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September

September 2019 IASB meeting notes posted

30 Sep 2019

The IASB met on Tuesday 24, Wednesday 25 and Thursday 26 September 2019, and discussed 15 projects. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

Onerous Contracts: After considering the comment letters received, the Board decided to finalise its amendments to IAS 37, to clarify that it is the costs that relate directly to the contract which are included in determining the ‘cost of fulfilling’ a contract for the purpose of assessing whether the contract is onerous.

Classification of Liabilities as Current or Non-current (Amendments to IAS 1): The Board instructed the staff to prepare the final amendments to IAS 1, with an effective date of 1 January 2022.

Business Combinations under Common Control: The Board discussed whether the forthcoming Discussion Paper should propose that an acquiring entity be required to account for a business combination under common control by applying either a current value approach based on the acquisition method or a predecessor approach. The current value approach would be required for transactions affecting non-controlling shareholders of the acquirer, with two exceptions, and the predecessor approach would apply for all other transactions.

Rate-regulated Activities: The Board discussed the regulatory agreement boundary, whether any additional amendments to other IFRS Standards are necessary and the proposed transition requirements. 

Management Commentary: The Board decided that the revised Practice Statement discuss faithful representation using qualities set out in the Conceptual Framework.

Disclosure Initiative: The Board is using IFRS 13 as one of the Standards to test the draft guidance on developing and drafting disclosure objectives and requirements and will discuss how the disclosure requirements could be improved.

Primary Financial Statements: The Board decided to replace IAS 1 with a new IFRS, rather than amending it.

SME standard review and update: The discussions focused on the scope of the IFRS for SMEs Standard, IAS 19, IAS 23, IFRS 11, accounting for cryptocurrencies and accounting for financial guarantee contracts of the IFRS for SMEs Standard.

Extractive Activities: The staff provided an overview of how changes to IFRS Standards and other documents, and other developments since the DP was published may affect the issues and conclusions in the DP. No decisions were made.

Financial Instruments with Characteristics of Equity: After considering the feedback on the Discussion Paper the Board decided to develop amendments to IAS 32 to address practice issues, clarifying the underlying principles in IAS 32.

The Board were given updates on the 2020 Agenda Consultation (the approach being proposed to developing the Request for Information), the planned Post-implementation review of IFRS 10, 11 and 12, the second phase of the project on IBOR Reform and the Effects on Financial Reporting, Subsidiaries that are SMEs and the Research Programme.

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

We comment on the International Auditing and Assurance Standards Board’s (IAASB’s) consultation paper on extended external reporting assurance.

30 Sep 2019

We have responded to the International Auditing and Assurance Standards Board’s (IAASB’s) consultation paper on extended external reporting assurance.

Consistent with our response to the discussion paper on this topic issued by the IAASB in 2016, we support and appreciate the work of the IAASB regarding extended external reporting (EER) and the issuance of the EER consultation paper. The demand for assurance in areas outside of the financial statements continues to grow and EER reporting is an area of increasing focus by investors.

We recognise the need to provide guidance to enable more consistent and appropriate application of International Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information, to assurance engagements over extended external reporting (EER) subject matter information (“EER reports” or “EER disclosures”).

We believe that several aspects of the consultation paper should be revisited to provide additional clarity and greater consistency in application of ISAE 3000 (revised). These areas include:

  • Applicability of the EER consultation paper
  • The structure of the draft guidance
  • Use of examples and diagrams
  • Terminology

We also provide some recommendations regarding certain topics to be developed as part of phase 2 of the project.

The full comment letter is available here.

IASB Chairman opens WSS meeting

30 Sep 2019

At the World Standard-Setters (WSS) meeting currently held in London, IASB Chairman Hans Hoogervorst delivered the opening remarks.

The focus of Mr Hoogervorst's speech was the IASB's work programme for 2020, which will see three exposure drafts, two discussion papers, and three requests for views.

On individual projects, Mr Hoogervorst spoke about

  • Primary financial statements. The IASB plans to publish an exposure draft at the end of 2019. The IASB is looking at introducing new subtotals in the income statement, is looking at improving discipline around management performance measures, and wants to improve disaggregation.
  • Goodwill and impairment. The IASB plans to publish a discussion paper in February 2020. While the IASB feels that the impairment model is not great, they are not sure whether any of the alternatives are better. By publishing a discussion paper, the IASB is hoping for new evidence and insights.
  • Rate-regulated activities. The IASB will publish an exposure draft in the first half of 2020. The IASB has developed an accounting model that will improve the information to investors about what rights and obligations a company has and is looking for feedback whether they have got the model right.
The IASB is also going to consult on a revised Management Commentary Practice Statement, on proposals on business combinations under common control, on whether the IFRS for SMEs should be updated to reflect changes in full IFRSs, and on the future agenda of the IASB.

Please click to access the full transcript of Mr Hoogervorst's speech on the IASB website.

Agenda for the October 2019 CMAC meeting

27 Sep 2019

Representatives from the International Accounting Standards Board (IASB) will meet with the Capital Markets Advisory Council (CMAC) in London on 10 October 2019. The agenda for the meeting has been released.

The full agenda for the meeting is sum­marised below:

Thursday, 10 October 2019 (09:00-15:00)

  • IASB update
    • Follow up on issues discussed at the last CMAC meeting
  • Rate-regulated activities
    • Information about key aspects of the proposed accounting model for regulatory assets and regulatory liabilities.
  • Post-implementation reviews of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interest in Other Entities
    • Provide information about the PIR of IFRS 10, IFRS 11, and IFRS 12
    • Obtain input and discuss issues that investors encounter when analysing financial statements
  • Agenda consultation
    • Brief on the status of preparations for the 2020 Agenda Consultation
    • Solicit help to develop the 2020 Request for Information (RFI)

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

FRC publishes letter to Audit Committee Chairs and Finance Directors on the UK's exit from the EU

27 Sep 2019

The Financial Reporting Council (FRC) has published a letter to Audit Committee Chairs and Finance Directors setting out some of the actions companies should consider in advance of the UK’s exit.

The FRC letter suggests a number of the most critical generic actions companies should consider in advance of the UK’s exit from the European Union. 

In relation to corporate reporting, the FRC is encouraging companies to provide disclosure which distinguishes between the specific and direct challenges to their business model and operations from the broader economic uncertainties which may be a consequence of the UK’s exit from the EU, and which may apply when companies report. Where there are particular challenges posed, the FRC expects these to be clearly identified and for management to describe any actions they are taking, or have taken, to manage the potential impact. In some circumstances this may mean recognising or remeasuring certain items in the balance sheet.

The FRC expects that many companies will want to consider a wide range of reasonably possible outcomes when performing sensitivity analysis on their cash flow projections and which should be disclosed and explained. Not all companies will require extensive disclosure, but where sensitivity or scenario testing indicates significant issues, relevant information and explanation should be reflected in the appropriate parts of the annual report and accounts, for example in the impairment disclosures. It will be for companies to decide whether exiting the EU impacts their statements on viability and even their ability to continue as a going concern. Guidance on this is set out in the Financial Reporting Lab’s 2017 report on Risk and Viability reporting.

The letter is available on the FRC website.

IASB finalises phase 1 of its IBOR reform project

26 Sep 2019

The International Accounting Standards Board (IASB) has published 'Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)' as a first reaction to the potential effects the IBOR reform could have on financial reporting. The amendments are effective for annual periods beginning on or after 1 January 2020, with earlier application permitted.

 

Background

Interbank offered rates (IBORs) are interest reference rates, such as LIBOR, EURIBOR and TIBOR, that represent the cost of obtaining unsecured funding, in a particular combination of currency and maturity and in a particular interbank term lending market. Recent market developments have brought into question the long-term viability of those benchmarks.

The amendments published today deal with issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative interest rate and address the implications for specific hedge accounting requirements in IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement, which require forward-looking analysis. (IAS 39 is amended as well as IFRS 9 because entities have an accounting policy choice when first applying IFRS 9, which allows them to continue to apply the hedge accounting requirements of IAS 39. ) There are also amendments to IFRS 7 Financial Instruments: Disclosures regarding additional disclosures around uncertainty arising from the interest rate benchmark reform.

 

Changes

The changes in Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

  • modify specific hedge accounting requirements so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform;
  • are mandatory for all hedging relationships that are directly affected by the interest rate benchmark reform;
  • are not intended to provide relief from any other consequences arising from interest rate benchmark reform (if a hedging relationship no longer meets the requirements for hedge accounting for reasons other than those specified by the amendments, discontinuation of hedge accounting is required); and
  • require specific disclosures about the extent to which the entities' hedging relationships are affected by the amendments.

 

Effective date

The amendments are be effective for annual periods beginning on or after 1 January 2020 and must be applied retrospectively. Early application is permitted.

 

Additional information

Please click for:

In September 2019, the IASB began discussions on IBOR reform and the effects on financial reporting - Phase 2. The second phase of the project deals with issues that might affect financial reporting when an existing interest rate benchmark is actually replaced.

Financial Reporting Lab publishes report on disclosure on the sources and uses of cash

25 Sep 2019

A new report from the Financial Reporting Lab of the Financial Reporting Council (FRC) considers how companies can answer investors’ questions about how a company generates cash and how it intends to use that cash.

The report provides practical guidance on how companies can give more information and context around the generation, availability and use of cash. In particular it explains that investors want cash disclosures that:

  • provide a clear description of the drivers of current (and future) performance and position, in the context of cash, supported by appropriate metrics; 
  • explain the sources of cash and the ways in which cash is used; and
  • describe the processes, controls and sources of assurance in place in relation to cash.

The report encourages companies to look beyond the disclosures that relate to the cash flow statement and address areas such as business model disclosures, capital allocation frameworks and reverse factoring arrangements. 

Please click to access the press release and report on the FRC website.

We comment on the IASB’s proposed amendments to IFRS 17

25 Sep 2019

We have responded to the IASB exposure draft ED/2019/4 ‘Amendments to IFRS 17’, which was published by the IASB in June 2019 to address concerns and implementation challenges that were identified after IFRS 17 'Insurance Contracts' was published in 2017.

In our comment letter, we welcome the responsiveness of the IASB in addressing with this ED the issues that have been identified since the publication of IFRS 17 through the Transition Resource Group’s discussion and the IASB outreach activities.

We are generally supportive of the proposals in the ED, however, we provide recommendations in a number of areas where we believe these proposals could be improved.

  • The proposal to define investment–return services in insurance contracts without direct participation features using the approach in the ED appears rule-based. We propose a principle-based approach that uses existing concepts in IFRS 17.
  • We believe that the scope of the proposed amendment to reinsurance contracts held should be extended to all types of reinsurance contracts held.
  • We also appreciate the Board’s efforts to address stakeholder concerns around the applicability of the risk mitigation option. While we do not disagree with the proposed amendment to extend the application of the risk mitigation option to reinsurance contracts held, we think a better solution could be achieved by extending the scope of the variable fee approach to reinsurance contracts held.
  • We note the continuing attention of stakeholders with regard to the complexity of applying the existing requirements in the context of contracts that present those characteristics referred to as “mutualisation”.

Please click to download our full comment letter here.

EFRAG believes 2023 to be a 'realistic effective date' for IFRS 17, but early application must be permitted

25 Sep 2019

The European Financial Reporting Advisory Group (EFRAG) has published its final comment letter on the IASB exposure draft ED/2019/4 ‘Amendments to IFRS 17'.

Most importantly, EFRAG believes that the effective date of IFRS 17 should be postponed to 1 January 2023, however, early application should be permitted so that companies can apply the standard before that date. The comment letter notes:

EFRAG welcomes the IASB’s decision to defer the effective date of IFRS 17. However, EFRAG disagrees with 1 January 2022 as the effective date. EFRAG considers that 1 January 2023 is a realistic effective date, with early application permitted.

Other than that, EFRAG is supportive of many of the changes proposed, even though the comment letter mentions several remaining concerns.  EFRAG also expresses its appreciation for the consideration of the topics identified in its letter sent to the IASB in September 2018. EFRAG believes that two issues warrant further consideration:

  • EFRAG believes that the annual cohort requirement leads to unnecessary costs in some fact patterns. EFRAG recommends that the IASB consider developing an appropriate solution for them, reflective of the reporting objectives of the level of aggregation requirements and of their economic characteristics.
  • EFRAG remains concerned about implementation challenges faced by preparers when applying the modified retrospective approach and encourages the IASB to confirm in the main text of the final standard that the use of estimates is allowed, including those needed to approximate the missing information.

Please click to access the press release and the final comment letter on the EFRAG website.

CRD launches report on alignment between its members' sustainability standards and frameworks and the TCFD recommendations

24 Sep 2019

At the World Congress of Accountants in Australia in November 2018, the Corporate Reporting Dialogue (CRD), which brings together organisations that have significant international influence on the corporate reporting landscape, announced a two-year project focused on aligning the standards and frameworks of its members. A report 'Driving Alignment in Climate-related Reporting' was now launched amongst businesses and investors at the World Economic Forum’s Sustainable Development Impact Summit, during Climate Week NYC.

The publication maps the better alignment project participants’ standards and frameworks against the seven principles for effective disclosure, the 11 recommended disclosures and 50 illustrative example metrics detailed in the recommendations published by the Task Force on Climate-related Financial Disclosure (TCFD) in June 2017. It also documents the commonalities and differences between the participants within the parameters of the TCFD recommendations’ example metrics.

Participants of the CRD project on better alignment are the Carbon Disclosure Project (CDP), the Climate Disclosure Standards Board (CDSB), the Global Reporting Initiative (GRI), the International Integrated Reporting Council (IIRC), and the Sustainability Accounting Standards Board (SASB). Additional members of the CRD are the Financial Accounting Standards Board (FASB, observer), the International Accounting Standards Board (IASB), and the International Organization for Standardization (ISO).

The mapping in the report shows strong alignment between the participants’ frameworks and standards and the TCFD recommendations, specifically:

  • The TCFD’s seven ‘Principles for Effective Disclosures’ are harmonious and complementary with those of the participants’ frameworks and standards, with the mapping showing no sources of conflict.
  • The participants are well-aligned with the TCFD’s 11 recommended disclosures, each of which is comprehensively covered by the frameworks and standards.
  • Overall, 80% of the TCFD’s 50 illustrative metrics are fully or reasonably covered by CDP, GRI and SASB indicators.
  • There are high levels of alignment between CDP, GRI and SASB for the TCFD’s illustrative example metrics, with 70% of the TCFD’s 50 metrics showing no substantive difference between the participants’ indicators. For the remaining 15 indicators, substantive differences are limited.

The full report can be downloaded here and will be presented at two webinars on 10 October 2019. Participants must register for the webinars in advance to gain access. Please click for more information on the CRD website.

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