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UK FRC views proposed amendments to the IFRS for SMEs critically

19 Dec 2013

The UK Financial Reporting Council (FRC) has published a draft comment letter on the IASB's proposed changes to the IFRS for SMEs. The FRC warns that the IASB is in danger of 'leaving a significant gap in the standard setting framework'.

As a result of its comprehensive review of the IFRS for SMEs, the IASB proposed smaller changes to 21 of the 35 section of the standard in early October. The FRC does not disagree with the amendments themselves but believes the changes are not far-reaching enough.

The FRC puts forward the opinion that the IASB is interpreting the scope of the IFRS for SMEs too narrowly. Instead of addressing the needs of all entities that don't have public accountability and publish general purpose financial statements for external users, the IASB is focusing on the smallest entities of this kind that typically don't have as many less complex transactions and are normally limited in their resources to apply full IFRSs.

The FRC believes that one result of this focus may be that the IASB limits the ability of jurisdictions to adopt the IFRS for SMEs. If large or complex entities threaten to fall within the scope of the standard, jurisdictions would either need to stay with their local set standards for these entities or would need to adapt the IFRS for SMEs to their needs.

In March 2013, the UK replaced its local GAAP with a new standard based on the IFRS for SMEs. In doing so, the FRC made several changes, one of which was to widen the scope of the standard significantly compared to the IFRS for SMEs. This has the effect that any entity not required to apply full IFRSs will be able to apply the new FRS 102. However, this decision has led to the necessity of further changes to reflect the complexity of transactions of the entities falling under this wider scope. Most recently, in November 2013, the FRC suggested changes to FRS 102 with respect to hedge accounting that would move the new standard even further away from the IFRS for SMEs.

Please click for access to the draft comment letter on the FRC website.

Research paper by EFRAG, ANC and FRC on the role of the business model in financial statements

18 Dec 2013

The European Financial Reporting Advisory Group (EFRAG), the French Autorité des Normes Comptables (ANC), and the UK Financial Reporting Council (FRC) have published a research paper on 'The Role of the Business Model in Financial Statements'. The paper is the result of one of the projects on EFRAG's proactive agenda

The paper leads through the chapters

    1. Background
    2. The business model in IFRS
    3. Assumed meaning and examples of business models
    4. The conceptual discussion and
    5. Implications of the business model for financial statements

to the conclusions that the business model should continue to play a role in financial reporting, that it is time for a change to the current ad-hoc use and that the concept of the business model should be included in the Conceptual Framework with appropriate guidance for standard-setting.

A Conceptual Framework bulletin on the role of the business model in financial reporting published in July 2013 also considered whether financial reporting based on the business model notion provides useful information.

The following information is available on the EFRAG website:

The research paper is open for comment until 31 May 2014.

IASB work plan updated

17 Dec 2013

Following its recent meeting, the International Accounting Standards Board (IASB) has updated its work plan. Some smaller adjustment were made but mainly the new work plan simply provides a consolidated view of the current status with finalised projects removed and redeliberation dates added for projects where exposure drafts have been published.

Current status

The revised time table for the major projects is now as follows:

Project Current status Next project step Expected timing

Conceptual Framework — Comprehensive IASB project

Discussion paper


Q1/Q2 2014

Financial instruments — Impairment


Finalised IFRS

Q1/Q2 2014

Financial instruments — Macro hedge accounting


Discussion paper

Q1 2014

Financial instruments — Limited reconsideration of IFRS 9 (classification and measurement)


Finalised IFRS

Q1/Q2 2014

Insurance contracts



Q1 2014




Q1 2014*

Rate-regulated activities — interim IFRS

Exposure draft

Finalised IFRS

Q1 2014

Rate-regulated activities — Comprehensive project


Discussion paper

Q2 2014

Revenue recognition


Finalised IFRS

Q1 2014

* Indicates a change since the prior work plan update.

Changes concerning narrow scope projects are:

Click for the IASB work plan dated 17 December 2013 (link to IASB website). We have updated our project pages to reflect the updated work plan and other known developments.

ICAEW publishes report calling for changes to disclosure rules

15 Dec 2013

The Institute of Chartered Accountants in England and Wales (ICAEW) has published a report by its Financial Reporting Faculty calling for urgent reform to the regulation of financial reporting disclosures, saying the current situation will get worse as the volume of irrelevant material increases if the system is not changed quickly.

Financial Reporting Disclosures: Market and Regulatory Failures argues that the current disclosure overload is to a large degree an outcome of the regulatory framework. At the same time, the report also states that this framework is a response to failures in the market for financial reporting information. And both market and regulatory failures in part reflect the inherent limitations of financial reporting.

The most important point of the report is, that the problems are created by a 'one size fits all' approach to disclosures that fails to recognise the conflict between regulation and standardisation of financial reporting disclosures on the one hand and the diversity of firms and user needs on the other. This approach has led to regulation requiring firms to disclose the same information to all users, irrespective of the question whether all users will benefit in the same way from long and complex disclosures. Standardisation of disclosures has also led to a large proportion of immaterial disclosures being published as part "an ever-growing list of required disclosures that have been recognised as important at one time or another for at least some firms".

In its report the Financial Reporting Faculty recommends a programme of reform consisting of four ways in which the causes of the problem can be addressed:


    1. Reform the process for setting disclosure requirements
      1. The standard-setting process should be reformed so as to give more weight to the views of equity shareholders who as owners meet the costs of disclosure requirements.
      2. Standard-setters should establish a framework to provide a structure for setting disclosure requirements.
      3. To the extent that firms comply with disclosure requirements even though the resulting information is immaterial, standard-setters should reflect this in deciding whether disclosure requirements are proportionate.
    2. Change the requirements themselves
      1. Disclosure requirements should allow firms to report separate information sets to different types of users.
      2. Standard-setters should regularly review their disclosure requirements to weed out unnecessary disclosures.
    3. Change the way in which the requirements are implemented
      1. To reduce the incentives to provide immaterial disclosures, enforcement agencies should clarify that they will not take action against firms that omit immaterial disclosures, and they should encourage firms to omit immaterial disclosures.
      2. Auditors should refrain from encouraging firms to make immaterial disclosures and should encourage them to omit immaterial disclosures.
      3. Once enforcement agencies and auditors have reformed their approach to materiality, firms should cut out disclosures that are clearly immaterial.
    4. Place more reliance on non-regulatory solutions
      1. Preparers and users should engage directly to discuss voluntary public disclosure of information that is not currently provided, rather than rely entirely on standard-setters to introduce new disclosure requirements.

The ICAEW points out that these recommendations are interdependent and "no one group is in a position on its own to reform financial reporting disclosures and their regulation; a coordinated approach is needed". This comment reflects the main message that came out of the IASB's disclosure discussion forum in January: that users, preparers, standard-setters, auditors and regulators all contribute to the perceived problems about disclosure, and that each of these parties can contribute to improvements. Only recently, the Danish regulator overseeing non-financial entities (Erhvervsstyrelsen or Danish Business Authority (DBA)) was one of the first regulators to actively encourage companies to omit any immaterial information and disclosures in the financial statements.

Further information on the ICAEW website:

IFRS Foundation updates jurisdiction profiles for Hong Kong and Korea (South)

13 Dec 2013

The IFRS Foundation (IFRSF) has updated its jurisdiction profiles on the use of IFRS for Hong Kong and Korea (South).

The jurisdiction profiles have been updated for the following:

  • Hong Kong: Updated to clarify the application of the HKFRS equivalent of IFRS 1.
  • Korea (South): Updated to reflect (a) expiry of a disclosure that had been added to IAS 34 and (b) adoption of accounting standards for unlisted companies that are not subject to external audit.

The profiles and analyses are available on the IASB website.

IFRS Foundation appoints new Chair of the IFRS Advisory Council

13 Dec 2013

The Trustees of the IFRS Foundation have announced that Joanna Perry has been appointed as new Chair of the IFRS Advisory Council.

Ms Perry follows Paul Cherry whose term ends in December 2013. She previously served as Chairman of the New Zealand Financial Reporting Standards Board (FRSB), leading the evolution of financial reporting standards in New Zealand, including the adoption of IFRSs from 2005. Ms Perry also represented New Zealand as a member of the Asia-Oceania Standard-Setting Group (AOSSG).

Currently, Ms Perry is a member of the IFRS Interpretations Committee. She will resign this position upon taking up the Chair of the Advisory Council.

Please click for more information in the press release on the IASB website.

IMA suggests actions to reap the benefits of integrated reporting

13 Dec 2013

In a reaction to the release of the International Integrated Reporting <IR> Framework last Monday, the Institute of Management Accountants (IMA) has outlined several actions to transform corporate reporting to better serve the public interest. IMA opines that the goals behind integrated reporting must be defined and that producing an integrated report should not be a goal in itself.

IMA believes that four issues must be addressed to reap the benefits of IR:

    1. The ultimate goal should not be to produce a single, integrated report. Rather, it should be to motivate disclosures that better inform investors and other stakeholders.
    2. Market evidence should be developed by shifting the assessment of the benefits of integrated reporting more towards to "actual value delivery participants" of the value chain among which IMA sees business owners, business managers, CFOs, preparers, investors, and analysts.
    3. A "learning and growth" approach should be taken with tangible step changes such as improving disclosures and motivating more concise and informative financial reports including reporting on intangibles. IMA believes mandatory reporting would have an adverse effect.
    4. Supporting technology such XBRL/structured data standards that could potentially improve the cost/benefit of integrated reporting should be developed.

Please click for:

Report from recent IFASS meeting released

12 Dec 2013

A report has been issued summarising the discussions at the meeting of the International Forum of Accounting Standard Setters (IFASS) held in Brussels on 19‐20 September 2013.

Highlights from the meeting included:

IASB and IFRS Foundation developments - general update and discussion

  • Participants discussed the strategies and governance of the work of the International Financial Reporting Standards Foundation Trustees, the IASB's efforts in developing and improving IFRSs and other noteworthy matters. General comments on the current projects of the IASB and the IFRS Foundation included concerns that the IASB and U.S. cultures regarding revenue recognition differ, the observation that the conceptual framework project is very challenging and that the issues need to be thoroughly thought through and a statement that participants are not necessarily aware where educational material is used.
  • It was also observed that although stakeholders have asked for a period of calm, IFRIC is dealing with a large number of issues, issuing negative agenda decisions and annual improvements. It was criticised that that many of the issues being dealt with through the annual improvements are not annual improvements as such but other minor amendments. Although IFRIC is very active, the output mainly consists of negative agenda decisions. Participants wondered how affected stakeholders should proceed when IFRIC issues are rejected by IFRIC because they are not widespread. They also noted that issues were not always addressed on a timely basis.

Topical Issues

Participants then discussed several topical issues:

  • Rate regulation: Potential basis for recognition,
  • Application issues related to IFRS 11 Joint Arrangements,
  • Integrated reporting – roles of NSS and views formed,
  • Disclosures required when partly owned subsidiaries are consolidated,
  • Report‐back regarding discount rate issues,
  • Presentation of exceptional items in the statement of profit or loss,
  • Post‐Implementation Review of IFRS 3 Business Combinations.

Conceptual Framework Issues

One focal point of the IFASS meeting was the conceptual framework project of the IASB, especially regarding the aspects of measurement and prudence. On measurement the key messages were that the IASB should not use a pragmatic approach as starting point and that the conceptual framework should be aspirational in nature. Prudence was discussed in three break‐out groups with one group coming to the conclusion that the conceptual framework should provide a clear definition or description of prudence, one opining that prudence should be discussed in the conceptual framework as an item to be considered in limited circumstances and one believing that an appropriate balance should be struck between all the qualitative characteristics.


Participants discussed the draft of the new Charter indented to replace the existing statement outlining relationship of IASB and NSSs and taking the creation of ASAF and other developments into account.

Reports from regional groups

Reports were received from the AOSSG, EFRAG, GLASS, and PAFA representatives.

Update on the IASB's work plan

Participants were informed about the status of major projects (leases, insurance, macro hedging, impairment, and general hedge accounting) as well as the progress regarding several (in part new) narrow-scope projects.


Click for the full report (link to UK Financial Reporting Council website). The next IFASS meeting will be held in New Delhi on 6‐7 March 2014.

EFRAG updates endorsement status report for annual improvements amendments

12 Dec 2013

The European Financial Reporting Advisory Group (EFRAG) has updated its endorsement status report to reflect the release by the IASB of annual improvements to IFRSs for the 2010–2012 and 2011–2013 cycles.

The endorsement status report notes the issuance of Annual Improvements to IFRSs 2010-2012 Cycle and Annual Improvements to IFRSs 2011–2013 Cycle, both on 12 December 2013. These collections of amendments are effective for annual periods beginning on or after 1 July 2014.  The report indicates that endorsement is currently expected in the third quarter of 2014.

The endorsement status report, dated 12 December 2013, is available here.

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