ICAEW and IFRS Foundation announce virtual IFRS 16 conference

30 Jun 2017

The IFRS Foundation, along with the Institute of Chartered Accountants in England and Wales (ICAEW), will be hosting a virtual IFRS conference on the implementation of IFRS 16 'Leases' on 10 October 2017. ICAEW and IFRS Foundation have chosen this new format for their annual joint conference as it considerably brings down cost and can be attended from anywhere in the world.

The conference will cover topics on:

  • Overview of the new requirements
  • Definition of a lease
  • Transition to IFRS 16
  • Exemptions
  • Measurement
  • Other issues

More information on the conference is available on the ICAEW website.

FRC defers decision on keeping FRS 102 aligned with IFRSs

30 Jun 2017

In March 2013, the UK’s Financial Reporting Council (FRC) published FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', which replaced UK GAAP with new standards based on IFRS for SMEs with effect for periods beginning on or after 1 January 2015. In September 2016 the FRC launched a consultation asking for views on whether FRS 102 should be kept up to date with IFRSs as IFRSs change, particularly in relation to major new standards that have been issued.

Although respondents’ feedback showed support for a long‑term aim of broad consistency with IFRSs, they questioned the proposed timetable and suggested more IFRS implementation experience is needed before an assessment of whether, and if so, how and when requirements based on the expected loss model of IFRS 9, IFRS 15 and IFRS 16 should be considered for incorporation into FRS 102. In addition, IFRS 17 has been issued since the FRC's consultation took place.

Therefore, the FRC has decided not to issue an exposure draft of proposed updates and also no target effective date for any changes to FRS 102 has been set.

Please click for the press release on the FRC website.

EFRAG discussion paper on goodwill impairment testing

30 Jun 2017

In connection with the post-implementation review of IFRS 3, the European Financial Reporting Advisory Group (EFRAG) has been conducting research into a number of potential amendments to the goodwill impairment test with the view to enhancing its application and effectiveness and reducing complexity.

The new discussion paper completes EFRAG's current research activities on goodwill, which also saw a discussion paper on accounting treatment for goodwill published in July 2014 and a quantitative study on goodwill and goodwill impairment published in September 2016.

The scope of the publication is limited to impairment testing and it does not seek to address broader topics such as identification and measurement of acquired intangible assets in a business combination or the extent to which these should be separated from or subsumed into goodwill. Ideas presented in the paper focus on how to allocate goodwill to CGUs, when to determine the recoverable amount, and how to determine the recoverable amount. EFRAG asks European constituents for their views on the advantages and disadvantages of the potential amendments presented in this context.

The discussion paper and a press release are available on the EFRAG website. The deadline for comments is 31 December 2017.

On 14 March 2018, the EFRAG issued a feedback statement that summarises the responses received from constituents. In general, the constituents believed that the goodwill impairment test can be improved in certain areas. For more information, see the press release and feedback statement on the EFRAG's website.

ESMA seeks participants for ESEF field tests

30 Jun 2017

European Transparency Directive requires that issuers listed on regulated markets in the EU must prepare their annual financial reports in a European Single Electronic Format (ESEF) from 1 January 2020. The European Securities and Markets Authority (ESMA) has concluded that Inline XBRL is the most suitable technology for issuers to report their annual financial reports in a single electronic format because it enables both machine and human readability in one document.

ESMA will now conduct field tests that will consist of transforming annual financial reports by issuers to Inline XBRL. ESMA is seeking participation from issuers on European regulated markets from all industries preparing IFRS consolidated financial statements. Participating issuers will receive free support to transform their annual financial report to Inline XBRL and thus be able to learn how the Inline XBRL format can be applied.

Plesae click for more information in the press release on the ESMA website.

IASB chair speaks on financial stability, insurance contracts and better communication in financial reporting

29 Jun 2017

At the IFRS Foundation's conference in Amsterdam, IASB chair Hans Hoogervorst discussed how accounting standards can help financial stability, the new insurance contracts Standard (IFRS 17) and the IASB's effort to improve financial reports so they are a better communication tool between companies and investors.

Mr Hoogervorst began by noting that although fostering financial stability is not the primary goal of accounting standards, the transparency of financial statements resulting from the accounting standards is a "crucial ingredient for achieving financial stability". He discussed the work of the IASB in recent years to issue standards that lead to high-quality accounting, which then leads to better insights of a company's performance, the ability to discover problems more timely and an early warning system to detect changes in a company's risks and performance, amongst other benefits.

In addition, Mr Hoogervorst talked about IFRS 17 Insurance Contracts that was issued about one month ago and how it is finally an international standard that will reduce the incomparability between national GAAPs for insurance. He also noted that IFRS 17 will improve financial stability in six areas:

First of all, the insurance liability will be properly measured and regularly updated, giving much better information. The build-up of unsustainable equity positions will become visible much more quickly.

Second, the cost of options and guarantees will be regularly updated and fully reflected in the financial statements.

Third, companies will also provide updated information on the risk margin they hold for their insurance products.

Fourth, the losses embedded in onerous groups of contracts will have to be recognised immediately. Contracts can be grouped, but in a way that ensures that the losses embedded in onerous groups of contracts will not be averaged with groups of profitable contracts.

Fifth, IFRS 17 ends up-front profit taking and revenue will only be recognised as the service is provided.

Finally, IFRS 17 will also make it easier for investors to judge the performance of any insurance company. Currently, many investors base their analysis on Solvency II, which is the prudential standard for the European Union. But Solvency II is almost entirely focused on the balance sheet. It makes no distinction between profits earned in the past and profits to be earned in the future. It does not convey information about profitability over time. 

In his remarks about the IASB's role in improving communication through finacial reporting, Mr Hoogervorst noted that this will be a central theme in the IASB's work plan. Instead of working on major cross-cutting Standards, the Board will focus on improving the primary financial statements, making disclosures more effective and improving the comparability and use of non-GAAP measures.

A full transcript of Mr Hoogervorst's remarks is available on the IASB website.

The Bruce Column — Social and human capital accounting starts to accelerate change

29 Jun 2017

It has been a slow burner. But, as our regular columnist Robert Bruce reports, the changed thinking that is being brought about by social and human capital accounting is now starting to take off. A new guide provides the detail required to put it into action and practical examples.

There is a time when everything suddenly comes into focus. This is what appears to be happening in the field of social and human capital accounting. The business benefits are becoming clear and the practical ways to achieve them are moving into the mainstream. Social and human capitals are, inevitably, seen as more subjective than other capitals like financial, natural and manufactured capitals. It was always going to take more time before they reached broad acceptance and ease of practical usage. But the launch and publication of the CFO Leadership Network’s Essential Guide to Social and Human Capital Accounting, under the aegis of the Prince of Wales’ Accounting for Sustainability project, looks to be the long-awaited catalyst. It provides the tools and the guidance but, more importantly, it details case studies of what businesses have already achieved. This is the body of practical experience that organisations and business need.

It is a question of recognising the role of social and human capital accounting, measuring its effects, and bringing it forward into decision-making. Done properly this creates a revolution. In the words of Judith Batchelar, Director of Sainsbury’s Brand: ‘This is not the icing on the cake. It is the cake’. It deals with risk. It deals with reputation, cost savings, stronger stakeholder relationships, better access to and retention of talent, staff and workforce. It deals with how the core skills of finance teams are essential for the integration of social and human capital information into decision-making. At the launch of the guide Sabina Nealon, Finance Director, Sustainable Business at Unilever, described how her role was ‘a bridge’ between the finance and sustainability teams. ‘By putting social and human capital into the heart of our strategy we are building a stronger platform for long-term sustainable value creation’, she said.

It can work at a simple and logical level. Judith Batchelar outlined the Sainsbury’s ‘Greenest Grocer’ programme, which led to energy savings of £1.7m in electricity in under a year. The company has just under 200,000 people. Over 2,000 people went through training programmes and what started as leadership from the CFO spread wide through the company. ‘It became’, as she said, ‘the leadership and judgement of many’. A simple but well thought through and implemented action brought lasting change. ‘That is the value your people can bring to the business’, she said.

It is also about risk. It is the simple risk of not doing something or not taking something into account. What would that something cost? And how would it impact on reputation? Connect that with the figures which show that market value is overwhelmingly made up of intangibles and you have changed the way people think. When the power company SSE first calculated the value of its human capital in 2014 it came out at £3.4bn. ‘It is so important to monetise it as that drives decision-making’, said George Cobb, SSE’s Group Sustainability Accountant. ‘We are uncovering new insights into our workforce that are leading to real business benefits,’ he said. And it works outside the business as well. ‘It has been a real eye-opener to our investors’, he said. ‘It is showing that we have invested in people’.

Previously unseen figures and factors change the thinking around a business. Examples abound in the guide. British Land tackled skill shortages. National Grid invested in employee wellbeing and found that for every £1 invested it was getting back more than £2 return in reduced sickness absence costs. The Crown Estate set up a partnership to help jobseekers into sustainable employment. It produced some £40m of societal value through savings on welfare and tax credits, increased tax and national insurance payments, and boosting local economies. All of these came from looking at the business from a different standpoint, through a new lens.

In the words of Kate Bowyer, CFO at the Crown Estate, and a member of the A4S CFO Leadership Network, they have seen ‘many benefits from investment in social and human capital and realised how investment in one capital often helps to transform others’. It is this transformation in the thinking that has brought about the changes which are still only the beginning of what can be achieved.

TCFD published final recommendations on climate-related financial disclosures

29 Jun 2017

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 final recommendations for effective disclosure of climate-related financial risks.

In the introduction to the final report, TCFD Chairman Michael R. Bloomberg notes:

The risk climate change poses to businesses and financial markets is real and already present. It is more important than ever that businesses lead in understanding and responding to these risks — and seizing the opportunities — to build a stronger, more resilient, and sustainable global economy.

The final report follows on a consultation document published in December 2016. The consultation document saw 320 unique responses from respondents in 30 countries, including 15 of the G20 jurisdictions. The four widely adoptable recommendations on climate-related financial disclosures that are applicable to organisations across sectors and jurisdictions were widely supported and remain unchanged:

  • Governance: Disclosure of the organisation’s governance around climate-related risks and opportunities
  • Strategy: Disclosure of the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning
  • Risk management: Disclosure of how the organisation identifies, assesses, and manages climate-related risks
  • Metrics and targets: Disclosure of the metrics and targets used to assess and manage relevant climate-related risks and opportunities

Key features of the recommendations are that they are adoptable by all organisations, should be included in mainstream financial filings, are designed to solicit decision-useful, forward-looking information on financial impacts, and have a strong focus on risks and opportunities related to the transition to a lower-carbon economy. The TCFD also recommends the disclosure of potential impacts of climate-related risks and opportunities under different potential scenarios, including a 2° Celsius scenario.

The following additional information is available on the FSB website:

Also see Deloitte's IFRS in Focus on the final report.

Updated IASB work plan — Analysis

28 Jun 2017

Following its June 2017 meeting, the IASB has updated its work plan. We have identified the changes since last month for you and have some general observations regarding the new format of the work plan the IASB has chosen since it moved to its new website.

General remarks

On moving to the new website, the IASB made several changes to the presentation of the work plan:

  • The new format has gone back to indicating exact timing - by indicating the half year, quarter or even month a development is expected to occur. This is much to be lauded, since it makes tracking developments (and progress and delay) much easier for users.
  • The new work plan has slightly changed categories: standard-setting projects, maintenance projects, research projects, and other projects. Taxonomy projects have become "other"; post-implementation reviews are now "research".
  • The IASB has split up the annual improvement process into individual "projects". Although the idea is still to treat certain improvements through the annual improvements process, it can no longer be traced on the face of the work plan whether a project is part of the annual improvement process and which cycle it belongs to. The expectation is that the IASB wants to allow itself more flexibility in deciding which improvement goes into which cycle.
  • The IASB has stopped dating its work plan and there is no longer a PDF version of the work plan available. For IAS Plus, we have experimented with various tracking tools to detect changes. We found a) that there a many minorest changes between Board meetings (down to spelling) and b) that to report on every little change would distract from the big picture. We have therefore decided to continue to analyse changes on a monthly basis for you - after each meeting.

Below is an analysis of all changes made to the work plan since the last update in May 2017. For this analysis, we have ignored changes where the "within three months" to "after six months" classification translated smoothly into the new format of fixed dates.

Standard-setting projects

Maintenance projects

Research projects

  • Goodwill and impairment — this project was to see a decision on the project direction after 6 months and will now see a discussion paper in H1 2018
  • Post-implementation review — IFRS 13 — this project is now considered a research project
  • Post-implementation review — IFRS 10-12 — this project is no longer appears in the IASB work plan (was supposed to be initiated after 6 months)
  • Disclosure initiative — Principles of disclosure — this project was to see a decision on the project direction after 6 months and will now see a feedback statement on the discussion paper in H1 2018

Other projects

  • proposed taxonomy update regarding common practice in connection with IFRS 13 — expected in H1 2018
  • proposed taxonomy update on IFRS 17 — this project was to see a final update is expected within six months, however, as the next project step a feedback statement on the proposed update in Q4 2017 has been inserted

The above is a faithful comparison of the IASB work plan at 18 May 2017 and at 28 June 2017. For access to the current IASB work plan at any time, please click here.

Agenda for the July 2017 ASAF meeting changed

28 Jun 2017

The International Accounting Standards Board (IASB) has released an updated agenda for the meeting of the Accounting Standards Advisory Forum (ASAF), which is to be held at the IASB's offices in London on 6-7 July 2017. To be noted is the introduction of the discussion of IAS 8 and accounting policy changes resulting from agenda decisions.

The updated agenda for the meeting is sum­marised below:

Thursday, 6 July 2017 (9:15-17:30)

  • Disclosure initiative — Principles of disclosure — Discussions related to the proposals in the discussion paper
  • Goodwill and impairment — Discussions on the ASBJ’s research paper, ‘Too little, too late,’ as well as feedback from Global Preparers Forum
  • IAS 8 — Accounting policy chnages resulting from agenda decisions
  • Improvements to IFRS 8 Operating Segments (Proposed amendments to IFRS 8 and IAS 34) — Discuss views from ASAF members and preparers on four proposed amendments to IFRS 8 and IAS 34
  • Primary Financial Statements — Gather views on the certain tentative decisions

Friday, 7 July 2017 (8:30-13:45)

  • Post-implementation review of IFRS 13 — Gather preliminary feedback on the Request for Information
  • Rate-regulated activities — Discussions on the proposed accounting model
  • Wider corporate reporting — Overview on wider corporate reporting and whether to consider an update to Practice Statement Management Commentary
  • Property, plant and equipment: Proceeds before intended use (proposed amendments to IAS 16) — Discussions on the upcoming exposure draft
  • Project updates and agenda planning

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

Feedback statement on the ESA consultation

28 Jun 2017

On 21 March 2017, the European Commission launched a public consultation on the operation of the European Supervisory Authorities (ESAs), one of which is the European Securities and Markets Authority (ESMA). The consultation document had suggested that the review of the ESAs' operation might also be used to "streamline" the endorsement process in the EU by giving ESMA an "advisory role". The feedback statement now published shows that stakeholders did not share this view.

As had become obvious from publicly available reponses, the stakeholders did not believe that the current arrangements need to be changed. The feedback statement states:

The vast majority of respondents are of the view that there is no reason to change the current endorsement process or the role of EFRAG. EFRAG has been operating successfully under the new governance structure since November 2014 following the implementation of the Maystadt recommendations. These stakeholders believe that strengthening the role of ESMA could be counterproductive as ESMA would consider the standards only from the perspective of investors. A clear separation of powers between standard setting and enforcement should be maintained to avoid conflict of interest.

Please click to access the full feedback statement on the Eunropean Commission's website.

Correction list for hyphenation

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