Japan 'designates' additional IFRSs

30 Dec 2013

On 27 December 2013, the Financial Services Agency (FSA) of Japan announced that additional IFRSs were designated for use by companies voluntarily applying IFRSs in Japan. The announcement effectively includes all IASB pronouncements issued up to 31 October 2013.

Since the last designation was made up to 31 October 2012, newly designated IFRSs include:

  • Recoverable Amount Disclosures for Non-Financial Assets — Amendments to IAS 36 (issued in May 2013)
  • Novation of Derivatives and Continuation of Hedge Accounting — Amendments to IAS 39 (issued in June 2013)
  • IFRIC 21 Levies (issued in May 2013)

The designation has yet to cover the period after October 2013, so two recent amendments issued in November, namely 1) Defined Benefit Plans: Employee Contributions — Amendments to IAS 19 and 2) IFRS 9 Financial Instruments — Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39 have not been included in the scope of 'designated' IFRSs in Japan.

Click for the FSA press release (in Japanese only, link to FSA website).

Literature review on the use of information by capital providers

27 Dec 2013

The European Financial Reporting Advisory Group (EFRAG) and the Institute of Chartered Accountants of Scotland (ICAS) have both launched projects aimed at understanding how capital providers use financial statements. In the context of these projects, EFRAG and ICAS have identified the need to take stock of the existing knowledge accumulated through academic research and have joined forces to commission an international team of academics to undertake a comprehensive literature review. The results of this review have now been made available.

EFRAG and ICAS believe that the IASB standard-setting process must be supported by a sound analysis and understanding of how the information that results from IFRS application is used. They also believe that the current revision of the IFRS conceptual framework will provide a good opportunity to integrate some of the lessons learned from the review and from further research into the IASB's standard-setting process.

The review was undertaken by a team of European academics and was aimed at answering the following questions:

  • Who are the key capital providers to companies in the European Union?
  • What decisions are capital providers making and what are the information needs for these decisions?
  • What information do these capital providers currently use to make financial decisions and assess stewardship?
  • How and for what purposes is this information accessed and used? In particular, what is the 'logic' of the models applied?
  • How important are financial statements for capital providers' decision making and assessing stewardship? How are financial statements used?
  • What additional information would capital providers consider to be useful?

Not surprisingly, the review revealed that financial statements are used in different ways by different capital providers who have different needs and different objectives. The authors of the review maintain, however, that more research into the topic is needed, especially empirical research into what information capital providers use, where and how they obtain the information and what additional information they would like to have. However, the authors feel that the initial results of the review already allow for drawing the following conclusions (reproduced from the report):


  • Standard-setters should focus on the competitive advantages of the financial accounting process when developing standards and financial reporting information should be designed to co-exist with competing information sources with other inherent weaknesses by providing reliable, verifiable data;
  • standard-setters need to decide whether they prefer to balance different user groups' interests on a standard-by-standard basis or to focus systematically on a specific subset of users when developing new standards;
  • standard-setters should consider the role of information intermediaries when developing new standards; and
  • standard-setters should consider the use of financial accounting information in contracting when making standard-setting decisions.

Please click for access to the full report on the EFRAG website.

FASB issues standard to determine which entities are within the scope of the new PCC Decision-Making Framework

24 Dec 2013

Yesterday, the US Financial Accounting Standards Board (FASB) and the Private Company Council (PCC) issued the "Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies". The FASB also issued FASB Accounting Standards Update (ASU) No. 2013-12, "Definition of a Public Business Entity: An Addition to the Master Glossary".


Private Company Decision-Making Framework

The Private Company Decision-Making Framework ("the Guide") was developed to assist the FASB and the PCC in determining whether — and in what circumstances — to provide alternative recognition, measurement, disclosure, display, effective date or transition guidance for private companies reporting under US GAAP.

"Th[e] Guide provides considerations for the PCC and the Board in making user-relevance and cost-benefit evaluations for private companies under the existing conceptual framework. The Guide is intended to be a tool to help the Board and the PCC identify differential information needs of users of public company financial statements and users of private company financial statements and to identify opportunities to reduce the complexity and costs of preparing financial statements in accordance with U.S. GAAP."


Definition of a Public Business Entity

The FASB issued ASU 2013-12, Definition of a Public Business Entity: An Addition to the Master Glossary, in conjunction with the Guide. The ASU allows the FASB, PCC, and EITF to determine (1) what companies will be included in the scope of the Guide and (2) the scope of new financial accounting and reporting guidance.

The ASU does not contain an effective date; however, an entity would apply the definition of a public business entity in connection with its adoption of the first ASU that uses the term.

According to the final ASU:

A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity.

a. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).

b. It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.

c. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.

d. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.

e. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including footnotes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.

An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.


For more information on the Guide and the ASU, see Deloitte's Accounting Journal Entry and the FASB's website for its:

EFRAG Update detailing its November and December developments

24 Dec 2013

The European Financial Reporting Advisory Group (EFRAG) has released a new issue of its EFRAG Update newsletter, summarising the discussions held at the 28 November EFRAG CFSS meeting and at the 17–18 December EFRAG TEG meeting.

The EFRAG Consultative Forum of Standard Setters (CFSS) held its meeting in preparation for the Accounting Standards Advisory Forum (ASAF) meeting of 5 and 6 December 2013. Topics discussed were:

  • Profit and loss, other comprehensive income and recycling,
  • Stewardship,
  • Reliability,
  • Definition, recognition and measurement of liabilities,
  • IFRS 3 post implementation review, and
  • Rate regulation.

Topics discussed at the EFRAG Technical Expert Group (TEG) meeting were:

Click for the EFRAG Update (link to EFRAG website).

EFRAG updates endorsement status report for employee contributions to defined benefit plans

23 Dec 2013

EFRAG has updated its Endorsement Status Report to reflect the fact that draft endorsement advice has been published on 'Defined Benefit Plans: Employee Contributions' (Amendments to IAS 19 'Employee Benefits').

The IASB issued the amendments in November 2013 to clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service.

EFRAG's initial assessment is that the amendments satisfy the technical criteria for EU endorsement and EFRAG should therefore recommend their endorsement.

The endorsement status report, dated 23 December 2013, is available here.

IPSASB proposals on reporting service performance information

23 Dec 2013

The International Public Sector Accounting Standards Board (IPSASB) has published an exposure draft of a Recommended Practice Guideline (RPG) that would provide guidance on the reporting of service performance information. The draft RPG is designed to allow public sector entities to be held accountable through the provision of high quality service performance information, by providing guidance on how such information should be presented, and its recommended characteristics.

The exposure draft, ED 54 Reporting Service Performance Information, follows an earlier consultation paper released in 2011 and responds to the perceived need for a principles-based and consistent framework for service performance information that focuses on user needs. The principles in ED 54 align with the IPSASB's view that public sector financial reporting has a greater scope than financial statements alone, and are consistent with the IPSASB Conceptual Framework . The Basis for Conclusions on the exposure draft expresses this in this way:

The Conceptual Framework notes that the primary function of governments and most public sector entities is to provide services to constituents. Consequently, their financial results need to be assessed in the context of the achievement of service delivery objectives. Reporting non-financial as well as financial information about service delivery activities, achievements and/or outcomes during the reporting period is necessary for a government or other public sector entity to discharge its obligation to be accountable―that is, to account for, and justify the use of, the resources raised from, or on behalf of, constituents. Decisions that donors make about the allocation of resources to particular entities and programs are also made, at least in part, in response to information about service delivery achievements during the reporting period, and future service delivery objectives.

The proposed RPG recommends that entities define service performance objectives that describe the planned result(s) that an entity is aiming to achieve, expressed in terms of inputs, outputs, outcomes, efficiency, or effectiveness. Objectives depend on the nature of the entity and might include for example impacts on society such as educational achievements, poverty and crime levels, and health outcomes in general or of particular groups within society - the draft RPG provides the following specific example of an objective: "To increase the percentage of infants that have received a vaccination for measles from 65% to 95%".

Once the service performance objectives have been determined, the presentation of service performance information is then presented in a way that is appropriate to those objectives, so as to enable users to assess:

  • service delivery activities and achievements during the reporting period
  • financial results in the context of the achievements and service delivery objectives
  • efficiency (relationship between inputs and outputs or outcomes) and effectiveness (relationship between actual results and objectives in terms of outputs or outcomes).

Service performance information can be presented either as part of a report that includes the financial statements, or be presented in a separate report. The RPG provides factors to consider in making this choice and provides guidance on additional disclosures that should be presented in a separate report.

After requesting constituent comment in the 2011 consultation paper on whether the guidance on service performance information should be authoritative or non-authoritative, the IPSASB decided in March 2013 that it "should be addressed presently through development of a Recommended Practice Guideline". Accordingly, consistent with other RPGs already issued by the IPSASB, the proposed RPG would be best practice, and entities would not be required to comply with it in order to asset compliance with International Public Sector Accounting Standards (IPSAS) in their financial statements.

The exposure draft is open for comment until 31 May 2014. Click for (link to the IFAC website):

EFRAG updates endorsement status report for amendments to IAS 36 and IAS 39

21 Dec 2013

The European Financial Reporting Advisory Group (EFRAG) has updated its endorsement status report to reflect the endorsement by the European Commission of the amendments to IAS 36 (Recoverable Amount Disclosures for Non-Financial Assets) and to IAS 39 (Novation of Derivatives and Continuation of Hedge Accounting).

The endorsement status report notes the endorsement of Amendments to IAS 36: Recoverable Amount Disclosures for Non-Financial Assets and Amendments to IAS 39: Novation of Derivatives and Continuation of Hedge Accounting, both on 19 December 2013. These amendments are effective for annual periods beginning on or after 1 January 2014.

The endorsement status report, dated 20 December 2013, is available here.

European Union formally adopts amendments concerning novations of derivatives and recoverable amount disclosures

20 Dec 2013

The European Union has published Commission Regulations endorsing 'Novation of Derivatives and Continuation of Hedge Accounting (Amendments to IAS 39)' and 'Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36)'.

Commission Regulation (EC) No 1375/2013 of 19 December 2013 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council published in the Official Journal on 20 December 2013 adopts the amendments made by the IASB in June 2013 eliminating the need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met.

Commission Regulation (EC) No 1374/2013 of 19 December 2013 amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council published in the Official Journal on 20 December 2013 adopts the amendments made by the IASB in May 2013 clarifying that the scope of the disclosures of information about the recoverable amount of assets, where that amount is based on fair value less costs of disposal, is limited to impaired assets.

The European effective dates are the same ones the IASB has given the amendments (1 January 2014).

Outcomes from the fifth AOSSG meeting

20 Dec 2013

The Asian-Oceanian Standard-Setters Group (AOSSG) has released a communiqué from its meeting held in Colombo, Sri Lanka on 27 and 28 November 2013.

The participants discussed the following topics:

  • Building regional capacity where members especially noted the progress of the AOSSG's pilot IFRS Centre of Excellence project in Nepal that is intended to help Nepal to build its standard-setting capacity.
  • Update and discussion on IASB projects - general, in particular, progress on the projects concerning revenue recognition, leases, agriculture and IFRS 3 post-implementation review as well as on the IASB research programme.
  • Update and discussion on IASB projects - detailed, in particular, progress on the projects concerning the Conceptual framework, insurance contracts, financial instruments and rate-regulated activities.
  • Islamic Finance where members especially discussed the findings of the AOSSG Islamic Finance Working Group’s survey of the accounting and auditing practices in the Middle East and North Africa.
  • IFRS for SMEs where the meeting discussed the IASB's Exposure Draft of proposed amendments to the IFRS for SMEs.
  • IFRS in the region where AOSSG members from India and Nepal provided updates on the progress of adopting IFRS in their respective jurisdictions.

Click for the comminiqué from the meeting (link to AOSSG website)

FASB decision diverges classification and measurement guidance

19 Dec 2013

At its meeting yesterday, the US Financial Accounting Standards Board (FASB) decided to abandon the “SPPI test” that would have been required as part of the proposed contractual cash flow assessment for determining the classification and measurement of financial assets.

In joint deliberations at an earlier meeting, the FASB and the IASB had proposed classifying and measuring financial assets on the basis of their contractual cash flow characteristics and the business model in which those assets are managed. Under the proposals issued by both boards, a financial asset would meet the requirements of the contractual cash flow characteristics assessment if the contractual terms of the instrument “give rise on specified dates to cash flows that are solely payments of principal and interest [SPPI] on the principal amount outstanding.“

At yesterday’s meeting, however, the FASB discussed the complexity associated with the proposed contractual cash flow test and decided to reject the SPPI assessment. According to Board members, requiring an SPPI test would be swapping known complexity (i.e., the bifurcation guidance in ASC 815-15) for unknown complexity (SPPI). Instead, in a 5 to 2 decision, the FASB voted to retain the requirement to bifurcate financial assets under the “clearly and closely related” guidance in ASC 815-15 on assessing whether an embedded derivative feature should be bifurcated from a hybrid financial asset. The FASB directed the staff to analyse whether the contractual cash flow characteristics test should be based solely on the “clearly and closely related” criterion in ASC 815-15 or whether to use that criterion to further develop the test. The FASB will consider the results of the staff’s analysis at a future meeting.

At the same meeting — when deciding the future of its impairment project — the FASB elected to proceed with its Current Expected Credit Loss (CECL) model for impairments, choosing not to pursue the IASB's expected credit loss model.

For more information, see Deloitte's Accounting Journal Entry or the Summary of Board Decisions on the FASB's website.

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