Disclosure

The ASAF explored the IASB's Disclosure Initiative project and an approach to rethinking a disclosure and presentation framework. The IASB staff provided an overview of the project including the five short- and medium-term strategies. ASAF members supported the project; however, some members felt the timeline was over-ambitious and noted that the IASB should include input from regulators and auditors. Also, the IASB staff provided an overview on the proposed amendments to IAS 1. The ASAF members generally supported the proposals, but suggested some drafting changes. They suggested that the IASB should investigate ways to make accounting policies more entity-specific and whether the policies should be presented with detailed notes. In addition, ASAF members expressed mixed views on the issue of 'net debt', since 'net debt' is not a feature of financial reporting in some jurisdictions. To wrap up the disclosure discussion, the ASAF members viewed a presentation by Kevin Stevenson, Chair of the AASB, on his paper, 'Rethinking the Path from an Objective of Economic Decision Making to a Disclosure and Presentation Framework'. 

Insurance Contracts

The ASAF discussed the IASB's exposure draft on insurance contracts. Members supported the IASB's direction regarding insurance contract revenue and transition, but had concerns about the accounting mismatches that would arise as a result of applying the proposals relating to contracts with cash flows that vary with underlying items, and those relating to the use of other comprehensive income.

Leases

The ASAF reviewed the IASB's exposure draft on leases. Members had mixed comments on the proposals. While most members supported the direction of the proposals in the exposure draft, some had concerns about the complexity of having dual approaches. The ASAF members also suggested specific points for the IASB and FASB to consider regarding the measurement of lease assets and liabilities, the definition of a lease, disclosure, and transition.

Financial Instruments

Macro-hedge accounting

The IASB staff presented a summary of the macro-hedge accounting portfolio revaluation approach to solicit feedback by the ASAF. The ASAF members suggested the model should (1) be extended to include risks other than interest rate, (2) clarify how the model handles financial products managed on the basis of expected maturity, and (3) carefully consider the scope of the model. The ASAF suggested an extended comment period of six months for the discussion paper that is expected to be issued later this year.

Impairment

The ASAF discussed the proposals in the IASB's exposure draft on expected credit losses. The IASB staff presented some clarifications and enhancements to the proposals on the responsiveness of the general model, the measurement objective for Stage 1, and the definition of 'default'. Some ASAF members commented that the proposals should be finalised. They also stressed that it is important that the objectives and principles remain clear and do not become too prescriptive. Further, some members needed additional clarification on the definition of 12 months' expected credit losses and that the IASB should consider divergence that exists in IFRSs when measuring impairment losses.

Conceptual framework

ASAF members discussed the EFRAG's bulletin on prudence. Many ASAF members felt the IASB should consider reintroducing the concept of prudence in the conceptual framework. They emphasised the importance of providing a clear definition for 'prudence' so it is not used differently by different groups of people and suggested that it should be described as the exercise of caution under conditions of uncertainty.

Future meetings

The ASAF will next meet on 5 and 6 December 2013 in London. Also, the date of its September 2014 meeting has been changed from 8 and 9 September to 25 and 26 September.

A full summary is available on the IASB website.

IFAC states that there is growing recognition that in addition to capturing the financial information organisations prepare and use in managing and directing their business, it is important to capture and report other, largely non-financial, information. Financial reporting cannot satisfy all information needs and stakeholders continue to seek more and different information that they find relevant to their decision making. This includes, but is not limited to, information pertaining to an organisation’s strategy, governance, risk management, human resources, and approach to broader sustainability issues, including environmental and social issues.

However, IFAC recognises that there are a range of different organisational reporting frameworks and regulations available and being developed (among them IIRC, GRI, UN Global Compact, CDSB, IPSASB, SASB, and OECD Guidelines for Multinational Enterprises), and considers it important to examine the relationship between these frameworks and promote global consistency and convergence:

IFAC considers it vital that regulators, standard setters, and others involved in the development of reporting frameworks recognize and promote not just the need for enhancing organizational reporting, but also the need for globally consistent and convergent practices and arrangements. The challenges associated with convergence of financial reporting arrangements in the last decade provides a sound reason for all parties to aim to agree on a consensus, or at least the identification of the relationships and consistency between the different frameworks, at the earliest possible time.

Please click for the following information on the IFAC website:

• IFAC press release
• Enhancing Organizational Reporting - two page overview
• Enhancing Organizational Reporting - full Policy Position Paper

After its January 2013 public discussion forum on disclosure, the IASB issued a feedback statement that consisted of the forum's discussions, the IASB's response, a summary of work already undertaken on disclosure, and the outcomes of the IASB's survey issued in December 2012. In June 2013, Chairman Hans Hoogervorst announced a 10-point plan as the first step to this initiative.

The Disclosure Initiative group consists of members of the IASB standard-setting team and its eXtensible Business Reporting Language (XBRL) team. By including the XBRL team in the standard-setting process, the group can also improve how electronic filing of financial information is presented. The group will also be assist by the German national standard-setter, the DRSC.

The integration of the XBRL team into the IASB’s work programme is a component of the XBRL strategic review performed by IFRS Foundation Trustees.

Please click for:

• Press release (link to IASB website).
• IAS Plus project page on the Disclosure Initiative.

The working group opens its comment letter on the IASB's ED/2013/6 Leases by expressly stating that the concepts developed fit well into the world of Islamic accounting and prominent Sharia'a scholars commend the IASB for the proposals.

However, the working group also stresses that not less but even more guidance is needed for distinguishing between a lease and a sale. The 2010 Exposure Draft ED/2010/9 Leases contained some guidance which was particularly important for ijarah muntahia bittamleek (lease contracts followed by a legally separate contract to transfer ownership of the underlying asset) and which would have clearly resulted in many (if not most) ijarah muntahia bittamleek being treated as a sale. The elimination of that guidance is from an Islamic viewpoint not clarifying but may instead lead to confusion and may result in disparate reporting of ijarah muntahia bittamleek that are economically similar.

The working group also points out that superseding SIC-27 Evaluating the Substance of Transactions in the Legal Form of a Lease is problematic from an Islamic viewpoint in connection with sukuk ijarah where an entity transfers an asset to a special purpose entity which will 'sell' proportionate ownership of the asset to investors/financiers. The investors/financiers then lease the asset to the original transferor entity.

The principles in SIC 27 are currently crucial in assessing whether a sukuk ijarah should be accounted as a financial instrument under IAS 39/IFRS 9 or as a sale and leaseback under IAS 17. The loss of SIC 27 may have negative repercussions, especially since sukuk ijarah structures form a substantial portion of the Islamic capital market in many jurisdictions.

The comment letter also contains references to several implementation issues that may not necessarily require amendments to the exposure draft.

Please click for more information in the comment letter from the AOSSG Islamic Finance Working Group which is attached as Appendix B to the general comment letter on the AOSSG website.

The Initiative's Framework-based teaching project is designed to help educators train the next generation of accountants in how to make sound judgements in the preparation of financial reports in accordance with principle-based accounting standards.

Material on the different topics has been prepared in three separate sections to support Framework-based IFRS teaching students at three stages:

1. a student's first financial reporting course;
2. a financial reporting course mid-way to qualifying as a CA or CPA; and
3. a course immediately before qualifying as a CA or CPA.

(The stages are broadly defined to take into account the many different approaches to qualifying as accountants worldwide.)

Please click for the following information on the IASB's website:

• Press release
• Access to the Framework-based teaching material

On 31 October 2012, the IASB published Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27), providing an exemption from consolidation of subsidiaries under IFRS 10 Consolidated Financial Statements for entities which meet the definition of an 'investment entity'.

The CSA believe the definition of 'investment entity' in IFRS 10 should capture, and therefore resolve the issue for, most investment funds and have announced that the deferral originally announced in October 2010 and later extended to 1 January 2013 will come to an end. Assuming Ministerial approvals, investment funds will therefore be required to transition to IFRS for financial years beginning on or after 1 January 2014.

The deferral of the mandatory IFRS changeover date for entities with qualifying rate-regulated activities remains in place and has recently been extended by an additional year to 1 January 2015.

Please click for:

• Press release on the CSA website
• Full text of the CSA Notice of Amendments on the Ontario Securities Commission website

The draft report, which went through its first reading, maintains that it is important to ensure that the interests of the European Union are respected and that global accounting standards are of high quality and compatible with Union law. Therefore, ECON believes the programme for supporting specific activities in the field of financial reporting should be used to ensure that public money contributed towards the functioning of international accounting and auditing standard-setting, "and in particular to the IFRS Foundation, EFRAG and the PIOB", is spent in accordance with the public interest and responding to European Union needs.

To this end the draft report contains the following suggested amendment:

Those funding arrangements depend on whether the IFRS Foundation and IASB implement the proposals of the Union regarding their governance; whether the Union accounting concepts, in particular with regard to 'prudence' and the requirement for the 'true and fair view' are appropriately considered in the revision of the Conceptual Framework; whether the IASB decides not to include those concepts in the revised Conceptual Framework; and whether the IASB provides reasons for its decision, including publishing the details of the jurisdictions, non-governmental organisations, undertakings or other stakeholders, which objected to those concepts.

Moreover, ECON suggests moving from giving six years of funding in one go to an annual assessment of whether certain criteria are fulfilled and releasing the money in stages:

Financing under the Programme shall be provided in the form of operating grants, shall be awarded on an annual basis, and shall be conditional on compliance with criteria relating to the objectives and content of the standards, and with criteria concerning developments in Union governance, namely regarding EFRAG, the IFRS Foundation and IASB.

The ECON proposed amendments will now go to official trialogue - tripartite meetings attended by representatives of the European Parliament, the Council and the Commission aimed at getting agreement on a package of amendments acceptable to the Council and the European Parliament.

Please click for access to the provisional version of the report on the European Parliament website.

In December 2012 the FASB published its proposed model on current expected credit losses, which was followed by the IASB's expected losses impairment model in March 2013. Despite global calls for a converged standard, the FASB model calls for more upfront recognition of expected credit losses than the IASB model.

In order to back its comment letter to the IASB and the FASB, the CFA Institute conducted a survey of its membership to ascertain investor preferences related to financial reporting for credit losses. More than 300 of its members responded to the survey. The key findings were:

• Respondents were almost evenly split on which proposed model they preferred (47% preferred the IASB's model, 44% backed the FASB's model).
• Respondents from the Americas preferred the FASB's proposed model (53%) to the IASB's model (41%), while the IASB's proposed model was preferred by Asia-Pacific respondents (49% to 42%) and Europe, Middle East and Africa participants (50% to 40%).
• Respondents supported fair value as a measurement method that is most decision-useful for measuring credit losses slightly more than an expected-loss model (46% to 41%). The current incurred-loss approach was supported by just 5% of respondents.
• Despite a lack of agreement regarding the model to use, 92% said the FASB and the IASB should arrive at a converged method of estimating credit losses.

Respondents also commented on which disclosures related to impairments of financial assets they felt were needed.

Please click for the following documents on the CFA Institute website:

• Credit loss and impairment survey
• Comment letter to the IASB and the FASB with a detailed analysis of the survey results

When UK entities prepare accounts, there is a legal requirement under the Companies Act (derived from EU accounting directives) that they show a true and fair view.  Observers had expressed the view that the use of IFRS will not enable this legal requirement to be achieved. 

Having sought independent legal opinion, the BIS has confirmed that “compliance with accounting standards will result in a true and fair view”.  Where this is not the case, IAS 1 Presentation of Financial Statements paragraph 19 and FRS 102 paragraph 3.4 allows that where compliance with an accounting standard may not achieve that objective, the standard may be overridden. The FRC has taken its own independent legal advice and has confirmed these findings.

The BIS and FRC believe that further improvements can be made to IFRSs and the Conceptual Framework for financial reporting, although these changes are not required to enable existing accounting standards to comply with UK company law.

In this connection, the FRC has also stated that it will continue to work towards the improvements of accounting standards and will be contributing to the comprehensive conceptual framework project of the IASB. 

Both, the FRC and the BIS believe that stewardship reporting should be included as a "primary objective of financial reporting" in the Conceptual Framework and prudence should be explicitly mentioned.  Both also believe that "clear principles are needed to describe when specific approaches to measurement, such as fair value, should be used". 

Please click for:

• BIS press release (link to BIS website)
• FRC press release (link to FRC website)
• IAS Plus project page on the IASB's Conceptual Framework project