The 2020 edition of IVS will replace IVS 2017 and consists of five general standards and six asset standards. The general standards offer guidance for all valuation assignments including terms of a valuation engagement, bases of value, valuation approaches and methods, and reporting. The asset standards include requirements related to specific types of assets.

More information is available through the press release on the IVSC website. 

Meeting ac­tiv­i­ties included the following:

Trustees’ meeting

• Executive session:
• Report of the Executive Director — The Trustees received a report from the Executive Director Lee White on ac­tiv­i­ties since the last meeting.
• Strategy review — The Trustees discussed key challenges for the Foundation, the support for consistent application of IFRS Standards, timeliness, and sustainability reporting.
• Gov­er­nance issues — The Trustees viewed a presentation from the IFRS Foundation Advisory Council and discussed its role in providing strategic advice.
• Op­er­a­tions analysis — The Trustees received a presentation on managing the Foundation’s brand.
• Future meetings — Trustees confirmed that their next meetings would be in Brussels in February 2020, Seoul in June 2020, and New Delhi in October 2020.
• Committee reports — The Trustees discussed reports from the Business Process and Technology Committee, Audit and Finance Committee, the Human Capital Committee, the Nom­i­nat­ing Committee, and the DPOC. (A report of the DPOC meeting is attached to the meeting summary.)
• IASB Chairman’s report — The Chair of the IASB provided the Trustees with a general update on the IASB’s technical ac­tiv­i­ties, es­pe­cially on the proposed amendments to IFRS 17, the IBOR reform, simplification of accounting for goodwill, and management commentary.
• Meetings in Munich — The Trustees met with members of German accounting standard setter (the DRSC).

The full report on the IFRS Foun­da­tion trustees’ and DPOC meeting is available on the IASB’s website.

The guidance, which was previously updated in 2016 and 2018, is designed to assist companies and their investors in the interpretation of the regulations.

An updated version of the guidance has been issued as a result of the implementation of the revised Shareholder Rights Directive (SRD II).  Key changes include:

• Regulatory definitions for the employee comparator group and directors that are required when calculating percentage change in pay.
• Discussion of measures taken to avoid or manage conflicts of interest in relation to determination, review and implementation of the remuneration policy.
• Extension of coverage to include those considered to be CEO or deputy CEO, even where they are not appointed as directors.

The updated guide is available on the Practical Law website here.

IBOR Reform: The staff summarised the feedback from comment letters and discussed additional issues for consideration before finalising the proposed amendments. The IASB plans to hold an additional meeting in late August to discuss the project. No decisions were made in this session.

Classification of Liabilities as Current or Non-current: The Board considered liabilities with equity-settlement features as well as transition and early application requirements.

Primary Financial Statements: The Board discussed potential amendments to IAS 34, whether to include special provisions for management performance measures and subtotals that are similar to gross profit, how to classify interest and dividends in the statement of cash flows and how earnings per share should reflect management performance measures. The Board gave the staff permission to begin preparing the Exposure Draft.

Goodwill and Impairment: The Board gave the staff permission to begin preparing the Discussion Paper.

Rate-regulated Activities: The Board decided to include an exception in IFRS 3 for rate-regulated activities. They also discussed the regulatory agreement period and incentive schemes. The Board gave the staff permission to begin preparing the Exposure Draft.   

Disclosure Initiative: The Board decided to add specific disclosure objectives to the requirements in IAS 19.

Dynamic Risk Management: The staff demonstrated how the DRM model is designed to operate. The Board considered some operational simplifications and decided that the application of the model should be optional. The Board also discussed the areas of focus for disclosure.   

Financial Instruments with Characteristics of Equity—Summary of feedback: The Board continued to discuss feedback on the Discussion Paper, focusing on presentation of financial liabilities; presentation of equity instruments and disclosure; contractual terms; users of financial statements and the overall objective, scope and challenges. No decisions were made.

Comprehensive review of the IFRS for SMEs Standard: The Board plans to issue a Request for Information (RFI) in the second half of 2019. At this meeting the Board decided to propose changes to the IFRS for SMEs Standard to reflect IFRS 3, IFRS 10 and IFRS 15. For IFRS 11, the Board decided to retain the current requirements of the IFRS for SMEs Standard. The Board also decided to propose a range of amendments to IFRS Standards and IFRIC Interpretations that have been published since the last review.

Management Commentary: The Board considered how to apply the Conceptual Framework’s qualitative characteristics to information presented in management commentary as well as how to make relevance and materiality judgements. 

Business Combinations under Common Control (BCUCC): The staff presented their analysis of the implications of potential equity investors in BCUCC and the measurement approaches that could be applied.

Implementation Matters: The Board was asked for any feedback on the June meeting of the IFRS Interpretations Committee.   

Joint session with the FASB: The middle day of the IASB meeting had been set aside for a joint meeting with the FASB. The Boards updated each other on projects each Board is working on separately: Segments (FASB); Primary Financial Statements (IASB); Financial Performance Reporting (FASB); Financial Instruments with Characteristics of Equity (IASB); Distinguishing Liabilities from Equity (FASB); IBOR reform (both); Goodwill and Impairment (IASB); Identifiable Intangible Assets and Subsequent Accounting for Goodwill (FASB); Disclosure Initiative (IASB); Disclosure Framework (FASB); and Implementation: Revenue and Leases (FASB).

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

The ITCG discussed the following:

• IFRS Taxonomy supporting materials.
• Strategy for the IFRS Taxonomy.
• Interaction between electronic reporting and the Board’s work on primary financial statements.
• IFRS Taxonomy content — review of common reporting practice.
• Interaction between electronic reporting and the Board’s work on the review of disclosures.

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

Background

The feedback on the Board's DP on Principles of Disclosure suggested that guidance is required to assist entities in determining which accounting policies to disclose. It was noted that the application of materiality is key to deciding which accounting policies to disclose, however IAS 1 Presentation of Financial Statements does not refer to materiality but states that ‘[a]n entity shall disclose its significant accounting policies' without the Board providing a definition for the term ‘significant’.

Therefore, the Board decided to develop amendments to paragraphs 117-122 of IAS 1 to require entities to disclose their material accounting policies rather than their significant accounting policies. To support this amendment the Board has also developed guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ described in IFRS Practice Statement 2 Making Materiality Judgements to accounting policy disclosures.

Suggested changes

ED/2019/6 Disclosure of Accounting Policies proposes to amend paragraphs 117-122 of IAS 1 in the following ways:

• Paragraph 117 of IAS 1 would be amended to require an entity to disclose its material accounting policies instead of its significant accounting policies;
• Paragraphs 117A-D of IAS 1 would be added to explain how an entity can identify a material accounting policy (for example an accounting policy has changed during the reporting period, was chosen from alternatives allowed in IFRSs, was developed in accordance with IAS 8 in the absence of an IFRS that specifically applies, relates to an area of significant judgement and assumption, or reflects unique entity-specific application of an IFRS);
• Paragraph 122, which requires an entity to make disclosures about ‘other judgements’, would be retained but would see a minor amendment to replace the reference to ‘significant accounting policies’ with the reference to ‘material accounting policies’.

The Board has also developed additional guidance to be included in the Materiality Practice Statement for entities to use when applying the four-step materiality process to accounting policy disclosure. This additional guidance is supported by two new examples that highlight the need to focus on information that is useful to users of financial statements and demonstrate how the application of the four-step materiality process can address the issues of: i) boilerplate or generic information being disclosed in accounting policies that are material to the financial statements; and ii) instances in which accounting policy disclosures contain only information that repeats the requirements of IFRSs. 

Comments on the proposed changes are requested by 29 November 2019.

Effective date and transition

The exposure draft does not contain a proposed effective date as the IASB intends to decide on this after exposure. The proposed amendments would be applied prospectively and early adoption would be permitted.

Dissenting opinion

Board member Martin Edelmann dissented from issuing the exposure draft. Mr Edelmann does not believe that materiality is a concept that should be applied to accounting policies as accounting policies differ from other information in the financial statements. He is also concerned that the application of the concept to accounting policies might lead to a loss of important information.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• Our UK Accounting Plus Project page on Disclosure initiative — Accounting policies
• Our Need to Know on this exposure draft

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.

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.

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.

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’.