EFRAG supports the amendments to IAS 19, which clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service and permit a practical expedient if the amount of the contributions is independent of the number of years of service. The EFRAG’s assessment is that benefits for preparers and users implementing the amendments to IAS 19 outweigh the costs and therefore EFRAG recommends that the European Commission (EC) endorses the amendments.

Click for the following information on the EFRAG website:

• Press release
• Effects Study Report
• Endorsement Advice Letter to the EC

Under the boards’ converged approach, the classification and measurement of financial assets would have been determined on the basis of an asset’s contractual cash flow characteristics (the so-called “solely payments of principal and interest” test) and the business model under which the asset is managed. At its December 2013 meeting, the FASB had already decided against the development of a converged approach for assessing an asset’s contractual cash flow characteristics, thus both aspects of the converged approach developed at the IASB/FASB joint meeting in November 2013 have now been abandoned.

The FASB discussed and directed the staff to further research the following two alternatives:

• Retain existing guidance in US GAAP on classifying and measuring investments in debt securities and loans. Under this alternative, the FASB would consider potential refinements to the tainting guidance in ASC 320 Investments — Debt and Equity Securities on investments in held-to-maturity securities.
• Develop a single classification and measurement model for both loans (including trade receivables) and investments in debt securities. That model would be based on the existing classification and measurement guidance in ASC 320 on investments in securities, except for potential refinements to the tainting guidance.

Under ASC 320 in current US GAAP, entities use one of three categories to classify and measure investments in securities: trading (fair value through net income), available for sale (fair value through other comprehensive income), and held to maturity (amortised cost). Under ASC 310 Receivables, entities use one of two categories to classify and measure loans: held for investment (amortised cost) and held for sale (lower of cost or fair value). Some Board members expressed the view that loans and debt securities are economically similar instruments and should not be subject to different accounting models because of their legal form.

The FASB will consider the results of the staff’s analysis at a future meeting.

For more information, see Deloitte's Accounting Journal Entry and the meeting minutes on the FASB's website.

Background

In September 2012, the IASB started a comprehensive rate-regulated activities project, starting with a research phase to develop a Discussion Paper.  In December 2012, the IASB decided to add an additional phase to the rate-regulated activities project to develop this limited-scope Standard.

In April 2013, the IASB published the Exposure Draft ED/2013/5 Regulatory Deferral Accounts (the ‘ED’), with comments due by 4 September 2013. 

The IASB received comments on the ED which lead to some clarifications and edits, including additional disclosure requirements; however, the main proposals in the ED were not changed substantially in the final Standard.

Scope

Initial application of IFRS 14 must coincide with the application of IFRS 1 First-time Adoption of International Financial Reporting Standards. This means, IFRS 14 cannot be applied by entities that have previously adopted IFRSs. Entities applying this interim standard must also meet specified eligibility criteria. Specifically, the entity has to conduct 'rate-regulated activities' (as defined by IFRS 14), and it must have recognised amounts that qualify as regulatory deferral account balances in its financial statements in accordance with its previous GAAP.

Overview of the key requirements

• IFRS 14 requires the balances reflecting the effects of rate regulation to be described as “regulatory deferral account debit balances” and “regulatory deferral account credit balances” (collectively they are referred to as “regulatory deferral account balances”) and these balances cannot be referred to as, or presented with, assets and/or liabilities because  the determination of whether these balances meet the definition of assets or liabilities in the Conceptual Framework must be addressed as part of the IASB's comprehensive conceptual framework project
• The effects of rate regulation must be separately presented in the statement of financial position and statement(s) of profit or loss and other comprehensive income, and the Standard provides illustrative examples of these presentation requirements
• All assets and liabilities, balances and transactions have to comply with all other IFRS standards so the regulatory deferral account balances represent the effects of rate regulation only after the requirements of other IFRS standards have been met
• IFRS 14 includes some specific guidance on how other Standards such as IAS 10 Events After the Reporting Period, IAS 12 Income Taxes, IAS 33 Earnings Per Share, IAS 36 Impairment of Assets, IFRS 3 Business Combinations and IFRS 5 Non-current Assets Held for Sale and Discontinued Operations should be applied to regulatory deferral balances and/or movements in such balances
• There are specific disclosure requirements to (a) enable users to evaluate the nature of, and the risks associated with, the specific rate regulation regime and (b) enable users to understand how the regulatory deferral account balances are recognised and measured both initially and subsequently.

Effective date and transition

The Standard can be applied in an entity's first annual IFRS financial statements for periods beginning on or after 1 January 2016.  Earlier application is permitted. Application of the standard is voluntary. However, an entity that elects to apply the standard in its first IFRS financial statements continues to apply it in all its subsequent financial statements.

Click for:

• IASB press release (link to IASB website)
• IASB Project summary and Feedback statement (link to IASB website)
• Our summary of IFRS 14
• IFRS in Focus newsletter explaining the new Standard

The post-implementation review process for IFRS 3 was originally expected to commence in 2012 but it was only formally announced to begin on 25 July 2013. Since then the IASB has been gathering information to determine the scope of the review and to identify the main questions that need to be answered before the implementation of IFRS 3 can be assessed.

The RFI published today includes those questions and forms part of the formal public consultation. After the comment period ends, the IASB will consider the comments received along with information gathered through other consultation activities and findings from research on the topic. The final conclusions of the IASB will be presented in a report and a feedback statement which will also set out the steps the IASB believes should be taken as a result of the review.

The technical questions in the RFI address the following areas:

• Definition of a business,
• Fair value,
• Separate recognition of intangible assets from goodwill and the accounting for negative goodwill,
• Non‐amortisation of goodwill and indefinite life intangible assets,
• Non‐controlling interests,
• Step acquisitions and loss of control,
• Disclosures, and
• Any other matters the stakeholders wish to raise.

Comment deadline is 30 May 2014. The request for information and a corresponding press release are available on the IASB website.

In this edition, the EFRAG discusses their support for the business model to play a role in financial reporting; a view which is contained within their draft comment letter on the International Accounting Standard Board’s (IASB’s) discussion paper ‘A Review of the Conceptual Framework for Financial Reporting’ and their other comment letters on the Insurance and Financial Instrument projects of the IASB.

It also addresses the exposure drafts on leases and insurance contracts, particularly the field tests carried out with the National Standard Setters from UK, France, Germany and Italy which were used by EFRAG to formulate their final comment letters to the IASB. 

Additionally this edition covers initial input gathered from European analysts on the post-implementation review of International Financial Reporting Standard (IFRS) 3 'Business Combinations', the IASB’s Rate-Regulated Activities project and provides a spotlight on the recommendations of the Maystadt Review.

 The December 2013 edition of EFRAG Insider is available on the EFRAG website

The IASB and FASB have still four major convergence projects to complete: revenue recognition, leasing, financial instruments (both classification and measurement and impairment), and insurance. Revenue recognition is nearing completion (finalised pronouncements by IASB and FASB are currently expected in the first quarter of 2014), the financial instruments topics could be completed in the second half of 2014, insurance and leases have not yet been given an expected publication date.

While the aim of the contribution is to complete the convergence projects, collaboration will continue even after the finalised pronouncements have been published. FASB and IASB announced that they would form a joint transition resource group for revenue recognition in July 2013. The FASB is also a member of the IASB's Accounting Standards Advisory Forum (ASAF).

IFRS Foundation officials have long urged the US to provide more funding to the work of the Foundation. In the SEC's final staff report on IFRS published in July 2012, the SEC staff stated: "Currently, the IFRS Foundation Trustees have been unsuccessful in obtaining the funding for the portion of the IASB budget allocated to the United States." In their October 2012 response to the report, the IFRS Foundation reacted by stating: "[T]he U.S. has to date not contributed a proportionate amount to the IFRS Foundation's budget. [...] We note that, while around 20–25 percent of the total seats in the Foundation's different bodies are currently held by the U.S., the U.S. contributions amount to less than 10 percent of the total country contributions to the Foundation's budget." The Trustees also claimed that a proportionate US contribution based on GDP would amount to just over £4 million. As the annual report of the IFRS Foundation shows, US contributions to the IFRS Foundation's funding were roughly £1.2 million in 2012 and the present climate does not suggest that a significant increase is likely for 2013.

The FAF trustees made one previous contribution of $0.5 million to the IFRS Foundation in 2011. In addition, FASB has dedicated technical staff to the convergence projects.

Please click for access to the announcement of the FAF website.

Click through for direct access to the notes for each session:

IFRS Foundation Trustees meeting (15:00-15:30)

• Report of the Chair of the IFRS Foundation
• Report of the Chair of the Due Process Oversight Committee (DPOC)

Click through for direct access to the notes:

Wednesday, 22 January 2014

• Financial instruments – Limited amendments to IFRS 9 (classification and measurement)

Thursday, 23 January 2014

• Financial instruments – Impairment

You can also access the preliminary and unofficial notes taken by Deloitte observers for the entire meeting.

The three ESAs have issued their letter in the middle of the deliberations on the EFRAG reform, where EFRAG is currently discussing the implementation of the reform with the European national standard-setters, the EFRAG member organisations and the organisations funding EFRAG in order to propose the details of the reformed structure to the EU Commission.

In his final report Mr Maystadt proposed to replace the current Supervisory Board with a high-level Board, which would approve the comment letters addressed to the IASB and the endorsement advice letters to the Commission, relying on the work of a technical group. The Board would consist of 16 members: four European public institutions (including the ESAs), five stakeholders representing private interests and seven national standard-setters. The Board is expected to express a single view and individual members would only have the possibility of abstaining or remaining silent should they not agree with the majority view.

The ESAs are convinced that this voting model might lead to cases where the voting results do not reflect the public interest as the objectives of the private stakeholders or national standard-setters "are unlikely to be always aligned" to the objective of protecting the public interest. They therefore suggest that only the public authorities represented in the proposed board should decide on final endorsement advice to the European Commission. Input from the members representing private interests and the results of the public consultation process would be considered by the public authorities when coming to their final conclusion.

In the final paragraph of the letter, the ESAs declare that they will only join the new Board as observers and continue with their present way of acting should their concerns not be addressed.

Consequently, in the absence of any changes to the proposed voting model, the three ESAs will refrain from accepting membership but ask for an observer status in the new EFRAG SB. Furthermore, the three ESAs will reserve the right to submit their opinion on the endorsement advice on the use of existing, new and amended IFRS to the EC. In line with current practice the ESAs will also continue to submit their own comment letters to the IASB by bringing their own perspectives to the development of new financial reporting standards and thus fulfilling their obligations from their respective founding regulations.

Click to download the full letter from the ESMA website.

The appointments of the Comissão de Valores Mobiliários (CVM) of Brazil and the Financial Services Commission (FSC) of Korea will become effective once they become signatories of "Charter of the IFRSF Monitoring Board". Applications for additional permament seats on the Monitoring Board are still being analysed. The Monitoring Board also intends to start the process for appointing the two rotating seats as soon as possible.

All applications were and will be evaluated against the criteria and assessment processes for membership which were completed at the Monitoring Board's 6 February 2013 meeting.

Please click for the Monitoring Board's press release on the IOSCO website.