Japan proposes simplifying disclosure requirements

14 Jan 2014

The Financial Services Agency (FSA) of Japan has issued for public comment a proposal to simplify presentation and disclosure requirements in separate financial statement prepared under Japanese GAAP. The proposal was developed based on recommendations in the June 2013 report issued by the Japanese Business Accounting Council “The Present Policy on the Application of the International Financial Reporting Standards (IFRS)” (the "BAC report”).

Although the proposal would not affect presentation and disclosure of consolidated financial statements prepared in accordance with designated IFRSs in Japan (which are effectively IFRSs as issued by the IASB), this measure was included in the BAC report to promote further use of IFRSs by Japanese companies by reducing overall burden of financial reporting. Comments are requested by 14 February 2014, and the revisions could be effective for the fiscal year ending March 2014 (at the earliest). 

This action by the FSA marks the visible progress of all of three major recommendations in the BAC report as follows:

Recommendations in the BAC reportStatus
1. Increase the number of companies that can adopt designated IFRSs on a voluntary basis by eliminating certain eligibility requirements. Implemented in October 2013.
2. Introduce the endorsement process and 'endorsed IFRSs' in Japan, which may include limited amendments to IFRSs based on specific criteria. The 'endorsed IFRS' would be promulgated by the Accounting Standards Board of Japan (ASBJ) and to be approved by the FSA. The ‘endorsed IFRS’ would be available for voluntary adoption by Japanese companies. The ASBJ is in the process of developing an exposure document to propose the first round of ‘endorsed IFRSs’, which covers IASB standards and interpretation before the end of 2012. The ASBJ aims to complete the first set before the end of 2014.
3. Simplify the disclosure requirements in separate financial statements under Japanese GAAP. Revisions are proposed in 14 January 2014, expected to be implemented by March 2014.

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Agenda for January 2014 IASB meeting

14 Jan 2014

The International Accounting Standards Board (IASB) will meet at its offices in London on 21–23 January 2014. Part of the meeting will be held jointly with the Financial Accounting Standards Board (FASB) to discuss the leases and insurance contracts projects. The IASB will consider the use of information by capital providers, bearer plants, classification and measurement, amendments to IAS 1, and impairment.

The full agenda for the meeting, dated 10 January 2014, can be found here.  We will post any updates to the agenda, and our Deloitte observer notes from the meeting, on this page as they are available.

FRC comments on the IASB’s Conceptual Framework discussion paper

13 Jan 2014

The Financial Reporting Council (FRC) has today published their response to the International Accounting Standard Board’s (IASB’s) Discussion Paper: (DP/2013/1) ‘A Review of the Conceptual Framework for Financial Reporting’. The FRC agrees with a number of proposals within the Discussion Paper (DP) but has commented that “there are a number of areas where further development is necessary”.

The IASB’s Conceptual Framework sets out the concepts that underlie the preparation and presentation of financial statements. The Conceptual Framework identifies the principles for the IASB to use when it develops and revises International Financial Reporting standards (IFRSs). The DP was published in July 2013 and contained proposals for topical areas where it considered that amendments to the existing Conceptual Framework were necessary. Included in the DP were proposals to revise the definitions of an asset and a liability, to introduce guidance on derecognition, to clarify the objective and purpose of other comprehensive income and to set a framework for presentation and disclosure. 

The FRC “strongly support the IASB’s decision to recommence work on its Conceptual Framework” commenting that they believe that “the existing Conceptual Framework is out of date and incomplete”. The FRC agrees with a number of the proposals within the DP: 

The IASB’s commitment to revisit the Conceptual Framework, to bring it up-to-date and add guidance in areas that are not adequately addressed.

The equal emphasis placed on the statement of profit or loss and OCI and the statement of financial position, and the recognition of the statement of cash flows as a primary financial statement.

The IASB’s preliminary view that a single measurement basis may not provide the most relevant information, and that the selection of a measurement basis should depend upon how an asset or liability contributes to future cash flows.

The retention of a total (or sub-total) for profit or loss as a primary source of information about the return an entity has made on its economic resources in a period.

The retention of the current definition of equity—the residual interest in the assets of the entity after deducting all its liabilities. 

However, they also believe that more “fundamental analysis”, than is currently provided in the DP, is required in areas such as:

The clarification of the definition of liabilities to situations where the requirement to transfer economic benefits can be avoided by the entity’s future actions;

The discussion of measurement concepts;

The objective of the statement of profit or loss; and

The unit of account. 

Regarding the discussion of measurement in the DP, the FRC comment that it “fails to provide the depth of analysis that is necessary if the Conceptual Framework is to provide useful guidance to the IASB for the development of accounting standards”. They further comment that “the discussion of specific measurement bases is superficial and incomplete”. 

In particular, the FRC comment that they would like the concepts of accountability (or ‘stewardship’), reliability and prudence to be re-introduced to the Conceptual Framework (within the chapters on ‘Objectives and qualitative characteristics’) “as they are fundamental to financial reporting”. The FRC highlight that many of the ideas that they put forward for the inclusion of these concepts are contained within their series of bulletins produced jointly with the European Financial Reporting Advisory Group (EFRAG). The FRC would also like these chapters to “acknowledge that financial statements should provide information that assists in an assessment of the entity’s business model”. They comment: 

Financial statements should not simply provide an inventory of assets and liabilities and information on changes in them, but should portray how the entity uses its assets and liabilities to create value. 

The FRC would like the Conceptual Framework to continue to reflect the concept of going concern and are of the view that the definitions of an asset and liability in the DP are “rather vague and may be interpreted broadly”. They would like the Conceptual Framework to clarify their meaning “to ensure consistent application”.   

Whilst the FRC is supportive of the IASB’s intention to “complete its revision to the Conceptual Framework expeditiously”, they do express concerns with completing the project too soon and recommend that “the IASB keeps the timetable for the revisions to the Conceptual Framework under review” in case it needs to be extended to ensure that “a high quality Conceptual Framework” is finalised. 

The full comment letter can be accessed from the FRC website below. 

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EFRAG draft comment letter on equity method

09 Jan 2014

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB's Exposure Draft ED/2013/10 'Equity Method in Separate Financial Statements (proposed amendments to IAS 27)' that was published on 2 December 2013.

EFRAG supports the IASB's proposed amendments to IAS 27 Separate Financial Statements, stating in its draft comment letter that the amendments better align the accounting principles applicable to different sets of financial statements. However, the EFRAG suggests the following issues for reconsideration:

  • Consequential amendments to IAS 28 Investments in Associates and Joint Ventures — EFRAG encourages the IASB to better explain why they are necessary in the Basis for Conclusions.
  • Retrospective application — EFRAG thinks that "relief should be provided from full retrospective application to entities that opt to use the equity method to account for subsidiaries in their separate financial statements".
  • Objective of separate financial statements — EFRAG would like the IASB to clarify the objective of separate financial statements in this project and in the future.

Comments on the EFRAG draft comment letter invited by 30 January 2014.

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IVSC publishes exposure draft of guidance on different bases of value

08 Jan 2014

The International Valuation Standards Council (IVSC) has published an Exposure Draft (ED) of guidance and illustrative examples to assist practitioners with the application of the valuation bases discussed in the International Valuation Standards (IVS) Framework.

The different bases of value contained within the IVS Framework are: 

Market value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion;

Investment value is the value of the asset to the owner or a prospective owner for individual investment or operational objectives; and

Fair value is the estimated price for the transfer of an asset or liability between identified knowledgeable and willing parties that reflects the respective interests of those parties. 

The IVS Framework also defines 'Special Value' and 'Synergistic Value' which are a component of one or more of Market Value, Investment Value or Fair Value. 

Synergistic Value is an additional element of value created by the combination of two or more assets or interests where the combined value is more than the sum of the separate values.

Special Value is an amount that reflects particular attributes of an asset that are only of value to a special purchaser

The guidance and illustrative examples have been published to assist practitioners to better understand the concepts within the IVS Framework “by illustrating their application in various scenarios”.  The examples also identify the differences between the IVS bases of value.  

The guidance and illustrative examples do not form part of the IVSs.  

The IVSC expect to publish further guidance on other areas in the near future and have requested that respondents rank the other areas in order of perceived priority. 

Comments on the ED are invited until 31 March 2014. 

The ED, Chapter 1 – Bases of Value, is available on the IVSC website.

EFRAG issues draft comment letter on IASB's Exposure Draft ED/2013/11 Annual Improvements to IFRSs 2012–2014 Cycle

08 Jan 2014

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB's Exposure Draft ED/2013/11 'Annual Improvements to IFRSs 2012–2014 Cycle' which was published on 11 December 2013. EFRAG agrees with most of the proposals in the Exposure Draft (ED) but has expressed concern about the proposed amendments to IAS 19 'Employee Benefits'.

The IASB uses the annual improvements project to make necessary, but non-urgent, amendments to IFRSs that will not be included as part of another major project.  The ED proposes amendments to IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, IFRS 7 Financial Instruments: Disclosures, IAS 19 Employee Benefits and IAS 34 Interim Financial Reporting

The proposed amendment to IAS 19 clarifies that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid (thus, the depth of the market for high quality corporate bonds should be assessed at currency level).

EFRAG “supports the IASB’s intention to develop guidance dealing with countries where a high-quality corporate bond market does not exist and that use the same currency as other countries".  However EFRAG identifies a number of implementation issues with the proposed amendments to IAS 19 such as “jurisdictions adopting stronger currencies of other countries” and comments that “it is unclear if the proposals would result in an outcome that is consistent with the objectives the IASB is trying to achieve”.  EFRAG also asks constituents to respond whether they are aware of any circumstances where the amendments to IAS 19 will not result in meaningful outcomes.

Before finalising the IAS 19 proposals, EFRAG comments that the IASB should “clarify the objectives underlying the selection and use of a discount rate in measuring post-employment benefit obligations” to allow constituents to be able to use their judgement in applying the requirements of paragraph 83 of IAS 19.

Comments on the EFRAG draft comment letter invited by 7 February 2014. 

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