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June

IFRS Foundation issues illustrative examples in XBRL for the IFRS Taxonomy 2018

20 Jun 2018

The IFRS Foundation has published the IFRS Taxonomy Illustrative Examples 2018.

The purpose of these examples is to il­lus­trate the use of the IFRS Taxonomy 2018 elements by tagging the illustrative examples that accompany IFRS Standards.

For more information, see the press release on the IASB’s Web site.

'An introduction to accounting for cryptocurrencies'

20 Jun 2018

Chartered Professional Accountants of Canada (CPA Canada) has published an introduction to accounting for cryptocurrencies under IFRS.

The paper notes that concerns have been raised that the current application of IFRSs, particularly the application of IAS 38 Intangible Assets and the measurement of cryptocurrencies at cost, is not reflective of economic substance and does not provide relevant information to users of financial statements. It therefore analyses the problem in five sections:

  • a brief overview explaining what cryptocurrencies are;
  • a discussion of possible approaches to accounting for cryptocurrencies under existing IFRS;
  • an update on accounting standard-setting activity related to cryptocurrencies;
  • a brief summary of the tax implications of transactions involving cryptocurrencies; and
  • supplemental guidance on determining fair value for cryptocurrencies.

The authors of the guide encourage accounting standards-setters to undertake research in this area to better understand and evaluate the potential impacts of cryptocurrencies and to ensure the accounting for cryptocurrencies is relevant and useful.

Please click to access the publication on the CPA Canada website.

FRC Lab report on blockchain

20 Jun 2018

A new report from the Financial Reporting Lab of the UK Financial Reporting Council (FRC) concludes that the growing use of blockchain means that those involved in corporate reporting processes need to consider its potential disruptive impact.

The Lab considered how current developments and use-cases of blockchain technology might impact corporate reporting processes in the future. In the report, the Lab use their digital reporting framework to explore how different technologies might impact the production, distribution and consumption of corporate reporting.

The report recommends actions for various groups who have an interest in this area including:

  • Regulators, standard-setters and professional bodies are encouraged to monitor blockchain developments and consider how they may impact corporate reporting.  The report recommends the creation of a forum where all those involved in corporate reporting can share and learn.
  • Preparers and users should focus on gaining a greater level of understanding and consider experimentation and cautious innovation when costs and benefits are balanced.

Please click to access the report on the FRC website.

IFRS Foundation Trustees propose tenure increases for Chair and Vice-Chair

19 Jun 2018

The Trustees of the IFRS Foundation have issued narrow-scope amendments to the IFRS Foundation Constitution that will increase the maximum tenure of the Trustees’ Chair and Vice-Chair.

Specifically, the proposed amendments would:

  • Increase the maximum tenure of the Trustee Chair and Vice-Chair to nine years.
  • Allow the option to appoint a Chair from either internally within the Trustees or externally.
  • Clarify the requirements for Trustee reappointments.

Comments on the proposal are due by 17 September 2018. For more information, see the press release on the IASB’s website.

ASBJ proposes adopting IFRS 16 unmodified as JMIS

18 Jun 2018

The Accounting Standards Board of Japan (ASBJ) has issued proposed amendments to ‘Japan’s Modified International Standards (JMIS): Accounting Standards Comprising IFRSs and the ASBJ Modifications'.

The proposed amendments reflect the endorsement process on IFRS 16 and amendments issued by the IASB between 1 July 2017 and 31 December 2017. Adoption of and IFRS 17 is still being considered.

After careful consideration, the ASBJ decided that no ‘deletions or modifications’ should be made for this round of endorsement process, although the draft notes several concerns around IFRS 16. The draft states a certain disappointment that these concerns from Japan were not addressed in developing the final standard but concludes that now would be a problematic time for raising the concerns again:

Constituents in Japan expressed various concerns over IFRS 16. [...]  Stakeholders from jurisdictions other than Japan expressed similar concerns during the development of IFRS 16, the IASB addressed those concerns to a certain extent. [...] After IFRS 16 was finalised, no significant issue has been raised so far from other jurisdictions where IFRS is applied and, consequently, the IASB currently does not seem to envision any review of the requirements in IFRS 16. Accordingly, at this time when entities are preparing to implement the new standard, it would be difficult to raise the abovementioned concerns to stimulate global discussions.

For more information, see the press release and related documents on the ASBJ website (all documents available in the English language).

Pre-meeting summaries for the June IASB meeting

15 Jun 2018

On Tuesday 19 June the IASB and the US FASB are holding a joint education meeting. That is followed by a two-day meeting of the IASB on 20 and 21 June. 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.

Joint IASB–FASB Education Meeting

The topics being discussed are mainly those related to Standards that the IASB and FASB developed together, or are largely converged, as well as new topics that both boards have on their work programmes.

Segment Reporting

The IASB’s and FASB’s Standards on segment reporting (IFRS 8 Segment Reporting and Accounting Standards Codification Topic 280, Segment Reporting) are largely converged. The IASB will provide a summary of its post-implementation review of IFRS 8 and explain why it decided not to finalise the amendments to IFRS 8 it had exposed. The FASB will outline the targeted changes related to the segment aggregation process that it is considering making to Topic 280.

Primary Financial Statements and Financial Performance Reporting

Both boards are working on projects related to the primary financial statements. The IASB will give an overview of its Primary Financial Statements project and the FASB will update IASB members on the background and scope of its Financial Performance Reporting. The FASB is focusing on two types of improvements: disaggregation of performance information; and the structure of the performance statement (subtotals).

Disclosure Initiative and the Disclosure Framework

Both boards are working on projects related to improving disclosures in the financial statements. The IASB will provide an update on its Disclosure Initiative—in particular the Principles of Disclosure and Targeted Standards-level Review of Disclosures projects. The FASB will give an update on its Disclosure Framework project.

Fair Value

The IASB’s and FASB’s Standards on measuring fair value (IFRS 13 Fair Value Measurement and Accounting Standards Codification Topic 820, Fair Value Measurement) are largely converged.

The FASB has developed amendments to the disclosure requirements for fair value measurements which it plans to finalise, by updating Topic 820, in the third quarter of 2018. The FASB will provide an overview of those changes. The IASB will set out the role of post-implementation reviews and provide some background on IFRS 13, including differences between Topic 820 and IFRS 13. The staff will then summarise the main messages received and how the IASB plans to consider the usefulness of disclosures as part of its work on ‘Better Communication in Financial Reporting’.

Goodwill and Impairment

The IASB and FASB requirements for business combinations were developed jointly. The requirements for the initial recognition and measurement of goodwill are therefore largely converged. The IASB and FASB requirements for the allocation of goodwill to cash-generating units and impairment are similar, but there are differences. Both boards have projects looking at goodwill. The boards will share information about those projects.

Implementation

The boards will share information about their respective implementation support activities undertaken regarding revenue recognition and leases.

Update on all projects not otherwise covered

The boards will provide updates on their projects that will not otherwise be discussed during the Joint Education Session.

IASB Meeting

Disclosure Initiative

This session has three threads: Better Communication in Financial Reporting; Targeted Standards-level Review of Disclosures—Guidance for the Board; and Materiality.

The staff will provide the background to, and current status of, the projects in Better Communication in Financial Reporting (Primary Financial Statements, Principles of Disclosure, Targeted Standards-level Review of Disclosures, Definition of Material, Management Commentary and IFRS Taxonomy) and ask the Board whether it is satisfied with the current interaction and distinction between them.

The staff will present an analysis and recommendations to the Board about the development of ‘Guidance for the Board’ to use when developing and drafting disclosure objectives and requirements. One recommendation is that a member of the IFRS Taxonomy team should be assigned to each projects to assist with developing disclosure objectives and requirements. The staff have identified nine Standards as potential candidates for the targeted Standards-level review.

The IASB will continue to consider the feedback on its proposed amendments to the definition of material. At this session they will consider feedback on effective date, ‘immaterial’ vs. ‘not material’, the materiality practice statement, use of the term ‘material’ and the definition of material of the International Auditing and Assurance Standards Board (IAASB).

Dynamic Risk Management (DRM)

The staff are recommending that the IASB address as part of the first phase of DRM project the derivative financial instruments that may be used as the hedging instruments for DRM and their designation and de-designation. The staff will explain what performance means in the context of DRM and the information that about DRM activities that should be provided in the statement of profit or loss. 

Research programme

The staff will give a general update on the research programme.

IBOR reform

The staff are recommending that the IASB start a research project to consider the effects on financial reporting of potential discontinuation of IBORs (interest reference rates such as LIBOR, EURIBOR and TIBOR).

Primary Financial Statements

In developing the proposals for primary financial statements the staff have been focusing on non-financial entities. At this meeting the staff will present its preliminary analysis and observations about whether the tentative decisions made so far could apply, with little or no change, to financial entities.  Among the topics to be discussed are management performance areas; the principles of disaggregation in the financial statements, disaggregation of expenses by nature and by function; other comprehensive income; EBIT; income and expenses from investments; and the Statement of cash flows. The papers do not include any staff recommendations. The staff are seeking feedback on their preliminary analysis.

Insurance Contracts

The staff are recommending that the IASB propose, as part of its annual improvements cycle, a series of amendments to IFRS 17 Insurance Contracts. This is to address problems where the drafting of IFRS 17 does not achieve what the Board intended.

Implementation

The staff are recommending that the IASB not finalise the amendments it proposed and exposed to IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction.

Islamic Finance Consultative Group Update

The staff will provide a summary of the March 2018 meeting of the Islamic Finance Consultative Group.

Business Combinations under Common Control 

The staff are seeking feedback on which approach, or approaches, they should pursue for BCUCC that affect non-controlling shareholders. The staff propose exploring the Ceiling approach further as well as assessing the acquisition method as set out in IFRS 3.

More information

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

AcSB publishes draft framework for reporting performance measures

14 Jun 2018

In order to help enhance the relevance of financial information, the Canadian standard-setter Accounting Standards Board (AcSB) has developed a framework responding to the needs of stakeholders about the performance measures reported by entities. The framework is aimed at enhancing the usefulness and transparency of performance measures for users when management chooses to report them outside financial statements.

In introducing the framework, the AcSB notes concerns that are often mentioned in connection with performance measures: (1) the quality of performance measures being reported; (2) the lack of consistency, transparency and comparability of performance measures reported period to period; (3) the “expectation gap” about the governance practices of entities over how performance are developed and reported, and whether those measures are subject to assurance, and (4) the limited guidance available on how to develop and report performance measures not usually subject to assurance. Consequently, the framework is intended to be a tool to guide:

  • management in developing and assessing how effectively they report financial and non-financial performance measures;
  • directors and others charged with governance in fulfilling their responsibilities when assessing management’s processes and reporting of performance measures; and
  • investors, contributors, lenders and other resource providers in setting expectations and seeking compliance with the framework as part of obtaining the information they need.

The framework is intended for public companies, not-for-profit organisations, private companies and pension plans and can be applied to financial, non-financial or operational performance measures that are reported separately from and are not part of a set of financial statements (including note disclosures) prepared in accordance with an accounting framework. It is not intended for financial performance measures reported in accordance with GAAP or other accounting frameworks.

The framework notes that characteristics of a high-quality performance measure are that it is relevant and faithfully depicts the value realised or the ability to create value (including being complete, neutral and free from material error). Consistency, comparability, verifiability, timeliness and understandability further enhance the usefulness of a performance measure. A performance measure and information reported about it would be material if misstating it could influence decisions that users make based on that information about the entity. The framework also notes a cost benefit constraint.

The core of the framework is a model for developing and reporting a performance measure. It is visualised as a foundation with four pillars and a roof with the foundation being the entity looking to its strategies, goals and objectives to identify key activities it has undertaken and will undertake to generate value in the short and long term to decide what information an entity may want to report externally – in addition to information reported in financial statements. On this foundation, the pillars are established:

  • Pillar 1 – Selecting a relevant performance measure that can be faithfully depicted 
  • Pillar 2 – Applying materiality and the cost benefit constraint considering the type and size of the entity and the complexity of its activities
  • Pillar 3 – Establishing policies, controls and procedures to ensure consistency, comparability, verifyability, timeliness and understandability
  • Pillar 4 – Reinforcing with governance practices

The roof and final step in the process is effective communication. The framework notes that a performance measure is understandable when information about it is described and reported clearly and concisely and a transparent disclosure provides the information necessary for a user to understand the performance measure.

The draft framework, which also offers three appendices with references and resources, an overview of the framework, as well as disclosure considerations, is available on the AcSB website. It is complemented by a survey on reporting performance measures. Comments are requested by 1 October 2018.

Please note that the AcSB also offers an 18 minute video with AcSB Chair Linda Mezon introducing the draft framework.

The AcSB is offering feedback sessions both in person across Canada and virtually in August and September. More information is available here.

IFRS Interpretations Committee holds June 2018 meeting

14 Jun 2018

The IFRS Interpretations Committee met in London on Tuesday 12 June 2018 and discussed seven issues, including two new interpretation requests. We have posted Deloitte observer notes for the technical issues discussed during this meeting.

Finalisation of a draft Agenda Decision

The Committee finalised a tentative Agenda Decision in relation to the classification of short-term loans and credit facilities and whether a short-term bank arrangement that is always overdrawn can qualify as a component of cash and cash equivalents.

Continuing discussions

The Committee continued its discussions in relation to three matters.

IAS 12 Income Taxes Deferred tax—tax base of assets and liabilities. The Committee decided to develop an amendment to IAS 12 to narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to both deductible and taxable temporary differences to the extent that an entity recognises a deferred tax asset and liability of the same amount in respect of those temporary differences.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets—the meaning of ‘unavoidable costs’. The Committee decided that no new disclosure requirements be added and that on initial application of the proposed amendments entities would be required to use a modified retrospective application with no option for full retrospective application and no specific transition provision for first-time adopters.

IAS 21 The Effects of Changes in Foreign Exchange Rates—foreign exchange restrictions. The Committee decided to publish for public comment a tentative Agenda Decision focusing on the specific circumstances in Venezuela. The Committee also asked the staff to assess whether it would be beneficial to consider amending IAS 21 to provide additional guidance on estimating an exchange rate.

New issues

There were two new issues, both in relation to IAS 23. The Committee received submissions asking whether:

  • in determining the expenditures on which to apply the capitalisation rate, an entity includes expenditures incurred on the qualifying asset before obtaining the general borrowings in the case that the entity incurs expenditures on the qualifying asset both before and after it incurs borrowing costs on the general borrowings.
  • an entity ceases to capitalise borrowing costs in respect of expenditures incurred in developing land once it begins constructing the building on the land or continues to capitalise borrowing costs in respect of the land development while it constructs the building.

The Committee decided that IAS 23 provides an adequate basis for an entity to determine the appropriate accounting and the Committee will publish for public comment tentative Agenda Decisions to that effect.

Advice from the Committee for the IASB

In June 2017, the Board published the Exposure Draft Property, Plant and Equipment––Proceeds before Intended Use (ED). The staff are concerned that the feedback in the comment letters received suggests that there is a risk that in reducing the diversity in the reporting of sale proceeds, the proposed amendments could create new diversity in the costs recognised in profit or loss. The Committee discussed how best to proceed on this project, but was not asked to make any decisions.

Other work in progress

There are three continuing topics that are were not brought to this meeting, plus one new issue that the staff are still analysing.

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

Academic conference sees keynote speech and panel discussion on the future of corporate reporting

13 Jun 2018

The 13th International Conference on Accounting and Management Information Systems (AMIS 2018) currently held at the Bucharest University of Economic Studies was opened today by a keynote address 'The future of corporate reporting - A standard setter's perspective on contents and proliferation' immediately followed by a panel discussion drilling more deeply into some of the messages presented.

The keynote address was delivered by Prof Andreas Barckow, President of the German standard-setter Accounting Standards Committee of Germany and Vice-President of the European Financial Reporting Advisory Group (EFRAG). In his presentation, he took stock of the current situation in financial reporting, other (wider) corporate reporting, and technological aspects (proliferation/dissemination).

His thought-provoking points included the statements that in financial reporting there have been no major developments in Europe since 2005, that the current approach seemed to continue to try to apply a "manufacturing-centric" accounting model to an increasingly service-oriented industry (which might indeed be fostering the use of non-GAAP measures), and that the difficulty of addressing a problem should never be an excuse for not addressing it (this was said in the context of intangibles). Prof Barckow also pointed out that while there is one international accounting standard-setter (the IASB), there are up to 1,000 organisations active in the field of wider corporate reporting. On technology, he stated that the current thinking is still focused on printed reports, which means to ignore the vast posiibilities technological developments offer that could see for example ideas such as the CORE & MORE approach to corporate reporting realised.

The panel discussion following the keynote address was moderated by Prof Katherine Schipper of Duke University and saw as panelists Prof Axel Haller, University of Regensburg, Prof Paul André, HEC Lausanne, and Prof Barckow. They picked up several aspects mentioned in the keynote address:

  • No major developments in financial reporting since 2005. While the point was at first contested in extreme form, the panelists by and by concluded that there was some validity to it. It was even stated that IFRS 9, IFRS 15, and IFRS 16 replaced standards that many in practice saw as working well, i.e. that were not broken. The new standards often also build on ideas that had been around for a long time - in some cases since the 1990s. While moving from incurred losses to expected losses with IFRS 9 was indeed a conceptual change, however, it was stated that in practice even under IAS 39 preparers were already half way to expected loss accounting. In the end, the moderator even questioned whether 2005 was a reporting development or merely a convergence development.
  • Non-GAAP measures. After quickly clarifying what had been meant by the non-GAAP measure problem in the keynote address, panelists discussed whether non-GAAP measures were a problem at all. They concluded that not the non-GAAP measures were a problem in themselves ("non-GAAP measures come and go") but the lack of reconciliation or indeed lack of reconcilability was. Nevertheless, panelists refused to place the fault entirely with the preparers. Comments included that the increased use of non-GAAP measures expressed a management approach and showed that "the true North" was not always where the standard-setters believed it to be. It was also stated that the use of these measures showed that we are on a way away from standardised accounting. It was in this context that the IASB's work on management performance measures was brought up and questioned as it would indeed cling to a broader boundary question that tries to define what gets in and what must be left out. It was noted that trust was about systems and processes, not about printed reports, and that the non-GAAP measure problem could be addressed by moving away from the paper approach.
  • Intangibles. Intangibles were described not only as a concern but as a growing concern as the economy is more and more service-oriented and there are many intangible assets that never show up on a balance sheet although the market clearly sees them. After an intervention from the audience that noted that the logic should not be that the markets see something and then the accounting needs to explain it, the panelists agreed that the problem was not so much in not recognising intangible assets but rather in the question why there was often such a gap between an entity's market capitalisation and the profit (or lack of profitability) shown in the financial statements.There was not necessarily a need to align the two numbers but there should be a way to reconcile them. The new definition of an asset in the revised Conceptual Framework was mentioned and questioned, especially in the context of research and development costs.
  • Sustainability. Panelists were asked which way forward they saw for wider corporate reporting or rather linking sustainability and other wider corporate reporting aspects with financial reporting. The wish was expressed that the many organisations on the sustainability side would combine under the umbrella of (ideally) one, and the clear favourite was the Global Reporting Initiative (GRI). The IASB could then work together with that one organisation and concentrate on areas where the requirements overlap to harmonise them so that for example not several concepts of materiality clash. Again the CORE & MORE concept was brought up where not only the sustainability organisations would combine but also the IASB and the remaining organisation would be brought together under one even larger umbrella that would also include other corporate reporting organisations.
  • Academic contribution to standard-setting. The standard-setter on the panel was asked what he thought researchers could contribute to standard-setting. He replied that he saw two ways he would want research to support standard-setting: (a) by confirming (or refuting) that certain problems (such as mentioned in the keynote address) existed and (b) if indeed the existence of a problem was confirmed to then offer thoughts and solutions. He clearly advocated normative research in this case and expressed disappointment that at least as far as he was aware no research had been contributed to the revision of the Conceptual Framework of the IASB, which would have been a prime opportunity for normative research. His fellow panelists agreed and concluded that research should lead standard-setting and not just try to follow it.

The following additional information is available on the website of the Bucharest University of Economic Studies:

Hyperinflationary economies - updated IPTF watch list available

12 Jun 2018

IAS 29 'Financial Reporting in Hyperinflationary Economies' defines and provides general guidance for assessing whether a particular jurisdiction's economy is hyperinflationary. But the IASB does not identify specific jurisdictions. The International Practices Task Force (IPTF) of the Centre for Audit Quality (CAQ) monitors the status of 'highly inflationary' countries. The Task Force's criteria for identifying such countries are similar to those for identifying 'hyperinflationary economies' under IAS 29.

The IPTF's discussion document for the 16 May 2018 meeting is now available and states the following view of the Task Force:

Countries with three-year cumulative inflation rates exceeding 100%:

  • Angola
  • South Sudan
  • Suriname
  • Venezuela

Countries with projected three-year cumulative inflation rates exceeding 100%:

  • Argentina
  • Democratic Republic of Congo

Countries where the three-year cumulative inflation rates had exceeded 100% in recent years:

  • Sudan

Countries with recent three-year cumulative inflation rates exceeding 100% after a spike in inflation in a discrete period:

  • Ukraine

Countries with projected three-year cumulative inflation rates between 70% and 100% or with a significant (25% or more) increase in inflation during the current period

  • Egypt
  • Libya
  • Yemen

The full list, including exact numbers, detailed explanations of the calculation of the numbers, and observations of the Task Force are available on the CAQ website. We also offer an overview of the IPTF's assessment of hyperinflationary jurisdictions at the end of our summary of IAS 29.

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.