Investors want global approach to goodwill accounting

07 Dec, 2021

The CFA Institute, a global association of investment professionals, has published the results of a survey of CFA Institute members that demonstrate an almost unanimous preference from investors for a unified global approach, with a majority favoring improving disclosures over reverting to amortisation.

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are currently reexamining goodwill accounting, and, specifically, the measurement of goodwill post-acquisition. The IASB is pursuing improved disclosures while the FASB is considering reverting to amortisation.

The CFA Institute surveyed its members on their desired path forward. A majority of respondents (58%) supported retaining impairment as impairment is regarded as decision-useful and provides information content. Nevertheless, they also see room for improvement. Only 31% of the respondents supported the introduction of amortisation, which is viewed as the inferior model because it does not allow the discernment between good and bad acquisitions, distorts financial metrics and does not provide decision-useful information for investment analysis. Nevertheless, these respondents note that goodwill erodes over time, that impairment is subjective, and that amortisation is more predictable.

On convergence, the survey report notes:

Respondents were in raging agreement that the IASB and FASB should follow the same approach in the accounting for goodwill (90%) and in the subsequent measurement of goodwill (94%).

Investors also highlighted that the current accounting model needs to be updated to reflect the increasing importance of intangibles, that the move from a manufacturing to a service economy makes this more important and evident, and that a resolution is needed between the accounting for acquired versus internally generated intangibles.

Please click for the full report with detailed findings on the website of the CFA Institute.

IASB publishes editorial corrections

07 Dec, 2021

The IASB has published a third set of editorial corrections for 2021.

The corrections relate to IFRS Practice Statement 2 'Making Materiality Judgements' published in September 2017, Reference to the Conceptual Framework (Amendments to IFRS 3) issued in May 2020, and Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) published in February 2021.

Editorial corrections do not change the meaning or application of pronouncements, but instead correct inadvertent errors. The editorial corrections can be viewed on the editorial corrections page of the IASB's website.

FRC announces thematic review and priority sectors for 2022/23

07 Dec, 2021

The Financial Reporting Council (FRC) has announced its corporate reporting and audit quality review programme for 2022/23 alongside its priority sectors for review.

The FRC’s Supervision Corporate Reporting Review team will supplement its routine reviews of corporate reporting with six thematic reviews: 

  • Task Force on Climate-related Financial Disclosure (TCFD) Reporting and Climate-related Reporting in Financial StatementsIn collaboration with the Financial Conduct Authority (FCA), the FRC will perform a thematic review of TCFD disclosures provided by premium listed companies in response to the new Listing Rule, and of the extent to which the financial statements reflect the impact of climate change. 
  • Business Combinations (IFRS 3) - Issues relating to compliance with this standard have featured in the FRC’s ‘top ten’ findings for several years.  The FRC will undertake a general thematic review of accounting issues under this standard and identify examples of better practice
  • Earnings per Share (EPS) (IAS 33)While identification of issues related to this standard have been less frequent than the issues identified in the FRC's top 10, miscalculations of EPS can result in material errors on the face of the income statement.  The FRC will focus on those areas where it has previously identified errors.
  • Deferred Tax (IAS 12)There will be a particular focus on disclosures around deferred tax assets and whether the evidence supporting the recognition of deferred tax assets for losses is sufficiently robust
  • Discount RatesThe FRC's review will provide an overview of the requirements of IFRS Standards  in respect of discount rates and will highlight some of the difficulties companies encounter in determining appropriate discount rates to apply in the measurement of assets and liabilities.
  • Judgements and EstimatesThis has been an area of focus for the FRC in prior years. The FRC will specifically look at (i) disclosures around sensitivities and ranges of outcomes and (ii) disclosures involving judgements and assumptions made in estimating mineral reserves.

The FRC's Supervision programme of audit quality inspections will pay particular attention to the auditor’s work in the following areas:

  • Climate-related risks
  • Fraud risks
  • Cash and cash flow statements
  • Provisions and contingent liabilities
  • Impairment of assets
  • Revenue
  • Group audits

In selecting corporate reports and audits for review, the FRC will give priority to travel, hospitality and leisure, retail, construction and materials and gas, water and multi-utilities. 

A press release is available on the FRC website.

December 2021 IASB meeting agenda posted

03 Dec, 2021

The IASB has posted the agenda for its next meeting, which will be held in London on 14–16 December 2021. There are seven topics on the agenda.

The Board will discuss the following:

  • Second com­pre­hen­sive review of the IFRS for SMEs Standard
  • Rate-reg­u­lated ac­tiv­i­ties
  • Primary financial state­ments
  • Financial instruments with characteristics of equity
  • Third agenda con­sul­ta­tion
  • Maintenance and consistent application
  • Business combinations under common control

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.

IFRS Interpretations Committee holds November 2021 meeting

03 Dec, 2021

The IFRS Interpretations Committee (Committee) met on Tuesday 30 November and Wednesday 1 December 2021. We have posted Deloitte observer notes for the technical issues discussed during this meeting.

The Committee discussed the comment letter analysis for one tentative agenda decision and two new submissions. One topic was deferred to the next meeting.

Comment letter analysis

IFRS 16 Leases—Economic Benefits from Use of a Windfarm: In June 2021, the Committee published a tentative agenda decision in response to a submission about the definition of a lease. The submitter asked whether, applying IFRS 16:B9(a), an electricity retailer (customer) has the right to obtain substantially all the economic benefits from use of a windfarm throughout the term of an agreement with a windfarm generator (supplier). The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis to account for this matter. Many of the respondents to the tentative agenda decision agreed with the conclusion. Nonetheless, some of them raised some further matters for the Committee to consider. The staff presented an analysis of these matters and the Committee decided to finalise the agenda decision with the addition of two references to previous agenda decisions to address issues raised by respondents.

IFRS 9 Financial Instruments and IAS 20 Accounting for Government Grants and Disclosure of Government Assistance—TLTRO III Transactions: In its June 2021 meeting, the Committee discussed a submission asking how banks account for the European Central Bank (ECB)’s Targeted Longer-Term Refinancing Operations (TLTRO). Specifically, the submission asked whether the TLTRO III tranches are loans at a below-market interest rate which should be accounted for as a government grant. The staff have analysed the comment letters and recommended finalising the agenda decision with minor editorial changes.

This agenda item was not discussed due to lack of time and was deferred to the next meeting.

New submissions

IFRS 15 Revenue from Contracts with Customers—Principal versus Agent: Software Reseller: The Committee received a submission asking whether a reseller of software licences is a principal or agent in respect of the standard software licences provided to the customer. The staff found that the fact pattern is highly specific and even small or subtle differences in the specific facts and circumstances could change the conclusion when applying the requirements about principal versus agent considerations in IFRS 15. The staff were therefore of the view that it would be inappropriate for the Committee to conclude whether the reseller is a principal or agent in the fact pattern submitted. The Committee decided to publish a tentative agenda decision that only sets out the applicable requirements in IFRS 15 and explains how a reseller might apply those requirements.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets—Negative low or new energy vehicle credits: The Committee received a submission asking whether an entity with negative low emission vehicle credits has a present obligation that meets the definition of a liability in IAS 37. If the answer to this question is "no", the submitter asked whether the Committee’s views would be different if the entity had entered into a binding contract to purchase positive new energy credits before the end of the reporting period the entity, but that contract is settled after the end of the reporting period. The Committee decided to publish a tentative agenda decision outlining whether an entity with negative low emission vehicle credits has a present obligation that meets the definition of a liability in IAS 37.

Work in progress: The staff are in the process of analysing two matters:

  • Rent Concessions: Lessors and Lessees (IFRS 16 and IFRS 9)
  • Special Purpose Acquisition Companies (SPAC): Classification of Public Shares as Liabilities or Equity (IAS 32)

More In­for­ma­tion

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

Agenda papers available for the UK Endorsement Board meeting on 9 December 2021

03 Dec, 2021

The agenda papers for the UK Endorsement Board (UKEB) meeting to be held on 9 December are now available.

The agenda items for discussion are as follows:

  • Due Process Handbook – Update 
  • IFRS 17 - Update on Consultation 
  • Disclosure Requirements in IFRS Standards A Pilot Approach – Final comment letter and Feedback Statement
  • Subsidiaries without Public Accountability: Disclosures - Draft Comment Letter 
  • PIR: IFRS 9 – Classification & Measurement - Draft Comment Letter 
  • Research on subsequent measurement of goodwill - Response to IASB and Feedback Statement 

The meeting agenda and papers and details of how to register are available on the UKEB website

The recording of this meeting is available on the UKEB website.

EFRAG issues final endorsement advice on Amendments to IAS 12

02 Dec, 2021

The European Financial Reporting Advisory Group (EFRAG) has issued its final endorsement advice letter relating to the use in the European Union (EU) of 'Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12' (the Amendments).

The Amendments clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations. The Amendments are effective for annual periods beginning on or after 1 January 2023, with earlier application permitted.

EFRAG recommends the endorsement of the Amendments. EFRAG’s assessment is that the Amendments meet all the technical endorsement criteria of the IAS Regulation and are conducive to the European public good.

A press release and the endorsement advice letter to the European Commission are available on the EFRAG website. EFRAG has also updated its endorsement status report.

FRC report on effective stewardship reporting

02 Dec, 2021

The Financial Reporting Council (FRC) has published a report on effective stewardship reporting which reflects on the first year of reporting under the updated Stewardship Code ("the Code") for asset owners, asset managers and service providers and offers observations to help applicants to the Code enhance reporting in the future.

The report includes multiple examples of good practice and identifies areas where the FRC expects to see improvements next year.  The FRC has seen good reporting on governance, resourcing, and the integration of stewardship and ESG factors into investment decision-making. However, it highlights that there is room for improvement in explaining how stewardship-related conflicts of interest are managed, how managers review and assure their stewardship activities and how they monitor and hold to account service providers operating on their behalf.

The report outlines key areas of focus for applicants to report on in the future, including:

  • reflections on the effectiveness of investor actions relating to how market-wide and systemic risks are being managed;
  • stewardship in asset classes other than listed equity; and
  • echoing the FRC’s recent review of corporate governance reporting, calling for a focus by reporters on outcomes for each Principle of the Code and including relevant evidence to back this up, for example case studies that can illustrate both process and impact.

Early in 2022 the FRC will publish a research report that looks at how stewardship governance, resourcing and engagement has evolved and the influence of the new Code.

A press release and the report is are available on the FRC website.

EFRAG publishes November 2021 issue of EFRAG Update

02 Dec, 2021

The European Financial Reporting Advisory Group (EFRAG) has published an ‘EFRAG Update’ summarising public technical discussions held and decisions made during November 2021.

IASB proposes update to IFRS Taxonomy 2021

02 Dec, 2021

The IASB has issued a proposed IFRS Taxonomy Update, 'IFRS Taxonomy 2021 Proposed Update 2 — Technology Update'.

The proposed changes aim to reflect developments in the technology that underlies or relates to the IFRS Taxonomy. They also consider variation in standards and practices and will support the usage of the IFRS Taxonomy or comparable taxonomies in different regulatory environments.

Details on the proposed changes are available in the press release on the IASB website and in proposed update itself. Comments are requested by 3 January 2022.

Follow-up paper to IVSC paper on challenges to market value

02 Dec, 2021

In February 2021, the International Valuation Standards Council (IVSC) published a perspectives paper 'Challenges to Market Value' that looked at the challenges in relation to the availability of market information in a pandemic world. A broad range of feedback was received in relation to the paper that has prompted the IVSC to publish a second paper in the series.

This second paper, Market Value: An Established Basis of Value, includes discussions on:

  • Price, cost, value and worth
  • How do we define what the ‘market’ is and how does this impact on market value?
  • What is the market value conceptual framework?
  • Is market value backward looking?
  • Are the ‘peaks’ and ‘troughs’ truly captured when using a market value premise?
  • How does the valuer utilise assumptions and special assumptions with market value?

Please click to access the perspectives paper through the press release on the IVSC website.

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