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News

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IASB finalises amendments to IFRS 3 regarding the definition of a business

22 Oct 2018

The IASB has issued 'Definition of a Business (Amendments to IFRS 3)' aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020.

Background

The post-implementation review of IFRS 3 Business Combinations revealed that entities have difficulties when determining whether they have acquired a business or a group of assets. As the accounting requirements for goodwill, acquisition costs and deferred tax differ on the acquisition of a business and on the acquisition of a group of assets, the IASB decided to issue narrow scope amendments aimed at resolving the difficulties that arise when an entity is determining whether it has acquired a business or a group of assets.

In June 2016, the IASB published ED/2016/1 Definition of a Business and Accounting for Previously Held Interests (Proposed amendments to IFRS 3 and IFRS 11), combining two of its implementation projects at that time. The proposed amendments regarding the accounting for previously held interests were finalised as part of the annual improvements 2015-2017 on 12 December 2017. The proposed amendments regarding the definition of a business are being finalised today.

 

Changes

The amendments in Definition of a Business (Amendments to IFRS 3) are changes to Appendix A Defined terms, the application guidance, and the illustrative examples of IFRS 3 only. They:

  • clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs;
  • narrow the definitions of a business and of outputs by focusing on goods and services provided to customers and by removing the reference to an ability to reduce costs;
  • add guidance and illustrative examples to help entities assess whether a substantive process has been acquired;
  • remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs; and
  • add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

 

Interaction with the FASB

The amendments note that IFRS 3 is the result of a joint project between the IASB and the FASB and the business combinations requirements under IFRSs and US GAAP are substantially converged. However, even though the FASB (that had received similar feedback) and the IASB have worked together to respond to problems with the definition of a business, the IASB amendments to the application guidance of IFRS 3 are different from the amendments issued by the FASB in 2017. Nevertheless, the IASB expects that the amendments in conjunction with the FASB amendments will lead to more consistency in applying the definition of a business between entities applying IFRSs and entities applying US GAAP.

 

Effective date and transition requirements

The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020 and to asset acquisitions that occur on or after the beginning of that period. Earlier application is permitted.

 

Additional information

Please click for:

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ESAs comment on IFRS 17 endorsement process in the EU

19 Oct 2018

The European Supervisory Authorities (ESAs) have jointly written to the European Financial Reporting Advisory Group (EFRAG) to express concerns on the endorsement process for IFRS 17 'Insurance Contracts'.

In September 2018, EFRAG agreed on a letter to the IASB regarding IFRS 17 to bring concerns of European constituents regarding the standard to the IASB's attention. While EFRAG is waiting for the IASB to consider these (and other) concerns, the endorsement process for IFRS 17 is temporarily put on hold. The IASB will discuss IFRS 17 concerns and implementation challenges at its meeting next week but no decisions are expected as yet.

The ESAs note the delay in the endorsement process with concern. Their letter states:

While, at this stage, we do not express any detailed technical views on IFRS 17, we reiterate the need to continue to progress and to finalise the analysis of IFRS 17 in a timely manner against the background of the effective date of IFRS 17 of 1 January 2021.

Similarly, in a speech given in Madrid today, the Chair of the European Securities and Markets Authority (ESMA), which is one of the ESAs, also commented on IFRS 17. He said:

[W]hile we are still analysing its technical details, one thing that can already be affirmed with certainty is that IFRS 17 will improve comparability and transparency of financial information on insurance contracts when compared to the current situation. [...] Therefore, while it is important to exercise caution in assessing the changes introduced by IFRS 17, I think it is necessary to avoid any further delays in reaching a common set of accounting standards for insurance contracts. [...W]e are quite concerned by the delay that we are observing in the endorsement process of IFRS 17 in the EU.

And while the European Insurance and Occupational Pensions Authority (EIOPA), also one of the ESAs, does not explicitly refer to the endorsement process, it notes in its analysis of the benefits of IFRS 17 that has just now also become available:

EIOPA found that the expectedly increased transparency and comparability of insurers' financial statements through IFRS 17, providing better insights into insurers' business models, have the potential to strengthen financial stability in the European Economic Area (EEA). Therefore, EIOPA regards the implementation of IFRS 17 as beneficial for the European public good. [...] The introduction of IFRS 17 is a long overdue and positive shift of paradigm compared to IFRS 17's predecessor IFRS 4 Insurance Contracts.

Please click to access the the quoted documents:

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IFRS Foundation Trustees chair discusses new role and upcoming priorities

18 Oct 2018

In a recent interview, the Chair of the IFRS Foundation Trustees Erkki Liikanen provided his thoughts on his new role, financial reporting in the global economy, and his priorities for the Trustees.

Mr Liikanen noted that financial reporting works best when standards and practices across jurisdictions are the same to maintain consistency and that the use of IFRS Standards have helped achieve this. In addition, he stated that his priorities for the Trustees are to look at core functions and strategies.

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

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Recordings from the October 2018 DPOC meeting

18 Oct 2018

The Trustees of the IFRS Foundation are currently meeting in Johannesburg. On 16 October, the Due Process Oversight Committee (DPOC) of the Trustees held its meeting (the only part of the Trustees meeting held in public). Recordings from the meeting are now available.

The DPOC members discussed the following topics

  • Introduction and actions from DPOC meeting held on 5 June 2018
  • Technical activities: Key issues and update
  • Review of the post-implementation review of IFRS 13
  • Consultative groups — annual review and DPOC engagement
  • Reporting protocol — annual general report
  • Education material — review of due process
  • Due Process Handbook review
    • Proposals for improvements
      • Agenda decisions: Supporting consistent application
      • Adding projects to the Board’s work plan
      • Effects analysis
      • Taxonomy
      • Anonymous complaints about due process
    • Outline of timetable and next steps
  • Correspondence: update
  • Summary

The recordings are available on the IASB's website.

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Insurers call for a two-year delay in the effective date of IFRS 17

17 Oct 2018

Nine insurance industry organisations from Europe, Canada, Korea, New Zealand, Australia, and South Africa have written a joint letter to the IASB asking for further amendments to IFRS 17 'Insurance Contracts' and a two-year delay in the effective date of the standard.

The letter stresses the support of the industry for IFRS 17 as a "high-quality standard for insurance contracts which improves insurers’ financial reporting" but notes that preparatory work has confirmed that "a number of important issues need to be resolved in order to ensure the quality and operational practicability of the new standard". In addition, the insurers mention operational constraints ontheir ability to successfully implement IFRS 17 on the current timelines. The letter argues:

As a result, we strongly believe a 2-year delay in the effective date of the standard is required. This lead time is essential both to allow for the necessary improvements to the standard and to allow adequate time for the wide range of companies required to apply the standard and meet its significant implementation challenges.

The letter promises that a delay would not result in insurers stopping or slowing their implementation projects.

Please click to access the letter on the website of Insurance Europe, one of the signatories of the letter.

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Pre-meeting summaries for the October IASB meeting

16 Oct 2018

The IASB will meet on Wednesday 24 and Thursday 25 October 2018. 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.

The Wednesday sessions start with the Primary Financial Statements project. The focus is on the labels the Board will use to describe subtotals. The staff are recommending that the labels be operating profit or loss; operating profit or loss and share of profit or loss of integral associates and joint ventures; and profit or loss before financing and income tax (with entities being prohibited from using the term ‘EBIT’ for this subtotal).

On Implementation, the IASB will consider a recommendation by the IFRS Interpretations Committee that the IASB amend IAS 12 Income Taxes in relation to the initial recognition of a lease, by a lessee, and decommissioning obligations. 

The staff will give an oral update on the Management Commentary project.

The staff will present a proposal to revise the Preface to International Financial Reporting Standards, removing redundant material on the structure of the IASB and its due process requirements.

For the Disclosure Initiative, the focus is on accounting policies. The staff recommend that the Board clarify that not all accounting policies relating to material transactions, other events or conditions are material. They also recommend that the Board develop guidance and examples for inclusion in the Materiality Practice Statement to help entities apply effective judgement when deciding whether accounting policies are material.

The Board will discuss IFRS 17 Insurance Contracts, to help it determine how it should respond to concerns that have been brought to its attention regarding this Standard (the papers include a description of 25 identified concerns). The staff have developed criteria for the Board to apply in assessing whether, in each case, it should propose an amendment to IFRS 17. We do not expect the Board to make any decisions about specific issues at this meeting.

On Thursday the staff will give an update on the Rate-regulated Activities project.

The meeting concludes with a session on Goodwill and Impairment. The staff present their proposed outline for a Discussion Paper. The main sections would focus on improving disclosures, simplifying the impairment test, and simplifying the accounting for goodwill. The staff are asking the Board to reconsider its earlier decisions not to pursue some ideas around improvements to the impairment test. The Board has not indicated when it expects to publish the DP.

More in­for­ma­tion

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

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Papers for the upcoming IASB discussion of IFRS 17

12 Oct 2018

At its upcoming meeting, the IASB will discuss IFRS 17 'Insurance Contracts' to determine whether the various concerns regarding the standard that have been brought to the IASB's attention require action of the Board.

Since IFRS 17 was issued in May 2017, the Board has been monitoring the implementation and has learned about concerns and implementation challenges, among them the issues identified in the EFRAG letter sent to the IASB last month. The Board had previously indicated that it would consider whether additional action is needed to address matters arising during implementation. The upcoming meeting on 24 October will be a first step in this assessment process.

Agenda paper 2C for the meeting reveals the criteria the staff of the IASB has developed for the Board to apply in assessing whether a concern warrants considering an amendment:

  1. the amendment would not result in significant loss of useful information relative to that which would be provided by IFRS 17 for users of financial statements and
  2. the amendment would not unduly disrupt implementation processes that are already under way or risk undue delays in the effective date of a standard that is needed to address many inadequacies in the existing wide range of insurance accounting practices.

The staff also notes that even if the Board agrees that any potential amendment to IFRS 17 meets the criteria, it does not mean that all amendments meeting these criteria are justified.

Agenda paper 2D for the meeting includes some background information and provides for each identified concern or implementation challenge:

  • an overview of the IFRS 17 requirements;
  • a summary of the Board’s rationale for setting those requirements;
  • an overview of the concern or implementation challenge expressed; and
  • staff preliminary thoughts.

The paper notes 25 identified concerns that are listed in paragraph 12 in a table offering an overview and referencing the subsequent paragraphs where the concern is dicussed in detail.

The Board will be asked to consider at a future meeting whether any of the concerns and implementation challenges indicate a need for standard-setting to amend the requirements of IFRS 17. There are no decisions expected at this meeting.

The papers for this session (currently scheduled for 15:15-17:45 on 24 October) are available on the IASB website (please scroll down). In addition to the two papers pointed out above, they also include a cover note, a summary of the TRG meeting held in September, and the TRG submission log.

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October 2018 IASB meeting agenda posted

12 Oct 2018

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 24 and 25 October 2018. There are eight topics on the agenda.

The Board will discuss the following:

  • Primary financial statements
    • Descriptions of subtotals
  • Implementation
    • Deferred tax — tax base of assets and liabilities: possible narrow-scope standard-setting
  • Management commentary
  • Preface to IFRS Standards
  • Disclosure initiative
    • Accounting policies
  • IFRS 17 Insurance contracts
    • Summary of TRG for IFRS 17 meeting
    • TRG submissions log
    • Criteria for evaluating possible amendments to IFRS 17
    • Concerns and implementation challenges
  • Rate-regulated activities
  • Goodwill and Impairment
    • Additional work to be performed
    • Identifying better disclosures for business combinations, goodwill and impairment
    • Discussion paper outline

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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Updated IPSAS-IFRS alignment dashboard

12 Oct 2018

The International Public Sector Accounting Standards Board (IPSASB), which develops the of International Public Sector Accounting Standards (IPSAS) for financial reporting by governments and other public sector entities, has released an updated IPSAS-IFRS alignment dashboard showing how far individual IPSAS are aligned with corresponding IFRSs.

The alignment dashbord was updated for the September 2018 IPSASB meeting and now also includes IPSAS 41 Financial Instruments issued in August 2018.

Please click to access the updated dashboard on the IPSASB website.

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Agenda for the October 2018 DPOC meeting

10 Oct 2018

The Trustees of the IFRS Foundation will be meeting in Johannesburg from 16 to 18 October 2018. However, only the meeting of the Due Process Oversight Committee (DPOC) on 16 October will be held in public.

The agenda for the DPOC meeting is summarised below.

Tuesday, 16 October 2018 (10:30–11:50)

  • Introduction and Actions from DPOC meeting held on 5 June 2018
  • Technical activities: Key issues and update
  • Review of the post-implementation review of IFRS 13
  • Consultative groups — annual review and DPOC engagement
  • Reporting protocol — annual general report
  • Education material — review of due process
  • Due Process Handbook review
    • Proposals for improvements
      • Agenda decisions: Supporting consistent application
      • Adding projects to the Board’s work plan
      • Effects analysis
      • Taxonomy
      • Anonymous complaints about due process
    • Outline of timetable and next steps
  • Correspondence: update
  • Summary

Agenda papers for the meeting are available on the IASB's website.

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