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December

Assessing financial statement materiality of climate-related and other emerging risks

13 Dec 2018

The Australian Accounting Standards Board (AASB) has published 'Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB Practice Statement 2'.

The publication argues that climate-related risks and other emerging risks are currently predominantly discussed outside the financial statements, if at all, while qualitative external factors such as the industry in which the entity operates, and investor expectations may make such risks ‘material’ and warrant disclosures when preparing financial statements, regardless of their numerical impact. It also notes investor statements on the importance of climate-related risks to their decision making so that entities can no longer treat climate-related risks as merely a matter of corporate social responsibility and should consider them also in the context of their financial statement.

AASB Practice Statement 2 'Making Materiality Judgements' is essentially the same as the IASB Practice Statement on Materiality with added specific guidance for not-for-profit entities.

Please click to access Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB Practice Statement 2 on the AASB website.

AcSB publishes final framework for reporting performance measures

13 Dec 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.

The framework was first published as a draft in June 2018, and stakeholders were asked to provide their feedback by way of an online survey, in-person discussions, and written responses. 

The AcSB received feedback from over 350 Canadian and international stakeholders, from both the for-profit and not-for profit sectors, as well as from all parties involved in financial reporting – management, directors, providers, regulators, academics, and standard setters.

As a result, a detailed breakdown of respondents and their comments accompanies the final framework for reporting performance measures (both links to the AcSB website).

ANC Research Forum - recording available

13 Dec 2018

The Autorité des Normes Comptables (ANC), the French standard setter, hosted its 8th Symposium on Accounting Research on 10 December 2018. A recording of the event is now available.

Please note that although the access page is in the French language, you can choose to also listen to the recording in English (or in the original version, which is a mix of English and French) by clicking on the flag icon. Please click to access the recording on the ANC website.

IASB publishes editorial corrections

12 Dec 2018

The IASB has published its first batch of editorial corrections in 2018.

The editorial corrections contain corrections to amendments, corrections to stand-alone standards, and corrections to the various versions of the red and blue book 2018. The following pronouncements are affected:

  • IFRS 16 Leases
  • Classification and Measurement of Share-based Payment Transactions
  • IFRS 9 Financial Instruments
  • IFRS 13 Fair Value Measurement
  • IFRS Practice Statement 2 Making Materiality Judgments
  • IFRS 1 First-time Adoption of International Financial Reporting Standards

Editorial corrections do not change the meaning or application of pronouncements, but instead correct inadvertent errors. The editorial corrections can be viewed on the editorial corrections page of the IASB's website.

Agenda for the IASB meeting changed

12 Dec 2018

The agenda for the IASB meeting, which is currently being held in London, has been changed: Tomorrow's sessions have changed their order - most notably the session on IFRS 17 'Insurance Contracts' has been moved to the afternoon and will now begin at 13:00hrs UK time.

We have updated our meeting note page, which offers access to the agenda and our pre-meeting summaries of the agenda papers to be discussed, accordingly.

IASB Chairman doubts we are ready for the next crisis but sees great improvements in financial reporting

12 Dec 2018

At the 2018 AICPA Conference on Current SEC and PCAOB Developments, IASB Chairman Hans Hoogervorst gave a thoughtful speech that looked at lessons learned from the global financial crisis, sketched the enormous risks in the global economy and admitted doubt as to whether the financial system as a whole is ready for the next financial crisis.

Mr Hoogervorst began his speech by outlining the global situation financial situation regarding global debt, interest rates and the debt trap as well as the capitalisation of the banking system. Against that backdrop, he analysed whether accounting standards are fit for purpose in a possible new financial crisis.

Mr Hoogervorst first turned to IFRS 9 and the expected loss models the IASB and the FASB have developed. He commented on the fear that IFRS 9 would lead to overreaction as economic expectations might be overly pessimistic during a recession, which might strengthen the downward turn of the economic cycle. However, he believed those fears not to be justified for three reasons:

  • The fact that IFRS 9 leads to a much quicker crystallisation of loan losses should have a preventative effect.
  • Timely loan loss recognition should contribute to limiting imprudent dividend distribution and remuneration policies.
  • Quick loan loss recognition should lead to timely clean-up of banks’ balance sheets, which in turn will contribute to much quicker restoration of credit flows to healthy companies.

Mr Hoogervorst then turned to IFRS 17 and its contributions to financial stability. The slides that supported the speech noted six of these:

  • Insurance liabilities properly measured
  • Transparent costs of options and guarantees
  • Updated information on risk margins
  • Immediate recognition of onerous contracts
  • End of up-front profit taking
  • Less earnings management

Finally, Mr Hoogervorst turned to goodwill and the risk that goodwill just keeps on accumulating over time even when the economics do not justify this. He did not believe that the accounting for goodwill poses a significant risk in terms of triggering a financial crisis, however, he noted that in the next financial crisis, a lot of goodwill that has been building up since the last one would be impaired all at once, which might add to unrest in the capital markets. Mr Hoogervorst pointed out the discussion paper on this topic the IASB plans to publish that will present some new approaches to goodwill. The paper will look at is whether it will be possible to improve disclosures that will help investors to judge whether an acquisition has been successful, will consider a disclosure that shows what a company’s balance sheet will look like without goodwill, and include a discussion on the reintroduction of amortisation of goodwill.

Mr Hoogervorst closed his speech noting that he was not sure whether the financial system as a whole is ready for the next financial crisis. However, he added: "What I am sure of is that the recent improvements in our accounting standards will provide much more transparency that will help investors and regulators identify risks at a much earlier stage. That is the best contribution that accounting can give to financial stability."

Please click for the full text of the speech (with slides embedded) on the IASB website.

SEC Statement in connection with the 2018 AICPA Conference on Current SEC and PCAOB Developments

11 Dec 2018

The US Securities and Exchange Commission (SEC) has released a Statement by Chief Accountant Wesley R. Bricker that summarises SEC contributions at the 2018 AICPA Conference on Current SEC and PCAOB Developments.

Following some general information about the backbround of the SEC and developments at the Office of the Chief Accountant (OCA), Mr Bricker turns to the activities of the OCA that include overseeing the Financial Accounting Standards Board (FASB) and supporting the implementation of the new GAAP standards. In the context of the latter, Mr Bricker especially discusses revenue recognition, leases, and current expected credit losses.

About two thirds into the statement, Mr Bricker also comments on SEC contributions to international accounting, audit, and disclosure work. He especially notes the OCA efforts to promote high-quality IFRSs as he stresses that: 

Reduced differences between U.S. GAAP and IFRS make the preparation and use of financial statements considerably more effective and may lead to higher-quality financial reporting by U.S. registrants. Accordingly, we will continue to encourage the FASB and the IASB to work together to keep converged standards converged, to reduce differences in standards where they continue to exist, and to continually look for opportunities to improve standards in producing decision-useful information for investors. [...] Although U.S. GAAP continues to serve well the interests of investors and other stakeholders and will for the foreseeable future, it does not diminish the need – in the United States and abroad – to continue strongly supporting high quality international standards. [...] Building upon the quality of IFRS is of central importance to U.S. investors and companies as business transactions and investor needs continue to evolve globally. 

Concluding his discussion of international OCA activities, Mr Bricker mentions the SEC efforts to help implementing new IFRSs. He mentions the SEC's consultation process and notes that throughout the year, the OCA consulted on many matters involving the application of U.S. GAAP and IFRS. However, Mr Bricker stresses that the OCA continues to note that the level of consultation activity from foreign private issuers that file with the SEC using IFRS or U.S. GAAP is low compared to what is sees from U.S. domestic companies and encourages foreign private issuers to seek staff views on technical accounting positions, whether involving IFRS or U.S. GAAP.

Mr Bricker's statement offers an appendix with a list of published speeches and statements given by OCA staff members during 2018, which also include other staff speeches at the 2018 AICPA Conference on Current SEC and PCAOB Developments also discussing revenue recognition, leases, current expected credit losses, and LIBOR developments. All speeches can be accessed here.

Pre-meeting summaries for the December IASB meeting

07 Dec 2018

The IASB is meeting in London on 11–13 December 2018 to discuss twelve topics. 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.

Tuesday 11 December

On Tuesday afternoon the IASB has an education session for IFRS 17 Insurance Contracts, ahead of the decision-making session on Thursday.

Wednesday 12 December

The Board will consider a recommendation to updating a reference to the Conceptual Framework in IFRS 3.

In the project on Dynamic Risk Management the staff recommend that that an entity can apply the DRM accounting model if two criteria are met. There must be an economic relationship between the target profile, the asset profile and the derivatives designated within the DRM model and any designation must not reflect an imbalance that would create misalignment that could result in an accounting outcome inconsistent with the purpose of the DRM accounting model.

For Business Combinations under Common Control, the Board is developing an approach based on the acquisition method set out in IFRS 3 Business Combinations that would be required for transactions that affect non-controlling interests. The staff think that this should be limited to entities with equity instruments that are traded in a public market and are recommending that the Board explore this approach.

For the Primary Financial Statements project, the staff are recommending that the Board prohibit the use of columns to present information about MPMs in the statement(s) of financial performance. They are also recommending that the Board describe, rather than define, EBITDA and add it to the list of measures that are not considered to be MPMs, and update its decision on EBIT, clarifying that using the EBIT label for performance measures included in the financial statements is potentially misleading.

The staff is recommending that the Board to move the IBOR project to its standard-setting programme and focus on issues affecting financial reporting leading up to IBOR reform and when the reform is enacted.

The staff will also give updates on the projects on Provisions and Pensions Benefits that Depend on Asset Returns as well as the Research Programme.

Thursday 13 December

At the October 2018 meeting, the Board discussed concerns and implementation challenges raised by stakeholders about the requirements in IFRS 17 Insurance Contracts. At this meeting the Board will consider 12 of those issues. The staff are recommending that the Board amend IFRS 17 for presentation of insurance contracts on the statement of financial position but not to make amendments for the other issues. The remaining nine topics will be considered at a future meeting.

In the Disclosure Initiative the staff recommend that the Board amend paragraphs 117-124 of IAS 1 to require entities to disclose their material accounting policies rather than their significant accounting policies. This amendment would be issued together with the guidance and examples being developed for inclusion in the Materiality Practice Statement.

In the Rate-regulated Activities project the Board will consider staff recommendations relating to the discount rate to be used when measuring regulatory timing differences.

More information

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

IFRS Foundation publishes proposed general improvements to the IFRS Taxonomy

06 Dec 2018

The IFRS Foundation has published 'IFRS Taxonomy 2018 — Proposed Update 2 'General Improvements''.

The proposed changes aim to improve the quality of tagged data and to make the IFRS Taxonomy easier to use by

  • introducing implementation notes that explain how to use specific IFRS Taxonomy elements and avoid tagging errors;
  • introducing the duration element type for reporting information about a period of time to achieve more consistent tagging; and
  • removing entry points without documentation labels to make it easier to access the IFRS Taxonomy.

For more information, see the press release and proposed update on the IASB’s website. Comments are requested by 4 February 2019.

Report on the autumn 2018 IFASS meeting

06 Dec 2018

A report has been issued summarising the discussions at the meeting of the International Forum of Accounting Standard Setters (IFASS) held in London on 2 and 3 October 2018.

As reported earlier, the meeting saw a lively discussion on the European Commission (EC) consultation document 'Fitness Check on the EU Framework for Public Reporting by Companies'.

The IFASS members also discussed:

  • BCUCC: Hong Kong's and Italy's experience with the predecessor method
  • Hybrid Pension Plans
  • Accounting for stamp duty and other costs relating to PPE acquired in business combination
  • Public sector accounting / IPSASB update
  • Drawing a conceptual line between accounting policies and accounting estimates
  • Meeting of the NFP working group
  • IFRS 17 Implementation
  • Administrative matters
  • Extractive industries
  • New IFRS Standards: Improvements and outcomes
  • IASB DP on financial instruments with characteristics of equity
  • Management commentary: The FRCs approach
  • Towards a framework for reporting performance measures

The next meeting of the IFASS will take place in Argentina in March 2019.

Please click for the full report from the meeting.

Correction list for hyphenation

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