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October

Agenda for November 2013 Global Preparers Forum meeting

31 Oct 2013

Representatives from the International Accounting Standards Board (IASB) will meet with the Global Preparers Forum (GPF) in London on Monday, 11 November 2013. The agenda for the meeting has been released, and includes an overview of the IASB and IFRS Interpretations Committee work plans, and discussion on specific projects including revenue recognition, leases, conceptual framework, post-implementation reviews and the disclosure initiative.

The full agenda for the meeting is summarised below:

Monday, 11 November 2013 (09:30-17:00)

  • IASB work plan update - including update on effects analysis
  • IFRS Interpretations Committee update
    • plans to support IFRS
    • recent projects
    • views on disclosures about going concern
  • Revenue recognition
  • Leases - high-level comment analysis
  • Conceptual framework
    • Liabilities - preliminary views on obligations conditional on an entity's future actions
    • Profit or loss, other comprehensive income (OCI) and recycling - distinction between profit or loss and OCI, recycling
  • Post-implementation review - IFRS 3 Business Combinations
  • Disclosure initiative: materiality - practical issues

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

October 2013 IASB meeting notes — Part 1

31 Oct 2013

The IASB's meeting was held in London on 28 October through 1 November 2013, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from Wednesday's sessions on sales or contributions of assets between an investor and its associate/joint venture (IFRS 10/IAS 27), acquisition of an interest in a joint operation (IFRS 11), equity method: share of other net asset changes (IAS 28), employee contributions to defined benefit plans (IAS 19), 2012-2014 annual improvements cycle (IFRS 7), rate-regulated activities, and revenue recognition.

EFRAG draft comment letter on the IFRS for SMEs proposals

31 Oct 2013

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB's exposure draft (ED) on proposed amendments to the IFRS for SMEs.

The EFRAG supports the framework for dealing with new and revised IFRS during future reviews of the IFRS for SMEs, however it believes no changes should be made to the IFRS for SMEs until changes in IFRS have been fully implemented. The EFRAG stated that post-implementation reviews of new and revised IFRS may be a more suitable opportunity to assess whether a change in the IFRS for SMEs is needed.

In addition, the EFRAG (1) supports the proposed alignment of the main principles regarding recognition and measurement of deferred tax in Section 29 Income Tax with IAS 12 and (2) reiterates recommendations made in the IASB’s Request for Information which indicated that it will be beneficial to permit the revaluation model for property, plant and equipment to used similarly to IAS 16 and included an option for borrowing costs and development costs to be capitalised.

For more information, please view:

New edition of EFRAG Insider

31 Oct 2013

The European Financial Reporting Advisory Group (EFRAG) has published a new edition of the publicly available newsletter 'EFRAG Insider'.

In this edition, the EFRAG provides information regarding the development of "Maystadt" review and the resulting consequences for EFRAG. It also addresses the exposure drafts on leases and insurance contracts, ongoing developments related to long-term investment business model requirements and the IASB conceptual framework project.

The October 2013 edition of EFRAG Insider is available on the EFRAG website

Monitoring Board publishes revised versions of its Charter and the Memorandum of Understanding with the IFRS Foundation

31 Oct 2013

The Monitoring Board, responsible for oversight of the IFRS Foundation, has published revised versions of its Charter and the MoU that defines its relationship with the IFRS Foundation. Most importantly the membership criteria and a description of assessment processes and consequences regarding the periodic review of existing members were added to the Charter as Appendix A and Appendix B.

The Monitoring Board's Final Report on the Review of the IFRS Foundation's Governance published in February 2012 identified a number of enhancements to the governance framework including expanding the Monitoring Board’s membership and beginning periodic assessments of the members against membership criteria yet to be developed. The criteria and the assessment processes were finalised at the Monitoring Board’s 6 February 2013 meeting and communicated in a press release in March 2013.

The criteria for (continued) membership that have now been formally added to the Charter are:

  • The jurisdiction has made a clear commitment to IFRSs and promotes global acceptance of a single set of high quality international accounting standards. It mandates or permits the application of IFRSs to consolidated financial statements of companies raising capital in its relevant market.
  • The IFRSs to be applied are essentially aligned with IFRSs developed by the IASB.
  • The jurisdiction can be regarded a major market for capital-raising in the global context.
  • The jurisdiction makes financial contributions to the setting of IFRSs on a continuing basis.
  • The jurisdiction has in place and in operation a robust enforcement mechanism.
  • The relevant national or regional standard-setting body actively contributes to the development of IFRSs.

In addition, a note added to Appendix B (Assessment Processes and Consequences) clarifies:

The Monitoring Board will evaluate the mechanisms used in member jurisdictions to integrate IFRSs into the reporting regimes for domestic issuers and the extent to which they contribute to the prominence of IFRSs in the member’s capital market, beginning with the 2016 periodic review of members against the membership criteria.

Changes to the MoU mainly concern the selection of the IASB Chair. An additional duty "Provide input on the IASB Chair selection" has been included in the section describing the duties of the Monitoring Board and the following description of how the Board will discharge of this duty has been added:

  • The IFRSF Trustees have the ultimate responsibility for selecting the IASB Chair.
  • The IFRSF Monitoring Board will agree with the Trustees on a set of criteria for selecting potential candidates, which will be documented and made public.
  • The IFRSF Monitoring Board will submit to the Trustees its assessment of a short list of candidates against the criteria, for the Trustees’ reference.

Moreover, in cases where the IASB determines that consideration of issues identified by the IFRSF Monitoring Board is not advisable or cannot be resolved within a reasonable time frame, it is no longer enough that the IASB explains its position, it will now also be called upon to demonstrate to the Trustees and the Monitoring Board "that adding the matter to the IASB agenda would be inconsistent with the standard-setting responsibilities established in the IFRSF Constitution".

Please click for the press release on the IASB's website offering access to all relevant documents (including the superseded versions) or go to the revised Charter and revised MoU directly.

Joint FEE/ACCA roundtable on the Maystadt review

31 Oct 2013

On 15 November 2013, the special advisor to EU Commissioner Michel Barnier, Mr Philippe Maystadt, is expected to present his final recommendations for enhancing the EU’s role in promoting high quality accounting standards at the Economic and Financial Affairs Council (ECOFIN) of the European Union. On 2 December 2013, the Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) and the Association of Chartered Certified Accountants (ACCA) offer a joint roundtable to discuss the findings of the review with Mr Maystadt.

FEE and ACCA jointly organise the roundtable which will be hosted by MEP Mr Wolf Klinz at the European Parliament in Brussels. At the event Mr Maystadt will present his findings to EU stakeholders. A panel of experts and the audience will debate issues such as how European influence is best ensured and revising the European Financial Reporting Advisory Group (EFRAG) as the recommended option to ensure EU influence. Panellists will include representatives from EFRAG, national standard-setters, the preparers/businesses and investors communities and from the accounting profession.

Please click for more information on the roundtable on the FEE website.

Summary of the October 2013 DPOC meeting

30 Oct 2013

The IASB has published a summary of the 16 October 2013 Due Process Oversight Committee (DPOC) meeting that was held in Frankfurt during the Trustees’ meeting.

Topics discussed during the DPOC meeting were:

Update on technical activities

Updates were given on the progress of the major projects on the IASB’s work plan.

Regarding hedge accounting, the DPOC noted that it had finished a lifecycle review at its April 2013 meeting and that the IASB is in the process of balloting the hedge accounting chapter into IFRS 9 Financial Instruments. In addition, DPOC members were informed of two changes: (1) removal of the mandatory effective date of IFRS 9 and (2) an amendment related to presentation of changes in the value of own credit risk on financial liabilities.

For the classification and measurement project, the DPOC was updated on the IASB and the FASB convergence efforts, but acknowledged that the Boards are at different stages of development. The DPOC’s next step is to conduct a lifecycle review of the project in the first half of 2014.

For the impairment project, DPOC members were informed that a converged standard between the IASB and FASB is unlikely because of differences in their expect credit losses models. The DPOC asked the IASB to continue to discuss with the FASB ways to bring their respective models closer.

Other major projects discussed were macro hedging (permission to ballot the discussion paper/timetable set for late 2013, early 2014), leases (feedback on the exposure draft), revenue recognition (fatal flaw process revealed three issues on collectibility, constraint and licences), insurance contracts (fieldwork showed increase complexity, including volatility and accounting mismatches), conceptual framework and rate-regulated activities.

In addition, the DPOC received updates on implementation and maintenance projects on the IASB’s work plan  in particular, the disclosure initiative (IAS 1), going concern (IAS 1) and the post-implementation review of IFRS 3.

Educational material

The DPOC reviewed a report on the development of educational material by the IASB. The main concern of members is that supportive educational material may be viewed as authoritative.

Effects analysis consultative group (EACG)

The DPOC was presented with a progress report on the EACG. The EACG advises the IASB on methods for field testing and effects analyses. The DPOC discussed the EACG work in (1) reviewing confidentiality while improving transparency and (2) communications aspects of effect analyses.

Review on consultative groups

The DPOC reviewed and were satisfied that the following consultative groups were operating effectively and should be retained:

  • Accounting Standards Advisory Forum (ASAF);
  • Capital Markets Advisory Committee (CMAC);
  • Education and Advisory Group (EAG);
  • Shariah-compliant Instruments and Transactions

XBRL

The DPOC examined a report on the IASB’s plan to restructure staffing and consultative activities related to electronic reporting. In particular, they discussed three issues: (1) proposed update to the IFRS taxonomy, (2) review of the due process for XBRL and (3) proposals to replace the XBRL Advisory Council and XBRL Quality Review Team.

Review of correspondence

The DPOC discussed a complaint from Business Europe concerning the accuracy of staff reporting on comment letters on the proposed amendments to IAS 40 Investment Property as part of the 2011–2013 Annual Improvements cycle. The DPOC was satisfied with the IASB technical staff reply for the complaint and approved the response letter to Business Europe.

 

The DPOC is responsible for approving due process and overseeing the IASB’s compliance with due process, and reviewing the Trustees’ fulfilment of their oversight function in accordance with the Constitution of the IFRS Foundation.

A summary of the meeting is available on the IASB website.

Fourteenth ESMA enforcement decisions report released

30 Oct 2013

The European Securities and Markets Authority (ESMA) has published further extracts from its confidential database of enforcement decisions taken by European national enforcers. This batch deals with decisions in relation to IAS 39, IFRS 7, IAS 7, IAS 1, IAS 27, IFRS 3/IAS 38, IAS 32, IAS 12, IFRS 8, and IAS 8.

The European national enforcers of financial information monitor and review financial statements published by issuers with securities traded on a regulated European market and who prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

ESMA has developed a confidential database of enforcement decisions taken by individual European enforcers as a source of information to foster appropriate application of IFRS.

The publication of enforcement decisions is designed to inform market participants about which accounting treatments European national enforcers may consider as complying with IFRS, i.e. whether the treatments are considered as being within the accepted range of those permitted by IFRS. ESMA considers the publication of the decisions, together with the rationale behind them, will contribute to a consistent application of IFRS in the European Union.

Topics covered in the latest batch of extracts, fourteenth in the series and covering the period from July 2012 to March 2013, include:

 

StandardTopic
IAS 39 Financial Instruments: Recognition and Measurement Derecognition of financial assets and liabilities – transaction set up with the intention of being a ‘pass-through’ arrangement
Classification of financial assets as loans and receivables – investment of the proceeds of bonds issued to third party investors in the parent company of the issuer through a ‘silent contribution’ arrangement
Hedge accounting for an embedded floor in a loan portfolio – separation of the embedded floors and their measurement at fair value subsequent to initial assessment of embedded derivatives outside the case of a business combination
IFRS 7 Financial Instruments: Disclosures Nature and extent of risks arising from financial instruments – relevant quantitative and qualitative disclosures related to risks arising from holding financial instruments with regards to credit risk, ‘other price risk’ and concentration risk
IAS 7 Statement of Cash Flows Cash flow classification of amounts paid to vary the notional amount of a commodity contract – whether a one off payment to a bank to reduce the notional amount of a forward contract is a financing or operating outflow
IAS 1 Presentation of Financial Statements Presentation of cost of inventories in cost of goods sold – treatment of the fair value step-up of inventories acquired in a business combination on subsequent sale of those inventories
IAS 27 Consolidated and Separate Financial Statements Scope of consolidation – whether particular national law should be considered in determining whether or not consolidated financial statements should be prepared
IFRS 3 Business Combinations / IAS 38 Intangible Assets Identification of intangible assets in a business combination – whether an amount of a 'deposit surplus' arising on the acquisition of a distressed bank should be subsumed into goodwill or considered to be a separately identifiable intangible asset with a finite useful life
IAS 32 Financial Instruments: Presentation Contingent payments to acquire a non-controlling interest – whether contingent payments based on future EBITDA of an acquired business are to be considered contingent liabilities or recognised as financial liabilities
IAS 12 Income Taxes Deferred tax asset arising from tax losses carried forward – nature of convincing evidence showing that there would be taxable profits available in the future in order to recognise a deferred tax asset where sufficient taxable temporary differences are not available
IFRS 8 Operating Segments Segment disclosures – exclusion of goodwill from the geographical analysis of non-current assets
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors Disclosure of new standards that have been issued but are not yet effective – disclosures about new standards, interpretations and amendments to existing standards should not be limited to those pronouncements already endorsed for use in the European Union (EU)

Click for access to the full report.

Finalised ordinances allow wider voluntary use of IFRS in Japan

29 Oct 2013

The Financial Services Agency of Japan (FSA) has released revised ordinances that increase the number of Japanese companies that can voluntarily adopt International Financial Reporting Standards (IFRSs) as designated by the FSA, which is currently identical to the effective IFRSs as issued by the IASB. The ordinances are effective immediately and permit Japanese listed companies and those applying for a listing to use designated IFRSs in their consolidated financial statements on a voluntary basis, if they establish internal processes to ensure appropriate reporting under designated IFRSs, with officers or employees who have sufficient knowledge of the subject being in place.

The revised ordinances respond to one of three major initiatives recommended by Japan's Business Accounting Council (BAC) in June 2013 to facilitate further use of IFRSs in Japan, and follows a public consultation request on the proposed revisions issued by the FSA in August 2013.

Based on the FSA's statistics, the revised ordinances increase the number of companies in Japan that are eligible to voluntarily adopt designated IFRSs from approximately 600 to over 4,000. Prior to the revision, the ability to voluntarily adopt designated IFRSs was effectively restricted to listed Japanese companies with international financial and/or business activities.

In addition to the wider ability to voluntary adopt IFRSs, the BAC recommended the introduction of 'endorsed IFRSs' in Japan and the simplification of disclosures in separate financial statements in June 2013. Although the ASBJ, the local accounting standard setter, has embarked on deliberating the endorsed IFRS, a full picture of the ultimate consequence of these initiatives has yet to emerge. A presentation by a FSA personnel in front of the IFRS Advisory Council earlier this month as well as an article by the ASBJ Chair are one of the most recent hints provided by those directly involved in the process on these matters.

More information on the revised ordinances is available on the FSA website (in Japanese).

We support changing the accounting for bearer plants, recommend extending scope to bearer livestock

28 Oct 2013

We have published our comment letter on the IASB Exposure Draft ED/2013/8 'Agriculture: Bearer Plants'. We welcome the IASB’s proposed amendment to measure bearer plants using either a cost or revaluation model under IAS 16 'Property, Plant and Equipment' rather than the fair value less costs to sell model under IAS 41 'Agriculture' and support the proposed amendments, subject to a number of comments. We believe that the IASB should further consider the scope of the amendment and specifically that the IASB should perform further research, outreach and deliberation on extending the proposed amendments to bearer livestock.

We agree with the principal reasoning provided by the IASB that bearer plants, once mature, no longer undergo significant biological transformation and therefore are similar to, and should be subject to, the same measurement requirements as manufacturing. However, we believe this same approach may also be equally applied to livestock, and note this would eliminate volatility in reported income arising from changes in fair value when the holder of the assets has no intention to change the use of its assets other than by sale for ancillary use at the end of its useful life:

We believe that the IASB should further consider the scope of this amendment and specifically that further consideration be given to whether the proposed amendments be extended to livestock that is held for production rather than for its own carcass, for example sheep for wool, chicken and ducks for eggs and dairy cattle for milk. The existence of an active market for bearer livestock that provides a reliable fair value does not alter the nature of these types of biological asset and hence we see no reason in principle why the rationale underlying the proposed amendment to the measurement of bearer plants should not also apply to bearer livestock. We do not see any immediately compelling reason to distinguish between these two types of biological assets.

Notwithstanding our recommendations around bearer livestock, the comment letter notes that we would not object to the IASB finalising the proposed amendment on bearer plants and then undertaking a second phase of the project to consider bearer livestock.

Other observations made in the comment letter include:

  • We agree that bearer plants should be measured at accumulated cost before being placed in production, in the same way as self-constructed items of machinery
  • We do not concur with the IASB’s comment that in most cases the impact of accounting separately for the roots of perennial plants would not be material and request additional guidance on applying the concepts in IAS 16 to these plants
  • We recommend additional guidance be included in any finalised amendment as to when bearer plants are considered to be 'mature' and hence that cost capitalisation ceases, and for the treatment of costs associated with a plant's growth stage through to maturity
  • We do not see bearer plants as being sufficiently different in nature to other classes of property, plant and equipment to warrant incremental disclosures, and consider possible additional disclosures identified in the exposure draft as non-financial in nature and not required in general purpose financial statements, e.g. disclosures about productivity, age profiles, physical quantities.
  • We agree with the proposed transitional provisions and first-time adoption considerations, but note a number of consequential and other matters that should be considered in finalising the amendments, including around classification, reclassification and impairment.

Click for access to the full comment letter.

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