Report from recent IFASS meeting released

29 Apr 2014

A report has been issued summarising the discussions at the meeting of the International Forum of Accounting Standard Setters (IFASS) held in New Delhi on 6‐7 March 2014.

Highlights from the meeting included:

IASB and IFRIC developments

  • Participants discussed the status of the projects on the IASB's work plan:
    • The IASB plans to resolve all the major issues related to insurance contracts by June 2014;
    • both the IASB and FASB are hoping to finalise their standards on leases by the end of 2014;
    • good progress is being made on producing a discussion paper on rate regulation;
    • the revenue recognition project is close to being finalised;
    • the goal of the comprehensive review of the IFRS for SMEs is not to have too many changes;
    • the post-implementation reviews of IFRS have not disclosed any major failings so far; and
    • the conceptual framework discussion paper received 220 comment letters so far.
    General comments included that regulators should be reminded that the insurance contracts, and other, standards are meant for general purpose financial statements and not necessarily for regulatory purposes. The opinion was also voiced that that post-implementation reviews are done too soon after the implementation of a standard, with little empirical evidence.
  • Participants then discussed the criteria used by IFRIC to place issues on its agenda. Representatives' comments included the following:
    • IFRIC is not dealing with enough issues and is reluctant to issue interpretations.
    • Leaving issues to the exercise of judgement could result in differing interpretations.
    • There is the danger of jurisdictions writing their own guidance if authoritative interpretations are not issued by IFRIC.
    • Items rejected by IFRIC on the grounds that it will not reach a consensus, should not be treated as non-issues and should automatically be referred to the IASB.
    • Questions to stakeholders should be clear and unambiguous; efforts should be made to ascertain if an issue is widespread and if there is diversity in its treatment; proportionality should be kept in mind.

Report back on IFASS member projects

Participants discussed two projects run by IFASS members: 'Role of the Business Model in financial reporting' (EFRAG) and 'Goodwill impairment and amortisation' (OCI, EFRAG, ASBJ).

IPSASB matters

Participants received a high-level comparison of the IPSASB's and the IASB's conceptual frameworks and discussed user groups and elements of financial statements. The IASB Vice-Chairman said that the IASB was very interested in the IPSASB's work and stated that he thought that both organisations were not that far apart in their views on measurement. Participants also received an update on lastest IPSASB activities.

Conceptual Framework project

Participants received and discussed a presentation on the role and purpose of conceptual frameworks. Also, they reviewed a paper proposing a revised financial performance reporting model and exploring its potential implications for measurement. Finally they discussed the IASB's disclosure initiative and the questions of what factors are influential/ what are pitfalls when considering materiality and how far the IASB should take this project.


Participants discussed the draft of the new statement outlining relationship of IASB and NSSs and the new IFASS Charter. In both cases participants reached a consensus to express their support for the draft documents.

Topical Issues

Participants then discussed several topical issues:

  • Discount rate issues,
  • Application issues related to IFRS 11 Joint Arrangements,
  • Macro hedging,
  • Accounting for foreign currency embedded derivatives under international competitive bidding,
  • The equity method: A measurement basis or one-line consolidation.

Reports from regional groups

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

New IFASS member projects

Participants discussed three new projects taken up by IFASS members: 'The statement of cash flows' (FRC), 'Complexity of the annual report' (EFRAG), and 'The use of information by capital providers' (EFRAG in co-operation with ICAS).

Contribution of accounting standards to economic development

As last point of the technical debate participants received a presentation the opportunities and threats posed by accounting standards in the proper functioning of the capital markets. Matters covered by the presenter included the following:

  • Standards setters are in the information business, but there are increasingly gaps in the information provided. This results in macro-economic, micro-economic, macro-environmental threats and opportunities to the information market.
  • The threats and opportunities are driven by social values and practices with systemic feedbacks across entities and economies.
  • There is a danger that the accounting profession is focused on micro matters.
  • There could be an increasing crisis of confidence in the work of standard setters.

The presenter was encouraged to develop his paper further. It was suggested that the issue of whether financial reporting could affect financial stability might be a topic for consideration.

Administrative matters

The next IFASS meeting will be held in London on 30 September and 1 October 2014. The IFASS meeting in the first half of 2015 will be held in Jordan (23-24 March).

Please click for the full report (link to the website of the Australian Accounting Standards Board).

April 2014 IASB meeting notes — Part 2

29 Apr 2014

The IASB's meeting was held from 22–25 April 2014, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the IASB's session on insurance contracts.

Click through for direct access to the notes:

Friday, 25 April 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

April 2014 IASB meeting notes — Part 1

24 Apr 2014

The IASB's meeting is being held from 22–25 April 2014, some of it a joint meeting with the FASB. We have posted Deloitte observer notes from the IASB's session on the research programme, amendments to IAS 41, rate-regulated activities, and narrow-scope amendment to IFRS 10 and IAS 28.

Click through for direct access to the notes:

Tuesday, 22 April 2014

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting. Notes from the remaining sessions will be posted in due course.

IPSASB responds to Review Group consultation paper

23 Apr 2014

The International Public Sector Accounting Standards Board (IPSASB) has responded to the IPSASB Governance Review Group consultation paper on its future governance. The IPSASB is unanimous in its support of the option of establishing separate oversight for its operations under the auspices of the International Federation of Accountants (IFAC), and further does not consider extending the scope of the IFRS Foundation Monitoring Board and Trustees activities to public sector accounting standard setting as feasible in the short or medium term.

The IPSASB Governance Review Group consists of members from the International Monetary Fund (IMF), Organization for Economic Cooperation and Development (OECD), the World Bank, Financial Stability Board (FSB), the International Organization of Securities Commissions (IOSCO) and the International Organization of Supreme Audit Institutions (INTOSAI).

The Review Group's consultation paper responds to concerns that the existing governance arrangements of the IPSASB are not subject to a formal public interest oversight mechanism, outlining a number of possible options for strengthening the IPSASB's governance arrangements:

  • Option 1 - extending the scope of the IFRS Foundation Monitoring Board and Trustees activities
  • Option 2 - establishing separate monitoring and oversight bodies for the IPSASB while it remains under the auspices of the IFAC
  • Option 3 - re-establishing the IPSASB outside of IFAC with its own monitoring and oversight bodies.

The IPSASB's response to the consultation paper, in unanimously supporting Option 2, sets out the IPSASB's view that "this alternative meets all of the characteristics for strong public interest oversight... accountability, independence, competence and credibility" and that it is "a practical and timely solution".

In addressing concerns outlined in the consultation paper that retaining IPSASB under the auspices of IFAC results in perceived conflicts of interest, the IPSASB response notes the following:

The factual experience of the IPSASB has been that there has never been any interference by IFAC with respect to the IPSASB’s independence or any interactions that have been negative in any way. We have found that in many respects IFAC’s involvement is in fact a strength - because the participation of the accountancy profession adds an element of independence from the principal users of our standards, governments and international organizations. This is unlike other IFAC standard-setting boards which are setting standards for IFAC member body members themselves.

In addressing the structure and mandate of an oversight body under its preferred option, the IPSASB notes its view that the monitoring and oversight function could be merged and carried out by a single body. In the IPSASB's view, membership of the body would not require technical expertise, but members "should be enthusiastic about the need for public interest oversight... and have strong support for fiscal transparency". IPSASB's proposed role for the oversight body would include an ability to approve or comment on the IPSASB's strategic and work programmes. In addition, the IPSASB supports the creation of a Consultative Advisory Group (CAG), whose roles would include providing advice on the IPSASB's agenda and project timetable (including priorities) and the provision of technical advice on projects.

The IPSASB's response outlines a number of reasons as to why the IPSASB does not believe that extending the scope of the IFRS Foundation Monitoring Board and Trustees activities to encompass public sector accounting standard setting is appropriate, including:

  • Considerable questions as to whether the IFRS Foundation would be willing to take on IPSASB oversight and commit appropriate resources
  • A lack of clarity about how the oversight of the IPSASB would be integrated into the IFRS Foundation's oversight framework, and the impacts on the structures and processes of the IPSASB and International Accounting Standards Board (IASB)
  • Some criticism that International Public Sector Accounting Standards (IPSASs) are already "too close" to International Financial Reporting Standards (IFRS). The IPSASB comment that the Eurostat report on the suitability of IPSASs for EU Member States highlight this criticism of the IPSASB and that bringing IPSASB under the oversight of the IFRS Trustees would "reinforce that criticism".

In terms of the third option of re-establishing the IPSASB outside of IFAC, the IPSASB believes there is insufficient detail in the consultation paper to enable debate about whether this is a realistic option and that it "raises significantly more issues".

Click for the full IPSASB consultation response (link to IFAC website).

IASB launches Research Centre

22 Apr 2014

The IASB has announced the launch of a web-based IFRS Research Centre. The Research Centre is designed to facilitate communication between the IASB and the research community. Its main objectives are to (1) increase awareness of the issues that the IASB will be considering in the coming two to three years, (2) to encourage researchers to undertake targeted research projects in these areas, and (3) to support the IASB in moving to more evidence-based standard-setting.

The homepage of the Research Centre encourages interaction through four main sections:

  • How you can help contains descriptions of the research issues on which the IASB will be working in the next two to three years and where the IASB is seeking input from the broader research community.
  • Get started lists topics and issues that could be of interest to the academic community and includes links to papers written by IASB staff.
  • Get involved provides information about ways to get involved with the research work of the IASB, including the possibility of joining the organisation through its Academic Fellowship programme.
  • Stay informed gives access to the IFRS Research Round-up. A first issue of the newsletter has been published together with the launch of the Research Centre.

Please click for access to the press release on the IASB website announcing the launch of the centre.

FEE believes distinguishing between avoidable and unavoidable complexity is not necessary to address the issue

22 Apr 2014

The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has commented on the Conceptual Framework bulletin on complexity published by EFRAG and the National Standard Setters of France, Germany, Italy and the UK in February 2014.

The bulletin considers (1) issues of complexity in financial statements, (2) possible causes, and (3) provides suggestions to the conceptual framework that may reduce the complexity.

FEE agrees with the definition of complexity in the bulletin and also believes that there is a direct relationship between complexity, the costs to preparers and the benefits to users of financial statements. FEE also agrees that the standard-setting process could - to some extent - add to complexity. However, FEE does not support the statement that the standard-setting process contributes to the "avoidable" part of complexity whilst only the complex business environment leads to "unavoidable" complexity:

FEE considers that attempting to distinguish avoidable and unavoidable complexity is a judgmental exercise and we question whether this is necessary in order to address the issue.

FEE therefore comes to the conclusion that complexity should not be considered as a primary factor in standard-setting. Instead, FEE believes that assessing whether undue complexity was introduced in a standard should be considered as part of the field testing and the costs and benefits analysis of a standard.

Please click to access the full comment letter on the FEE website.

Japan updates list of 'designated' IFRSs

19 Apr 2014

On 18 April 2014, 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 December 2013.

Since the last designation was made up to 31 October 2013, newly designated IFRSs include:

  • IFRS 9 Financial Instruments (Hedge Accounting and amendments to IFRS 9, IFRS 7 and IAS 39) (issued in November 2013)
  • Annual Improvements to IFRSs  2010–2012 Cycle (issued in December 2013)
  • Annual Improvements to IFRSs  2011–2013 Cycle (issued in December 2013)
  • Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) (issued in November 2013)

The designation has yet to cover the period after December 2013, so IFRS 14 Regulatory Deferral Accounts has not been included in the scope of 'designated' IFRSs in Japan.

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

IASB staff paper on insurance contracts

18 Apr 2014

The IASB staff has prepared a staff paper discussing where and how the proposals in the Exposure Draft (ED) 'Insurance Contracts' would change as a result of the IASB’s tentative decisions to date. It reflects tentative decisions of the IASB made through March 2014.

So far, only three of the five points in the ED have been redeliberated:

  • Adjusting the unearned profit from insurance contracts.
  • Presentation of insurance contract revenue and expenses.
  • Presentation of interest expense between profit or loss and the other comprehensive income.

The staff paper is available on the IASB's website.

IASB publishes Discussion Paper on macro hedging

17 Apr 2014

The International Accounting Standards Board (IASB) has published a Discussion Paper (DP) relevant to companies that hedge risks on dynamic portfolios of exposures using derivatives. Although the paper focusses on the example of portfolio interest rate hedging by banks, the concepts discussed can apply to any entity that hedges on a dynamic portfolio basis for any risks. Comments are due 17 October 2014.


The IASB's project on macro hedge accounting considers risk management that assesses risk exposures on a continuous basis and at a portfolio level (i.e. dynamic portfolio hedging). This type of risk management strategy tends to have a time horizon over which exposures are hedged. Consequently, as time passes new exposures are continuously added to the hedged portfolio and other exposures are removed from it.

This area of accounting is complex and currently only accommodated to a limited extent in IAS 39 Financial Instruments: Recognition and Measurement, which includes a macro fair value hedging model for interest rate risk. The IASB's objective is to consider an alternative macro hedging model that will ultimately replace the macro fair value model in IAS 39 and have wider applicability to other risks.  

Given the complexities involved, and the difficulties in proposing a single model in an exposure draft, the IASB decided to single accounting for macro hedging out from the project on general hedge accounting and to issue a discussion paper as the first due process document to consider a range of alternatives. This provides an opportunity for constituents to provide the IASB with feedback on those alternatives and give guidance on how to proceed.


Summary of the main proposal

The discussion paper entitled Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging puts forward a 'revaluation approach', which is a simple concept of adjusting the measurement of the portfolio of exposures for changes in the hedged risk. The corresponding gain or loss is recorded in profit or loss to provide a natural offset against derivatives, measured at fair value through profit or loss, used to hedge those risks.

The objective of the model is to be less operationally burdensome than applying general hedge accounting to dynamic portfolios and be more reflective of an entity's dynamic risk management resulting in more meaningful and transparent financial reporting. The model is not a full fair value model, i.e. the risk exposures are only revalued for changes in the hedged interest rate risk and not for other risks, such as credit risk. Therefore, the normal accounting of income and expenses applies for the effect of other risks, for example the accrual of the credit margin charged on customer loans would be accrued in interest income as usual.


Consider a bank that has portfolios of financial assets (e.g. loans) and liabilities (e.g. customer deposits) and hedges the resulting interest rate risk position between those assets and liabilities using interest rate swaps. The model would result in the managed portfolio being remeasured for interest rate risk (with no assessment of hedge effectiveness required). The derivatives used for hedging the interest rate risk would be accounted for at fair value through profit or loss. The net impact in profit or loss shows the bank's remaining open risk position, after hedging with respect to interest rate risk. The revaluation model would be an overlay adjustment to the normal accounting under IFRS 9. Hence the usual recognition and measurement of assets and liabilities would be applied first before a revaluation adjustment is applied.


Complexities and questions

A portfolio revaluation model would address many of the accounting issues encountered with hedge accounting. The single model could also, if appropriately developed, represent an alternative for presenting hedging activities in the financial statements in addition to existing fair value and cash flow hedging, resulting in a more faithful reflection of portfolio risk management activities. However, complexities arise from determining which exposures to include in the revaluation and how to measure and present the revaluation.

Therefore, the discussion paper seeks feedback on a range of different aspects of the model:

  • Should any forecast transactions be recognised and measured on balance sheet?
  • Should the whole portfolio exposed to the hedged risk be revalued or just the part that is hedged?
  • Can only the bottom layer of a portfolio be remeasured?
  • Should demand deposits, pipeline transactions and equity model book be eligible for hedge accounting?
  • Can internal derivatives be used?
  • What are the various presentation and disclosure alternatives?
  • What practical expedients are necessary to make the model operational, for example, can internal transfer pricing be used?

These questions and more are debated in the paper and the IASB is seeking feedback to understand whether the model proposed would provide useful information and be operational. The comment period ends on 17 October 2014.


Additional information

On 29 April 2014, the IASB will hold two live webcasts introducing the Discussion Paper. Please click to register on the IASB's website for the 10am slot or the 2pm slot (both London time).

Chairman Michel Prada discusses globalisation in keynote speech

16 Apr 2014

The Chairman of the IFRS FoundationTrustees, Michel Prada, gave the keynote speech at a stakeholder event in Sydney, Australia in conjunction with CPA Australia and the Institute of Chartered Accountants Australia (ICAA) on 9 April 2014.

In his speech, Mr Prada discussed the globalisation of IFRS; he promoted the IASB's heavily-researched jurisdiction profiles and provided insight into the transition to IFRS for several large economies such as Japan and the United States.

Mr Prada expressed his optimism for the eventual globalisation of IFRS, noting that "IFRS has only recently reached its teenage years." He pointed to the benefits of a single set of global accounting standards:

[F]undamentally it is a question of economics rather than accounting. The thing to remember is that differences in accounting standards add no economic value or benefit to anyone, unless you are involved in the business of reconciliation. . . . [E]xperience has shown that far from being a tool of national competitive advantage, different accounting requirements only serve to diminish the attractiveness of a jurisdiction in the global market for capital. . . . [A]ccounting standards are best thought of as a global good, not as a tool for national competitive advantage. They play an essential supporting role, facilitating growth and promoting a sustainable and prosperous global economy.


Mr Prada also discussed the areas of focus for the IFRS Foundation Trustees' third constitution review: (1) discussing the optimum size of the IASB, (2) reviewing the Accounting Standards Advisory Forum (ASAF), and (3) seeking feedback on further enhancements to the activities of the IFRS Foundation.

A transcript of Mr Prada's keynote speech is available on the IASB website. The stakeholder event also included an interactive panel discussion with senior financial reporting stakeholders. See our previous story on the panel discussion of complexity.

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