June

European Commission concludes evaluation of the IAS Regulation

19 Jun 2015

The European Commission has published a report on the evaluation of its Regulation on the application of International Financial Reporting Standards (IFRS). The evaluation aimed at establishing whether the initial objectives of the IAS Regulation are still relevant and at identifying areas for improvement in the functioning of the IAS Regulation, if needed.

The key findings of the evaluation launched in August 2014 show that IFRSs were successful in creating a common accounting language for capital markets. Preparers claimed mostly positive experiences regarding their application of IFRSs and stated that in most cases benefits outweighed costs. Investors also largely supported IFRS for improving the transparency and comparability of financial statements. In addition, most stakeholders considered that the process through which IFRS become part of EU law works well; the recent reform of the European Financial Reporting Advisory Group (EFRAG) was supported.

However, the report also identifies room for improvement in some areas. Respondents feel that the collaboration in the endorsement process could be enhanced to improve timeliness and to allow for a more holistic consideration of standards with other aspects of EU law. They also stated that while an endorsement process remains necessary to ensure that the standards developed by the IASB meet EU criteria and are conducive to the European economy, procedures could be simplified.

All in all the Commission concludes that:

  • The key objectives of the IAS Regulation have been met.
  • Evidence suggests that the existing scope of the Regulation and the options given to Member State are appropriate.
  • The Commission supports IFRS as global standards and continues to urge the US SEC to adopt IFRS for use by its domestic companies.
  • The effectiveness and efficiency of the Regulation depend on the quality of the standards themselves which should continue to be appropriately assessed during their development and endorsement.
  • The Commission encourages Member States to apply ESMA enforcement guidelines.

Please click for the following information on the European Commission's website:

Hungary extends the use of IFRSs to individual accounts

19 Jun 2015

On 12 June 2015, the Hungarian Government decided to extend the use of IFRSs as adopted in the European Union to individual accounts of Hungarian companies in a phased approach from 2016 to 2018.

Under the European IAS Regulation, European companies listed in an EU securities market, including banks and insurance companies, have to prepare their consolidated financial statements in accordance with IFRSs. The member states of the European Union have the option the require or permit the use of IFRSs in separate company financial statements and/or in the financial statements of companies whose securities do not trade on a regulated securities market.

The Hungarian Government has now decided to extend the use of IFRSs to the individual accounts of Hungarian companies as follows:

  • Voluntary application of IFRSs from 1 January 2016 for companies whose securities are traded in the European Economic Area (EEA) or whose parent company prepares its consolidated financial statements under IFRS and requires its subsidiaries to prepare IFRS financial statements;
  • Mandatory application of IFRSs from 1 January 2017 for companies whose securities are traded in the EEA and most financial institutions;
  • Voluntary application of IFRSs from 1 January 2017 for insurance companies and companies with obligatory audit of their financial statements;
  • Mandatory application of IFRSs from 1 January 2018 for the remaining financial institutions.

The resolution was recorded in the official gazette on 12 June 2015 as decision 1387/2015. (VI. 12.) (Hungarian language only).

IASB proposes amendments to IAS 19 and IFRIC 14 on pension accounting

18 Jun 2015

The International Accounting Standards Board (IASB) has published an Exposure Draft (ED) of proposed amendments to IAS 19 'Employee Benefits' and IFRIC 14 'IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction'. The amendments address two issues submitted to the IFRS Interpretations Committee. Comments are requested by 19 October 2015.

 

Background

Requests were submitted to the IFRS Interpretations Committee to clarify:

  • the calculation of current service cost and net interest when an entity remeasures the net defined benefit liability (asset) when a plan amendment, curtailment or settlement occurs; and
  • whether a trustee's power to augment benefits or to wind up a plan affects the employer's unconditional right to a refund and thus, in accordance with IFRIC 14, restricts recognition of an asset.

As both issues relate to IAS 19 and as the IASB believes that a single package of amendments carried out at the same time would reduce the administrative burden on those responding to both issues, the IASB decided to deal with the two issues in one narrow-scope Exposure Draft.

 

Suggested changes

The amendments proposed in ED/2015/5 Remeasurement on a Plan Amendment, Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan (Proposed amendments to IAS 19 and IFRIC 14) are:

Remeasurement on a plan amendment, curtailment or settlement

The IASB proposes:

  • When the net defined benefit liability or asset is remeasured on a plan amendment, curtailment or settlement, the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement.
  • The net interest for the remaining period is determined based on the remeasured net defined benefit liability or asset.
  • The current service cost and the net interest in the current reporting period before a plan amendment, curtailment or settlement are not affected by the past service cost or a gain or loss on settlement.
  • These amendments should be applied retrospectively, but the IASB proposes providing an exemption for adjustments of the carrying amount of assets outside the scope of IAS 19.

Availability of a refund from a defined benefit plan

The IASB proposes:

  • When an entity determines the availability of a refund from a defined benefit plan, amounts that other parties can use for other purposes are not included in the amount of the surplus that an entity recognises as an asset on the basis of a future refund.
  • A gradual settlement should not be assumed if other parties can wind up the plan without the entity's consent.
  • The availability of a refund is not affected by other parties' power to make investment decisions without changing the benefits for plan members.
  • When an entity determines the availability of a refund and a reduction in future contributions, the entity takes into account the statutory requirements that are substantively enacted as well as constructive obligations and terms and conditions that have been contractually agreed.
  • Regarding the interaction between the asset ceiling and the past service cost or a gain or loss on settlement, IAS 19 shall clarify that the past service cost or a gain or loss on settlement is measured and recognised in profit or loss in accordance with the existing requirements in IAS 19 and changes in the effect of the asset ceiling are recognised in other comprehensive income.

 

Effective date and transition requirements

The ED does not contain a proposed effective date. However, the ED proposes that the amendments would be applied retrospectively and that early application should be permitted.

 

Additional information

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IFRS Foundation publishes teaching material for education initiative

17 Jun 2015

The IFRS Foundation has published the third part of its comprehensive, framework-based IFRS teaching material for its education initiative. The material is free to download and is designed to enhance educators’ teaching about IFRSs and to help students develop their abilities to make the necessary estimates and judgments when applying IFRSs and the IFRS for SMEs.

The material covers the accounting for liabilities, classification of financial instruments with characteristics of equity, forward contracts, and financial assets and liabilities. In addition, the material is presented in three stages to ac­com­mo­date students at different levels:

  • Stage 1 — A student’s first financial reporting course.
  • Stage 2 — A financial reporting course midway to qual­i­fy­ing as a CA or CPA.
  • Stage 3 — A course im­me­di­ately before qual­i­fy­ing as a CA or CPA.

For more information, see the press release on the IASB’s website.

IFRS Foundation publishes proposal related to IFRS Taxonomy 2015

17 Jun 2015

The IFRS Foundation has published “Proposed Update 1 to the IFRS Taxonomy” for public comment.

The taxonomy updates contain additional taxonomy concepts that reflect new IFRSs and improvements to IFRSs, technical updates, and corrections. This update includes taxonomy elements for the May 2015 final amendments to the IFRS for SMEs.

Comments on the proposed update are due by 17 August 2015.

For more information, see the press release on the IASB’s website.

IASB completes post-implementation review of IFRS 3

17 Jun 2015

The IASB has completed its post-implementation review (PIR) of IFRS 3 'Business Combinations'. The review concluded that there is general support for IFRS 3 and its related Standards; however, there are several aspects where additional research is needed.

The PIR report assessed in­for­ma­tion gathered from academic lit­er­a­ture as well as feedback from (1) investors and other financial statement users and (2) preparers, auditors, and reg­u­la­tors. It showed general support for the “usefulness of reported goodwill, other intangible assets and goodwill impairment.” However, views were mixed on certain elements of the standard, including the following:

For investors

  • Subsequent accounting for goodwill.
  • Separate recognition of intangible assets.
  • Measurement of non-controlling interests
  • Subsequent accounting for contingent consideration.

For preparers, auditors, and regulators

  • Definition of a business.
  • Fair value measurement.
  • Impairment test for goodwill.
  • Contingent payments to selling shareholders who become employees.

The area of amortisation of goodwill was recently covered in a research paper by the Accounting Standards Board of Japan (ASBJ) and an earlier discussion paper by a joint-research group which included the ASBJ, EFRAG, and OIC to provide their observations on the topic in order to stimulate a global discussion.

On the basis of the PIR report, the IASB added to its agenda two research projects that will focus on:

  • Effectiveness and complexity of testing goodwill for impairment.
  • Subsequent accounting for goodwill.
  • Challenges related to applying the definition of a business.
  • Identification and fair value measurement of intangible assets such as customer relationships and brand names.

For more information, see the press release and the PIR report on the IASB’s website. In addition, see our project page on the PIR of IFRS 3.

EFRAG suggests public review of the forthcoming standard on leases

16 Jun 2015

European Financial Reporting Advisory Group (EFRAG) has sent a letter to the IASB requesting a public fatal flaw review of the forthcoming leases standard to ensure that constituents understand the requirements and how to apply them.

In September 2014, EFRAG had called for amending the IASB’s consultation process by adding a public fatal flaw review prior to finalisation of a standard or a major amendment to a standard. This time EFRAG is solely suggesting to have this public fatal flaw for the leases standard. The IASB at times uses the tool of fatal flaw reviews, and EFRAG feels such a review is warranted this time as “ the IASB has put significant redrafting effort into the final standard, especially with respect to the definition, since the last public consultation”. As a consequence of the substantial changes to the definition, EFRAG fears that preparers may be confused and not necessarily understand the scope of the new requirements. EFRAG argues:

[U]nless entities are able to properly understand and apply the definition of a lease and the other requirements in the standard, there will be a significant and wasteful use of time debating possible interpretations, which will lead to a real risk of divergent application.

Please click to access the letter on the EFRAG website.

ESMA publishes its 2014 annual report and new strategy

15 Jun 2015

The European Securities and Markets Authority (ESMA) has published its Annual Report for 2014, which describes key accomplishments by the ESMA in 2014. In addition, it has published its strategy for 2016-2020.

The most noted actions of the ESMA in 2014 were:

  • Financial reporting and con­ver­gence of IFRS en­force­ment ac­tiv­i­ties.
  • Review of accounting practices related to business combinations.
  • Contribution to the development of IFRS.

In its strategy for 2016-2020, the ESMA will focus on three key objectives:

  • Investor protection.
  • Orderly markets.
  • Financial stability.

To achieve these objectives, ESMA intends to increase resources to strengthen (1) its capabilities of identifying and assessing risks to investors and (2) the financial stability in the EU. ESMA will also commit more resources to promote supervisory convergence and target a number of specific areas where convergence is to be promoted. Finally, ESMA aims to continue to strengthen its role as a direct supervisor, whilst intensifying its risk-based approach in order to achieve lasting impact. Overall, the enforcement process is to become more effective and efficient.

For more information, see the 2014 Annual Report and the strategy for 2016-2020 on the ESMA’s website.

June 2015 IASB meeting agenda posted

12 Jun 2015

The IASB will meet at its offices in London on 22-25 June 2015. Part of the meeting will be held jointly with the Financial Accounting Standards Board (FASB) to discuss revenue recognition. Additionally, the IASB will discuss insurance contracts; IFRS implementation issues; financial instruments with characteristics of equity; the disclosure initiative; equity method; dynamic risk management; provisions and contingent liabilities (IAS 37); pollutant pricing mechanisms; and revenue.

The full agenda for the meeting can be found here. We will post any updates to the agenda, as well as our De­loitte ob­server notes from the meeting, on this page as they become avail­able.

Update (16 June): The IASB has amended its agenda to remove the discussions on dynamic risk management and provisions and contingent liabilities research project. These projects have been deferred to the July meeting.

Agenda published for the June 2015 IFRS Foundation Trustees meeting

12 Jun 2015

The agenda for the public session of the upcoming meeting of the IFRS Foundation Trustees is now available. The Trustees will meet on 18 and 19 June 2015 in London, however, only the meeting on 19 June is open to the public.

The agenda for the public session of the meeting is summarised below:

Friday, 19 June 2015

IFRS Foundation Trustees meeting (15:15–16:15 BST)

  • Report of the Chair of the IFRS Foundation Trustees
  • Report of the IASB Chair
    • Technical work plan overview
    • Agenda Consultation
    • Engagement strategy
    • Use of IFRS globally
    • Consistency in the application of IFRS globally
    • Education Initiative
  • Report of the Due Process Oversight Committee
    • Technical Activities
    • IFRS Taxonomy
    • Annual review of consultative groups
    • Reporting Protocol
    • Correspondence

Agenda papers for the meeting are available on the IASB's website.

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