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Standard-setters split on whether to prohibit non-IFRS information in financial statements

19 Oct 2017

In March this year, the IASB published its discussion paper DP/2017/1 'Disclosure Initiative — Principles of Disclosure'. Comments were requested by 2 October, and 100 comment letters have by now been made available on the IASB website. An analysis shows that standard-setters are split on the question whether a general disclosure standard should prohibit an entity from including "non-IFRS information" or information that is inconsistent with IFRSs in its financial statements.

Some standard-setters are strictly against including any non-IFRS information in financial statements. Canada's AcSB argues that non-IFRS information "could undermine other information in the financial statements that conforms with IFRS Standards" and could "further reduce the relevance of financial statements". Similarly, the Austrian standard-setter AFRAC argues that "the content and quality is what makes [financial staements] valuable". Mexico's CINIF ("we do not believe there are situations where 'non-IFRS information' is warranted") and Korea's KASB (including non-IFRS information "would impair the credibility of the financial statements") argue along the same lines.

Some standard-setters argue in favour of allowing information that is not IFRS information in financial statements. The UK FRC notes that it "does not support a principle which prohibits information". The HKICPA from Hong Kong warns that prohibiting non-IFRS information "may limit [preparers'] ability to provide information that is relevant to users". And the AOSSG adds that "the IASB should not prohibit the inclusion of any types of additional information in the financial statements if it is necessary for users understanding the financial statements" which is seconded by New Zealand's NZASB noting that prohibiting the inclusion "could prevent an entity from telling its story.". Italy's OIC also argues in favour of including non-IFRS information but adds that the issue is complex.

Many standard-setters draw a line between non-IFRS information and information that is not consistent with IFRSs (with some of them again pointing out that it would be difficult to distinguish between the two types of information). Among these are France's ANC, Malaysia's MASB, Singapore's ASC, and India's ICAI. The FRSC from South Africa stresses that "a clearer definition of 'inconsistent with IFRS' will need to be developed in order to prohibit such information from being presented".

Other standard-setters again simply acknowledge that prohibiting non-IFRS information is impractical. The Chinese CASC notes that this "is difficult to execute in both standard-setting and practice" and Norway's NRS stresses "a prohibition for non-IFRS information is not operational".

The middle ground is held by standard-setters who see pros and cons and weigh them carefully but who also stress two points: (i) in some jurisdictions there are legal requirements to include certain non-IFRS information in financial statements and (ii) IAS 1 already requires "to provide additional disclosures when compliance with the specific requirements in IFRSs is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance". Thus, EFRAG notes that "some information that is (or could be viewed as) non-IFRS is provided in accordance with laws or regulations" and Germany's ASCG concurs and adds that "IAS 1 guidance already includes tools an entity may use if it considers that the application of IFRS recognition and measurement guidance would not result in a fair presentation". The Japanese ASBJ notes that given the IAS 1 requirements "the IASB cannot explicitly define information that should (or should not) be provided within financial statements as it attempted to do in the DP".

All comment letters cited or referred to are available on the IASB website. The questions regarding non-IFRS information and information that is inconsistent with or contradicts IFRS information are questions 6 and 7. Our IAS Plus summary of the DP is available here.

EFRAG suggests quick endorsement of IFRS 9 amendments

18 Oct 2017

The European Financial Reporting Advisory Group (EFRAG) has issued positive draft endorsement advice on 'Prepayment Features with Negative Compensation (Amendments to IFRS 9)', not even a week after the amendments were issued by the IASB.

The amendments address the concerns about how IFRS 9 Financial Instruments classifies particular prepayable financial assets. They become effective for annual periods beginning on or after 1 January 2019, with earlier application permitted.

In order to allow European preparers enough time to implement the amendments before their effective date and possibly together with IFRS 9 (which has an effective date of 1 January 2018), the EFRAG moved uncommonly fast in order to allow sufficient time for (i) feedback, (ii) final EFRAG endorsement advice (expected in the fourth quarter of 2017), (iii) the ARC vote (expected in 2018), and (iv) final endorsement (aimed for in 2018).

EFRAG's overall preliminary assessment is that the amendments satisfy the criteria for endorsement for use in the EU and therefore recommends its endorsement. The draft endorsement advice can be found here and the invitation to comment here (both links to the EFRAG website). Comments on the draft endorsement advice are expected by 2 November 2017.

Please click here for an updated EFRAG status report.

Pre-meeting summaries for the October IASB meeting

16 Oct 2017

The IASB will meet at its offices in London on 24–25 October 2017. 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.

There are seven topics on the agenda.

Tuesday 24 October

The meeting starts with an education session on goodwill and impairment. As an education session the staff are not asking for decisions from the Board. The Board has been considering how to make the goodwill impairment test more effective but less costly to perform. At this meeting the staff are seeking feedback on three issues. The first is whether there should be a single model for measuring the recoverable amount of the CGU (fair value less costs to sell or value in use) and whether to factor “dynamic headroom” into the impairment assessment. The second is whether to provide relief from the mandatory annual impairment testing of goodwill and whether to change how value in use is estimated. The third is the adequacy of the information disclosed about goodwill. 

In September the Board tentatively decided to propose amending IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to lower the impracticability threshold for retrospective application of voluntary changes in accounting policies that result from agenda decisions. The staff are recommending that the Board proceed with the proposal with a 120-day comment period. They expect to issue the proposal in the first quarter of 2018.

The session on rate-regulated activities focuses on feedback from the World Standard-Setters Conference held in late September 2017. Although the group was generally supportive, several specific concerns were raised. The project consultative group meets on 26 October.

The staff will present a paper seeking approval to finalise the update to the IFRS Taxonomy for IFRS 17 Insurance Contracts.

The day concludes with a discussion of the definition of a business. The staff have been analysing six differences between the proposed IASB definition and the FASB’s revised definition (which has already been finalised).  With one exception, the staff are recommending that the IASB finalise its amendments. If the Board agrees the staff will prepare the final amendments for publication in the first half of 2018, for business combinations that are in an annual reporting period on or after 1 January 2020.

Wednesday 25 October

The Board will discuss the staff recommendation to include within the scope of the project on business combinations under common control group restructurings that are not business combinations.

The last agenda item is Conceptual Framework. The current draft underwent a fatal flaw review and the staff have been bringing issues to the Board from that review. There are two issues being discussed at this meeting. The first relates to the definition of a liability and concerns that the words “no practical ability to avoid as a going concern” captures future costs. The staff accept the concerns but think they are from drafting issues rather than a flaw in the Board’s decisions. The second issue is the lack of clarity of the link between stewardship and the objective of financial reporting. The staff are recommending including a flowchart in Chapter 1 of the revised Conceptual Framework to illustrate the link between the objective of general purpose financial reporting and the information needed to meet that objective.

More information

Our pre-meeting summaries are available on our October meeting note page and will be supplemented with our popular meeting notes after the meeting.

October 2017 IASB meeting agenda posted

16 Oct 2017

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 24 and 25 October 2017. There are seven topics on the agenda.

The Board will discuss the following:

  • Goodwill and impairment (education session)
  • IFRS implementation issues
  • Rate-regulated activities
  • IFRS Taxonomy Update — IFRS 17
  • Definition of a business
  • Business combinations under common control
  • Conceptual framework

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

IFRS Advisory Council membership update

14 Oct 2017

The Trustees of the IFRS Foundation have announced appointments and re-appointments to the IFRS Advisory Council effective 1 January 2018.

The Advisory Council is the formal advisory body to the Trustees and the IASB. It advises the IFRS Foundation on its strategic direction, technical work plan and priorities.

The new and reappointed members of the Advisory Council are:

    • Vania Borgerth - Brazilian Development Bank (BNDES)
    • Kristian Koktvedgaard - Business Europe
    • Sibel Ulusoy Tokgöz - Capital Markets Board of Turkey (CMB)
    • Laura Ramírez - Comisión Nacional Bancaria y de Valores (CNBV)
    • Professor Ann Jorissen - European Accounting Association (EAA)
    • Javier de Frutos - European Federation of Financial Analysts Societies (EFFAS)
    • Jean-Paul Gauzès - European Financial Reporting Advisory Group (EFRAG)
    • Ken Warren - External Reporting Board (XRB), New Zealand
    • Ron Edmonds - Financial Executives International (FEI)
    • Garth Coppin - Financial Reporting Standards Council of South Africa
    • Ian Burger - International Corporate Governance Network (ICGN)
    • Ton Meershoek - International Organization of Securities Commissions (IOSCO)
    • Areewan Aimdilokwong - International Organization of Securities Commissions (IOSCO)
    • Clive Brown - Investment Company Institute (ICI)
    • Henry Daubeney - PwC
    • Pam O'Connell - World Bank

In addition, the Trustees noted that the following members are stepping down from the Council at the end of 2017:

      • Rudolf A Bless - FEI
      • Prasan Chuaphanich - Federation of Accounting Professions, Thailand
      • Paul Fitzsimon - PwC
      • Robert Koethner - European Round Table of Industrialists/EuropeanIssuers
      • Anne Molyneux - ICGN
      • Gregory M Smith - ICI
      • Uğur Yaylaönü - CMB

The press release announcing the new appointments can be found on the IASB's website.

The Bruce Column — Judgements - application or estimation: the question remains

13 Oct 2017

Regulators care about the difference between judgements that relate to applying accounting policies and judgements involving estimations. As Robert Bruce, our regular columnist reports, they are not the only ones.

It is often argued that the problem with economics is that it is neither an art nor a science. And when it comes to some areas of accounting and financial reporting the same dilemma becomes apparent. Quite what is the difference between judgement in determining what accounting policy applies to a transaction (and how to apply it) and what has been estimated in applying that policy?

Information about the key judgements and estimates provides very useful insights. It helps investors understand the choices and judgements management has had to make in preparing the financial statements.

It also allows investors to better assess the quality of the accounting policy decisions management makes and to identify those areas that rely on greater estimation. It enables people to think about what might happen and what may affect the outcomes being estimated. It throws light into a thought process that the blunt disclosure of a bald fact does not.

Application and estimation both involve judgement. For example, judgement may lead a company to choose fair value for an area of its business. And judgement is required to estimate that fair value.

To go back to the detail, the starting point here is IAS 1 on the presentation of financial statements. It lays down disclosure requirements surrounding the judgements management make in applying accounting policies and the assumptions and other sorts of estimation that underlie the amounts set out in the financial statements.

Policies provide the general shape of the financial statements. And IFRS provides management with certain choices when it comes to policies. Their selection shows how they see transactions. Once the accounting for a transaction has been selected, its consequences should be reasonably well understood. IAS 1 requires disclosure of the judgements that management has made in the process of applying the entity’s accounting policies that have the most significant effect on the amounts recognised in the financial statements.

On the other hand, estimates reflect the inherent uncertainties of the transaction and the associated amounts.   The uncertainties mean that the reported numbers could very well change in the near future as those uncertainties are resolved. IAS 1 requires disclosure of information about the assumptions the entity makes about the future, and other major sources of estimation uncertainty at the end of the reporting period, that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

It is the sort of thing that capital markets regulators focus on. They want detail. They don’t want a list of the policies or numbers that required the exercise of judgement, they want to know what was in the minds of management and how they exercised their judgement. They want detail of how both are produced, but not boiler-plate, unhelpful statements about estimates and uncertainties. When entities do the latter, the result is clutter.

But the importance of distinguishing judgements about policies from judgements about estimates is not only about disclosure. The accounting for each has a very different impact on the financial statements. When an entity changes its accounting policy it reshapes the current figures and the comparatives as if it had always applied the new policy. Some might say they are re-writing history. An accounting policy change generally changes the timing of income-expense recognition over the life of the asset, liability (contract) being accounted for, but not the cash flows. A change in estimate normally indicates that the timing or amount of future cash flows has changed. And it generally has an impact in profit or loss as it arises.

So it is important to make sure that estimation uncertainty is not treated as an accounting policy judgement with the consequences pushed back into the past.

The IASB has published an exposure draft seeking to provide more clarity over whether a change should be accounted for as a change in estimate vs a change in accounting policy. This may bring some science to the art of determining the kind of judgement an entity is dealing with. But to get guidance on clear and meaningful disclosure, one will have to see how the IASB progresses with the project on principles of disclosure.  

IIRC publishes results of integrated reporting implementation consultation

13 Oct 2017

Earlier this year the International Integrated Reporting Council (IIRC) launched a two-month consultation to gauge businesses' views on the implementation of the framework, to inform on further development. The results of that consultation are now available.

The feedback received indicated that the Framework stands up well to the challenges of implementation. However, several opportunities to provide guidance and examples and take other actions to help report preparers and other stakeholders continue to tackle challenges were also identified. In fact, the report identifies 48 actions the IIRC currently proposes taking, based on the preliminary analysis of the feedback. Some of these actions would also include updates to the framework itself. However, the report also acknowledges the need for a stable platform:

There is clearly a choice to be made between giving sufficient time for companies to implement the Framework without changes being made, and updating the Framework in the light of experience and external developments. We have carefully considered the small number of suggestions made in this exercise for Framework revisions, and concluded that none are of immediate concern to justify making those changes now.

Please click to download the report from the IIRC website.

IASB finalises amendments to IFRS 9 regarding prepayment features with negative compensation and modifications of financial liabilities

12 Oct 2017

The International Accounting Standards Board (IASB) has published 'Prepayment Features with Negative Compensation (Amendments to IFRS 9)' to address the concerns about how IFRS 9 'Financial Instruments' classifies particular prepayable financial assets. In addition, the IASB clarifies an aspect of the accounting for financial liabilities following a modification.



In 2016 the IFRS Interpretations Committee received a submission asking how particular prepayable financial assets would be classified applying IFRS 9 Financial Instruments. The Committee noted that under IFRS 9 certain prepayment options would preclude instruments that otherwise only feature contractual cash flows that are solely payments of principal and interest (SPPI) from being measured at amortised cost or fair value through other comprehensive income. Problematic in this case are prepayment features where the lender could be forced to accept a prepayment amount that is substantially less than unpaid amounts of principal and interest because this would constitute a payment to the borrower by the lender and not a compensation from the borrower to the lender. The Interpretations Committee was convinced that using amortised cost measurement could provide useful information in this case and asked the Board to consider adding a narrow-scope exception to IFRS 9.

The Board followed the Interpretations Committee's reasoning and published ED/2017/3 Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9) in April 2017. The ED proposed a narrow exception to IFRS 9 for particular financial assets that would otherwise have contractual cash flows that are solely payments of principal and interest but do not qualify for amortised cost or fair value through other comprehensive income measurement as a result of a prepayment feature. The Board proposed that such a financial asset would be eligible to be measured at amortised cost or at fair value through other comprehensive income (depending on a company's business model) if two conditions are met:

  • the assessment that the prepayment amount is not solely a payment of principal and interest on the principal amount outstanding only hinges on the fact that the party that chooses to terminate the contract early may receive reasonable additional compensation for doing so; and
  • when the entity initially recognises the financial asset, the fair value of the prepayment feature is insignificant.



The amendments in Prepayment Features with Negative Compensation (Amendments to IFRS 9) are:

Changes regarding symmetric prepayment options

Under the current IFRS 9 requirements, the SPPI condition is not met if the lender has to make a settlement payment in the event of termination by the borrower (also referred to as early repayment gain).

Prepayment Features with Negative Compensation amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments.

Under the amendments, the sign of the prepayment amount is not relevant, i. e. depending on the interest rate prevailing at the time of termination, a payment may also be made in favour of the contracting party effecting the early repayment. The calculation of this compensation payment must be the same for both the case of an early repayment penalty and the case of a early repayment gain.

During redeliberations, the IASB decided not to confirm the second eligibility condition (insignificant fair value of the prepayment feature at initial recognition) proposed in ED/2017/3.

Clarification regarding the modification of financial liabilities

The final amendments also contain (in the Basis for Conclusions) a clarification regarding the accounting for a modification or exchange of a financial liability measured at amortised cost that does not result in the derecognition of the financial liability. The IASB clarifies that an entity recognises any adjustment to the amortised cost of the financial liability arising from a modification or exchange in profit or loss at the date of the modification or exchange. A retrospective change of the accounting treatment may therefore become necessary if in the past the effective interest rate was adjusted and not the amortised cost amount.


Effective date and transition requirements

The amendments are to be applied retrospectively for fiscal years beginning on or after 1 January 2019, i. e. one year after the first application of IFRS 9 in its current version. Early application is permitted so entities can apply the amendments together with IFRS 9 if they wish so. Additional transitional requirements and corresponding disclosure requirements must be observed when applying the amendments for the first time.


Additional information

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IASB finalises amendments to IAS 28 regarding long-term interests in associates and joint ventures

12 Oct 2017

The International Accounting Standards Board (IASB) has published 'Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28)' to clarify that an entity applies IFRS 9 'Financial Instruments' to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.



IFRS 9 Financial Instruments excludes from its scope interests in associates and joint ventures accounted for in accordance with IAS 28 Investments in Associates and Joint Ventures. However, the IFRS Interpretations Committee received a submission asking whether that scope exclusion applies only to interests in associates and joint ventures to which the equity method is applied, which seemed a point not clear to some stakeholders.

The proposed amendments to clarify the matter were originally included in the exposure draft ED/2017/1 Annual Improvements to IFRS Standards 2015–2017 Cycle published on 12 January 2017. However, in May 2017 the Board decided to finalise the amendments as a narrow scope amendment in its own right.



The amendments in Long-term Interests in Associates and Joint Ventures (Amendments to IAS 28) are:

  • Paragraph 14A has been added to clarify that an entity applies IFRS 9 including its impairment requirements, to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.
  • Paragraph 41 has been deleted because the Board felt that it merely reiterated requirements in IFRS 9 and had created confusion about the accounting for long-term interests.

The ammendments are accompanied by an illustrative example.


Dissenting opinion

The final amendments contain a dissenting opinion as one Board member disagrees amending IAS 28 without also specifying the types of interests that an entity accounts for using the equity method and the types of interests that an entity accounts for applying IFRS 9.


Effective date and transition requirements

The amendments are effective for periods beginning on or after 1 January 2019. Earlier application is permitted. This will enable entities to apply the amendments together with IFRS 9 if they wish so but leaves other entities the additional implementation time they had asked for.

The amendments are to be applied retrospectively but they provide transition requirements similar to those in IFRS 9 for entities that apply the amendments after they first apply IFRS 9. They also include relief from restating prior periods for entities electing, in accordance with IFRS 4 Insurance Contracts, to apply the temporary exemption from IFRS 9. Full retrospective application is permitted if that is possible without the use of hindsight.


Additional information

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KASB concludes post-implementation review of K-IFRS 1113 'Fair Value Measurement'

12 Oct 2017

The Korea Accounting Standards Board (KASB) has commissioned a post-implementation review of K-IFRS 1113 'Fair Value Measurement', which is identical to IFRS 13.

The purpose of the review was to determine

  • whether the standard achieves its purpose,
  • the benefits and costs of complying with the standard,
  • problems and difficulties that arose, and
  • ways of improving the usefulness of fair value information.

The findings were generally favourable, but some difficulties and problems were identified.

Please click to access the report with the findings of the review on the KASB website (in the English language).

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