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2018

European Lab seeks members for first task force

20 Dec 2018

The European Financial Reporting Advisory Group (EFRAG) has published a call for candidates for members of the​ new project task force on climate-related reporting of the European Corporate Reporting Lab.

The task force will assess the current state of play for climate-related reporting by European companies and assess the current and potential use of climate-related information by investors and other users. The primary focus will be on the Task Force on Climate-related Financial Disclosures' (T​CFD) recommendations with consideration of other reporting frameworks as appropriate, while also taking account of the EC’s non-binding guidelines on non-financial reporting. ​The deadline for applications is 26 January 2019.

Please click for more information in the press release on the EFRAG website.

IASB issues podcast on latest Board developments

18 Dec 2018

The IASB has released a podcast featuring Chair Hans Hoogervorst, Vice-Chair Sue Lloyd and education director Matt Tilling to discuss the deliberations at the December 2018 IASB meeting.

The 17-minute podcast features discussions of the following topics in more detail:

  • The IASB's recent meeting with the ASAF, discussing the post-implementation review of IFRS 13
  • IFRS 17 Insurance Contracts
  • Primary financial statements
  • Interest-rate benchmark reform
  • Rate-regulated activities

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 at the December IASB meeting.

December 2018 IASB meeting notes posted

18 Dec 2018

The IASB met on Tuesday 11, Wednesday 12 and Thursday 13 December 2018 to discuss twelve topics. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The Board decided to update a reference to the Conceptual Framework in IFRS 3.  

The Board decided that an entity can apply the Dynamic Risk Management model if two criteria are met. The first is that there must be an economic relationship between the target profile, the asset profile and the derivatives designated within the DRM model. This criterion needs further development around how strong/good the economic relationship needs to be.  The second is that 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.

The Board discussed whether a Business Combination under Common Control should be accounted for using an approach based on the acquisition method set out in IFRS 3 Business Combinations when it affects non-controlling interests. Board members expressed a variety of concerns about the staff proposal.

For the Primary Financial Statements project, the Board decided to prohibit the use of columns to present information about MPMs in the statement(s) of financial performance. The Board also decided to permit, but not require, the subtotal ‘operating profit before depreciation and amortisation’ on the face of the statement(s) of financial performance. An entity would need to reconcile any other similar measure (like EBITDA) to this sub-total. IFRS Standards will not impose any restrictions on the use of EBIT or EBITDA.

The Board decided 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. 

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 considered 12 of those issues and decided to 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 Board decided to 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 considered staff recommendations relating to the discount rate to be used when measuring regulatory timing differences. There was significant debate and the Board was split in its views. 

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

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

We comment on the IASB's discussion paper on financial instruments with characteristics of equity

17 Dec 2018

We have responded to the IASB's discussion paper 'Financial Instruments with Characteristics of Equity' that was published in June 2018.

We do not support the preferred classification approach in the discussion paper and believe financial performance should be attributed to those holders of equity instruments that currently own a residual interest in the entity, not to those that hold instruments which may result in them being owners in the future. In addition, we disagree that amounts due at liquidation are financial liabilities prior to liquidation and do not support the carry over of requirements in IAS 32 that future acquisitions of equity should be recognised as a gross financial liability with a debit in equity.

Please click to access the full comment letter.

Updated IASB work plan — Analysis

17 Dec 2018

Following the IASB's December 2018 meeting, we have analysed the IASB work plan to see what changes have resulted from the meeting and other developments since the work plan was last revised in November. Changes are numerous and quite a few projects have been delayed.

Below is an analysis of all changes that were made to the work plan since our last analysis on 17 November 2018.

Standard-setting projects

  • no changes

Maintenance projects

  • Accounting Policies and Accounting Estimates — a decision on the project direction has been postponed to the second quarter of 2019 (was: December 2018)
  • Accounting Policy Changes — after discussing the feedback to the exposure draft, the next project step is now given a decision on the project direction (no date given)
  • Amendments to IFRS 17 'Insurance Contracts' — the IASB now acknowledges its decisions in November and December and has added a new project to its work plan; an exposure draft is expected in the first half of 2019
  • Fees in the ‘10 per cent’ test for Derecognition — an exposure draft is now expected in the first half of 2019 (no date given before)
  • Improvements to IFRS 8 'Operating Segments' — a feedback statement is now expected in February 2019 (was: December 2018)
  • Lease Incentives — an exposure draft is now expected in the first half of 2019 (no date given before)
  • Onerous Contracts — Cost of Fulfilling a Contract — after publication of ED/2018/2 earlier this month, the next project step is now discussing feedback on the exposure draft in the first half of 2019
  • Subsidiary as a First-time Adopter — an exposure draft is now expected in the first half of 2019 (no date given before)
  • Taxation in Fair Value Measurements — an exposure draft is now expected in the first half of 2019 (no date given before)
  • Updating a Reference to the Conceptual Framework — an exposure draft (tbc) is now expected in the first half of 2019 (no date given before)

Research projects

  • Business Combinations under Common Control — a discussion paper is now expected in 2020 (was: second half of 2019)
  • Discount Rates — a project summary in now expected in February 2019 (was: December 2018)
  • Dynamic Risk Management — the core model is now exected in the second half of 2019 (was: first half of 2019)
  • Goodwill and Impairment — a discussion paper or exposure draft is now expected in the second half of 2019 (no date given before)
  • IBOR Reform and the Effects on Financial Reporting — an exposure draft is now expected in the first half of 2019 (was: December 2018)
  • Post-implementation Review of IFRS 13 'Fair Value Measurement' — removed from the work plan as a summary report was published on 14 December 2018

Other projects

  • IFRS Taxonomy Update — 2018 General Improvements — a proposed update was published on 6 December; the next project step is now discussing feedback on the proposed update (no date given)
  • IFRS Taxonomy Update — Common Practice (IFRS 13) — an analysis of the feedback received is now expected in the first quarter of 2019 (was: January 2019)

The above is a faithful comparison of the IASB work plan at 17 November 2018 and at 17 December 2018. For access to the current IASB work plan at any time, please click here.

IASB completes post-implementation review of IFRS 13

14 Dec 2018

The IASB has completed its post-implementation review (PIR) of IFRS 13 'Fair Value Measurement'. The summary report published today shows that the standard works as intended.

During the PIR, the Board focused on the following matters:

  • the usefulness of information disclosed about fair value measurements — to gain a deeper understanding of both users’ and preparers’ perspectives on the usefulness and costs of fair value measurement disclosures;
  • whether to prioritise Level 1 inputs or the unit of account — to further assess the extent and effect of the issue as well as to examine current practice;
  • application of the concept of the highest and best use when measuring the fair value of non-financial assets —  to better understand the challenges of applying this concept and decide whether further support could be helpful; and
  • application of judgement in specific areas — to assess the challenges of making judgements and decide whether further support could be helpful.

The conclusions were that the information required by IFRS 13 Fair Value Measurement is useful to users of financial statements. Some areas of IFRS 13 present implementation challenges, largely in areas requiring judgement, However, evidence suggests that practice is developing to resolve these challenges. No unexpected costs have arisen from application of IFRS 13. Thus, the Board concluded that the standard works as intended.

The findings from the PIR regarding the usefulness of information disclosed will feed into the Board's work on better communication, in particular into the projects on targeted standards-level review of disclosures and on the primary financial statements. The Board will also continue liaising with the valuation profession, monitor new developments in practice and promote knowledge development and sharing. Other than that the Board does not intend to conduct any other follow-up in response to findings from the PIR.

For more information, please see the press release and the PIR report on the IASB’s website. In addition, see our project page on the PIR of IFRS 13.

Hyperinflationary economies - updated IPTF watch list available

14 Dec 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 27 November 2018 meeting is now available and states the following view of the Task Force:

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

  • Angola
  • Argentina
  • South Sudan
  • Sudan
  • Suriname
  • Venezuela

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

  • Democratic Republic of Congo
  • Libya

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

There are no countries in this category for this period.

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
  • Islamic Republic of Iran
  • Liberia
  • 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.

IASB decides on first potential amendments to IFRS 17

13 Dec 2018

At its meeting currently held in London, the IASB discussed IFRS 17 'Insurance Contracts' and 13 of the 25 concerns regarding the standard that were identified in October 2018 as candidates for potential amendments.

Applying the criteria for evaluating proposed amendments agreed on in October, the Board came to the following conclusions (all votes with at least 13 Board members in favour):

Topic

Issue

Agenda paper with detailed description (link to IASB website)

Board decision - consider amendment yes or no?

Presentation

Separate presentation in the statement of financial position of groups that are assets and groups that are liabilities

Agenda paper 2A

yes

Presentation and measurement

Separate presentation and measurement of premiums receivable and claims payable

no

Measurement

Use of locked in discount rate to adjust the contractual service margin (CSM)

Agenda paper 2B

no

Measurement

Subjectivity in determining discount rates and risk adjustment

no

Measurement

Risk adjustment in a group of entities

no

Presentation

Other comprehensive income (OCI) option for insurance finance income and expense

no

Defined terms

Definition of insurance contract with direct participation features

Agenda paper 2C

no

Measurement

Limited applicability of risk mitigation exception

non-transitional requirements: no

transitional requirements: no vote — deferred to the more general discussion of transition requirements, especially related to OCI

Measurement

Business combinations: classification of contracts

Agenda paper 2D

no

Measurement

Business combinations: contracts acquired in their settlement period

no

Measurement

Reinsurance contracts held: expected cash flows arising from underlying insurance contracts not yet issued

Agenda paper 2E

no

Measurement

Interim financial statements: Treatment of accounting estimates

Agenda paper 2F

no

The IASB has released a podcast on the IFRS 17 session of its December meeting, featuring IASB Board member Darrel Scott and IASB technical manager Roberta Ravelli. The podcast can be accessed through the press release on the IASB website. Please see also our Deloitte observer notes for a comprehensive summary of the IASB's discussions on the individual points.

The remaining nine topics from the list of issues presented at the October meeting will be considered at a future meeting.

The IASB has published a press release announcing that it will propose to amend IFRS 17 in the one respect noted above.

IASB publishes proposed amendments to IAS 37 regarding onerous contracts

13 Dec 2018

The International Accounting Standards Board (IASB) has published an exposure draft 'Onerous Contracts — Cost of Fulfilling a Contract (Proposed amendments to IAS 37)' considering costs a company should include as the cost of fulfilling a contract when assessing whether a contract is onerous. Comments are requested by 15 April 2019.

 

Background

The IFRS Interpretations Committee received a request to clarify what costs an entity considers in assessing whether a contract is onerous. The Committee’s research revealed that, for some contracts, differing interpretations of the onerous contract requirements in IAS 37 Provisions, Contingent Liabilities and Contingent Assets could have a material effect on entities that enter into those contracts. Consequently, the Committee recommended that the Board clarifies the onerous contract requirements in IAS 37. The Board supported the Committee’s suggestion and has today published an exposure draft of proposed clarifications.

 

Suggested changes

The changes proposed in ED/2018/2 Onerous Contracts — Cost of Fulfilling a Contract (Proposed amendments to IAS 37)

  • specify that the ‘cost of fulfilling’ a contract in paragraph 68 of IAS 37 comprises the ‘costs that relate directly to the contract’; and
  • provide examples of costs that do, and do not, relate directly to a contract to provide goods or services.

The Board proposes no new requirements for entities to disclose information about onerous contracts.

Comments on the proposed changes are requested by 15 April 2019.

 

Effective date and transition requirements

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

Entities already reporting under IFRS would be required to apply the proposed amendments to contracts existing at the beginning of the annual reporting period in which the entity first applies the amendments. Comparatives are not restated (‘modified retrospective’ approach). There are no specific transition requirements for entities adopting IFRSs for the first time.

 

Additional information

Please click for:

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.

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.