EFRAG welcomes the decision of the IFRS Interpretations Committee to publish a summary of the discussions relating to IFRS 11 through a series of separate agenda decisions and believes that they will provide “useful educational material that illustrates the application of certain aspects of IFRS 11”.  

However, EFRAG does not agree with the decision to exclude the issue relating to ‘project entities’ from the published series of agenda decisions.  EFRAG considers that “communicating a summary of the discussion on this issue will also benefit constituents”.

The views of EFRAG are shared by ESMA.  ESMA comment that the publication of the agenda decisions in relation to IFRS 11 is “useful for preparers, users, auditors and regulators and will contribute to the consistent understanding and application of IFRS 11”.  ESMA also agrees that the IFRS Interpretations Committee should include its analysis on the issue relating to ‘project entities’ in the published set of an agenda decisions.

Click for:

• EFRAG press release (link to EFRAG website).
• EFRAG comment letter (link to EFRAG website).
• ESMA comment letter (link to ESMA website).

On 17 April 2014, the IASB published for public comment a Discussion Paper (DP/2014/1) on macro hedge accounting which contained a possible approach to accounting for an entity’s dynamic risk management activities: the portfolio revaluation approach.

EFRAG issued its draft comment letter in July 2014 and a final comment letter in October 2014.

The EFRAG’s feedback statement provides an analysis of the EFRAG tentative position expressed in the draft comment letter, describes the comments received from constituents and then highlight how these comments were considered by the EFRAG Technical Group (EFRAG TEG) in reaching their final position on the IASB DP set out in their final comment letter to the International Accounting Standards Board (IASB).  

Click for:

• Press release (link to EFRAG website).
• Feedback statement (link to EFRAG website).
• UK Accounting Plus story on DP 2014/1

The consultation responses indicated that there was “strong support” for a single Code covering all audited bodies within the new arrangements for local public audit and also support for a principles-based Code rather than a rules-based based Code.  The NAO has now made changes to the initial draft Code consulted on in September 2014 and issued a final draft Code which is due to be laid before Parliament for debate and approval.  In the preface to the final draft Code the NAO comments:

We have taken a principles-based, rather than a rules-based, approach to developing the Code. This is in line with predecessor codes and has allowed us to prepare a concise, high-level code applicable to the audit of all local public bodies within the local audit model established by the Act, providing a clear framework for the auditor to meet their statutory duties. A principles-based approach also helps to ensure that the Code does not quickly become out of date as the regulatory environment evolves.

Once approved by Parliament, the Comptroller and Auditor General (C&AG) will publish the final Code which will take effect for audit work relating to the 2015-16 financial year onwards.

In addition to the final Code, the NAO has indicated that it will provide “high quality, timely guidance to auditors” to support the Code in response to those who commented that this would enhance the effectiveness of the Code.

The final draft Code and the summary of responses received to the original consultation are available on the NAO website.

The IASB's proposed amendments would confirm that the unit of account for investments in subsidiaries, joint ventures and associates is the investment as a whole, but that the fair value measurement of quoted investments in subsidiaries, joint ventures and associates should be the product of the quoted price multiplied by the quantity of financial instruments held, without adjustments. The IASB also proposed to align the fair value measurement of a quoted CGU to the fair value measurement of a quoted investment. Lastly, the proposed amendments also included an addition to the Illustrative Examples for IFRS 13 to illustrate the application of paragraph 48 of that standard to a net risk exposure of Level 1 financial assets and financial liabilities.

We disagree with the departure from the principle that fair value measurement should be consistent with the unit of account of the asset or liability to be measured.

Click for the full comment letter.

EFRAG “welcomes” the IASB’s comprehensive project on rate-regulated activities and the publication of DP/2014/2.  EFRAG believes that it is necessary for the IASB to consider how to account for the effects of rate regulation in the IFRS financial statements not least as it will provide users that cover rate-regulated entities information to assess the effects of rate regulation in the financial statements and how rate regulation affects an entity’s rate-regulated activities.

EFRAG supports the IASB's decision to initially examine a generic type of rate regulation called 'defined rate regulation' in order to understand the economic impact of rate regulation on a limited range of activities before moving to the next stage of the project.  However, EFRAG stresses that the DP can only represent a starting point in the project:

As the IASB progresses the project, we believe it will need to consider in which circumstances an entity’s right to recover an agreed amount of revenue and obligations to perform certain rate-regulated activities create enforceable rights and obligations that should be recognised in the IFRS financial statements. The IASB might also need to consider whether it should eventually widen the scope of any potential future accounting guidance, in order to require disclosures of a wider range of schemes, to enable a necessary understanding of the impact of rate regulation in the IFRS financial statements.

EFRAG supports an accounting approach that is principles-based and “which can be applied to different rate regulatory regimes that evolve over time”.  It believes that the revenue approach “has an important role to play in any future accounting guidance” and remain open” to a ‘cost deferral’ approach recommending that the IASB “explore in more detail cases where such an approach might provide relevant information”. 

Regarding disclosure, EFRAG believes that “the disclosures in IFRS 14 Regulatory Deferral Accounts are a good starting point”.  EFRAG supports the separate presentation of regulatory balances in the IFRS financial statements “on the basis that it will enhance the relevance and usefulness of the information about the financial effects of rate regulation” and notes that it is important for the IASB to “consider a balanced approach” with respect to disclosure requirements, ensuring the disclosures are focused on those that are most useful to users of financial statements.

The press release and full comment letter are available on the EFRAG website.