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IASB proposes amendments to IFRS 9 regarding the classification of certain prepayable financial assets

21 Apr 2017

The International Accounting Standards Board (IASB) has published an exposure draft 'Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9)' to address the concerns about how IFRS 9 'Financial Instruments' classifies particular prepayable financial assets. Comments are requested by 24 May 2017.



The Board's consideration of this matter were triggered by a submission to the IFRS Interpretations Committee. The Committee noted that under IFRS 9 Financial Instruments certain prepayment options would preclude instruments that otherwise only feature contractual cash flows that are solely payments of principal and interest from being measured at amortised cost or fair value through other comprehensive income. Problematic in this case are prepayment features where the lender could be forced to accept a prepayment amount that is substantially less than unpaid amounts of principal and interest because this would constitute a payment to the borrower by the lender and not a compensation from the borrower to the lender. The Interpretations Committee was convinced that using amortised cost measurement could provide useful information in this case and asked the Board to consider adding a narrow-scope exception to IFRS 9.


Suggested changes

The Board followed the Interpretations Committee's reasoning and therefore ED/2017/3 Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9) proposes a narrow exception to IFRS 9 for particular financial assets that would otherwise have contractual cash flows that are solely payments of principal and interest but do not qualify for amortised cost or fair value through other comprehensive income measurement as a result of a prepayment feature.

The Board proposes that such a financial asset would be eligible to be measured at amortised cost or at fair value through other comprehensive income (depending on a company's business model) if two conditions are met:

  • the assessment that the prepayment amount is not solely a payment of principal and interest on the principal amount outstanding only hinges on the fact that the party that chooses to terminate the contract early may receive reasonable additional compensation for doing so; and
  • when the entity initially recognises the financial asset, the fair value of the prepayment feature is insignificant.

The ED also contains proposed amendments to IFRS 7 and IFRS 1 for cases where it is impracticable to assess whether the fair value of a prepayment feature was insignificant at initial recognition.


Effective date and transition requirements

The proposed effective date of the amendments is 1 January 2018 (to coincide with the effective date of IFRS 9). The exception would be applied retrospectively, however, certain relief is granted if at the date of initial application it is impracticable for an entity to assess whether the fair value of a prepayment feature was insignificant at initial recognition of the financial asset.


Comment deadline

The IASB argues that the matter is narrow in scope and urgent and has therefore set a comment period of 30 days instead of the standard minimum period of 120 days. Consequently, comments on the ED are requested by 24 May 2017.


Next steps

In order to meet the intended effective date of 1 January 2018, the Board follows a very tight project timeline. After the end of the comment period in May, the Board intends to redeliberate the issue in June and July 2017 and (if it decides to proceed with the proposed amendments) issue a final amendment by the end of October 2017.


Additional information

Please click for:

EFRAG (European Financial Reporting Advisory Group) (dk green) Image

EFRAG TEG conference call

21 Apr 2017

The European Financial Reporting Advisory Group (EFRAG) will hold a TEG conference call on 26 April 2017.

An agenda and documents for the conference call can be found on the EFRAG website.

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Agenda and pre-meeting summaries for the May 2017 IFRS Interpretations Committee meeting

20 Apr 2017

The IFRS Interpretations Committee will meet via Video Conference Call on Wednesday 3 May 2017. It is scheduled to be a one hour meeting, to discuss one new issue. The staff will also identify the new issues that have come to them that they are still analysing for future meetings.

New issue

The Committee will consider whether a financial instrument, classified as equity by the issuer in accordance with IAS 32.16A-16D, is eligible for FVTOCI classification in terms of IFRS The staff believe that it is clear that such instruments are not eligible for the OCI presentation election and that the Committee should not add this issue to its agenda.

The full agenda and the pre-meeting summaries for the meeting can be found here. We will update this page for our Deloitte observer notes from the meeting as they become available.

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ITCG call for members

20 Apr 2017

The IASB's IFRS Taxonomy Consultative Group (ITCG) is seeking to fill two open positions.

The ITCG is a consultative group established to assist the IASB in its activities related to the IFRS Taxonomy used when tagging financial information using XBRL (eXtensible Business Reporting Language).

The deadline for applications for membership is Thursday, 1 June 2017. Please click for more information in the press release on the IASB website.

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ACCA report highlights benefits and challenges of adopting Integrated Reporting

20 Apr 2017

The Association of Chartered Certified Accountants (ACCA) has published a report which highlights the benefits and challenges that early Integrated Reporting (<IR>) adopters have experienced and gives practical recommendations to those that are yet to adopt.

The findings are drawn from a review of 41 corporate reports by participants in the <IR> Business network which consists of organisations committed to adopting <IR>.  Interviews were also conducted with some of the report preparers.  The review highlights that there was “a high overall level of reporting quality” by <IR> Business Network participants but that “organisations find some aspects of <IR> particularly challenging”.  

A number of benefits of adopting <IR> were identified by participants including:

  • More integrated thinking and management.
  • Greater clarity on business issues and performance. The report highlights that “management teams are finding that <IR> provides greater insights into factors driving business performance”.
  • Improved corporate reputation and stakeholder relationships.
  • More efficient reporting for both users and preparers of reports.
  • Employee engagement.
  • Improved gross margins although it was highlighted that any financial benefits of adopting <IR> may take time to realise. 

Additionally, the report identifies several areas where reporting can be improved, something it calls “common areas of weakness”.  These include:

  • Value creation: It was observed that, in some cases, organisations gave better explanations of how the organisation creates value itself than of how it does this for others with some organisations finding it hard to distinguish between the two. The report notes that this may be a “general weakness” in identifying and articulating what the organisation’s stakeholders perceive as ‘value’.  The report identifies the following good practice ideas for reporting on value creation:
    • Clearly identify who the organisation’s key stakeholders are, and engage with them to find out what value means for them.
    • Use the six capitals model as a reference tool for considering how the organisation’s strategy and business model will affect each of these capitals.
    • Use the understanding of what value means for key stakeholders, and the multiple capitals approach, to inform the organisation’s business model, strategy, risk management and performance measurement processes.
    • Refer to existing frameworks and sector guidance as a starting point for defining relevant performance indicators.
  • Connectivity: companies identified this as one of the biggest challenges with implementing <IR>: it required breaking down silos within the organisation and changing existing data collection processes. The report indicates that “almost half the reports reviewed could be better at showing the connectivity of information, to give a holistic picture of the combination, interrelatedness and dependencies between the factors that affect the organisation’s ability to create value over time”.  The report identifies the following good practice ideas for connectivity:
    • Consider approaching the integrated report as an overarching, concise document that connects other more detailed reports and regulatory information.
    • Use clear signposts directing readers to connected information within the integrated report and elsewhere, including online reports.
    • Think about connections between management information, boardroom discussions and priority topics relevant for investors and other stakeholders.
  • Defining performance measures: thinking and practice is still immature in articulating the value organisations derive from non-financial capitals.
  • Materiality: companies found it challenging to reconcile the needs of different stakeholders. The report highlights that only 46% of reports reviewed explained the materiality determination process well.  Improving the materiality determination process could help drive improvements in conciseness, completeness and reliability.  The report identifies the following good practice ideas for materiality:
    • Identify who the main user of the integrated report is, and determine materiality accordingly – this will help to determine what to include and what to exclude.
    • Clearly explain the process for assessing materiality, including how the organisation has evaluated and prioritised material issues.
  • Conciseness: nearly half of the integrated reports reviewed ran over 150 pages. Companies found it difficult to reconcile conciseness and meaningful communication with stakeholders. The report identifies the following good practice ideas for conciseness:
    • Identify relevant matters to report by implementing robust materiality determination processes – this would also help to improve reliability and completeness.
    • Apply the robust materiality determination process to filter out matters to exclude (ie those not material to value creation) when evaluating their relative importance.
    • Use cross-references (internally and externally to other reports) and make effective use of tables and diagrams.
    • Consider how digital technology could help meet wider stakeholder information needs.
  • Reliability and completeness: the reviewers felt that only 51% of the reports reviewed achieved a balance of good and bad news in equal measure. Companies need to know what ‘good reporting’ looks like, before they can implement internal control processes and consider external assurance on their integrated report. The report identifies the following good practice ideas for reliability and completeness:
    • Ensure that the board exercises oversight of reporting content.
    • Establish sound internal control processes for data to be included in integrated reports.
    • Identify the relevant standards and frameworks used, and disclose them in the report.
    • Report information used by management in running the business.
    • Clearly explain why particular KPIs are used and the reason for any changes in reported KPIs.
    • Disclose negative aspects of performance as well as positive aspects, and explain what management will do to tackle challenges. 

By identifying the benefits of <IR> and sharing practical recommendations it is hoped that the report will “give businesses – as well as public sector organisations – the confidence to embark on their integrated reporting journey”.

The press release and full report Insights into Integrated Reporting – Challenges and best practice responses are available on the ACCA website.

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IESBA launches online survey seeking stakeholder views on its future direction

20 Apr 2017

The International Ethics Standards Board for Accountants (IESBA) has launched an online survey seeking comments, views, and insights from all stakeholders to help shape its future direction.

The survey which closes on 18 July, seeks early input onto the key issues the IESBA should address that might impact its Code Of Ethics for Professional Accountants and is the first step of the IEABS’s strategy and work plan beyond 2018. 

The press release is available on the IESBA website.  The online survey is available here.

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EFRAG comment letter on proposed annual improvements to IFRS standards 2015-2017

20 Apr 2017

The European Financial Reporting Advisory Group (EFRAG) has issued its comment letter and feedback statement on the IASB exposure draft ED/2017/1 ‘Annual Improvements to IFRS Standards 2015-2017 Cycle’.

EFRAG broadly agrees with the IASB proposals; however, it is concerned that “amending IAS 12 Income Taxes without providing guidance on how to determine whether the payments are distributions of profits may not lead to a significant improvement in consistent application compared to the current situation” and that the short time period between issuing the amendments to IAS 28 Investments in Associates and Joint Ventures with the purposed effective date of 1 January 2018 could present issues.  EFRAG therefore proposes an effective date of 1 January 2019 with earlier application permitted with transitional provisions for entities that will not be able to apply the amendments at the same time as they apply IFRS 9 Financial Instruments

EFRAG is supportive of addressing proposed amendments to IAS 28 before IFRS 9 becomes effective and considers that the proposed amendments “to be a practical solution, in that they codify an acceptable interpretation of existing guidance and do not involve extensive changes to that guidance”.  EFRAG recommends guidance on the application of the proposed amendments to IAS 28. 

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

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Pre-meeting summaries for the April IASB meeting

19 Apr 2017

The IASB will meet at its offices in London on 24 and 27 April 2017. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. For each topic to be discussed we summarise the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

There are five topics on the agenda. One session will be held jointly with the FASB.

Monday 24 April

The meeting will start with a brief update on the strategy for supporting the implementation of the forthcoming IFRS 17 Insurance Contracts, including the objective of the Transition Resource Group the IASB plans to establish.

This will be followed by an education session addressing concerns expressed during the February meeting about some aspects of the Rate-regulated Activities project.

In the afternoon session the IASB will be joined by the FASB, by video, for an education session on the FASB’s Financial Performance Reporting project.

Thursday 27 April

The meeting continues on Thursday afternoon with some IFRS Implementation Issues and further discussions on a proposal to amend the definition of a business in IFRS 3 Business Combinations.

The implementation session will consider the Interpretation Committee’s tentative decision on fees included in the ‘10 per cent’ test for the purpose of derecognition; completing the amendments to IAS 19 and IFRIC 14; and analysing feedback on amendments to IFRS 3 and IFRS 11 for previously held interests.

The discussion of the definition of a business will focus on whether the screening test should be modified in light of comments received.

Our pre-meeting summaries are available on our April meeting note page and will be supplemented with our popular meeting notes after the meeting.

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FRC consults on revisions to Practice Note 15

18 Apr 2017

The Financial Reporting Council (FRC) has published a consultation proposing revisions to Practice Note 15: ‘The Audit of Occupational Pension Schemes in the United Kingdom’.

The main drivers for the revisions are:

  • revisions to UK auditing standards (ISAs (UK));
  • changes to UK accounting standards (Financial Reporting Standard (FRS) 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland) and the revision of the pension Statement Of Recommended Practice (SORP);
  • continuing developments in regulatory codes and guidance issued by The Pensions Regulator (TPR);
  • changes in relevant legislation; and
  • the increase in master trusts in the pension sector. 

The FRC intends to issue a final version of the revised Practice Note in the autumn and at the same time will withdraw Practice Note 22 – The Auditors’ Consideration of FRS 17 – Retirement Benefits – Defined Benefit Schemes

Comments are requested until 30 June 2017.

The press release, consultation and impact assessment and exposure draft are available on the FRC website.

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April 2017 IASB meeting agenda posted

13 Apr 2017

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 24 and 27 April 2017. One session will be held jointly with the FASB.

The Board will discuss the following:

  • Insurance contracts
  • Rate-regulated activities
  • Financial performance reporting (education session with FASB)
  • IFRS implementation issues
  • Definition of a business

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.

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