April

IASB posts second webinar on insurance contracts standard

08 Apr 2016

The IASB has posted the second installment of its weekly webinar series on the upcoming insurance contracts standard.

The series, hosted by IASB member Darrel Scott, will discuss the following topics related to the upcoming insurance contracts standard:

  • The need for change and the history of the project. (issued 1 April)
  • What is an insurance contract? (issued 8 April)
  • Initial measurement of insurance contracts.
  • Subsequent measurement of insurance contracts.
  • Modifications to the general model: variable fee contracts.
  • Other modifications to the general model.
  • Presentation and disclosure.
  • Applying the Standard for the first time.

For more information, see the webinar page on the IASB’s website.

UK FRC believes the European Commission might be traveling in the wrong direction on non-financial reporting

08 Apr 2016

In January 2016, the European Commission launched a public consultation to collect views from stakeholders on non-binding guidance on the methodology for reporting of non-financial information by certain large companies across all sectors. The UK Financial Reporting Council (FRC) has reponded and warns that the proposed guidance might be too prescriptive.

Among the main concerns, the FRC notes that in developing the guidelines, the Commission could go beyond the principles in the corresponding directive and inadvertently introduce new disclosures. The FRC also believes that certain characteristics of the proposed guidelines could lead to boiler plate reporting or confusion - examples cited are:

  • a comprehensive list of KPIs in the guidelines, which might encourage companies to include immaterial KPIs in their reporting; and
  • an exhaustive list of all frameworks for non-financial reporting, that might exclude other frameworks that address similar issues or that go beyond the Commission's guidelines.

The comment letter states:

Any guidelines should be concise, principles-based and allow companies flexibility to tell their story. We do not support prescriptive guidelines as these can lead to boiler plate reporting as well as resulting in excessive detail that can obscure relevant information.

Please click to access the full comment letter on the FRC website.

Recent sustainability reporting developments

08 Apr 2016

A summary of recent developments at the GRI and SASB.

The Global Reporting Initiative (GRI) has announced the formation of a Due Process Oversight Committee (DPOC). The DPOC will ensure that the activities of GRI's Global Sustainability Standards Board (GSSB) are conducted in accordance with its due process, which is crucial for ensuring public and stakeholder confidence that GRI standards are being appropriately developed in the public interest. Please click to access a corresponding press release on the GRI website.

After completing provisional standards for 79 industries in 10 sectors, the US Sustainability Accounting Standards Board (SASB) has launched its next phase of standards development and will enter a period of consultation on the provisional standards and proposed process to codify and maintain them. To this end, the SASB is consulting on three key documents — the SASB Rules of Procedure, the SASB Conceptual Framework, and proposed changes to its Sustainable Industry Classification System —  for a 90-day public comment period. Please click to access a corresponding press release on the SASB website.

FEE briefing paper on accrual accounting

07 Apr 2016

The Federation of European Accountants (Fédération des Experts-comptables Européens, FEE) has prepared a short briefing paper highlighting the key benefits of adopting accrual accounting and its contribution to governments' financial decision-making process.

FEE notes that many member states of the European Union have already embraced accrual accounting but the discussion on its potential contribution to improving transparency and accountability is still ongoing. Currently, there are no harmonised EU-wide rules, but the European Commission is working on this and plans to issue European Public Sector Accounting Standards (EPSAS) within the next 4 years. In the meantime, the European Commission is encouraging member states to switch to accrual accounting and potentially use International Public Sector Accounting Standards (IPSAS).

Among the benefits of accrual accounting FEE notes the following:

  • using assets effectively;
  • managing liabilities;
  • managing performance;
  • addressing the citizens’ right to know;
  • improved transparency;
  • improved comparability; and
  • saving for future generations.

Please click to access the briefing paper on the FEE website.

Summary of the CMAC February 2016 meeting

06 Apr 2016

The IASB has released a summary of the Capital Markets Advisory Committee (CMAC) meeting which was held in London on 25 February 2016.

The topics discussed at the meeting included:

  • IFRS Advisory Council — Role and recent activities. Members discussed the strategic function of the council and considered how its advice was helpful to the IFRS Foundation in implementation support and views on the future of financial reporting.
  • Disclosure Initiative — Final amendments to IAS 7. The staff explained the final amendments to IAS 7 issued in January 2016. CMAC members encouraged the Board to continue developing disclosure about liquidity.
  • Different effective dates — IFRS 9 and the new insurance contracts standard. Many CMAC members thought that the Board should not provide any temporary approaches. They were also concerned about allowing two optional approaches as doing so would decrease comparability. CMAC members strongly opposed having a temporary exemption from applying IFRS 9, because IFRS 9 would bring vast improvements over IAS 39.
  • Structured Electronic Reporting — What do investors need? CMAC members were asked whether they use structured electronic data in their analysis; and how structured electronic reporting could be made more useful to investors and analysts.
  • Education Session — The new impairment requirements in IFRS 9. This session provided CMAC members with a brief background on the differences that investors are likely to observe regarding impairment when financial institutions make the transition from IAS 39 to IFRS 9.
  • Primary Financial Statements. This session focused on users’ views of operating profit. During the meeting, the staff asked CMAC members whether they employ the operating profit subtotal in their analysis and whether the Board should develop a standard definition of this subtotal.
  • IFRS 16 — Update on the new standard. This session provided CMAC members with a brief background on the differences that investors are likely to observe when entities make the transition from IAS 17 to IFRS 16.

The next meeting will be a joint CMAC and Global Preparers Forum (GPF) meeting. It will be held on 15–16 June 2016.

The full meeting summary is available on the IASB's website.

Summary of March GPF meeting now available

06 Apr 2016

Minutes of the meeting of the Global Preparers Forum (GPF) with representatives of the International Accounting Standards Board (IASB) held in London on Wednesday, 2 March 2016 are now available.

The topics discussed at the meeting included:
  • IASB Update — A discussion of the IASB's February 2016 meeting, major recent staff changes, and the current stage of the Agenda Consultation.
  • Update on implementation activities — An update on the Board's activities to support the implementation of IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases.
  • Disclosure Initiative: Principles of Disclosure Discussion Paper — The staff sought feedback on possible approaches to the Board's drafting of its disclosure requirements and provided an update about the progress of the overall Disclosure Initiative.
  • Preparers’ experience with improving effectiveness of disclosures — GPF members broke into groups and shared their experiences in improving the effectiveness of disclosures and removing unnecessary disclosures. A public feedback session was held to summarize the results of the individual breakout groups. 
  • IFRS 2 Share-based Payment — A discussion to identify the main application issues that arise in applying IFRS 2.
  • Improvements to the impairment requirements in IAS 36 — The staff sought the views of GPF members on improving the disclosure requirements about goodwill and impairment to provide better and more timely information to users of financial statements.
  • Rate-regulated activities — The IASB staff sought input from GPF members to help inform future discussions with the Board about how to (1) define ‘performance’ within the context of defined rate regulation, and (2) identify which activities should lead to the recognition of revenue.
The next meeting will be a joint GPF and Capital Markets Advisory Committee (CMAC) meeting. It will be held on 15–16 June 2016.

The agenda papers and full meeting summary for the March meeting are available on the IASB's website.

First meeting of the FASB TRG for credit losses

05 Apr 2016

The US Financial Accounting Standards Board (FASB) has set up a transition resource group (TRG) for credit losses to seek and provide feedback on potential issues related to the implementation of the FASB’s upcoming standard on the accounting for credit losses. The TRG held its first public meeting on 1 April 2016. Although there are differences between the FASB’s intended approach and IFRS 9 (2014) there are sufficient similarities between the current expected credit loss (CECL) models to make the discussions of the group interesting to IFRS preparers as well.

The TRG on credit losses acts in a manner similar to the joint TRG that the FASB and IASB established to discuss the recently issued revenue recognition standards. However, unlike the revenue recognition TRG, the FASB established the credit losses TRG before the issuance of the final standard on credit losses to understand whether the guidance is understandable and to avoid potential implementation issues. The FASB will consider the feedback received from the credit losses TRG before finalising the guidance on credit losses (currently expected in Q2 2016).

The first discussions included the TRG’s observations on how an entity would estimate expected credit losses on loans, specifically relating to the draft measurement guidance that states an entity:

  • may use various methodologies to determine their expectation of credit losses;
  • will not be required to forecast conditions over the entire life of a financial asset;
  • has flexibility when determining the historical loss information to which it would revert and the method of reversion;
  • should incorporate information in its expectations of credit losses that are relevant to the entity and accessible without undue cost or effort and would exclude external information that is less relevant than an entity’s own internal information.

Deloitte observers have taken notes at the meeting; these are available as a TRG Snapshot. Additional information is available on the FASB website:

Committee on Budgetary Control to vote on opinion on the IAS evaluation and on activities of IFRS Foundation, EFRAG and PIOB

03 Apr 2016

In January 2016, the Committee on Economic and Monetary Affairs (ECON) of the European Parliament made available a draft report on IAS evaluation and on activities of the IFRS Foundation, EFRAG and PIOB. The Committee on Budgetary Control (CONT) will vote tomorrow on calling on ECON to incorporate certain suggestions into its motion for a resolution.

Subject of tommorrow's vote are suggested changes to the CONT draft opinion. The main statement "that the implementation of IFRS has contributed to enhancing the overall effectiveness, relevance and quality of financial data and statements, to the benefit of the single market and capital markets" from the draft opinion remains unchallenged, however, there are suggestions to expand this by noting that "IFRS are not fully implemented and not fully endorsed by the Member States which undermines the potential of the standards" and that the Commission should be called on "to develop an EU-wide simplified accounting standard for SMEs".

Interesting is also a suggestion that IFRSs could be included in the current Transatlantic Trade and Investment Partnership (TTIP) negotiations between the European Union and the United States.

Please click for access to the agenda, the draft opion and the proposed changes on the CONT website (agenda at the top of the page, other documents near the bottom under item 54).

IASB begins webinar series on upcoming insurance contracts standard

01 Apr 2016

The IASB has started a weekly webinar series, hosted by IASB member Darrel Scott, which provides an overview of its upcoming standard on insurance contracts.

The series will discuss the following topics related to the upcoming standard:

  • The need for change and the history of the project (issued 1 April).
  • What is an insurance contract?
  • Initial measurement of insurance contracts.
  • Subsequent measurement of insurance contracts.
  • Modifications to the general model: variable fee contracts.
  • Other modifications to the general model.
  • Presentation and disclosure.
  • Applying the Standard for the first time.

For more information, see the webinar page on the IASB’s website.

FSB task force on climate-related financial disclosures publishes first report

01 Apr 2016

The Task Force on Climate-related Financial Disclosures (TCFD) set up by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders has published its first report.

In a first phase, the TCFD has conducted a high-level review of the existing landscape of climate-related disclosures — including current voluntary and mandatory climate-related disclosure regimes — to identify commonalities, gaps, and areas for improvement and highlights these in its first report. The report also defines the scope and objectives of its work for the second phase where the TCFD will target climate-related financial disclosures pertaining to near-, medium- , and long-term physical and nonphysical impacts faced by both nonfinancial companies and the financial sector. Finally, the task force has identified seven fundamental principles that are critical for an effective regime for climate-related financial disclosure and that will underpin the TCFD's recommendations to be developed in phase two for enhancing climate-related disclosures and providing an enduring framework:

  • present relevant information;
  • be specific and complete;
  • be clear, balanced, and understandable;
  • be consistent over time;
  • be comparable among companies within a sector, industry, or portfolio;
  • be reliable, verifiable, and objective; and
  • provide on a timely basis.

Please click to access an executive summary and a full version of the report on the TCFD website. The website has been newly set up to provide the public with access to TCFD materials and offer greater transparency on the TCFD's work. It also features a public consultation on the TCDF's work in the second phase.

IASB Chairman discusses lease accounting

01 Apr 2016

IASB Chairman Hans Hoogervorst has written an article “Shining the Light on Leases” that discusses the problems with current lease accounting requirements and how the IASB addresses these in its new standard IFRS 16 'Leases'.

In his article, Mr Hoogervorst acknowledges that IFRS 16 will result in a substantial change to many companies’ balance sheets and "will not be popular with everyone". However, he notes, the IASB has looked at all possible risks carefully and has concluded that the risks and costs are manageable. He states that:

  • IFRS 16 will not put the leasing industry out of business and leases will remain attractive as a flexible source of finance. 
  • The IASB believes that is is highly unlikely that the improved visibility of lease obligations will lead to significant effects in terms of the cost of borrowing and debt covenants.
  • There will be costs involved in updating systems to implement IFRS 16.
  • The IASB is convinced that the benefits of IFRS 16 will greatly outweigh its costs.

Please click to access the full text of Mr Hoogervorst's article, which first appeared on IFAC Global Knowledge Gateway, on the IASB website.

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