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July 2014 IASB meeting notes — Part 1

24 Jul, 2014

The IASB's meeting is being held on 22–24 July 2014, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the IASB session on the disclosure initiative and insurance contracts from the first meeting day.

Click through for direct access to the notes:

Tuesday, 22 July 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

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FCA consultation to remove the requirement to publish interim management statements

24 Jul, 2014

The Financial Conduct Authority (FCA) has issued a consultation proposing the removal of the requirement to publish interim management statements (or quarterly financial reports) which are currently included with Section 4.3 of the Disclosure and Transparency Rules (DTR).

In November the government expressed their support for the removal of mandatory quarterly reporting requirements which were one of the recommendations of Professor Kay in his review of the UK Equity market in 2012 (the “Kay Review”) (link to BIS website).  The Kay Review sought to address the issue of short-termism in the equity market.  

The removal of mandatory quarterly reporting has been agreed at a European Union level as part of the amendments to the Transparency Directive and must be transposed into UK law by November 2015.  However, as part of the government’s autumn statement, they announced that they would bring forward this change in advance of the November 2015 deadline and adopted enabling secondary legislation in June 2014 allowing the FCA to implement this change.

The FCA proposes to:

  • Remove the requirements in DTR 4.3 completely
  • Remove DTR 4.4.6R and DTR 6.3.5R(3)(C) which will become obsolete
  • Consequential amendments to others rules in the DTR that refer to interim management statements.

Comments are invited in writing until 4 September 2014.

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Updated EFRAG endorsement status report for draft endorsement advice letter on amendments to IAS 16 and IAS 41

23 Jul, 2014

The European Financial Reporting Advisory Group (EFRAG) has updated its Endorsement Status Report to include its draft endorsement advice letter on 'Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)'.

The IASB issued the amendments to IAS 16 Property, Plant and Equipment and IAS 41 Agriculture on 30 June 2014. They are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.

The updated report indicates that final endorsement of the amendments is currently expected in Q1 2015.

The endorsement status report, dated 23 July 2014, is available here.

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FRC publishes amendments to FRS 102 in relation to hedge accounting and classification of financial instruments

23 Jul, 2014

The Financial Reporting Council (FRC) has today issued 'Amendments to FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland': Basic financial instruments and Hedge accounting'.

The amendments follow consultation on the proposals set out in both Financial Reporting Exposure Draft (FRED) 51 Draft amendments to FRS 102: The Financial Reporting Standard applicable in the UK and Republic of Ireland: Hedge Accounting and FRED 54 Draft amendments to FRS 102 – Basic financial instruments

Basic financial instruments 

Under FRS 102, a debt instrument must be regarded as ‘basic’ in order for it to be measured at amortised cost. The amendments revise the criteria that determine whether a debt instrument is ‘basic’ and is intended to reduce the need for entities to measure debt instruments at fair value. 

The amendments permit amortised cost measurement for a broader range of debt instruments where it adequately captures the risk associated with those financial instruments. 

Examples illustrating the application of the revised requirements are included within the amendments.  In particular, under the revised FRS 102 some inflation-linked debt instruments, which would not have met previously the definition of basic financial instruments under FRS 102, would now be classified as basic.  

Hedge Accounting 

Under FRS 102, derivatives such as interest rate swaps, forward contracts and option contracts would not be ‘basic’ financial instruments and would be measured at fair value through profit and loss (FVPL). Hedge accounting allows the matching of gains or losses on those instruments with the recognition of losses or gains on items hedged.   

The amendments replace the restrictive hedge accounting requirements previously in FRS 102 with a set of hedge accounting principles based on the IFRS 9 Financial Instruments hedge accounting model.  As a result of the amendments, there will be more opportunities for entities to apply hedge accounting. 

In addition to broadening the eligibility criteria, the amendments also remove the requirement that an entity must expect the hedging instrument to be highly effective in offsetting the hedged risk in order to apply hedge accounting.  Instead the amendments require there to be “an economic relationship between the hedged item and the hedging instrument”. 

These are the final amendments to FRS 102 for financial instruments before its mandatory effective date (1 January 2015), enabling FRS 102 reporters to make an informed decision about which recognition and measurement rules to apply (i.e. those of Sections 11 and 12, IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9). 

The amendments include flexible transition provisions allowing retrospective designation of hedge relationships irrespective of which recognition and measurement rules are applied.

Alongside the amendments the FRC has also issued an Impact Assessment and Feedback Statement that summarises the feedback received in relation to FRED 51 and FRED 54.

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FRC publishes amendments FRS 101 Reduced Disclosure Framework

23 Jul, 2014

The Financial Reporting Council (FRC) has today published amendments to Financial Reporting Standard (FRS) 101 ‘Reduced Disclosure Framework’ available to UK subsidiary companies that wish to apply the recognition and measurement requirements of IFRSs in their financial statements.

FRS 101 was originally published in November 2012 as part of the FRC's project to replace current UK GAAP with a new suite of standards, which also includes FRS 100 Application of Financial Reporting Requirements, FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and FRS 103 Insurance Contracts.

FRS 101 was published in recognition of the fact that many UK groups prepare their consolidated financial statements in accordance with IFRSs rather than UK GAAP. For subsidiary entities, application of IFRSs is attractive because it would produce numbers consistent with those used to prepare the group accounts. However, many companies are put off using IFRSs for their subsidiaries by the extensive disclosure requirements.  In recognition of this, the FRC identified a number of disclosures that were, in their view, of limited usefulness in a set of subsidiary accounts. FRS 101 allows entities, in their entity only accounts, to apply the recognition and measurement requirements of IFRSs but take advantage of exemptions from these disclosures.

When FRS 101 was originally published, the FRC committed to review the standard on an annual basis and update it to ensure that it maintains consistency with IFRS and remains cost-effective for groups. The amendments published today represent the first of these annual updates.

The amendments to FRS 101 and its appendices, which follow consultation on the Exposure Draft FRED 53:

  • simplify the new disclosure requirements of IAS 36 Impairment of Assets in relation to fair value measurements used in impairment reviews; and
  • clarify how entities applying FRS 101 can adopt the new international accounting practice for investment entities (set out in IFRS 10 Investment Entities and its consequential amendments to IAS 27 Separate Financial Statements), whilst still complying with legal requirements.

A number of editorial amendments have also been made to clarify the legal requirements applicable to companies applying FRS 101 that hold financial instruments at fair value subject to paragraph 36(4) of Schedule 1 to the Regulations.

The amendments would have the same effective date as the existing standard i.e. periods commencing on or after 1 January 2015.

Alongside the amendments the FRC has also issued an Impact Assessment and Feedback Statement that summarises the feedback received in relation to FRED 53.

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EFRAG issues draft endorsement advice and effects study report on amendments to IAS 16 and IAS 41

23 Jul, 2014

The European Financial Reporting Advisory Group (EFRAG) has issued for comment its draft endorsement advice for the use of the amendments to International Accounting Standard (IAS) 16 ‘Property, Plant and Equipment’ and IAS 41 ‘Agriculture’ in the European Union (EU). EFRAG has also issued its Effects Study Report.

The amendments to IAS 16 and IAS 41, issued by the International Accounting Standards Board (IASB) on 30 June 2014 bring bearer plants, which no longer undergo significant biological transformation, into the scope of IAS 16 so that they are accounted for in the same way as property, plant and equipment.  The amendments also clarify that produce growing on bearer plants continues to be accounted for under IAS 41 and that government grants related to bearer plants no longer fall into the scope of IAS 41 but need to be accounted for under IAS 20 Accounting for Government Grants and Disclosure of Government Assistance.  The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.

EFRAG supports the adoption of the amendments to IAS 16 and IAS 41 and recommends their endorsement.  EFRAG’s initial assessment is that the amendments to IAS 16 and IAS 41 meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.     

EFRAG’s conclusion is supported by an Effects Study Report which considers the costs and benefits of implementing the amendments to IAS 16 and IAS 41. EFRAG’s assessment is that the benefits for preparers and users in implementing the amendments to IAS 16 and IAS 41 outweigh the costs.

Comments are requested by 5 September 2014. 

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Report from July 2014 IFRS Foundation Trustees meeting

23 Jul, 2014

A report has been made available from the meeting of the Trustees of the IFRS Foundation, which was held in London on 8-10 July 2014.

Topics discussed included:

  • Governance and procedural matters. A report was received in relation to the IFRS Foundation Monitoring Board meeting held on 13 June 2014, and the Trustees approved an updated Charter and Memorandum of Understanding (MoU) with the Foundation. It also approved the text of a Statement of Protocols with the European Securities and Markets Authority (ESMA), considered preliminary themes for the next review of the structure and effectiveness of the IFRS Foundation to be conducted over the course of 2015, started the process of a self-evaluation exercise of the Trustees, and approved a change in the terms of reference of the IFRS Advisory Council moving its secondary focus from promotion and adoption of IFRS to encouraging broad participation in the development of IFRS. Other topics discussed included Trustee appointments and reports from a number of committees
  • International IFRS developments. Discussion included a number of significant events in Europe (including the European Commission's review of the IAS Regulation and the restructuring of the European Financial Reporting Advisory Group), a current assessment of the United States environment and the Foundation's approach, the importance of Mexico and improving relationships with the Group of Latin-American Standard-Setters (GLASS), engagement challenges in the Asia-Oceania region, and the particular challenges of stakeholder engagement in Africa and the Middle East
  • IASB Chairman report. Hans Hoogervorst provided an update on the IASB's activities, noting adoption updates in Singapore, India and Japan, initiatives to improve the consistent application, and technical updates focusing on the conceptual framework project, insurance contracts and leases.
  • Due Process Oversight Committee (DPOC) Chairman report. Scott Evans provided a report on the July 2014 meeting of the DPOC, focusing on the IASB's technical activities, Effects Analysis Consultative Group, IFRS taxonomy, the annual review of consultative groups, and general due process matters. More information on this meeting is available here
  • Other matters. The Trustees received a presentations from the Chairman of the UK Financial Reporting Council (FRC) on the FRC's perspective of financial reporting issues, from Kumar Dasgupta (Technical Director) on the revised IFRS 9 Financial Instruments, and held the first Tommaso Padoa-Schioppa Memorial Lecture.

The full report from the meeting available on the IASB website.

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Report from July 2014 DPOC meeting

23 Jul, 2014

A report has been issued from the Due Process Oversight Committee (DPOC) meeting held in London on 8 July 2014.

The report noted discussion on the following topics:

  • Major IASB projects. The DPOC discussed the finalised version of IFRS 9 Financial Instruments (incorporating requirements for impairment and modifications to classification and measurement), macro hedge accounting, insurance contracts, leases, revenue recognition, conceptual framework and the disclosure initiative. The DPOC raised questions on possible diverse views of constituents in the insurance project, and the impact of the divergent views of the IASB and FASB in the leases project.
  • Implementation and maintenance projects. The DPOC received an update on a number of projects, including bearer plants, equity accounting and the post-implementation review of IFRS 3 Business Combinations
  • Effects Analysis Consultative Group (EACG). The DPOC considered a near final draft of the EACG report advising the IASB on developing an agreed methodology for field testing and effects analysis, including a revised section on financial stability responding to the IASB's obligations from being a member of the Financial Stability Board (FSB). The finalised report will be submitted to the IFRS Foundation Trustees and may result in some amendments to the Due Process Handbook
  • IFRS taxonomy (XBRL). The DPOC received a progress report on the IASB's proposals to revise the due process for updating the IFRS taxonomy, noting concerns raised by some IASB board members and disappointment at the delay in the publication of an Invitation to Comment on the proposed new due process, which was originally intended to be considered at this meeting. However, the DPOC accepted proposals for trial runs of the new process for both a new Standard and an update
  • Review of consultative groups and DPOC engagement. The DPOC considered an annual review of consultative groups, considering standing advisory groups (Accounting Standards Advisory Forum, Capital Markets Advisory Committee and Global Preparers Forum, Emerging Economies Group, SME Implementation Group, Education and Advisory Group, Advisory Group on Sharia-compliant instruments and transactions) and those groups recommended for disbandment, or already disbanded (XBRL Advisory Council, XBRL Quality Review Team, Effects Analysis Consultative Group, Financial Instruments Working Group and the Expert Advisory Panel on Impairment. No changes were proposed to the Insurance Working Group and Leases Working Group, Rate-Regulated Activities Consultative Group and Valuation Expert Group, and the DPOC also noted the new IFRS Taxonomy Consultative Group and Joint Transition Resource Group for Revenue Recognition
  • Due process reports. The DPOC considered a report dealing with the availability of comment letters and meeting papers and interactions with securities and prudential regulators and noted consistent adherence to the due process requirements.

The full report is available on the IASB website.

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IASB webcasts on IFRS 9

23 Jul, 2014

Board members and staff of the International Accounting Standards Board will hold live web presentations on IFRS 9 'Financial Instruments' on 29 July 2014.

The IASB is expected to issue a finalised version of IFRS 9 in the near future, which will incorporate new requirements for financial instrument impairment, and make amendments to classification and measurement arising from the IASB's limited reconsideration of IFRS 9. The new standard is also expected to have an effective date of 1 January 2018.

Two presentations, including question and answer sessions, will be held to cater for different time zones. Details and registration links to the IASB's webcast provider are outlined below:

The webcasts will be recorded and made available after the completion of the sessions.

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TRG discusses implementation of new revenue standard

22 Jul, 2014

At its July 18, 2014, inaugural meeting, the joint revenue transition resource group (TRG) and FASB and IASB board members discussed potential issues related to implementing the boards’ new revenue standard.

The purpose of the TRG is not to issue guidance but instead to seek feedback on potential issues related to implementing ASC 606 and IFRS 15. By analyzing and discussing potential implementation issues, the TRG will help the boards determine whether they need to take additional action, such as providing clarification or issuing other guidance. The TRG comprises financial statement preparers, auditors, and users from “a wide spectrum of industries, geographical locations, and public and private organizations.”

Topics discussed at the meeting included:

  • Determining whether an entity offering internet-related intangible goods and service arrangements is a principal or an agent.
  • Determining whether certain amounts billed to customers should be presented as revenue or a reduction of costs.
  • Sales-based and usage-based royalties in contracts with licenses and goods or services other than licenses.
  • Inclusion of renewal periods for impairment testing of capitalized contract costs.

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