The paper was intended to assist the IASB's work and stimulate debate within Europe in relation to the equity method of accounting. It considered to what extent the equity method in IAS 28 Investments in Associates and Joint Ventures (2011) is a measurement basis, a one-line consolidation or a combination of both.

Responses to the paper (nine in all, five of these from national standard-setters) revealed a diversity of views, indicating that there is no common understanding of the purpose or use of the equity method. What became clear, however, was that a view of the equity method as solely an entity perspective one-line consolidation was not considered appropriate given current conceptual thinking and developments in financial reporting.

Please click for the following information on the EFRAG website:

• Press release
• Feedback statement

Common terms used to identify non-GAAP financial measures include ‘underlying earnings’, ‘normalised profit’, ‘pro forma earnings’, ‘cash earnings’, ‘earnings before interest, tax, depreciation and amortisation (EBITDA)’, ‘adjusted earnings’, and ‘earnings before non-recurring items’.

The IOSCO guidance on such non-GAAP measures is contained in a proposed Statement on Non-GAAP Financial Measures. The proposed Statement recognises that issuers often convey information using non-GAAP financial measures, and accepts these measures can be useful in providing additional insight into an issuer's financial performance, financial condition and cash flows. However, the proposed Statement goes on note potential problems that can arise with such measures where they are presented inconsistently, defined in adequately, or obscure GAAP financial results.  The document also notes further difficulties arising from a lack of standardised meaning of non-GAAP measures, meaning they are not comparable between issuers.

In responding to the potential problems that can arise in the context of non-GAAP financial measures, the proposed Statement sets out IOSCO's expectations for the presentation of such measures by issuers, including that sufficient information should accompanying non-GAAP financial measures to aid in their understanding, and that the measures should be presented transparently and with disclosure of how they are calculated.

The proposed Statement then provides specific expectations in the following broad categories:

• Defining the non-GAAP financial measure. This encompasses providing a clear explanation of the basis of calculation, clearly labelling measures such that they are distinguished from GAAP measures, explaining why the measures are useful, and explicitly stating the non-GAAP measure does not have a standardised meaning and may not be comparable between entities
• Unbiased. This requires that non-GAAP financial measures should not be used to avoid presenting adverse information to the market
• Prominence of GAAP and non-GAAP measures. Non-GAAP measures and their most directly comparable GAAP measures should be presented with equal prominence, or the GAAP measure given greater prominence
• Reconciliation. Reconciliations should be provided between non-GAAP financial measures and their most directly comparable GAAP measure presented in the financial statements, with adjustments explained and reconcilable to the financial statements, or information about how they are calculated provided
• Present non-GAAP financial measures consistently over time. Measures should generally remain consistent from period to period, include comparative information, with any changes in composition also reflected in comparative information
• Recurring items. Items which are reasonably likely to affect past and future periods, such as restructuring costs and impairment losses, should not be described as non-recurring, infrequent or unusual.

The proposed Statement is intended to be used by entities applying International Financial Reporting Standards (IFRSs) and other accounting principles. Furthermore, the proposed Statement is not intended to affect the ability of individual jurisdictions to develop their own requirements for the presentation of non-GAAP financial measures. Jurisdictions where guidance already exists or is proposed include Australia, New Zealand and the European Union.

The proposed Statement is open for comment until 5 December 2014. Click for (links to IOSCO website):

• IOSCO press release
• Proposed Statement on Non-GAAP Financial Measures

The staff paper is not a response to the consultation but is intended to contribute to the debate about the extent to which the adoption of IFRS has improved the efficiency of EU capital markets.

The topics discussed at the meeting included:

• Current use of financial reporting by investors — The group agreed that financial statements are used as the main source of information for all users when reviewing companies, however, the availability of information may vary depending on the size of the company. The EFRAG stressed that it is important that information in financial statements are relevant and is conducting a study to understand how the information is used.
• Interactions between financial reporting and long-term investment — The group had a variety of views on how to make capital markets more efficient and reduce the cost of capital, especially for long-term infrastructure and sustainable energy. Further, the group had different views on the role of fair value.
• Giving directions for, and assessing, financial reporting standards — Investor feedback indicated that they are focused on how information is presented, as well as a company’s profitability, risk and liquidity. In addition, they are concerned with volatility outside management’s control and stewardship. The group agreed that volatility should be expected and should reflect economic volatility instead of being caused by accounting.
• Confidence in financial report — The development of high quality financial statements will increase investor confidence and trust.
• Influence on standard setting — The group stressed that the involvement of investors is a key component in the standard-setting process.

For more information, see the report on the IASB's website.

The paper had concluded 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.

Responses to the paper revealed that there is a general support for the view that accounting standards should mandate financial reporting that faithfully represents the business model. They also showed that the ad hoc implicit/explicit use of the business model notion is not welcomed as it is not always clear why in some cases the notion is used and in others not and as there is no consistency from standard to standard. Constituents also supported the view that the business model should be addressed in the Conceptual Framework. However, on all points views differed on how the intention could be achieved.

Please click for the following information on the EFRAG website:

• Press release
• Feedback statement

Mr Hoogervorst commented that the increase of the voluntary use of IFRSs in Japan was especially encouraging as Japanese companies have the choice of several sets of standards and would only choose to adopt IFRS if they thought it was a strong business case. He explained that IFRSs are a cost effective alternative for companies with subsidiaries as they can apply one single financial reporting language for both internal and external reporting. In addition, the use of IFRS would make it more attractive to foreign investors to invest in Japanese shares if the financial statements were prepared in a reporting language they understand.

Yet Mr Hoogervorst pointed out that following a recommendation by Japan's Business Accounting Council (BAC) regarding the use of IFRSs in Japan, a set of 'endorsed IFRSs' called JMIS that would offer an additional choice of accounting framework to Japanese companies has been developed and published as an Exposure Draft (ED) in July 2014. As JMIS in essence consist of most IFRSs as issued by the IASB combined with two major modifications relating to the treatment of Goodwill and recycling of some OCI-items, he connected the modifications to the IASB's project on the Conceptual Framework and especially the meaning of Profit or Loss and Other Comprehensive Income (OCI).

Mr Hoogervorst admitted that the IASB has so far not been able to draw a binary distinction between Profit or Loss and OCI and yet he also struggled with the ASBJ's definition in the JMIS ED that 'Profit or Loss represents an all-inclusive measure of irreversible outcomes of an entity's business activities in a certain period.' Although the IASB agrees that Profit or Loss should be as comprehensive as possible and has made tentative decisions supporting that understanding, the irreversibility criterion seemed to be "fraught with difficulties" to Mr Hoogervorst. He explained that a systematic relegation of unrealised income items to OCI could result in a lack of faithful presentation, especially as unrealised income does not only consist of gains, but also of losses. Mr Hoogervorst also added that this approach could be detrimental from a stewardship perspective as many problems would be confronted much earlier on if they are presented in Profit or Loss - he argued that postponement of recognition of losses until they have become irreversible has the big disadvantage that they become irreversible. He therefore concluded:

I would conclude that a systematic relegation of unrealised profits or losses to OCI is extremely problematical. Moreover, where OCI is used to capture short-term 'market volatility' of long-term assets or liabilities, the information it contains should not be ignored. While income in OCI may be of a less certain nature than income captured in Profit or Loss, OCI may contain indicators of risk that may materialise sooner than you think. Clearly, ignoring unrealised elements of income may be hazardous to your financial health.

Please click for access to the full text of Mr Hoogervorst's speech on the IASB website.

Annual improvements - 2010-2012 cycle and 2011-2013 cycle - were issued in December 2013 and have a stated effective date of annual periods beginning on or after 1 July 2014. The updated report indicates final endorsement is currently expected in the fourth quarter of 2014.

The endorsement status report, dated 2 September 2014, is available here.

The proposals in the exposure draft, entitled The Valuation of Equity Derivatives, would lead to the publication of a Technical Information Paper (TIP), which would be the first in a series of planned papers providing guidance on the valuation of derivatives in different asset classes, including fixed income, credit, foreign exchange, commodities, asset backed securities and hybrid products. TIPs support the application of the core International Valuation Standards (IVS) published by the IVSC, and are intended to provide information to assist experienced valuers decide which is the best valuation approach in specific situations.

The exposure draft discusses the equity derivatives market, various equity derivative products, and provides specific guidance on the valuation of forwards and futures, swaps and options. The valuation of options are discussed in in three widely used categories of valuation models, being the Black Scholes model and its extensions (assuming equity prices follow a Geometric Brownian Motion), alternative-diffusion models (which treat volatility differently to Black Scholes to more closely match real market volatility) and jump-diffusion models (introducing a 'jumps' in equity prices). It also includes specific sections on valuation sensitivities (the "Greeks"), model resolution, model calibration and input selection, implementation considerations and option valuation models and applicable products.

Changes in the revised exposure draft include:

• New guidance on derivative strategies, which encompass a combination of derivatives and other assets to achieve a specific investment objective. Examples of such strategies included in the paper include butterflies, collars, covered calls, protective puts and straddles and strangles. The paper proposes that the value of a strategy is the sum of its parts
• Removal of formulae included in the original exposure draft, in favour of relying on descriptive narratives of concepts. This change reflects concern about the practical problems with formulae, including accounting for relationships that cannot be expressed through concise mathematical expressions, and the objective of TIPs being practical guides rather than academic or training materials
• New guidance on which derivative valuation models can be applied to different kinds of products, as well as some commonly used techniques of model resolution. Although analytical solutions are preferred, these can only be used for a limited range of products and accordingly other techniques such as Monte Carlo, trees and finite difference are discussed.

The exposure draft is open for comment until 30 November 2014. Click for access to the exposure draft on the IVSC website.