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March

Entity specific disclosures in XBRL reports

31 Mar 2018

XBRL International has issued draft guidelines for enterprise-specific disclosures (ESDs) in XBRL reports.

ESDs are facts included in a business report as a result of requirements from authoritative sources such as International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (US GAAP), or voluntarily provided by the reporting entity. They are sufficiently unique as to be considered specific to the reporting entity or to a small number of reporting entities.

ESDs require special handling in XBRL as the base taxonomy may not be intended, or even able, to cover all the possible reporting requirements that reporting entities include in reports when applying the principles and requirements of a specific reporting domain. In addition, the character of ESDs makes it difficult for financial users to compare companies' financial results because ESDs are rarely defined in a recognised taxonomy while they are widely used in open reporting environments, such as IFRS reporting, which is largely based on principle.

The draft guidelines are available here. Comments are requested by 23 May 2018.

IASB publishes revised Conceptual Framework

29 Mar 2018

The International Accounting Standards Board (IASB) has published its revised 'Conceptual Framework for Financial Reporting'. Included are revised definitions of an asset and a liability as well as new guidance on measurement and derecognition, presentation and disclosure. The new Conceptual Framework does not constitute a substantial revision of the document as was originally intended when the project was first taken up in 2004. Instead the IASB focused on topics that were not yet covered or that showed obvious shortcomings that needed to be dealt with.

 

Background

The Conceptual Framework had been left largely unchanged since its inception in 1989. In 2004, the IASB and the FASB decided to review and revise the conceptual framework, however, changed priorities and the slow progress in the project led to the project being abandoned in 2010 after only Phase A of the original joint project had been finalised and introduced into the existing framework as Chapters 1 and 3 in September 2010. Phase D saw the publication of a discussion paper and an exposure draft but was never finalised. The Boards discussed Phases B and C quite extensively without any consultation document ever being issued, and Phases E to H largely remained untouched.

During the 2011 agenda consultation many participants called for the IASB to reactivate and finalise the conceptual framework project given the multitude of open conceptual issues it is facing in many of its current projects. As a result, the IASB officially added the project to its agenda again in September 2012, this time as an IASB-only project and no longer aimed at a substantial revision of the framework but focused on those topics that are not yet covered (e.g. presentation and disclosure) or that show obvious shortcomings that need to be dealt with. As a first step, a Discussion Paper covering all aspects of the framework project was published in July 2013, followed by a comprehensive Exposure Draft in May 2015.

 

Summary of main aspects of the Conceptual Framework

The 2018 Conceptual Framework is structured into an introductory explanation on the status and purpose of the Conceptual Framework, eight chapters, and a glossary:

Chapter Topic
Status and purpose of the Conceptual Framework
1 The objective of general purpose financial reporting
2 Qualitative characteristics of useful financial information
3 Financial statements and the reporting entity
4 The elements of financial statements
5 Recognition and derecognition
6 Measurement
7 Presentation and disclosure
8 Concepts of capital and capital maintenance
Appendix A Glossary

The key content of each chapter is summarised below:

Status and purpose of the Conceptual Framework. The first section notes that the Conceptual Framework's purpose is to assist the IASB in developing and revising IFRSs that are based on consistent concepts, to help preparers to develop consistent accounting policies for areas that are not covered by a standard or where there is choice of accounting policy, and to assist all parties to understand and interpret IFRS. It maintains that the framework does not override any specific IFRS. Should the IASB decide to issue a new or revised pronouncement that is in conflict with the framework, the IASB will highlight the fact and explain the reasons for the departure  in the basis for conclusions.

Chapter 1 - The objective of general purpose financial reporting. This is the first of the two chapters that were finalised as part of the joint project with the FASB in 2010, so there are only limited changes. The chapter notes that objective of general purpose financial reporting is to provide financial information about the reporting entity that is useful to existing and potential investors, lenders and other creditors in making decisions relating to providing resources to the entity. This is identified as information about the entity’s economic resources and the claims against the reporting entity as well as information about the effects of transactions and other events that change a reporting entity’s economic resources and claims. The chapter newly stresses that information can also help users to assess management’s stewardship of the entity’s economic resources.

Chapter 2 - Qualitative characteristics of useful financial information. This is the second of the two chapters that were finalised as part of the joint project with the FASB in 2010 (published as Chapter 3 in the 2010 Conceptual Framework). Again, changes are limited. The chapter explains the fundamental qualitative characteristics (relevance and faithful representation) and the enhancing qualitative characteristics (comparability, verifiability, timeliness, and understandability) of useful financial information and notes the cost constraint. Materiality is noted as an entity-specific aspect of relevance. The chapter reintroduces an explicit reference to the notion of prudence and states that the exercise of prudence supports neutrality. Prudence is defined as the exercise of caution when making judgements under conditions of uncertainty. New is also a clarification that faithful representation means representation of the substance of an economic phenomenon instead of representation of its legal form only.

Chapter 3 - Financial Statements and the reporting entity. The chapter states the objective of financial statements (to provide information about an entity's assets, liabilities, equity, income and expenses that is useful to financial statements users in assessing the prospects for future net cash inflows to the entity and in assessing management's stewardship of the entity's resources) and sets out the going concern assumption. It only mentions two statements explicitly: the statement of financial position and the statement(s) of financial performance (the latter being the former statement of comprehensive income); the rest are "other statements and notes". The chapter notes that financial statements are prepared for a specified period of time and provide comparative information and under certain circumstances forward-looking information. New to the framework is the definition of a reporting entity and the boundary of a it. The chapter also states the IASB's conviction that, generally, consolidated financial statements are more likely to provide useful information to users of financial statements than unconsolidated financial statements.

Chapter 4 - The elements of financial statements. The main focus of this chapter is on the definitions of assets, liabilities, and equity as well as income and expenses. The definitions are quoted below:
Asset. A present economic resource controlled by the entity as a result of past events. An economic resource is a right that has the potential to produce economic benefits.
Liability. A present obligation of the entity to transfer an economic resource as a result of past events.
Equity. The residual interest in the assets of the entity after deducting all its liabilities.
Income. Increases in assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from holders of equity claims.
Expenses. Decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to holders of equity claims.
New is the introduction of a separate definition of an economic resource to move the references to future flows of economic benefits out of the definitions of an asset and a liability. The expression "economic resource" instead of simply "resource" stresses that the IASB no longer thinks of assets as physical objects but as sets of rights. The definitions of asets and liabilities also no longer refer to "expected" inflows or outflows. Instead, the definition of an economic resource refers to the potential of an asset/liability to produce/to require a transfer of economic benefits. Distinguishing between liabilities and equity is not part of the new framework but has been transferred to the IASB's research project on financial instruments with the characteristics of equity.

Chapter 5 - Recognition and derecognition. The Conceptual Framework states that only items that meet the definition of an asset, a liability or equity are recognised in the statement of financial position and only items that meet the definition of income or expenses are to be recognised in the statement(s) of financial performance. However, their recognition depends on two criteria: their recognition provides users of financial statements with (1) relevant information about the asset or the liability and about any income, expenses or changes in equity and (2) a faithful representation of the asset or the liability and of any income, expenses or changes in equity. The framework also notes a cost constraint. New to the framework is the discussion of derecognition. The requirements as presented in the framework are driven by two aims: the assets and liabilities retained after the transaction or other event that led to derecognition must be presented faithfully and the change in the entity's assets and liabilities as a result of that transaction or other event must also be presented faithfully. The framework also describes alternatives when it is not possible to achieve both aims.

Chapter 6 - Measurement. This chapter is dedicated to the description of different measurement bases (historical cost and current value (fair value, value in use/fulfilment value, and current cost)), the information that they provide and their advantages and disadvantages. Current cost is newly introduced into the Conceptual Framework as it is widely advocated in academic literature. A table offers an overview of the information provided by various measurement bases. The framework also sets out factors to consider when selecting a measurement basis (relevance, faithful representation, enhancing qualitative characteristics and the cost constraint, factors specific to initial measurement, as well as more than one measurement basis) and points out that consideration of the objective of financial reporting, the qualitative characteristics of useful financial information and the cost constraint are likely to result in the selection of different measurement bases for different assets, liabilities and items of income and expense. The framework does not provide detailed guidance on when a particular measurement basis would be suitable because the suitability of particular measurement bases will vary depending on facts and circumstances. On equity, the framework offers some limited discussion, although total equity is not measured directly. Still, the framework maintains, it may be appropriate to measure directly individual classes of equity or components of equity to provide useful information.

Chapter 7 - Presentation and disclosure. In this chapter, the framework discusses concepts that determine what information is included in the financial statements and how that information should be presented and disclosed. The statement of statement of comprehensive income is newly described as "statement of financial performance", however, the framework does not specify whether this statement should consist of a single statement or two statements, it only requires that a total or subtotal for profit or loss must be provided. It also notes that the statement of profit or loss is the primary source of information about an entity’s financial performance for the reporting period and that only in "exceptional circumstances" the Board may decide that income or expenses are to be included in other comprehensive income. Notably, the framework does not define profit or loss, thus the question of what goes into profit or loss or into other comprehensive income is still unanswered.

Chapter 8 - Concepts of capital and capital maintenance. The content in this chapter was taken over from the existing Conceptual Frameworkand and discusses concepts of capital (financial and physical), concepts of capital maintenance (again financial and physical) and the determination of profit as well as capital maintenance adjustments. The IASB decided that updating the discussion of capital and capital maintenance could have delayed the completion of the framework significantly. The Board might consider revising the description and discussion of capital maintenance in the future if it considers such a revision necessary.

The Conceptual Framework does not have a stated effective date and the Board will start using it immediately.

 

References to the Conceptual Framework

Together with the revised Conceptual Framework, the IASB has also issued  Amendments to References to the Conceptual Framework in IFRS Standards. The document contains amendments to IFRS 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Not all amendments, however update those pronouncements with regard to references to and quotes from the framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version of the framework they are referencing to (the IASC framework adopted by the IASB in 2001, the IASB framework of 2010, or the new revised framework of 2018) or to indicate that definitions in the standard have not been updated with the new definitions developed in the revised Conceptual Framework.

The amendments, where they actually are updates, are effective for annual periods beginning on or after 1 January 2020.

 

Additional information

The IASB also announces that on 18 April 2018, there will be two live web presentations to introduce the revised Conceptual Framework. Please click for more information and registration on the IASB website.

 

IASB issues podcast on latest Board developments

28 Mar 2018

The IASB has released a podcast featuring Vice-Chair Sue Lloyd, Board member Darrel Scott, and education director Matt Tilling to discuss the deliberations at the March 2018 IASB meeting.

The 14-minute podcast features discussions of the following topics:

  • Disclosure initiative
  • Dynamic risk management
  • Rate-regulated activities accounting model
  • Management commentary practice statement
  • Recent CMAC, GPF, and IFRS Interpretations Committee meetings
  • PIRs of IFRS 13 and IFRS 8

The podcast can be accessed through the press release on the IASB website. More information on the topics discussed is available through our comprehensive notes taken by Deloitte observers of the March 2018 meeting.

EFRAG publishes results of literature review on IFRS 9 and long-term investment

28 Mar 2018

​In the context of its investigation on the potential effect of IFRS 9 on long-term investments, the European Financial Reporting Advisory Group (EFRAG) commissioned a literature review on the topic. The literature review complements EFRAG's discussion paper on the impairment and recycling of equity instruments published in early March 2018.

The European Commission asked EFRAG for technical advice on the topic. EFRAG already submitted quantitative data on the current holdings of equity instruments and their accounting treatment and whether entities expect that the new accounting requirements will affect their decisions in relation to investment in equity instruments. EFRAG reported its findings from this first phase in January 2018.

In the second phase of the project, EFRAG is investigating whether and how the requirements in IFRS 9 on accounting for holdings of equity instruments could be improved. EFRAG published the discussion paper to gather constituents' views on recycling and impairment of equity instruments designated at fair value through other comprehensive income on 1 March 2018 and has now made available the results of the literature view. The literature review concludes:

The limited academic evidence on the effects of IFRS 9 and related recycling issues make it difficult to draw conclusions about the possible effects of accounting requirements on long-term investors’ investment strategies. Nevertheless, we suggest that standard setters may consider that recycling may be seen as a complex issue and that investors and other users of financial information might not clearly understand the issue.

Please click to access the results of the literature review on the EFRAG website.

IASB and IFRS Foundation react to EU fitness check on public reporting by companies

27 Mar 2018

On 21 March 2018, the European Commission (EC) published a consultation document 'Fitness Check on the EU Framework for Public Reporting by Companies' that seems to come with the desired result of introducing 'carve-ins' when endorsing IFRSs for use in the European Union.

As reported earlier, the document seems oddly tilted against the use of IFRSs as issued by the IASB. The Chairmen of the IASB and the IFRS Foundation have now released a press release conceding that each jurisdiction is free to do as it chooses but wondering why a jurisdiction would choose a way forward that goes against the objectives of the G20, was only recently warned against in the very same jurisdiction, and leads to a state that has been identified as less than ideal in other jurisdictions.

The press release notes that the EU, a G20 member, has always been a strong supporter of the G20 objective of achieving a single set of high-quality global accounting standards and wonders why the EU would now consider undermining this objective.

The press release also repeats that both, the EU's own Maystadt review in 2013 and evaluation of the IAS Regulation in 2015, concluded that introducing carve-ins to create EU-adapted IFRSs risked encouraging the creation of regional, rather than global standards, which would lead to increased costs of capital and reporting for European issuers and would open the door to lobbying for private interests during the endorsement process.

Finally, the press release offers evidence from other jurisdictions to refute some claims in the consultation:

  • It provides numbers proving that the EU is not an outlier in adopting IFRSs without modification.
  • Major jurisdictions that have not adopted IFRSs at all (United States) still allow the use of unmodified IFRSs for foreign issuers, while introducing carve-ins would mean a loss of that privilege.
  • In major jurisdictions that offer a choice between unmodified IFRSs and locally amended standards (Japan), no company has adopted the locally amended standards in order not to lose the enhanced comparability with international competitors and to be able to better communicate with international investors.
  • Major jurisdictions with local accounting standards that are substantially converged with IFRSs (China, India) are committed to full convergence over time as the current state is not perceived as ideal mainly due to the limited international recognition of local standards.

The press release concludes:

Again, we completely accept that it is up to the EU to adopt accounting standards as it sees fit. But we believe that the introduction of EU carve-ins to IFRS Standards is in many ways a solution looking for a problem. There is no compelling evidence to show why it is needed, while the costs to EU companies―adding accounting friction to European capital markets―would undoubtedly exceed the benefits, the opposite of what the European Capital Markets Union project has set out to achieve.

Please click to access the full press release on the IASB website.

Of the big European standard-setters, only the German ASCG has so far reacted to the launch of the consultation. It fears a "politically desired result" and notes that it is of great importance that the "business community raises its voice in this important survey and sends a clearly audible signal to Brussels". Please see the full press release on the ASCG website.

IASB publishes proposed amendments to IAS 8 regarding agenda decisions

27 Mar 2018

The International Accounting Standards Board (IASB) has published an exposure draft 'Accounting Policy Changes (Proposed amendments to IAS 8)', considering changes in accounting policies that result from agenda decisions published by the IFRS Interpretations Committee. Comments are requested by 27 July 2018.

 

Background

Applying IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, an entity changes an accounting policy only if the change is required by an IFRS or results in improving the usefulness of information provided to users of its financial statements. However, a common reason why an entity voluntarily changes an accounting policy is to reflect non-authoritative explanatory material included in agenda decisions published by the IFRS Interpretations Committee.

To facilitate voluntary changes in accounting policy that result from an agenda decision, the Board intends to amend IAS 8 to lower the impracticability threshold for retrospective application of such changes.

 

Suggested changes

The changes proposed in ED/2018/1 Accounting Policy Changes (Proposed amendments to IAS 8) are focused on a cost benefit analysis:

  • If an entity changes an accounting method as a result of an agenda decision by the IFRS Interpretations Committee, it does a cost-benefit assessment: If the entity's cost of determining the period-specific effects or the cumulative effect of the change exceeds the expected benefits to users of the financial statements, the new accounting policy need not be applied retrospectively.
  • In addition, the IASB proposes to include corresponding application guidance for the cost-benefit assessment in the standard.

 

Effective date

The exposure draft does not contain a proposed effective date, which the IASB intends to decide on after the exposure.

 

Additional information

Please click for:

Standard-setters from Australia and Japan take up bilateral meetings

27 Mar 2018

Representatives of the Australian Accounting Standards Board (AASB) and of the Accounting Standards Board of Japan (ASBJ) met on 22 and 23 March 2018 in Melbourne.

The standard-setters provided updates on their respective financial reporting frameworks, activities and exchanged views on the opportunities for cooperation.

They also discussed specific technical topics in which both Boards have interest:

  • IFRS implementation issues (particularly impairment testing),
  • virtual currencies,
  • intangibles (particularly good will),
  • business combinations under common control,
  • equity method of accounting, and
  • other comprehensive income.

AASB and ASBJ plan to continue these meetings.

Please click for the press release on the ASBJ website.

European Union formally adopts amendments to IFRS 9

26 Mar 2018

The European Union has published a Commission Regulation endorsing 'Prepayment Features with Negative Compensation (Amendments to IFRS 9)'.

The amendments issued by the IASB in October 2017 address the concerns about how IFRS 9 Financial Instruments classifies particular prepayable financial assets.

The European Union effective date is the same as the IASB's (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.

The Commission Regulation amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council was published in the Official Journal of the European Union on 26 March 2018.

As a result of the EU's adoption, the EFRAG has updated its endorsement status report.

Updated IASB work plan — Analysis

23 Mar 2018

Following the IASB's March 2018 meeting, we have analysed the IASB work plan to see what changes have resulted from the meeting and other developments in March. Changes are numerous, but most important this time is an unchanged entry: "March 2018" for the Conceptual Framework indicates, that the revised framework will indeed come out next week.

Below is an analysis of all changes made to the work plan since our last analysis on 23 February 2018.

Standard-setting project

  • Conceptual Framework — The revised framework is to be expected next week as the unchanged entry "March 2018" indicates

Maintenance projects

  • Accounting policies and accounting estimates (amendments to IAS 8) — After discussion at the March IASB meeting, the next milestone has changed from "exposure draft feedback" to "decide project direction". No date has been given.
  • Accounting policy changes (amendments to IAS 8) — the work plan states "March 2018" (unchanged entry) and a separate communication confirms that an exposure draft will be published on 27 March 2018.
  • Definition of a business (amendments to IFRS 3) — An IFRS amendment is expected in June 2018 (previously set to Q2 2018).
  • Disclosure initiative — Definition of material (amendments to IAS 1 and IAS 8) — this project has been changed from "standrd-setting" to "maintenance". Exposure draft feedback is still expected in April 2018.
  • Disclosure initiative — Targeted standards-level review of disclosures — newly added to the work plan. The Board will decide project direction in June 2018.
  • Improvements to IFRS 8 Operating Segments (amendments to IFRS 8 and IAS 34) — The Board discussed this topic at its March meeting. A feedback statement is now expected in H2 2018.

Research projects

  • Business combinations under common control — A discussion paper is expected in H1 2019 (pushed back from H2 2018).
  • Disclosure initiative — Principles of disclosure — After this topic was discussed at the March IASB meeting, the next milestone on the work plan was changed from "decide project direction" to "discuss remaining issues" in June 2018.
  • Discount rates — Research summary is expected in June 2018 (updated from Q2 2018).
  • Financial instruments with characteristics of equity — A discussion paper is expected in June 2018 (updated from Q2 2018).
  • Post-implementation review of IFRS 13 Fair Value Measurement — After a discussion at its March meeting, the IASB added an expected date of H2 2018 for its feedback statement.
  • Share-based payment — Research summary is expected in June 2018 (updated from Q2 2018).

Other projects

  • IFRS Taxonomy Update—2017 Annual Improvements — The final update was removed from the IASB’s work plan, as the 2018 IFRS Taxonomy was issued on 16 March 2018.
  • IFRS Taxonomy Update — Common Practice (IFRS 13) — A proposed updated is expected in June 2018 (updated from Q2 2018).
  • IFRS Taxonomy Update — Prepayment features with negative compensation (amendments to IFRS 9) — This was removed from the IASB’s work plan, as the Update was published on 16 March 2018.

The above is a faithful comparison of the IASB work plan at 23 February 2018 and at 23 March 2018. For access to the current IASB work plan at any time, please click here.

March 2018 IASB meeting notes posted

22 Mar 2018

The IASB met at its offices in London on 21 and 22 March 2018. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The board discussed the following topics:

Wednesday 21 March

Disclosure Initiative

The Board continued its discussion of the feedback on the Principles of Disclosure Discussion Paper. The Board unanimously approved all the staff recommendations on the next steps in the project. The Board have therefore categorised topics into those that they think are directly related to improving disclosures in financial statements, topics that they think are more relevant to the Primary Financial Statements project, topics that are unlikely to be contributing to the disclosure problems, those that can be dealt with separately from the main disclosure problem and topics that the DP did not address that the Board will now consider further.    

Thursday 22 March

Dynamic Risk Management [Macro-hedging]

The Board decided that target profile represents the objective that management is working towards for a given asset profile unanimously and that the notionals of the asset profile and the target profile are required to be the same, but not the tenors.

Rate-regulated Activities

The Board supported the direction the staff are taking towards the definition of defined rate regulation (which sets the scope for the eventual new Standard) and also supported the criteria for recognising regulatory assets and regulatory liabilities.

Accounting Policies and Accounting Estimates

The Board discussed a summary of the comments received on the exposure draft to clarify the definitions of an accounting policy and an accounting estimate. No decisions were made.

IFRS 8 Operating Segments

The Board considered a revised package of amendments but decided that they would not bring sufficient improvements to justify proceeding with them (or any amendments) at this time.

Board members were concerned about how this decision would be communicated. It will need to be emphasised that many of the concerns that were identified when the PIR was undertaken in 2012 have been worked through by preparers. By deciding not to proceed with these minor amendments the Board is responding to these changed circumstances. The Board also noted that the work from the PIR and exposure draft would not be lost. If the FASB’s work leads the IASB to consider making changes to IFRS 8 in relation to aggregation, these amendments could be considered at that time. It is just that the Board could not justify making the amendments on their own.

Post-implementation review of IFRS 13 Fair Value Measurement

The Board decided that the PIR provided evidence that IFRS 13 is working as intended. The Board also decided that feedback on disclosure issues should be considered in the Principles of Disclosure project, and aggregation in the Primary Financial Statements project. The Board and staff will liaise with the valuation profession on guidance the valuation profession could provide on areas identified in the PIR. The Board decided to conclude the PIR and not to propose any changes to IFRS 13.   

Management Commentary

The IASB is updating its Management Commentary Practice Statement. Board members said that the Practice Statement should address long-term value creation, linkage and providing context to the current performance. The Board plans to be cautious about the language it uses in communicating about the project and how it fits into broader corporate reporting. Applications for the IASB’s consultative group on this project close on 20 April 2018.

Please click to access the detailed notes taken by Deloitte observers for the entire 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.