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2015

IASB publishes editorial corrections to reflect deferred September 2014 amendments to IAS 28 and IFRS 10

16 Dec 2015

In August 2015, the IASB issued exposure draft ED/2015/7 'Effective Date of Amendments to IFRS 10 and IAS 28'. On 15 December 2015, the staff sought permission to publish the final amendment resulting from the exposure draft which defers the effective date of the September 2014 amendment for an indefinite period.

In the Board meeting the IASB gave a unanimous permission to publish the final amendment. There was no indication of dissent amongst Board members.

Consequently, the staff of the IASB has compiled a document that shows how to adjust the text of the 2016 Blue Book to remove those deferred September 2014 amendments which are not now required for annual reporting periods beginning on 1 January 2016. The Blue Book's publication is expected soon.

Please click to access the editorial corrections on the editorial corrections page of the IASB's website.

The Bruce Column — From headlines to trendlines: How integrated reporting is gathering pace

15 Dec 2015

In a new Robert Bruce video interview Paul Druckman, chief executive of the International Integrated Reporting Council, talks of how the system of integrated reporting is expanding globally and becoming mainstream. In his new column, Robert Bruce—our regular, resident columnist—assesses the progress of the system.

Click to view the full-length interview video or read Robert Bruce’s summary below.

Integrated reporting, the system for connecting all of the strands of an organisation’s reporting, has now moved from ‘headlines to trendlines’, according to Paul Druckman in the interview, by which he means that the shock of the new has become something much more mainstream. 

It is not just about the uptake and publication of reports, he says, it is now also about how integrated reporting has a place on government and business agendas around the world. It has become a settled and largely accepted business system and is also bringing about changes at the macro level. ‘The fact that it is in so many countries and so broadly understood and acknowledged is remarkable’, he says. 

But there is much still to do. The quantity of reports being published may be impressive, but often the quality lags behind. Many reports, as Druckman readily admits, are a combination of other reports with an integrated reporting tag holding it all together, or simply, as he puts it ‘a story being told well’. The future is about patience and letting integrated reporting, as it expands its reach around the world, bed down. He is also keen to do it differently. The corporate temptation to simply pull together the old systems and declare it to be integrated reporting is still strong. 

That needs, he says, to be challenged. And people need to be very wary of slipping back into old ways. ‘We need to be very careful not to use the techniques of the old system and just duplicate them’, he says. ‘We have to be very careful of that when we think about integrated reporting and a new system of corporate reporting’. 

A new training initiative will help. In the year ahead what is called a training competency matrix will be rolled out within corporates and by outside organisations. This should, he feels, boost quality and it will also focus companies on looking for outcomes rather than just at the content. 

And this will continue to ensure that companies and other organisations move ever further away from a silo mentality. This will gradually happen as people look for purpose as well as performance. ‘If you are looking at purpose as well as performance’, he says, ‘you can’t have silos’. It is about releasing people from what he refers to as ‘the shackles’ by explaining more rather than simply measuring. ‘People need to get together and work it out’, he says. Now the view is that while financial reporting is essential it is only one piece of the whole. And he thinks that change in attitude has been a fundamental shift over the last couple of years and integrated reporting has been a significant factor in it. ‘It is’, he says, ‘changing the way that everyone looks at corporate reporting’. It is a different thought process. 

Druckman emphasises the growth and reach of integrated reporting around the world, from Japan to Africa and from the Netherlands to China. ‘Some of the best integrated reports you will see are in Japan’, he says. And he extols the virtues of the stewardship code in Japan. But the overall message globally is one of steady growth and understanding. In the UK, he says, the strategic report used by companies is very much aligned with integrated reporting. And to strengthen the advance of integrated reporting in the US they are to create a US group that Druckman thinks will help significantly. And amongst the recent changes to the new board overseeing the IIRC the chief executive of the AICPA has come on board. 

Ultimately it needs to be fired up by investor demand. And Druckman sees a significant change here with markets now expecting investors to behave more, as he puts it, as shareholders rather than simply as traders. And academic evidence is starting to come through which shows that where companies had a higher integrated reporting score they also had a lower cost of capital and a higher intrinsic value. 

The story of integrated reporting still has a way to go. Druckman and his team have hopes that it is building into the successful, transformational, connected system that they have long advocated.

IPSASB publishes 2015 Handbook of pronouncements

14 Dec 2015

The International Public Sector Accounting Standards Board (IPSASB) has published its 2015 Handbook of International Public Sector Accounting Pronouncements.

In two volumes, the Handbook contains all current IPSASB pronouncements, including the Conceptual Framework for General Purpose Financial Reporting by Public Sector Entities, which was published in October 2014. It can be downloaded free of charge in PDF format from the IPSASB website.

The IPSASB points out that he 2015 edition of the handbook is available only in electronic format. The 2016 Handbook of International Public Sector Accounting Pronouncements, scheduled to be available in 2Q 2016, will be available in print and electronic versions.

EFRAG draft comment letter on transfers of investment property

11 Dec 2015

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB exposure draft ED/2015/9 'Transfers of Investment Property (Proposed amendment to IAS 40)'.

In the draft comment letter, EFRAG supports the proposed amendments and believes they will reduce divergence in practice and improve the quality of financial reporting under IFRS.

Comments on EFRAG's draft comment letter are requested by 15 March 2016. For more information, see the press release and the draft comment letter on the EFRAG website.

Hans Hoogervorst discusses IASB developments

10 Dec 2015

During the annual American Institute of Certified Public Accountants (AICPA) Conference on Current SEC and PCAOB Developments in Washington, D.C., IASB Chairman Hans Hoogervorst spoke about the IFRS developments during 2015 and what to expect in the upcoming year.

Mr Hooger­vorst discussed im­prove­ments made to IFRS over the past year which included the use of the joint Tran­si­tion Resource Group to modify the revenue guidance, but maintain "a Standard with strong prin­ci­ples and suf­fi­cient guidance for preparers to make sound accounting judge­ments". He further noted that the leasing project was finalised during the past year and will result in a new standard in the second week of January, which is converged with the FASB standard in its core objective (to move most operating leases to the balance sheet).

Next, Mr Hooger­vorst went on to talk about the expanded use of IFRS in Asian countries, specif­i­cally outlining progress made in Japan, India, and China, and provided an example of how far the acceptance of IFRS has come in the US. However, he noted that “the next several years are unlikely to bring big progress toward domestic use of IFRS in the United States. Still, there are substantive American interest at stake. IFRS strips out significant costs for American investors, multinational preparers and global accounting networks. More generally, the US has a big interest in a strong infrastructure for the global economy, of which IFRS is an important part.”

In dis­cussing the future of IFRS, Mr Hooger­vorst noted that it is important to make "financial reporting easier to digest, without sac­ri­fic­ing the quality and rigour of our standards" and he noted that there are many issues to consider to improve financial reporting and make dis­clo­sures more effective.

The full transcript of the speech is available on the IASB’s website.

Report on the November 2015 IFRS Advisory Council meeting

10 Dec 2015

The IFRS Advisory Council met in London on 2–3 November 2015. Highlights of the meeting were thorough discussions of the Review of structure and effectiveness of the IFRS Foundation and of the Agenda consultation 2015.

The report, prepared by Chair of the IFRS Advisory Council Joanna Perry, notes the following discussions:

  • IFRS adoption in Japan — Goro Kumagai, Vice-Chair of the IFRS Advisory Council, noted significant progress made in Japan around the acceptance and use of IFRS.
  • Trustee activities — Sheila Fraser, Vice-Chair of the Trustees, shared information around the responsibilities and processes of the Trustees’ nominating committee and noted that an informal review of the composition of the Council was being considered.
  • Review of the structure and effectiveness of the IFRS Foundation— The discussion of the review brought the most discussion and feedback from the members of the Council:
    • Members showed little support for the IASB extending its remit;
    • They supported the current approach on wider corporate reporting, the current three-tier structure, and the current approach regarding the taxonomy;
    • They recommended to ensure that the composition of the Trustees remains relevant;
    • There was discussion around how the IFRS Foundation as a whole could remain knowledgeable about technology; and
    • Members were split on the benefits of a smaller or larger IASB.
  • IASB activities — Members received a report of recent activities and raised the question about the length of time it takes the IASB to produce documents and whether there are more efficient and effective ways of doing so.
  • Exchange with the US Financial Accounting Standards Advisory Council (FASAC) — The Council received an update on the structure, the work and current initiatives of the FASAC and considered whether there were any learnings from FASAC, or initiatives that could be considered by the IFRS Advisory Council.
  • Agenda consultation — There was little feedback on the projects as such, however, pre-issue processes and translation questions were raised.
  • Members' communications — Members reported about activities at the Monitoring Board, the European Accounting Association, and the European Union.

The next meeting of the IFRS Advisory Council is scheduled for 23–24 Febraury 2016, in London. The full report on the council’s November meeting is available on the IASB's website.

SEC speeches on IFRSs at the annual AICPA conference

10 Dec 2015

At the annual American Institute of Certified Public Accountants (AICPA) Conference on Current SEC and PCAOB Developments currently taking place in Washington, D.C., representatives of the US Securities and Exchange Commission (SEC) spoke at surprising length about IFRSs in the United States.

SEC Chair Mary Jo White delivered the keynote address and commented on the recommendation related to IFRS supplemental information introduced by SEC Chief Accountant Jim Schnurr at the same conference a year ago. She added: "This proposal has the potential to be a useful next step, and the staff has now developed a recommendation for the Commission’s consideration, which staff will be discussing with all of the Commissioners so that we can determine the path forward."

SEC Chief Accountant James V. Schnurr confirmed that "[t]he staff will be in discussions with the Commissioners regarding certain regulatory changes that would facilitate the ability of domestic issuers to provide IFRS-based information as a supplement to U.S. GAAP financial statements". He also encouraged IASB and FASB to continue their work on convergence and added: "In my view, continued collaboration is the only realistic path to further the objective of a single set of high-quality, global accounting standards."

Deputy Chief Accountant Julie A. Erhardt gave the only speech that was entirely focused on the U.S. engagement with IFRSs and on the goal of a single set of high-quality global accounting standards. In addition to pointing out the shared origins, shared knowledge, and shared benefits of international accounting she also commented on the overseas perception of developments in the U.S.:

[M]y impression is that at least some overseas do not anticipate that within the foreseeable future the U.S. will decide to adopt IFRS for financial reporting by our domestic public companies. My impression is that these individuals are not particularly resentful about this — maybe more like disappointed — because they recognize that for one reason or another IFRS is not seen in the U.S. as a realistic policy idea for this purpose at this time. My sense is that they know from their own experiences that generally the acknowledged legitimacy of an idea is a necessary precursor to policy making.

However, Ms Erhardt also makes out worries regarding U.S. involvement in and support of IFRSs. Referencing back to the comments made by Chair White and Chief Accountant Schnurr she hints that a statement on the future of IFRS in the United States might provide some reassurance in this regard:

If U.S. involvement with IFRS is now to come in a completely ad hoc manner, this could give rise to concerns that there is no memorialized intention or longer term plan for parties from the U.S. to stay engaged with and be supportive of IFRS. A further statement by the Commission on global accounting standards, as discussed by the Chair earlier today, might help to provide reassurance and clarity in this regard.

Please click for access to all transcripts of all speeches cited on the SEC website:

You can also access all SEC speeches given at the conference (including many that are not IFRS related) through the constantly updated SEC page with speeches by the Chair, Commissioners, and staff.

EFRAG report on survey results on the impact of the forthcoming new IFRS on leases on financial covenants in loan agreements

09 Dec 2015

EFRAG has issued a report summarising the results of a public survey conducted by the IASB and the National Standard Setters of France, Germany, Italy, Lithuania, and the UK on the potential impact of the forthcoming new IFRS on leases on financial covenants in loan agreements.

The survey asked lenders and non-lenders different questions related to the use of covenants. For lenders, the survey results indicate a diversity in practice but most agreed that their loan agreements included at least one of the following:

  • “automatic renegotiation clauses in the case of a change to accounting principles, at least for some of their agreements;
  • frozen GAAP provisions; or
  • adjustments for operating lease commitments in determining covenants.”

For this reason, they do not expect IFRS 16 to cause breaches of covenants. However, most lenders stated that they will reevaluate the terms and conditions of covenants when IFRS 16 is effective.

For non-lenders, most respondents expect that either (a) covenants will not be impacted with the issuance of IFRS 16 or (b) covenants will be renegotiated if IFRS 16 affects covenant ratios.

For more information, see the report on the EFRAG’s website.

IASB proposes amendments to address concerns about the different effective dates of IFRS 9 and the new insurance contracts standard

09 Dec 2015

The International Accounting Standards Board (IASB) has published an exposure draft (ED/2015/11) with proposed amendments to IFRS 4 'Insurance Contracts' that are intended to address concerns about the different effective dates of IFRS 9 'Financial Instruments' and the forthcoming new insurance contracts standard. Comments are requested by 8 February 2016.

 

Background

As it has become obvious that the effective date of the forthcoming IFRS on insurance contracts can no longer be aligned with the effective date of IFRS 9 Financial Instruments there have been calls for the IASB to delay application of IFRS 9 for insurance activities and align the effective date of IFRS 9 for those activities with the effective date of the new insurance contracts standard. Proponents of a deferral argue that:

  • The different effective dates will lead to accounting mismatches and volatility in profit or loss that users of financial statements might find difficult to understand.
  • Making decisions about applying the new classification and measurement requirements in IFRS 9 before the new insurance contracts standard is finalised is difficult as the decisions might differ from those companies would have made had all details of the new standard been known.
  • Having to cope with two major accounting changes in a relatively short time bears the potential of significantly increased costs and efforts (for preparers and for users).

The IASB acknowledges these concerns and therefore proposes amending IFRS 4 Insurance Contracts to address the concerns expressed about the different effective dates of IFRS 9 and the new insurance contracts standard.

 

Suggested changes

The amendments proposed in ED/2015/11 Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Proposed amendments to IFRS 4) are intended to provide two options for entities that issue insurance contracts within the scope of IFRS 4:

  • an option that would permit entities to reclassify, from profit or loss to other comprehensive income, some of the income or expenses arising from designated financial assets; this is the so-called overlay approach;
  • an optional temporary exemption from applying IFRS 9 for entities whose predominant activity is issuing contracts within the scope of IFRS 4; this is the so-called deferral approach.

The application of both approaches would be optional and an entity would be permitted to stop applying them before the new insurance contracts standard is applied.

Overlay approach. The amendments that form the overlay approach would permit an entity to exclude from profit or loss and recognise in other comprehensive income the difference between the amounts that would be recognised in profit or loss in accordance with IFRS 9 and the amounts recognised in profit or loss in accordance with IAS 39 Financial Instruments: Recognition and Measurement provided that the entity issues contracts accounted for under IFRS 4, applies IFRS 9 in conjunction with IFRS 4, and classifies financial assets as fair value through profit or loss in accordance with IFRS 9 when those assets were previously classified at amortised cost or as available-for-sale in accordance with IAS 39. Application of the overlay approach requires disclosure of sufficient information to enable users of financial statements to understand how the amount reclassified in the reporting period is calculated and the effect of that reclassification on the financial statements. An entity would apply the overlay approach retrospectively to qualifying financial assets when it first applies IFRS 9.

Deferral approach. Under the amendments that make up the deferral approach, an entity would be permitted to apply IAS 39 rather than IFRS 9 for annual reporting periods beginning before 1 January 2021 if it has not previously applied any version of IFRS 9 and if its predominant activity is issuing contracts within the scope of IFRS 4. An entity would determine whether its predominant activity is issuing contracts within the scope of IFRS 4 by comparing the carrying amount of its liabilities arising from contracts within the scope of IFRS 4 with the total carrying amount of its liabilities. The IASB does not specify a particular quantitative threshold for predominance but indicates in the Basis for Conclusions that predominance is intended to be a high threshold and that 75% liabilities from insurance activities would not qualify as high. The IASB also maintains that an entity would need to assess predominance at the reporting entity level. Lastly, the IASB states that an entity that applies the deferral approach but falls beneath the predominance threshold in a subsequent reporting period would be required to apply IFRS 9 from the beginning of the next annual reporting period. An entity would apply the deferral approach for annual periods beginning on or after 1 January 2018. Application of the deferral approach needs to be disclosed together with the reasons for applying it. The deferral can only be made use of for the three years following 1 January 2018.

 

Alternative views

Three Board member voted against the publication of the ED because they do not agree with the proposal to provide entities with predominant insurance activity with a temporary exemption from applying IFRS 9. These Board members argue that the deferral approach will reduce comparability, including between entities that issue insurance contracts. They acknowledge the concerns voiced but are of the opinion that the overlay approach offers enough relief and makes a temporary exemption from applying IFRS 9 unnecessary. They are also concerned that delays might occur in the insurance contracts project that would exceed the three year span the deferral approach is intended to be limited to.

 

Next steps

ED/2015/11 Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Proposed amendments to IFRS 4) is only open for comment for 60 days. The IASB notes that the Due Process Handbook permits a comment period shorter than the standard minimum period of 120 days if the matter is narrow in scope and urgent, which the IASB believes is the case with these amendments. The IASB will consider the comments that it receives on the proposals and intends to complete its redeliberations as soon as possible in 2016.

 

Additional information

Please click for:

 

Pre-meeting summaries for the December IASB meeting

09 Dec 2015

The International Accounting Standards Board (IASB) will meet at its offices in London on 15–16 December 2015. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. For each topic to be discussed we summarise the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

Check out the summaries for the forthcoming discussions on the effective date of amendments to IFRS 10 and IAS 28, the disclosure initiative, IFRS implementation issues, the definition of a business, the research programme, revenue from contracts with customers, and discount rates. We have added them to our meeting note page and will supplement them with our popular meeting notes after the meeting.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.