July

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French report suggests measures aimed at strengthening Europe's voice in the development of IFRSs

18 Jul 2013

A working group within two major industry representative organisations in France has issued a report ‘Strengthening the process for adopting International Accounting Standards: A strategic challenge for the European Union’ suggesting changes to the role of the conceptual framework in developing IFRSs and calling for some changes to the European regulation on IFRS as well as the European structures in place as a result of this regulation.

The joint working group of the Association française des entreprises privées (AFEP) and the Mouvement des entreprises de France (MEDEF) sought to develop ideas for enhancing the quality of IFRS development, strengthening the voice and contribution of Europe in the development of IFRSs and giving the ability, if need be, to recover some European sovereignty in standard-setting. The report, which received quite some attention in France, presents the working group's view only and is one of various contributions currently being brought to the debate opened up by the European Commission about the assessment of the use of IFRS in Europe since 2005 and the structures that should be in place in Europe so that Europe contributes more efficiently to the work of the IASB and the development of IFRS.

The working group is not questioning the use of IFRSs, however, it feels that they have weaknesses resulting a) from gaps in the conceptual framework and b) from the structure and governance of the European system used for the adoption of IFRS. The working group acknowledges that  the goal of international convergence of accounting standards remains relevant but also believes that the EU, judged by its economic weight and its level of involvement in the implementation of IFRS, should try to regain some sovereignty to create a level playing field with other major economic areas (such as USA, China, Japan, India) that have given themselves the authority to modify or adapt the IFRS to their economic environment. IFRSs as a whole, the working group claims, would benefit from a more balanced distribution of influence on the development of IFRSs among the major economic areas.

The proposals in the report therefore focus on three complementary pillars:

  • reforming the conceptual framework of the IFRS, so that the standards produced better meet the needs of the European economy;
  • reforming the structure and governance of the European system for adopting accounting standards;
  • revising European regulations in order to give the EU the option of modifying a standard if it deems it necessary.

As regards the framework, the IASB has just published a discussion paper on certain aspects of the framework, however, in doing so it has concentrated on areas that seem problematic in practice and it has also excluded areas that are deemed to have been finalised satisfactorily. The working group suggests extending the consultation to the entire conceptual framework since it feels that the EU cannot be content with some elements that are now regarded as having been definitively adopted by the IASB.

The proposals regarding the reform of the structure and governance of the European system mainly concentrate on reforming the way the European Financial Reporting Advisory Group (EFRAG) is structured. The suggested reforms are far reaching (they are called “ambitious” in the report) and echo some of the ideas that were voiced in connection with the appointment of Philippe Maystadt as Special Adviser to enhance EU’s role in promoting accounting standards.

Reasserting European sovereignty, the working group believes, would be possible by broadening the EU’s choice from only being authorised to adopt or reject IFRSs as a whole to the legal authority to amend or replace a standard that it deems inappropriate to the needs of its economy. The working group claims that this is what most jurisdictions have chosen to do, and the EU could follow suit without jeopardising its commitment to IFRSs.

Please click for the following documents on the MEDEF website:

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IASB publishes Discussion Paper for a new Conceptual Framework

18 Jul 2013

The International Accounting Standards Board (IASB) has published a comprehensive Discussion Paper (DP) containing proposals for topical areas where it considers a revision and amendment of the existing Conceptual Framework necessary. Included in the DP are proposals to revise the definitions of an asset and a liability, to introduce guidance on derecognition, to clarify the objective and purpose of other comprehensive income and to set a framework for presentation and disclosure. Comments are due 14 January 2014.

Background

The current Conceptual Framework has been left largely unchanged since its inception in 1989. In 2004, the IASB and the US FASB decided to review and revise the conceptual framework, however, changed priorities and the slow progress in the project led to the project being abandoned in 2010.

The original joint project was being conducted in a number of phases. The phases were addressing the following topics:

Of these phases only Phase A was finalised and introduced into the existing framework as Chapters 1 and 3 in September 2010. Phase D saw the publication of a discussion paper and an exposure draft but was never finalised. The boards discussed Phases B and C quite extensively without any consultation document ever being issued, and Phases E to H large remained untouched.

 

The IASB's comprehensive project on the Conceptual Framework

During the 2011 agenda consultation many participants called for the IASB to reactivate and finalise the conceptual framework project. As a result, the IASB officially added the project to its agenda again in September 2012 but decided to introduce two significant changes in relation to the predecessor project:

  • The new project is no longer a joint project with the FASB but is an IASB-only project. This is due to the fact that the IASB generally decided to finalise current convergence projects jointly with the FASB but other than that not to privilege the FASB vis-à-vis the other standard-setters in the world any longer.
  • The objectives of the new project are less ambitious. It no longer aims at a substantial revision of the framework but is focused on those topics that are not yet covered (e.g. presentation and disclosure) or that show obvious shortcomings that need to be dealt with. As opposed to the earlier project these areas are not dealt with by themselves - the discussion paper   covers all aspects of the framework project.

The publication of the discussion paper marks the end of the first phase of the new project. After considering the comment letters on the ED, the Board intends to publish an exposure draft in the third quarter of 2014 and finalise the new conceptual framework by September 2015.

 

Summary of main proposals

Contents. The Discussion Paper contains almost 240 pages and is divided into nine chapters, which are accompanied by eight appendices. The paper is preceded by an almost 10 page executive summary containing the scope, the purpose, and the main contents of the document. The Discussion itself is structured as follows:

Chapter Topic
1 Introduction
2 Elements of financial statements
3 Additional guidance to support the asset and liability definitions
4 Recognition and derecognition
5 Definition of equity and distinction between liabilities and equity instruments
6 Measurement
7 Presentation and disclosure
8 Presentation in the statement of comprehensive income - Profit or loss and other comprehensive income
9 Other issues
Appendix A Text of Chapters 1 and 3 of the existing Conceptual Framework
Appendix B Reporting entity
Appendix C Distinction between liabilities and equity instruments
Appendix D Effect of strict obligation approach on different classes of instrument
Appendix E Rights and obligations arising under options and forwards on an entity's own shares
Appendix F Written put options on own equity and on non-controlling interests
Appendix G Overview of topics for the revised Conceptual Framework
Appendix H Summary of questions for respondents

The key issues dealt with in each chapter are summarised below.

Section 1 (Introduction). The first section offers background information. it also describes the purpose of the conceptual framework and its status within the hierarchy of IASB pronouncements. The discussion paper explains that the conceptual framework's primary purpose is to assist the IASB in developing and revising IFRSs (even though it may be useful to parties other than the IASB) and that the framework does not override any specific IFRS. Should the IASB decide to issue a new or revised pronouncement that is in conflict with the framework, the IASB will highlight the fact and explain the reasons for the departure going forward.

Section 2 (Elements). Core of this section is a clarification of the definitions of 'assets' and 'liabilities' the IASB believes to be necessary. The framework will no longer refer to expected inflows or outflows of economic benefits but directly to the underlying resource or obligation. An 'economic resource' is defined as a right or other source of value that is capable of producing economic benefit. Additionally, the notion of probability will be removed from the definitions. In addition to assets and liabilities this section also defines income and expense, cash receipts and payments as well as contributions to, distributions of and transfers between classes of equity.

Section 3 (Additional guidance). This section contains further guidance on the definitions of assets and liabilities as outlined in the previous section. It aims mainly at testing the usefulness of the definitions in areas that have led to application problems in the past (e.g. the questions of what constitutes a constructive obligation and whether economic compulsion can play a role etc.). Most attention is given to discussing the meaning of 'present obligation' in connection with a liability; three different views are presented and respondents are asked for their comments.

Section 4 (Recognition/Derecognition). This section discusses the requirements for recognising assets and liabilities. Generally all assets and liabilities are to be recognised unless recognising an asset or a liability is considered irrelevant or not sufficiently relevant to justify the costs for doing so or no measurement of the item would lead to a sufficiently faithful representation. In these cases the IASB will be allowed to depart from the general completeness requirement. For the first time the framework will also contain derecognition requirements. The IASB suggests that an item is to be derecognised when it no longer meets the recognition criteria. Variants are discussed for certain borderline cases.

Section 5 (Equity). The fifth section is dedicated to equity which continues to be defined as residual interest. However, the IASB suggest refining the definition. New and rather revolutionary is the proposed introduction of a requirement to update the measure of the different classes of equity claims at the end of each reporting period in order to show dilution effects. Finally the section addresses the question whether the most subordinated class of instruments should be treated as equity if an entity has issued no equity instruments.

Section 6 (Measurement). In this section the IASB takes a closer look at measurement and describes the objectives of the different categories of measurement and how an appropriate measurement can be identified. The IASB believes using one measurement across all items of the balance sheet is not appropriate. It argues that every measurement should lead to relevant information on the balance sheet and in the statement of comprehensive income selecting an appropriate measurement will have to be subordinated to this objective.

Section 7 (Presentation and Disclosure). This section doesn't have a counterpart in the existing framework. Therefore, it contains a longer explanation of the purpose of the primary financial statements and the notes to the financial statements and their relationship. In this context the IASB also addresses materiality and forward-looking information.

Section 8 (Statement of comprehensive income). The eighth section mainly deals with distinguishing between profit and loss and other comprehensive income. The IASB suggests retaining both profit and loss and other comprehensive income and marking them by (sub)totals. As a principle, all income and expense will be shown in profit and loss unless relating to the remeasurement of assets and liabilities - these would normally be shown in other comprehensive income with recycling generally permitted. A definition of profit and loss is not included in the conceptual framework.

Section 9 (Other issues). The last section is a collection of a variety of quite different issues. The IASB suggests leaving the revised chapters on objectives and qualitative characteristics basically unchanged, considering the use of the business model in financial reporting,  addressing the unit of account on standard level, considering the impact of the going concern assumption on accounting (when measuring assets and liabilities, when identifying liabilities and when making disclosures) as well as taking over the description and discussion of capital maintenance largely unchanged from the existing framework (the IASB may reconsider the concept of capital maintenance if it launches a project on hyperinflation).

The IASB allows constituents an extended six months period to work their way through the document and to respond to the questions raised; hence, comment letters are to be submitted by 14 January 2014.

 

Additional information

 

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EFRAG draft comment letter on bearer plants

17 Jul 2013

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB's Exposure Draft ED/2013/8 'Agriculture: Bearer Plants (proposed Amendments to IAS 16 and IAS 41)' that was published on 26 June 2013.

In the draft comment letter, EFRAG agrees with the IASB that bearer plants should be accounted for under the cost model or the revaluation model of IAS 16. However, the EFRAG suggests the following issues for reconsideration:

  • The “IASB should consider broadening the scope of the amendments as this could improve the quality of financial reporting by better reflecting the business model of entities";
  • The “growing phase of different bearer plants may differ significantly and therefore recommends, as a practical expedient, to define the maturity date as the date of the first harvest of commercial value"; and
  • The “disclosures required by IAS 16 are appropriate for bearer plants and believes that disclosures of non-financial information should not be required in the financial statements.”

Comments on the draft letter are invited by 14 October 2013.

Click for:

Deloitte Comment Letter Image

We agree with the IASB's proposals for limited amendments to IAS 19

17 Jul 2013

We have published our comment letter on the International Accounting Standards Board’s Exposure Draft, ED/2013/4 'Defined Benefit Plans: Employee Contributions'. We welcome the IASB’s proposals to address the issue of employee contributions to defined benefit plans and agree that the proposed practical expedient would provide an appropriate simplification that would be available for the majority of plans with employee and third party contributions. However, we believe that the amendments could be made clearer in some respects.

Click for the full comment letter.

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IASB live webcast on insurance contracts

16 Jul 2013

On Friday 19 July the IASB staff will present a live webcast on the proposals in the insurance contracts exposure draft concerning contracts that require the entity to hold underlying items and specify a link to returns on those underlying items. The live webcast will include a question and answer session.

The IASB issued a revised exposure draft on insurance contracts on 20 June 2013 to establish the principles that insurers should apply to report the nature, amount, timing and uncertainty of cash flows from insurance contracts.

The webcast is free of charge, but you need to register to participate. For the convenience of participants in different time zones the IASB has scheduled two slots for the webcast:

  • Friday 19 July 2013 10:00 (London time)
  • Friday 19 July 2013 16:30 (London time)

Registration for the different slots is available on the IASB’s website.

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IFRS Foundation Trustees seeks to fill Advisory Council vacancies

16 Jul 2013

The Trustees of the IFRS Foundation (IFRSF) are calling for candidates to fill vacancies occurring at the end of 2013 for membership to the Advisory Council and Chair of the IFRS Advisory Council.

The main objective of the IFRS Advisory Council is to provide a forum in which the IASB and the Trustees can consult with individuals and representatives of organisations that work with and are interested in the development of IFRS.

As a result of expiring terms at year end, the IFRSF Trustees’ are inviting applications for membership to the Advisory Council and for the role of Chair of the Advisory Council. The role of Chair of the Advisory Council is to set the agenda of Advisory Council meetings and report to the Trustees and IASB after each meeting. Also, the IFRS Advisory Council Chair participates in the appointment of new Council members and periodically attends meetings held by the Trustees and the Due Process Oversight Committee.

Next, candidates for membership to the Advisory Council are expected to have knowledge of and practical experience in the application of IFRS. Advisory Council members are expected to attend up to three two-day meeting annually. Initial terms are either two or three years and is renewable once for an additional three year term.

Those interested in applying for the positions are asked to respond by 30 August 2013.

Click for the following information on the IASB website:

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Survey on IFRS transition costs in Canada

16 Jul 2013

The Canadian Financial Executives Research Foundation (CFERF), published the results of an online survey on 'The costs of IFRS Transition in Canada'. They reveal that IFRS transition costs in Canada were generally in line with expectations.

The results of the survey are based on responses from 139 senior financial executives in Canada of which 105 worked for organisations that had adopted IFRS by the time of the survey. Canadian companies adopted IFRS in 2011 and the first annual IFRS compliant financial statements were filed on 31 December 2011. The survey was performed in January 2013, approximately one year after the first IFRS statements were filed.

Key finding of the survey was that the costs of adoption of IFRS in Canada were planned for and expected:

  • Most costs turned out to be the same or less than budgeted
  • Costs were significant but manageable.

The study also found that:

  • 62% of companies’ transition budgets were under $500,000
  • For some, the key drivers of costs were identifying more issues than anticipated and resolving differing interpretations of IFRS
  • Some managed their costs by hiring employees who were well versed in IFRS, often from experience implementing IFRS abroad
  • Nearly all respondents said transition required little to no changes in their contracts, thus, minimal renegotiation costs
  • Three-quarters said they did not have to make significant changes to their IT infrastructure as systems were more flexible than had been thought.

A draft version of the survey report was discussed at the June 2013 IFRS Advisory Council meeting, where it was contrasted with an earlier report on IFRS adoption in Korea.

CFERF is the research arm of Financial Executives International Canada (FEI Canada). The survey The cost of IFRS transition in Canada and a corresponding press release are available through the FEI Canada website.

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EFRAG issues final endorsement advice and effects study report on the amendments to IAS 36 and IAS 39

15 Jul 2013

The European Financial Reporting Advisory Group (EFRAG) has submitted to the European Commission its endorsement advice letter and effects study report on the amendments to IAS 36 regarding recoverable amount disclosures for non-financial assets and the amendments to IAS 39 regarding novations of derivatives.

In its first report, EFRAG supports the amendments to IAS 36, which correct an unintended consequence that would have resulted into a requirement to disclose financial information not relevant to users. The EFRAG’s assessment is that benefits for preparers and users implementing the amendments to IAS 36 outweigh the costs and is endorsing the amendments to the European Commission (EC).

In its second report, EFRAG supports the amendments to IAS 39, which remove the need to discontinue hedge accounting if a hedging derivative is novated, provided certain criteria are met. Again, the EFRAG’s assessment is that benefits for preparers and users implementing the amendments to IAS 39 outweigh the costs and is endorsing the amendments to the European Commission (EC).

As consequence of a request from the European Commission (EC) aimed at accelerating the endorsement process, EFRAG published draft endorsement advice on the amendments on 5 July 2013 and finalised the advice during the meeting of the Technical Experts Group (TEG) currently held in Brussels. The endorsement of the amendments regarding the novation of derivatives was seen as especially urgent.

Concurrently, EFRAG has updated its report showing the status of endorsement to reflects the final EFRAG endorsement advice of the amendments to IAS 36 and the amendments to IAS 39.

Click for the following information on the EFRAG website:

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Agenda for July 2013 IASB meeting

14 Jul 2013

The IASB has released the initial agenda for its meeting to be held at its offices in London on 23-25 July 2013. Discussions will include joint sessions with the FASB on financial instruments (classification and measurement and impairment) and revenue recognition, and IASB-only sessions on most of the joint session topics, plus rate regulation, macro hedging, the post-implementation review of IFRS 3, IFRS for SMEs, and a number of narrow scope amendments.

The IASB has also previously scheduled an education session for 18 July 2013.  Whilst this session remains in the IASB's meetings diary, no agenda has been released for this session, and an education session on revenue recognition has been included in the main meeting*.

The full agenda for the main meeting, dated 12 July 2013, can be found here. We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

* The 18 July education session was subsequently removed from the IASB's meetings diary.

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Belarus requires IFRSs for all listed companies from 2016 on

14 Jul 2013

On 12 July 2013, Belarus passed an Accounting Law requiring IFRSs for the consolidated financial statements of all public interest entities starting 1 January 2016.

Public interest entities include:

  • companies whose securities are traded in a public market;
  • banks;
  • nonbanking financial organisations; and
  • insurance companies.

Also, IFRS are permitted for the subsidiaries of such companies.

Currently, only banks apply IFRSs in Belarus (since 2008). They also have to apply IFRSs when preparing their separate financial statements.

Please click for access to the new Accounting Law (link to Ministry of Finance website, available in Belarusian only).

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