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November

IFRS Foundation Trustees Chair delivers speech on the EU fitness check

30 Nov 2018

On 30 November 2018, the Chair of the IFRS Foundation Trustees, Erkki Liikanen delivered the keynote speech at the EU Conference in Brussels, discussing the results of the EU fitness check.

Mr Liikanen began by reviewing the history of how the EU decided to adopt IFRS instead of adapting them into EU GAAP. He noted the importance of that decision and how most of the world has followed suit. He then stated:

All things considered, the IFRS project has been a success at an international level. Is it also viewed as a success at an EU level? The answer to that is provided by the EU Fitness Check.

He went on to praise the EU fitness check, mentioning high participation within — and outside of — the EU. He explained that the number of external comments could be attributed to (1) many non-EU domiciled companies and investors having interests in the EU and being impacted by EU policies; and (2) the EU's approach to corporate reporting — particularly IFRS Standards — is "highly influential in shaping the policies of other jurisdictions".

Mr Liikanen described the financial reporting perspective of the EU fitness check, mentioning that "the report shows that things are working well". He acknowledged that not everything is perfect, but highlighted that there is not much support for substantive change:

Most respondents felt that IFRS Standards are effective, helping to reduce the cost of capital and increase investments within the EU. Few believed that the Standards have led to procyclicality and short-termism, while most believed that the EU’s policy on IFRS Standards has promoted more integrated capital markets in the EU and internationally. This is encouraging feedback and shows the importance of our Standards to the EU’s Capital Markets Union project and the wellbeing of the global economy more broadly.

He also discussed the fitness check results related to the 'carve-in' mechanism proposed to modify IFRS Standards in the EU. Mr Liikanen reported that three quarters of all respondents supported the status quo of a restricted endorsement process and argued against carve-ins. He did acknowledge that a minority of respondents argued for the carve-in mechanisms; he provided their perspective that it would help the EU exert greater influence on the IASB's standard-setting process. He explained:

This topic of influence is an important one and should not be dismissed. Every major jurisdiction sets out to influence the international agenda, and this is naturally relevant also for the EU. The EU signed up to IFRS Standards from the very beginning, has been a strong and vocal supporter of IFRS Standards as the global standard, and the EU has endorsed pretty much every standard the IASB has ever issued. So, I completely understand the desire to be highly influential in a process to create standards that are mandated for use across the EU.

The question is how best to exert that influence. To collect views, to analyse concerns, to present them well and to win the argument through logic and reason. The EU has a great deal of experience in this area, because that is how its own internal decision-making works.

Mr Liikanen said that many people see carve-ins as an 'opt-out' clause from international IFRS system, of which the EU is a major player. He emphasised that he sees the fitness check as an endorsement that the system is working well as-is. He opined that "the best way for the EU to influence the IASB is through the quality of its work and the persuasiveness of its arguments".

The full text of Mr Liikanen's speech is available on the IASB's website. For more information, see our March 2018 story on the release of the fitness test consultation document as well as our November 2018 story providing a summary of fitness test responses.

FSB reports to G20

30 Nov 2018

In the context of the 2018 G20 Buenos Aires summit, the Financial Stability Board has released its fourth annual report on the implementation and effects of the G20 financial regulatory reforms and a letter by the FSB Chair to the G20 Leaders.

In the annual report, the FSB especially notes expected loan loss provisioning (IFRS 9 and the FASB's current expected credit loss model). The FSB has asked the standard-setters to monitor the consistent implementation of their standards. The annual report also notes IFRS 17 as setting out a single, consistent approach to accounting for insurance contracts.

In his letter to G20 Leaders, the FSB Chair especially comments on mitigating the financial stability risks from climate change through the Taskforce on Climate-related Financial Disclosures (TCFD). He notes "encouraging progress" and that a many companies are already reporting against some of the recommendations. The letter states: "Adoption can be expected to widen and improve as the private sector refines emerging good practice in efficient, decision-useful material climate-related financial disclosure."

Please click for the two documents on the FSB website:

EFRAG publishes technical advice on IFRS 9 to the European Commission

30 Nov 2018

In response to a European Commission request, the European Financial Reporting Advisory Group (EFRAG) has investigated the potential effects on long-term investments in equity instruments of the requirements of IFRS 9 'Financial Instruments'.

In the first phase of the project, the European Commission asked EFRAG to collect quantitative data on the current holdings of equity instruments and their accounting treatment and investigate if 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 investigated whether and how the requirements in IFRS 9 on accounting for holdings of equity instruments could be improved. EFRAG published a 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 made available the results of a literature view on IFRS 9 and long-term investment on 28 March 2018. EFRAG has now published its final response to the second phase of the EC request. The response addresses the interaction between an impairment model and the reintroduction of recycling, and what characteristics an impairment model for equity instruments could have. The letter notes:

The majority of respondents that expressed a view were in fact more supportive of an impairments model similar to IAS 39. [...] However, there is no consensus on how to reach an approprioate balance between relevance and comparability. [...] EFRAG maintains that a degree of rigour in the use of the election or the impairment model would be essential to ensure comparability.

Please click to access the full response on the EFRAG website.

EFRAG also notes that it is currently working on a second request for technical advice on possible alternative accounting treatments for equity and equity-type instruments. The European Commission asked for EFRAG's technical advice on this aspect of IFRS 9 by the second quarter of 2019.

IFRS Foundation Trustees amend Constitution effective 1 December 2018

29 Nov 2018

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

The amendments also clarify that the Chair of the Trustees can be appointed either from among the Trustees or externally and specify that the Vice-Chairs must be appointed from the Trustee ranks.

Please click for the following additional information on the IASB website:

UK taskforce publishes report on IFRS 9 expected credit loss disclosures

28 Nov 2018

In November 2017, three regulators in the United Kingdom, one of which is the UK Financial Reporting Council, jointly established a taskforce on disclosures about expected credit losses. The taskforce is modeled on the Enhanced Disclosure Task Force (EDTF) of the Financial Stability Board (FSB) and was set up to promote high-quality disclosures about expected credit losses and to encourage greater consistency between and comparability of those disclosures. The taskforce has now published its first report.

The report sets out the disclosure principles used in developing its recommendations, as well as considerations applicable to all the recommended disclosures in respect of the scope, timing, frequency, location and granularity. It also summarises what the taskforce views as the most important considerations regarding expected credit losses and explains the related disclosures, why they matter to users, and set out a series of specific disclosure recommendations.

The recommendations in the report were developed primarily for use by the preparer firms represented on the taskforce. However, the recommendations may be of relevance to other banks and similar financial institutions as a guide to best practice.

Please click to download the report from the FRC website.

IASB issues 'Investor Update' newsletter

27 Nov 2018

The IASB has issued the seventeenth edition of its newsletter 'Investor Update', which provides investors with quick access to information about current accounting and financial reporting topics.

This issue features:

  • Spotlight — Financial Instruments with Characteristics of Equity project
  • Spotlight — IFRS 9 & 15 implementation update
  • We need your views
  • Stay up to date

The Investor Update newsletter is available on the IASB’s website.

EFRAG publishes discussion paper on non-exchange transfers

27 Nov 2018

The European Financial Reporting Advisory Group (EFRAG) has published a discussion paper (DP) 'Non-exchange transfers: A role for societal benefit?' The DP explores the accounting for transfers in which an entity received (or gives) value without directly giving (or receiving) approximately equal value in exchange. The DP aims to provide a comprehensive approach and conceptual basis for the recognition of non-exchange transfers (NETs).

EFRAG notes that the purpose of the DP is "to encourage debate on:

  • a) whether transfers in which an entity either receives or gives value from another entity without directly giving or receiving approximately equal value in exchange [NETs] have differentiating characteristics that could warrant a specific accounting treatment; and
  • b) if a specific accounting treatment is warranted, the possible features of that accounting treatment. The DP therefore explores a comprehensive approach and conceptual basis for the recognition of NETs."

The DP and a press release are available on the EFRAG website. Comments are due by 30 April 2019.

Reporting of non-financial information by SMEs

27 Nov 2018

The European Federation of Accountants and Auditors for SMEs (EFAA) has published the results of a survey on non-financial information reporting by small and medium-sized entities (SMEs) across 14 European countries.

While the EU Directive on Non-Financial Information (NFI) Disclosure only applies to larger companies, preliminary results from the EFAA survey suggest that NFI reporting is quite common for SMEs due to national requirements. Furthermore, there is also growing interest in the benefits of integrated thinking and reporting by SMEs.

EFAA suggests that the following policy considerations should be taken into account for further discussion:

  • SMEs should be encouraged to consider voluntarily providing NFI as this may yield benefits to them, their stakeholders and the wider public;
  • Some elements of the Non-Financial Reporting Directive (NFRD) might be suitable for voluntary adoption by SMEs; and
  • National regulators should be encouraged to refer to the NFRD if formulating NFI requirements for their SMEs as this will help enhance international comparability of NFI reporting by SMEs.

Please click to access the full survey results on the EFAA website.

ESMA begins series of video tutorials on ESEF

26 Nov 2018

The European Securities and Markets Authority (ESMA) has released the first in a series of tutorial videos designed to guide market participants through the new requirements of European Single Electronic Format (ESEF), which will become effective in 2020.

From 2020 on, all annual financial reports in the European Union must be prepared in xHTML, within which financial data is tagged using inline XBRL. The video gives an introduction to the tagging process and requirements for ESEF.

Please click to access the ten minute video on YouTube.

Additional educational module on the IFRS for SMEs on hyperinflation

23 Nov 2018

The IFRS Foundation has issued an additional new stand-alone educational module, which supports the learning, application, and reading of financial statements prepared with the IFRS for SMEs Standard.

The module focuses on the general requirements for preparing and presenting the financial statements of an entity whose functional currency is that of a hyperinflationary economy applying Section 31 Hyperinflation of the IFRS for SMEs.

Please click to access all 19 IFRS for SMEs modules available so far (free registration required).

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