is available on the IASB’s website.

Updated IASB work plan — Analysis (July 2019)

29 Jul, 2019

Following the IASB's July 2019 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 June.

Below is an analysis of all changes that were made to the work plan since our last analysis on 24 June 2019.

Stan­dard-set­ting projects

  • Management commentary — The expected timing of an exposure draft has been moved to the second half of 2020 (previously first half of 2020).
  • Primary financial statements — The expected date of an exposure draft has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).

Main­te­nance projects

  • 2019 Comprehensive review of the IFRS for SMEs Standard — The expected date for the request for information has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Accounting policies and accounting estimates (amendments to IAS 8) — A decision on this project’s direction will occur in the fourth quarter of 2019.
  • Amendments to IFRS 17 — Discussions on feedback received on the exposure draft is expected to occur in the fourth quarter of 2019.
  • Classification of liabilities as current or non-current (amendments to IAS 1) — The expected date for the IFRS amendments has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Deferred tax related to assets and liabilities arising from a single transaction (amendments to IAS 12) — This project is now in the exposure draft comment letter phase. Comments are requested by 14 November 2019.
  • Disclosure initiative — Accounting policies — The work plan still notes that an exposure draft is expected in September 2019, however, the IASB has separately communicated that it expects to publish the ED on 1 August 2019
  • Fees in the ’10 per cent’ test for derecognition of financial liabilities (amendments to IFRS 9) — Discussions on feedback received on the exposure draft is expected to occur in the fourth quarter of 2019.
  • IBOR reform and its effects on financial reporting (Phase 1) — Discussions on feedback received on the exposure draft has been narrowed down to occur in September 2019 (previously third quarter of 2019).
  • Lease incentives (amendments to illustrative example 13 accompanying IFRS 16) — Discussion on feedback received on the exposure draft are expected to occur in the fourth quarter of 2019.
  • Onerous contracts — cost of fulfilling a contract (amendments to IAS 37) — A decision on this project’s direction will occur in September 2019.
  • Property, plant and equipment: Proceeds before intended use (amendments to IAS 16) — IFRS amendments are expected in the first quarter of 2020.
  • Subsidiary as a first-time adopter (amendments to IFRS 1) — Discussion on feedback received on the exposure draft are expected to occur in the fourth quarter of 2019.
  • Taxation in fair value measurements (amendments to IAS 41) — Discussion on feedback received on the exposure draft are expected to occur in the fourth quarter of 2019.

Research projects

  • Dynamic risk management — The expected date for the core model has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Extractive activities — The expected date to review the research has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Financial instruments with characteristics of equity — A decision on this project’s direction has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Goodwill and impairment — The expected date of the discussion paper has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Pension benefits that depend on asset returns — The expected date to review the research has been narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Provisions — The expected date to review the research has be narrowed down to the fourth quarter of 2019 (previously second half of 2019).
  • Subsidiaries that are SMEs — The expected date to review the research has be narrowed down to the fourth quarter of 2019 (previously second half of 2019).

The above is a faithful com­par­i­son of the IASB work plan at 24 June 2019 and at 29 July 2019. For access to the current IASB work plan at any time, please click here.

The Bruce Column — Making the future more realistic than rosy

25 Jul, 2019

The Chairman of the International Accounting Standards Board, Hans Hoogervorst, is half way through his second, and final, term as Chairman.

In a video interview with Robert Bruce, he reflects on recent achievements, work still to be finalised, how non-GAAP measures lead to what he terms a ‘rosy’ view in accounts, and work ahead on many issues, including ensuring climate change is reflected in the figures.

The difficulties that have faced the IASB and its Chairman, Hans Hoogervorst, in recent years have all been ones that by their very nature are hard to pin down.  Everyone knows that the risks surrounding climate change and market dislocation reflect real financial risks. But often the systems available make it harder for the financial reporting standards, (IFRS), to deal with them.

Hoogervorst looks to future IASB projects to provide at least some of the answers. He talks of the upcoming revision of the Board’s Management Commentary Practice Statement as part of the solution. ‘It would’, he says, ‘be a good vehicle for focusing on financial risks not yet captured in financial statements’.  And he also sees it as a solution to issues surrounding the recommendations as to how to deal with climate-related financial disclosure.

While he insists it is not the place of the IASB to get involved with sustainability reporting he said that Management Commentary would be ‘an excellent vehicle’ to convey the disclosures. He said that such disclosures ‘fit perfectly in the annual report’ and that the IASB will write new guidance to cover it. And he is also keen that the IASB project on the nature of Primary Financial Statements should provide the guidance needed to ensure that there is more rigour surrounding the financial information that currently escapes financial statements.

These are the non-GAAP numbers that he suggests are generally more ‘rosy’ than the numbers reported under IFRS. ‘This is one of the most important pieces of work that we are currently working on’, he says. ‘The income statement’, he says, ‘ is the most important piece of information that is used by investors for future cash-flow projections and evaluations’, yet ‘what is currently the case in IFRS is that in the income statement we define revenue and we define profit or loss but in between we define not all that much’. Investors and companies, he suggests, like to look at subtotals like operating profit, or EBIT, or EBITDA, to better understand their own results or to explain it to investors. ‘But’, as Hoogervorst points out, ‘we don’t define any of that’. And into that gap has grown the mass of non-GAAP.

‘Non-GAAP is basically created by companies themselves’, he said, ‘but without the discipline of proper accounting standards. So it is no surprise’, he said, ‘that much of this information tends to be on the optimistic side. 70 to 80% of non-GAAP is more rosy than the IFRS numbers’. Hence the Primary Financial Statements project. ‘We have decided to make a definition for operating income. We have decided to define an EBIT-like subtotal which makes it possible for investors to better compare the performance of companies irrespective of the way that they are financed; by leverage or more by equity. By doing so’, says Hoogervorst, ‘we will provide more anchors in the financial statements for comparison across the board. It is extremely important’, he says. ‘We will also provide guidance and discipline around the use of the common practice of taking unusual items out of the income statement, which is one of the sources of rosiness’. And we will make it very clear that you have to do that symmetrically – if you take out expenses you probably have to take out some unusual sources of income that might not recur every year’.

All of this, and a variety of other measures will, says Hoogervorst ‘provide a lot more structure and order in the income statement’. All this, as ever, will take time, probably a couple of years, as it goes through the IASB process. The same has been true of IFRS 17 on insurance. ‘It has been clear that a lot of investors avoid investing in insurance companies because they cannot understand the accounting’, he says. ‘The existence of the new standard might draw more investors to the business of insurance’. At present he says that ‘it is a bit of a mess’. ‘Quite frankly’, he said, ‘investors rely more on prudential information than on accounting, and on a lot of non-GAAP, and we all know the problems with non-GAAP’. n Nevertheless he forsees an effective date of 2022 for the finalized standard. And looking at the IFRS landscape generally he is optimistic. ‘Accounting cannot prevent crises’, he says, ‘but we should be able to give better transparency about the risks that are building up in the financial system or within a company’.

Across the economy from banks to insurance companies he believes the useful and reliable information will be there. ‘I believe the introduction of IFRS 9, with the introduction of the expected loss model, should give investors a much quicker and better insight into the risks building up on the balance sheet of a bank’. The insurance reforms are also, he says, extremely important for the whole financial system. The update of management commentary will, he says, give investors a better insight into the future risks of a company related to, for example, sustainability issues, but also related to its business model or the technology it is working with. ‘All of these improvements will’, he says, ‘serve investors better in a future period of crisis’.

EBA publishes IFRS 9 roadmap, launches IFRS 9 benchmarking exercise

24 Jul, 2019

The European Banking Authority (EBA) has published a IFRS 9 roadmap providing a comprehensive overview of planned monitoring activities on IFRS 9 implementation. The EBA has also launched an IFRS 9 benchmarking exercise on a sample of institutions aimed at analysing the different modelling practices followed by institutions and how IFRS 9 implementation impacts the amount of expected credit losses in terms of own funds and regulatory ratios.

In the roadmap, the EBA clarifies its intention to continue monitoring and promoting a consistent application of IFRS 9 as well as working on the interaction with prudential requirements. The roadmap includes the different phases of this work from qualitative and quantitative perspectives which will take place in the coming months and years.

The IFRS 9 benchmarking exercise represents an important step in the context of the on-going quantitative monitoring activities. The focus of this exercise is to assess whether the use of different modelling techniques and inputs can lead to significant inconsistencies in terms of expected credit losses amount that directly impacts own funds and regulatory ratios.

Please click for more information on the EBA website.

Summary of the June 2019 joint CMAC-GPF meeting

23 Jul, 2019

Representatives from the International Accounting Standards Board (IASB) met with both the Capital Markets Advisory Council (CMAC) and Global Preparers Forum (GPF) in London on 13 and 14 June 2019. Notes from the joint meeting have now been released.

The topics discussed at the meeting included:

  • Disclosure of sensitive information
  • Goodwill and impairment
  • Primary financial statements
  • Business combinations under common control
  • Management commentary
  • Targeted standards-level review

The next GPF meeting will be held on 8 October 2019; the next CMAC meeting will take place on 10 October 2019.

For more information, see the meeting page and the meeting summary on the IASB's website.

IFRS Foundation developing a stakeholder engagement register

23 Jul, 2019

The IFRS Foundation has announced that it will publish a register to provide a public record of IASB members’ engagement with stakeholders. The register will be published quarterly, beginning December 2019.

The register is being created to increase transparency and "continue demonstrating the Board’s independence and accountability and is also in line with stakeholder feedback." The register will include speaking engagements and face-to-face, web-based or phone meetings of more than 30 minutes duration. IASB members will record the date, the name of the relevant stakeholder organisation, and location and purpose of each engagement.

This development can be traced back, among other things, to demands made by the European Commission in its annual report on the activities of the IFRS Foundation, EFRAG and PIOB in 2017, which was published in October 2018. The Commission had observed:

When members of the IFRS Foundation meet with stakeholders outside the framework of the Due Process Handbook, no formal record is kept.

The Commission had noted that it would take action in this regard:

The Commission will engage with the beneficiaries in 2018 in order to ensure (even) higher standards of transparency, in particular with regard to the establishement of mandatory transparency registers on meetings with external stakeholders.

As the Commission has made similar comments when reporting on the activities of EFRAG, it is likely that EFRAG will also present a transparency register in the near future.

The full Commission report is available here. For more information on the engagement register, see the press release on the IASB's website.

IASB posts webinar on IFRS 9 after IFRS Interpretations Committee discussion

23 Jul, 2019

The IASB has posted to its website a webinar summarising the IFRS Interpretations Committee's recent discussions on how a company should present amounts in its statement of profit or loss if a credit-impaired financial asset is subsequently paid in full or no longer credit-impaired (cured).

The webinar is hosted by IASB technical staff members Angie Ah Kun and Elizabeth Figgie. They discuss the March 2019 meeting of the IFRS Interpretations Committee and walk through the relevant requirements in IFRS 9 for amortised cost measurement and impairment.

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

Government consults on the CMA’s proposals for statutory audit services

22 Jul, 2019

The Department for Business, Energy & Industrial Strategy (BEIS) has issued a consultation seeking views recommendations made by the Competition and Markets Authority (CMA) to improve competition and resilience in the statutory audit services market.

The consultation represents the latest in the Government’s programme to strengthen and improve quality and regulatory oversight of the audit market.

The consultation asks for stakeholder views on the CMA’s recommendations in the following areas:

  • enhanced regulatory oversight of audit committees
  • mandatory joint audits of FTSE 350 firms
  • peer reviews of audits conducted for firms not in scope of the joint audit proposals
  • mitigating the effects of the distress or a failure of a ‘Big Four’ firm
  • an operational split between audit and non-audit practices of ‘Big Four’ firms

Comments are requested by 13 September 2019.

A press release and the full consultation are available on the BEIS website.  Our related Governance in brief publication is available here.

FRC announces appointments of the Chair of the Corporate Reporting Council and of a member to the Audit & Assurance Council

19 Jul, 2019

The Financial Reporting Council (FRC) has appointed Liz Murral as the Chair of the Corporate Reporting Council and Andrew Kail as a member to the Audit & Assurance Council

Liz Murrall has been appointed Chair of the Corporate Reporting Council with effect from 5 July 2019.

Andrew Kail has joined the Audit & Assurance Council with effect from 1 June 2019.

Click for the FRC press release (link to FRC website).

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