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Responses to the IASB exposure draft regarding prepayment features with negative compensation

29 May 2017

The comment deadline on the IASB's exposure draft ED/2017/3 'Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9)' has ended. The majority of stakeholders' responses are negative, but for different reasons.

The responses to ED/2017/3 seem to fall into three major categories (the links below are to individual submissions on the IASB's website or each submitting organisation's website):

  • Those who believe that there never was an issue with IFRS 9. Among these is the German standard-setter ASCG who states: "Generally speaking, a majority of our Committee members is of the view that IFRS 9 would not have required any changes. These members do not share the view that IFRS 9.B4.1.11(b) excludes financial instruments with symmetric prepayment features comprising potentially “negative” compensation. The South African Institute of Chartered Accountants (SAICA) joins the statement: "[W]e do not believe an exception is required for this but merely a clarification or additional guidance."
  • Those who believe that changes to IFRS 9 are needed, but the approach is wrong/might have unintended consequences . The French standard-setter ANC notes: "ANC is still convinced that an alternative solution, i.e. clarification, is worth being contemplated in order to provide a simpler and also immediately applicable solution." The UK standard-setter FRC notes a "not convincing" rationale regarding the exclusion of fiinancial asset where the fair value of the prepayment feature is not insignificant. And the Institute of Chartered Accountants in England and Wales (ICAEW) states: "We are not, however, supportive of the IASB’s proposed solution, which is overly complex, introduces unwelcome asymmetry and could result in unintended consequences." Deloitte joins the group of sceptical voices and raises "concerns with the way the amendment is structured and drafted".
  • Those who believe that changes to IFRS 9 might be warranted, but the timing is wrong. The Japanese standard-setter ASBJ is "gravely concerned" regarding the comment period of 30 days and believes that with the effective date of IFRS 9 approaching any amendment to IFRSs should be very limited in scope. And the European Securities and Markets Authority (ESMA) notes that it "has serious concerns about [the] purpose and timing" of the proposed amendments and would consequently suggest "that the IASB better articulates why it decided to propose these amendments at this particular point in time, as the mandatory application of IFRS 9 is just a few months away". The Canadian standard-setter AcSB adds: "We are also very concerned that modifying IFRS 9 within a few months before the effective date can negatively affect the implementation efforts of preparers, auditors and users of the financial statements."

The IASB is in the process of posting all responses to the exposure draft to its website.

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Deloitte comment letter on ESA Consultation

29 May 2017

The European Economic Area member firms of Deloitte Touche Tohmatsu Limited have responded to the European Commission’s consultation on “The Operations of the European Supervisory Authorities”.

High-level but strong messages on a few core principles for standard-setting and enforcement activities that we believe are particularly relevant for the EU environment are:

  • Separation of powers
  • Balance of powers
  • Stakeholders’ involvement

With regard to the first point, we agree with the common European position as regards Question 15 of the consultation and stress:

[A] separation of powers between the activities of standard-setting, enforcement and final decisions on sanctions favours independent decision-making and mitigates the risks of conflicts of interests.

Please click to download our full comment letter.

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IVSC intends to establish Financial Instruments Board

29 May 2017

The International Valuation Standards Council (IVSC) is looking to put in place a Financial Instruments Board that will sit alongside its Tangible Assets Board and its Business Valuation Board.

More information is available in the call for applications on the IVSC website.


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New Banking and Finance Newsletter with interview with Jean-Paul Gauzès

29 May 2017

The newest edition of the European Commission's Banking and Finance Newsletter offers an interview with the EFRAG President.

The interview touches on the role of EFRAG and how it contributes to improving European financial reporting and standard setting as well as how EFRAG works together with the IASB. Mr Gauzès also notes his thoughts on what he sees as EFRAG's main priorities for the coming years.

Please click to access the interview on the EC website.

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IFRS Foundation Trustees and Japan's FASF strengthen cooperation

25 May 2017

The IFRS Foundation Trustees and Japan’s Financial Accounting Standards Foundation (FASF) have issued a joint statement reaffirming their shared commitment to the objective of a single set of high quality, global accounting standards. The statement also describes how the two organisations will work together to support adoption of IFRS in Japan.

The statement was issued in conjunction with the meeting of the IFRS Foundation’s Trustees in Tokyo, Japan.

In Japan, listed companies have a choice of several sets of accounting standards. The use of IFRS has been permitted since 2010. Since then, 164 listed companies (30% of total market capitalisation) have already adopted or announced plans to adopt IFRS.

For more information, see the press release and joint statement on the IASB's website.

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IASB publishes Request for Information on the post-implementation review of IFRS 13

25 May 2017

The International Accounting Standards Board (IASB) has issued a Request for Information (RFI) seeking comments from stakeholders to identify whether IFRS 13 'Fair Value Measurement' provides information that is useful to users of financial statements; whether there are areas of IFRS 13 that are difficult to implement and may prevent the consistent implementation of the standard; and whether unexpected costs have arisen in connection with applying or enforcing the standard.

The post-implementation review process for IFRS 13 was officially added to the IASB's agenda in January 2017. Before that, the IASB had been gathering information to determine the scope of the review and to identify the main questions that need to be answered before the implementation of IFRS 13 can be assessed.

The information gathered so far indicates that many stakeholders believe that IFRS 13 works well and has led to significant improvements. This is in line with the findings of the FASB's post-implementation review (PIR) of the US GAAP Topic 820 Fair Value Measurement - both standards are the result of a joint convergence project.

However, IASB stakeholders contacted so far have identified four broad areas where IFRS 13 to their mind might still benefit from improvements. These four areas are the backbone of the RFI:

  • Disclosures about fair value measurements. Some of the disclosure requirements for Level 3 fair value measurements are perceived as onerous while at the same time their usefulness is questioned.
  • Prioritising Level 1 inputs or the unit of account. IFRS 13 is perceived as not clear on whether entities should prioritise Level 1 inputs or the unit of account when determining the fair value of investments in joint ventures and associates.
  • Application of the concept of the highest and best use. Concerns in this area regard the implications of applying the concept of highest and best use in the measurement of groups of operating assets.
  • Application of judgement in specific areas. Challenges around this have been mentioned to the IASB and the question is whether further support could be helpful.

In addition those areas, the IASB also encourages respondents to raise any issues that they have come across but that have not been covered by the questions in the RFI. Also, the RFI asks respondents whether the IASB should strive to maintain convergence with US GAAP Topic 820 Fair Value Measurement in any changes that might be the result of the PIR.

After the comment period ends, the IASB will consider the comments received along with information gathered through other consultation activities and findings from research on the topic. The final conclusions of the IASB will be presented in a report and a feedback statement which will also set out the steps the IASB believes should be taken as a result of the review.

Comment deadline is 22 September 2017. The request for information and a corresponding press release are available on the IASB website. In addition, the IASB has released a call for research seeking applications to undertake a literature review, bringing together the existing academic literature on the effect of implementation of IFRS 13. Deloitte has released an IFRS in Focus newsletter outlining the contents of the RFI.

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The Bruce Column — Sunshine and the ideas behind management commentary

25 May 2017

The concept of management commentary has long been perceived by the IASB like a worrying cloud hovering over financial reporting. But the sun may be about to break through. A speech by Hans Hoogervorst, Chairman of the IASB, looks likely to have confirmed that the weather has changed, reports our regular columnist, Robert Bruce.

The latest IASB thoughts on the subject come under the project of ‘wider corporate reporting’, in the form of a paper published a few weeks ago bearing the title ‘Implications for the Board: options for the work plan’. I looked back through my archive and found a column I had written for the Financial Times well over a decade ago. This weighed up the discussion paper published by the IASB then on the topic of, you have guessed it, management commentary. ‘The danger’, a member of the project team said at the time, ‘is that financial reporting becomes more complicated and difficult to follow’. The IASB then thought of management commentary as a tool to fill the gap, and provide explanations outside the existing reporting.

Fifteen years ago it was felt, eventually, that the concepts of management commentary were not central to the IASB’s task. It was felt that it would be useful to explain the effects of IFRSs but it was not core to the IASB’s purpose. A Practice Statement was produced in 2010 but was seen as having limited effect. Again in 2015, there were echoes of this mindset in the IFRS Foundation’s views that suggested that the Board should not broaden the scope of its work into areas outside the boundaries of traditional reporting.

But the wind seems to have changed course. And what the IASB Chairman said recently, in a speech in New York, has signaled a change in the weather. Across the last decade the argument has sharpened. Reporting on human and intellectual capitals and climate change, for example, has become a mainstream demand. When it was developed, the Management Commentary Practice Statement focused on providing complementary and supplementary information to the financial statements and many of the content elements it recommended are to be found in the Integrated Reporting <IR> framework. But integrated reporting is more than this. And the time may have come for an update to the IASB Practice Statement.

The IASB Chairman made this very clear in his New York speech the other day. ‘Since the publication of our Management Commentary Practice Statement in 2010 the world has moved on’ he said.

Since then the <IR> framework has become widely adopted and the UK’s guidance on the concept of a strategic report is seen as mainstream. In Hans Hoogervorst’s words: ‘They put more emphasis on interconnectivity among elements of an integrated report’. They look at ‘how developments in the external environment have affected a company’s business model and strategy’, he said. It is time for change. And as Hoogervorst put it: ‘We are especially well placed to make sure there is a good fit and connectivity between financial reports and non-financial information which I believe to be essential to the success of integrated reporting’. These are encouraging words. Now more than ever people need integrated reporting-style reporting. This consistent approach with management commentary would be very helpful.

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Summary of the March 2017 CMAC meeting

24 May 2017

The IASB has released a summary of the Capital Markets Advisory Committee (CMAC) meeting, which was held in London on 16 March 2017.

The topics discussed at the meeting included:

  • Primary financial statements
  • Rate-regulated activities
  • Clarifications to IFRS 8 arising from the post-implementation review
  • IFRS 3 Business Combinations: Definition of a business
  • Disclosure Initiative — outreach planning for the Disclosure Initiative — Principles of Disclosure discussion paper and case studies
  • Education session — insurance contracts

The next CMAC meeting will take place on 15–16 June 2017.

For more information, see the meeting page and the meeting summary on the IASB's website.

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PIR of IFRS 13 to be substantiated by a literature review

24 May 2017

The IASB will launch the public phase of the post-implementation review (PIR) of IFRS 13 'Fair Value Measurement' either later this week or early next week (in "May" according to the IASB's work plan). The IASB is now also calling for applications to undertake a literature review on the effect on IFRS 13.

The call for research seeks applications to undertake a literature review, bringing together the existing academic literature on the effect of implementation of IFRS 13 Fair Value Measurement. The IASB expects to receive a full literature review and a summary, which highlight findings in the existing literature as they relate to the areas of focus in the Board’s PIR of IFRS 13.

Please click to access the call for applications on the IASB website.

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The Bruce Column — How to ensure that finance takes you into the future

23 May 2017

In a wide-ranging video interview about the Finance for the Future Awards with our regular, resident, columnist, Robert Bruce, Jessica Fries, Executive Chairman of the Prince’s Accounting for Sustainability Project and Alan Stewart, one of the lead judges of the awards, and CFO at Tesco, looked at the achievements and growing value of the programme.

The Finance for the Future awards, which recognise and celebrate the role that finance and finance teams can play in creating sustainable businesses and in turn a sustainable economy, are back and open for entries.

Over half a decade of achievement in many types of business, small and large, not-for-profit and public sector, has created a formidable series of case studies of examples to inspire organisations all around the world.

The addition of Deloitte as the awards’ major sponsor widened the scope to include the recognition of the importance of communicating the use of integrated thinking and investing and financing. But overall: ‘The key word is finance’, said Jessica Fries. ‘Whether it is large businesses and the role that the CFOs and finance teams can play, through to small businesses, the public sector and indeed how do you actually finance a sustainable business’.

‘Finance is changing, the role of finance is changing’, said Alan Stewart. ‘The forward looking element, the linkage into the businesses, and particularly in the field of sustainability as companies and customers become more focused on the need for sustainable businesses and sustainable practices. These awards really help put the focus on that’, he said. And they also provide, through the gradual creation of case studies from winners and entrants, a mass of examples. ‘And that counters the view that we sometimes got that felt finance was a blocker rather than making a positive contribution’, he said. ‘The awards really highlight those case studies and bring the stories to life’, said Fries. And it all helps the communication of the integrated thinking which brings much of this about by helping explain how ‘environmental and the social issues and indeed economic issues are at the heart of the decision-making process’, she said. ‘That for me is the key of integration. What are you thinking on a day-to-day basis, how can those types of issues really enhance the outcomes which are achieved?’

Fries talks about some of the entries that stood out for her in the large business, not for profit, and smaller business category. ‘Some examples where an organisation has embedded and developed a new sustainability strategy that the finance team has been part and parcel of creating and often really heavily involved in’, she said, ‘and how do you monitor and measure success both in the development stage of setting the targets and the outcomes you are trying to achieve, and then driving an integrated strategy.’ She went on to say that there were examples of specific projects or case studies that embedded sustainability, for example through innovative ways of thinking about capital expenditure, or ways of measuring the outcomes achieved.

Of the public sector and not for profit sectors, Stewart comments that ‘they sometimes have longer horizons and that is also helpful for businesses which have shorter horizons to help them to see how a longer horizon can change your analysis and how it is important to recognise that long term impact’.

They thought communicating integrated thinking was the area which brought forward the most competitive and most international elements last year. Fries was enthusiastic. ‘It was very interesting to see the different approaches’, she said. ‘How could you really capture that essence of what you were doing internally within the organisation, and find a way to engage that wider audience on how you were really embedding it. How can you do that in a way that is credible, that is consistent year-on-year, and that is consistent across different types of communication. It’s really about how you are communicating an integrated approach across every form of communication’, she said. In the words of Alan Stewart: ‘I think that the communication part is where the integrated reporting really touches the accounting for sustainability and the awards most directly and in that sense it is important to have the differentiation between integrated reporting, which is very well established and very well known, and bringing it back into finance’. The global reach of the awards ‘proves that sustainability is something which is important no matter where you are in the world’, said Stewart, ‘and no matter what sort of business you are in. Sustainability is important for everybody and that importance is felt by finance functions wherever they are’.

They also talked of the benefits which the awards, and ‘integrated thinking’ had brought to companies. Fries said that ‘the evidence is that it costs you less to really be demonstrating to your investors a sustainable approach to investing. And many investors would say the same. Companies that are managing these issues well and in a strategic way, they are a much sounder investment.’

And Stewart adds ‘The benefit is in the thinking that comes from involving the finance function in it. And you don’t know what you are going to get when you set out on this’, said Stewart. ‘The winners are the ones which have started from a genuine business issue which they are trying to resolve which then translates into a project or a piece of work which the finance function has led and then there is a business benefit. It has to come from the ground up’.

And then there is the value of the case studies. ‘It is those case studies, that story-telling, those examples, that people really want to see’, said Fries. And that brings the finance for the future element into it says Stewart. ‘It is that building of the knowledge and thinking. Some people will learn from it, some will adopt exactly what’s there from it. The finance for the future is the essence of what we are looking for’. When entering the awards ‘make sure it is finance led’, said Fries. ‘Make sure the finance team is front and centre absolutely, and within a partnership across the business’.

The video interview is available here.

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