EFRAG and ASCG joint outreach on characteristics of equity

31 Aug 2018

EFRAG and the Accounting Standards Committee of Germany (ASCG) will be hosting a joint outreach event on 20 November 2018 in Frankfurt to discuss the IASB’s discussion paper (DP) ‘Financial Instruments with Characteristics of Equity’.

On 28 June 2018, the IASB issued DP/2018/1 which defines the principles for the classification of financial liabilities and equity instruments without, however, fundamentally changing the existing classification outcomes of IAS 32. The IASB's proposed preferred approach is based on two features, timing and amount, and is accompanied by the provision of additional information through a separate presentation of expenses and income from certain financial liabilities in other comprehensive income and additional disclosures.

For more information on the outreach event, see the press release on the EFRAG’s website.

IASB Chairman discusses Japan and IFRS Standards

30 Aug 2018

On 29 August 2018, IASB Chairman Hans Hoogervorst spoke at an event hosted by the Accounting Standards Board of Japan (ASBJ) in Tokyo. His speech, entitled "Japan and IFRS Standards" covered (1) key takeaways from Japan's approach to IFRS Standards, (2) accounting for goodwill, and (3) the IASB's better communication project.

Mr Hoogervorst began by discussing progress towards global accounting standards and reflected on Japan's 'very interesting economic experiment' of letting the market decide whether to adopt IFRS. He noted:

[A]round 200 mostly big, multinational Japanese companies have chosen to adopt full IFRS Standards, representing more than 30% of the total market capitalisation of the Tokyo Stock Exchange. . . . The number of Japanese companies using US GAAP has been steadily shrinking and is expected to be less than 10 soon.

He highlighted the results of Japan's experiment, emphasising that (1) given a choice, companies are prepared to voluntarily incur the cost of transition to IFRS; (2) 100% of the companies transitioning have chosen full IFRS rather than a version modified to meet local preferences; and (3) Japan has created a 'third way' for jurisdictions to move forward with IFRS, joining the 'adopt' and 'converge' models.

Mr Hoogervorst went on to discuss the reason the IASB changed its mind and decided to possibly reintroduce amortisation of goodwill in an upcoming discussion paper. (The IASB has not listed an expected date for this DP in its work plan.) He noted that the post-implementation review of IFRS 3 identified 'a couple of problems' with the impairment-only approach to goodwill:

[T]he annual impairment test is both costly and subjective. Often, the projections of future cash flows from cash generating units tend to be on the rosy side. Impairment losses therefore tend to be identified too late. And when an impairment loss is finally booked, the resulting information has only weak confirmatory value for investors.

After the discussion of goodwill, Mr Hoogervorst described the IASB's better communication project, promising to "improve what we have, rather than create big, new Standards." He underscored that upcoming projects will improve financial reporting at 'much less cost' because the focus will be on presenting better information that is already being collected. He then detailed aspects of the 'strands of work' that fall under the umbrella of better communications, including primary financial statements and management commentary. 

The full version of Mr Hoogervorst's speech is available on the IASB's website.

EFRAG publishes a summary of responses to its DP on the impairment and recycling of equity instruments

30 Aug 2018

The European Financial Reporting Advisory Group (EFRAG) has published a summary of responses to its discussion paper 'Equity Instruments — Impairment and Recycling'.

EFRAG published its DP in March 2018 to gather constituents' views in relation to questions raised by the European Commission related to the accounting for equity instruments which are carried at FVOCI.

The summary of responses describe the main messages and key themes identified from the 53 comment letters received on the DP, and include:

  • The desire to wait for the IASB's post-implementation review of IFRS 9 before suggesting changes and/or that changes should be agreed with the IASB and not introduced at the European level.
  • The reintroduction of recycling would improve the depiction of financial performance of long-term investors.
  • Recycling should be accompanied by an impairment model.
  • The preferred impairment model would be similar to IAS 39.

A press release and the summary of responses are available on the EFRAG website.

Agenda for the October 2018 IFASS meeting

29 Aug 2018

The International Forum of Accounting Standard Setters (IFASS) will meet in London on 2–3 October 2018. The full agenda is summarised below.

Tuesday, 2 October 2018 (14:00–18:15)

  • Welcome and opening remarks
  • Follow up on BCUCC: Hong Kong's and Italy's experience with the predecessor method (includes Q&A)
  • Follow up on Hybrid Pension Plans (includes Q&A)
  • IFRS 3 — Accounting for stamp duty and other costs relating to PPE acquired in business combination
  • Breakout sessions:
    • Public sector accounting / IPSASB update
    • Drawing a conceptual line between accounting policies and accounting estimates
  • Breakout sessions:
    • Meeting of the NFP working group
    • IFRS 17 Implementation

Wednesday, 3 October 2018 (09:00-16:45)

  • Administrative matter: Process for the appointment of the next Chairman of IFASS
  • The Fitness check on the EU framework for public reporting by companies: Views and insights
  • Extractive industries: The 2010 IASB-DP and the way forward
  • New IFRS Standards: Improvements and outcomes
  • IASB DP on financial instruments with characteristics of equity
    • EFRAG’s work on the issue
    • Impact of the proposals
    • Discussion of main concerns
  • Management commentary: The FRCs approach
  • Towards a framework for reporting performance measures
  • Closing remarks

FASB issues guidance to improve disclosures in notes to financial statements

29 Aug 2018

The US Financial Accounting Standards Board (FASB) has issued two Accounting Standards Updates (ASUs) and two changes to its conceptual framework that are intended to improve the effectiveness of disclosures in notes to financial statements.

FASB releases

Specifically, the FASB released the following:

  • ASU 2018-13, Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement — Removes, modifies, and adds certain disclosure requirements in ASC 820 on the basis of the concepts in the FASB Concepts Statement Conceptual Framework for Financial Reporting — Chapter 8: Notes to Financial Statements. The ASU is effective for all organizations for fiscal years — and interim periods within those fiscal years — beginning after 15 December 2019. Early adoption is permitted.
  • ASU 2018-14, Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans — Modifies ASC 715-20 to improve disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU is effective for fiscal years ending after 15 December 2020, for public companies and for fiscal years ending after 15 December 2021, for all other organizations. Early adoption is permitted.
  • Chapter 8 of the conceptual framework, “Notes to Financial Statements” — “[E]xplains what information the Board should consider including in notes to financial statements by describing the purpose of notes, the nature of appropriate content, and general limitations. It also addresses the Board’s considerations specific to interim reporting disclosure requirements.”
  • Amendments to chapter 3 of the conceptual framework, “Qualitative Characteristics of Useful Financial Information” — Updates the FASB’s definition of materiality to be consistent with the definition used by the SEC, PCAOB, AICPA, and U.S. judicial system.

For more information, see the press release and FASB in Focus newsletter on the FASB’s website.

Comparison with IFRS

The IASB is still deliberating its Discussion Paper Principles of Disclosures that was published in March 2017. In July 2018, the IASB selected IAS 19 Employee Benefits and IFRS 13 Fair Value Measurement for the targeted standards-level review of disclosures. The FASB had already published its proposed Statement on Notes/Disclosures in 2014 and had also picked employee benefits and fair value measurement to test the concepts of the proposed Concepts Statement. This has now resulted in corresponding changes in Subtopic 715-20 and Topic 820. In selecting IAS 19 and IFRS 13, the IASB is therefore following the same path as the FASB.

EFRAG publishes draft comment letter on financial instruments with characteristics of equity

28 Aug 2018

The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB discussion paper DP/2018/1, 'Financial Instruments with Characteristics of Equity'.

The IASB published its DP for comment on 28 June 2018. Final comments are due to the IASB by 7 January 2019.

While EFRAG supports changes to IAS 32 Financial Instruments: Presentation, in its draft comment letter, EFRAG explains several "reservations" it has about the amendments proposed in the DP. These reservations include:

  • the balance of costs and benefits of the information provided by the attribution approaches;
  • separate presentation in the statement of financial position and statement of financial performance of derivatives, embedded derivatives and hybrids;
  • accounting for standalone derivatives to extinguish an equity instrument consistently with a compound instrument;
  • the proposed removal of the foreign currency rights issue exemption;
  • classification changes for financial instruments that do not raise concerns in practice.

The draft comment letter also discusses new terminology introduced by the IASB's DP:

EFRAG acknowledges that a better articulation of IAS 32’s underlying principles could be an effective way to improve the consistency, clarity and completeness of the requirements and would require new terminology. However, new terminology would also require preparers and auditors to reconsider a wide range of past classification decisions. Accordingly, this approach, while addressing various interpretive issues, will also cause some disruption, create additional costs for preparers and risks the emergence of new issues and uncertainties.

The letter also asks that the IASB consider accounting for all standalone and embedded derivatives and derivative assets and liabilities under the scope of IFRS 9.

Comments on EFRAG's draft comment letter are requested by 3 December 2018. For more information, see the press release and the draft comment letter on the EFRAG website. EFRAG has also released a four minute video introducing the draft comment letter.

EFRAG publishes feedback statement on proposed amendments to IAS 8

23 Aug 2018

The European Financial Reporting Advisory Group (EFRAG) has published a feedback statement following the publication of its final comment letter on the IASB's Exposure Draft ED/2018/1 'Accounting Policy Changes (Proposed amendments to IAS 8)'.

The feedback statement describes the thirteen comments received by EFRAG in response to its draft comment letter on the IASB's March 2018 ED, and how these comments were considered by EFRAG in finalising its comment letter to the IASB.

For more information, see the press release and feedback statement on the EFRAG website.

IASB calls for more non-academics to register for Research Forum

23 Aug 2018

The International Accounting Standards Board (IASB) will co-host — with the accounting journal Abacus — its fifth Research Forum on 11 and 12 November 2018 in Sydney, Australia. The IASB is calling for more non-academic applicants to register for the event.

The forum will bring academics and other stakeholders together so that the IASB can get a broader range of perspectives on important financial reporting topics. The deadline to register for the forum is 14 September 2018.

For more information, see the press release and event information here.

Summary of the June 2018 joint CMAC-GPF meeting

23 Aug 2018

Representatives from the International Accounting Standards Board (IASB) met with both the Capital Markets Advisory Council (CMAC) and Global Preparers Forum (GPF) in London on 14 and 15 June 2018. Notes from the joint meeting have now been released.

The topics discussed at the meeting included:

  • IASB and IFRS Interpretations Committee update
  • Targeted standards level review of disclosures project
  • Primary financial statements — EBITDA and unusual or infrequently occurring items
  • Primary financial statements — Improving the usefulness of disaggregation in the financial statements
  • Business combinations under common control
  • Management commentary

The next GPF meeting will be held on 6 November 2018; the next CMAC meeting will take place on 1 November 2018.

For more information, see the meeting page and the meeting summary on the IASB's website.

We comment on three IFRS Interpretations Committee tentative agenda decisions

21 Aug 2018

We have published our comment letters on IFRS Interpretations Committee tentative agenda decisions related to IAS 21 and IAS 23, as published in the June 2018 IFRIC Update.

More information about the issues is set out below:


Agenda decision supported?

More information

IAS 21 — Determination of the exchange rate when there is a long-term lack of exchangeability

Yes; however, we believe that to address the facts that (as stated in the tentative agenda decision) economic conditions are constantly evolving and that different conditions exist in different jurisdictions this research should not focus solely on the current situation in Venezuela

IAS 23 — Expenditures on a qualifying asset

Yes; however, we believe that the value of the tentative agenda decision could be enhanced by elaborating on the statement that “the entity does not disregard expenditures on the qualifying asset incurred before the entity obtains the general borrowings”

IAS 23 — Borrowing costs on land


Click to access all our comment letters to the IASB, IFRS Foundation, and IFRS Interpretations Committee.

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