November

Joint webinar on the IASB exposure draft on disclosure requirements

26 Nov, 2021

EFRAG, BusinessEurope, and the IASB will host a joint webinar on 10 December 2021 on the IASB’s exposure draft 'Disclosure Requirements in IFRS Standards—A Pilot Approach (Proposed amendments to IFRS 13 and IAS 19)'.

The joint webinar will inform constituents about the IASB/EFRAG field test results as speakers and panellists will discuss the application of the IASB proposals and their experience during the field test. Audit implications will also be discussed along with a first reaction from the users. Interested preparers that could not participate in the field test will also have the opportunity to provide their input.

For more information and registration, please see the press release on the EFRAG website. A detailed programme is available here

Note: A summary report of the event is available here.

EBA report on IFRS 9 implementation

25 Nov, 2021

The European Banking Authority (EBA) has published a report summarising the findings arising from the monitoring activities on the IFRS 9 implementation by EU institutions. EBA notes significant efforts in IFRS 9 implementation by EU institutions, but cautions on some of the observed accounting practices, especially in the context of the COVID-19 pandemic.

The report observes that EU institutions have made significant efforts to implement and adapt their systems to the IFRS 9 requirements since its first application date. However, the level of judgement embedded in the standard leaves open the possibility to use a wide variety of practices. In addition, the COVID-19 pandemic added to divergence. The report concludes:

  • Divergence in some accounting practices is due to the inherent flexibility embedded in IFRS 9 and the limited experience to date.
  • The COVID-19 pandemic pushed IFRS 9 models outside their boundaries, thereby increasing the use of manual adjustments, or overlays, with divergent results on the final expected credit loss amount.
  • Some practices observed, particularly in the context of COVID-19, would deserve further scrutiny from supervisors in particular to ensure a timely assessment of a significant increase in credit risk.

Please click to access the full report through the press release on the EBA website.

EFRAG publishes its Feedback Statement on the IASB DP/2020/2 Business Combinations under Common Control

25 Nov, 2021

The European Financial Reporting Advisory Group (EFRAG) has published its feedback statement on the International Accounting Standard Board's (IASB's) Discussion Paper “DP/2020/2 Business Combinations under Common Control”.

EFRAG submitted its final comment letter on the IASB DP/2020/2 in October 2021. 

The feedback statement summarises the main comments received by EFRAG on its draft comment letter and explains how the comments were considered by EFRAG during its technical discussions leading to the publication of EFRAG's comment letter.

press release and the feedback statement are available on the EFRAG website.

UK Endorsement Board publishes draft UK Endorsement Criteria Assessment on IFRS 17 'Insurance Contracts'

24 Nov, 2021

The UK Endorsement Board (UKEB) has published a draft UK Endorsement Criteria Assessment which assesses whether IFRS 17 'Insurance Contracts', issued by the International Accounting Standards Board (IASB) in May 2017, and subsequent amendments, meet the UK's statutory requirements for adoption of IFRS as set out in Statutory Instrument 2019/685.

The UKEB secretariat's tentative initial assessment concludes that:

  • IFRS 17 meets the criteria of understandability, relevance, reliability and comparability required of the financial information needed for making economic decisions and assessing the stewardship of management, as required by SI 2019/685 (see Regulation 7(1)(c)); and
  • application of IFRS 17 is not contrary to the principle that an entity’s accounts/consolidated accounts must give a true and fair view as required by SI 2019/685 (see Regulation 7(1)(a)).

Additionally the UKEB tentatively concludes that IFRS 17 is likely to be conducive to the long-term public good in the UK.

On the basis of its assessments against the endorsement criteria, the UKEB is therefore of the tentative view that it will adopt IFRS 17 for use in the UK.

Comments on the draft UK Endorsement Criteria Assessment are requested by 3 February 2022.

For more information, see the press release, Invitation to Comment and draft UK Endorsement Criteria Assessment on the UKEB's website.

We comment on the IASB's management commentary proposal

24 Nov, 2021

Deloitte has commented on the exposure draft 'Management Commentary' published by the IASB in May 2021.

We welcome the Board’s project to revise the Practice Statement on Management Commentary. However, we believe that further improvements are necessary on the following issues:

  • The Practice Statement would benefit from clearer concepts to help preparers and users understand its underlying thinking and to set a context for the type and range of disclosures envisaged.
  • We do not think that it is sufficient to measure financial outcomes alone as appears to be proposed in the Exposure Draft.
  • We suggest restructuring the Practice Statement to make it easier to navigate and apply, for example, by reducing the number of elements. In our view, these elements overlap in many aspects and their interaction and purpose is not always immediately understandable. We suggest a closer alignment to the <IR> Framework, whose structure includes fundamental concepts, guiding principles for the preparation and presentation of an integrated report, content elements that are fundamentally linked to each other, and high-level and specific objectives for each content element.
  • We suggest that the approach to materiality set out in the Practice Statement should articulate more clearly that it necessitates the application of a filter to identify a subset of impacts that are relevant to enterprise value and are therefore material to the information needs of users of management commentary.

In addition, since this project commenced, the IFRSF has made a significant move towards establishing global sustainability standards. We think the Board should therefore consider the future direction of the project in the light of this development.

Please click to download our full comment letter here.

Investment Association publishes updated Principles of Remuneration

24 Nov, 2021

The Investment Association (IA) has published its updated Principles of Remuneration ("the Principles")

This remuneration guidance sets out its members’ views on the role of shareholders and directors in relation to remuneration and the manner in which remuneration should be determined and structured.

The Principles have received a small number of updates to reflect developments in market practice and investor expectations.  The areas are:

  • Levels of remuneration - The Principles have been updated to emphasise that Remuneration Committees should provide a clear rationale for an increase to any element of, or to the overall level, of remuneration.
  • Value Creation Plans (VCPs) - the Principles have been updated to include a specific section on investor expectations on VCPs.
  • Grant size - The Principles have been updated to reflect investor preference for companies to reduce awards at grant where share prices have fallen rather than relying on discretion when awards vest

Additionally the IA has issued a letter to Remuneration Committee chairs highlighting key aspects of the Principles that its members have identified as areas of focus for the forthcoming AGM season. These are:

  • COVID and the stakeholder experience.
  • ESG metrics in Executive Remuneration.
  • Approach to pensions in 2022 and alignment of pension contributions of Executive directors with those of the company's wprkforce.

The press release, revised Principles of Remuneration and letter to the chairs of Remuneration Committees are available from the IA website.

Agenda for the December 2021 ASAF meeting

23 Nov, 2021

The International Accounting Standards Board (IASB) has released an agenda and meeting papers for the meeting of the Accounting Standards Advisory Forum (ASAF), which is to be held by remote participation on 9-10 December 2021. A summary of the agenda is set out below:

Thursday 9 December 2021 (11:00-14:45)

  • Intangibles — ASAF members will share preliminary feedback on EFRAG’s Discussion Paper Better Information on Intangibles.
  • Strategic / agenda consultations — ASAF members will discuss any recent strategic / agenda consultations in their jurisdictions and discuss how it compares to the feedback on the IASB’s Third Agenda Consultation.
  • Agenda planning and feedback from the previous ASAF meeting — ASAF members will provide views on topics for future meetings and any comments on how the feedback from the October 2021 ASAF meeting has been (or will be) used by the staff or the Board.

Friday 10 December 2021 (11:00-14:45)

  • Goodwill and impairment — ASAF members’ views on staff examples illustrating the information the staff expect an entity to disclose applying the Board’s preliminary views expressed in the Discussion Paper Business Combinations — Disclosures, Goodwill and Impairment.
  • Disclosure initiative — Subsidiaries without public accountability: Disclosures — ASAF members’ views on the scope of the draft Standard.
  • Disclosure Initiative — Targeted Standards-level review of disclosures — ASAF members will have the opportunity to share feedback from their jurisdictions on the Exposure Draft Disclosure Requirements in IFRS Standards—A Pilot Approach.

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

Agenda for the November 2021 Islamic Finance Consultative Group meeting

23 Nov, 2021

An agenda has been released for the meeting of the Islamic Finance Consultative Group that will be held by remote participation on 30 November 2021.

A summary of the agenda is set out below:

Tuesday 30 November 2021 (08:55-10:45)

  • Post-implementation review of IFRS 9 — Classification and Measurement
  • IFRS 17 Insurance Contracts and Takaful
  • IASB Update

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

Interesting in this context is also a paper prepared for the latest meeting of the Asian-Oceanian Standard-Setters Group (AOSSG) that discusses IFRS 17 adoption and Takaful in Indonesia, Malaysia, Pakistan, Saudi Arabia, and Syria. Please see the paper on the AOSSG website.

FRC Lab publishes its third newsletter for 2021

23 Nov, 2021

The Financial Reporting Lab of the Financial Reporting Council (FRC) has published its third newsletter for 2021 providing highlights of its activities.

The newsletter marks the Financial Reporting Lab's tenth anniversary and provides an update of the Lab's current projects and a brief overview of its future activities. Some highlights include:

  • an overview of the Lab's work over the past ten years;
  • an update on the Lab's recently published reports, including a report around corporate reporting on risks, uncertainties, opportunities and scenarios, a report on better practice reporting around the mandatory Taskforce on Climate-related Financial Disclosures (TCFD) reporting and a report around digital reporting;  
  • reflections from stakeholders on the Lab's work; and
  • an update on the Lab's ongoing and upcoming projects, including a project to build understanding around production, distribution and consumption of ESG data and a project that seeks to understand disclosure on Digital & Data risk.

The full newsletter is available on the FRC website here

November 2021 IASB meeting notes posted

23 Nov, 2021

The IASB met in London on Monday, Tuesday and Friday of the week beginning 15 November 2021. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The following topics were discussed:

Third Agenda Consultation: The Board published its Request for Information (RfI) Third Agenda Consultation in March 2021. The staff provided the Board with a summary of the feedback on the RfI. Most respondents commented on the strategic direction and balance of the Board’s activities and supported the Board’s current strategic direction. In terms of specific projects, most respondents rated climate-related risks, cryptocurrencies and related transactions, and intangible assets as high priority. Many rated going concern, pollutant pricing mechanisms, and the statement of cash flows and related matters as high priority. The Board gave initial reactions to the feedback presented but did not make any decisions.

Goodwill and Impairment: In September 2021, the Board decided to prioritise making tentative decisions about proposing disclosures about business combinations and perform further analysis of the feedback received on the subsequent accounting for goodwill. In this meeting, the Board continued to make tentative decisions about the package of disclosures about business combinations. The Board decided to require disclosure of quantitative information about expected synergies from a business combination but not to define ‘synergies’. The Board decided that rather than requiring an entity to explain when expected synergies from a business combination are expected to be realised they should be required to disclose information about when the benefits from synergies are expected to start, and the expected duration of those benefits.

Primary Financial Statements: The Board decided to retain ‘providing insight into management’s view of an aspect of performance’ as the objective of the requirements for MPMs and ‘management’s view of an aspect of performance’ in the definition of MPMs. The Board also voted in favour of establishing a rebuttable presumption that a subtotal of income and expenses included in public communications outside financial statements represents management’s view of an aspect of performance, allow an entity to rebut the presumption when there is reasonable and supportable information demonstrating that a subtotal of income and expenses does not represent management’s view of an aspect of performance and provide application guidance on how to assess whether there is reasonable and supportable information to support the rebuttal. The Board also decided to narrow the scope of public communications considered for the purposes of applying the definition of MPMs to exclude oral communications, transcripts, and social media posts. The Board agreed to add application guidance clarifying how an entity applies the requirement to describe an MPM in a clear and understandable manner that does not mislead users.

Board Work Plan—Timing of PIRs: The Board decided to begin the PIR of the impairment requirements of IFRS 9, and IFRS 15 in the second half of 2022 and consider in the second half of 2022 when to begin the PIR of the hedge accounting requirements of IFRS 9, and IFRS 16.

Post-implementation Review of IFRS 10-12: The purpose of this session was for the Board to conclude which, if any, topics it could consider further. The staff have identified as medium priorities: the relationship between substantive rights and protective rights; a change in relevant activities during the life-cycle of an investee; assessing non-contractual agency relationships and accounting for disproportionate share of output compared to share of ownership. The Board did not vote on the topics and instead requested that the staff prepare a further paper setting out the proposed strategy for PIRs including the relationship between PIRs and agenda consultations. After that, the Board will decide which topics from the IFRS 10-12 PIR to take forward. 

Dynamic Risk Management: The Board decided to revise the definition of the target profile to “the range (risk limits) within which the current net open risk position can vary while still being consistent with the entity’s risk management strategy”. They also decided introducing the risk mitigation intention, described as “the extent to which an entity intends to mitigate the current net open risk position through the use of derivatives”. The Board agreed that no further refinements to the DRM model are needed in respect of the designation of a portion of prepayable assets.

Second Comprehensive Review of the IFRS for SMEs Standard: The Board continued to deliberate specific sections of the IFRS for SMEs Standard that could be aligned with IFRS requirements. The Board decided against aligning Section 20 of the IFRS for SMEs with IFRS 16 at this point. They decided to revisit the decision at a later time. However, the Board agreed with aligning the IFRS for SMEs with the 2011 amendments to IAS 19 in respective of the recognition requirement for termination benefits. The Board decided to retain the accounting policy option in paragraph 28.24 of the IFRS for SMEs Standard to present actuarial gains and losses either in profit or loss or in other comprehensive income.

Rate-regulated Activities: In January 2021, the Board published Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities. Most respondents agreed with the proposals to present all regulatory income minus all regulatory expense, including regulatory interest income and regulatory interest expense, as a separate line item immediately below revenue. Most respondents who commented agreed with the focus of the proposed overall disclosure objective on information about an entity’s regulatory income, regulatory expense, regulatory assets and regulatory liabilities. Some suggested the Board develop a broader overall objective of providing users of financial statements with information about the nature of the regulatory agreement, the risks associated with it and its effects on an entity’s financial performance, financial position or cash flows. Most respondents did not support the proposed requirement to apply the Standard retrospectively on initial application. Most respondents who commented asked for a longer transition period. The Board gave initial comments on the topics discussed but did not make any decisions.

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

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