2018

Recent sustainability and integrated reporting developments

25 Oct 2018

A summary of recent developments at WBCSD, SSE, CDSB, and PAFA.

The World Business Council for Sustainable Development (WBCSD) has released the 2018 edition of Reporting matters. This year’s report aims to show how companies are linking reporting and decision-making through three topic-specific addendum reports focused on climate change, water and human rights. The press release on the WBCSD website offers a summary of the key findings and access to the full report.

The United Nation's Sustainable Stock Exchanges (SSE) initiative and the International Finance Corporation (IFC), a member of the World Bank Group, have initiated a collaboration to raise environmental, social, and governance standards across emerging capital markets. The goal is to help build investor trust, attract capital, and grow strong local capital markets. Please see the press release on the SSE website.

The SSE has also released a new report focusing on how securities regulators can help promote the sustainable development goals. With 35 examples from 19 markets, the report provides a snapshot of what is happening around the world today. The report is available on the SSE website.

Another report released by the SSE is its biennial report on progress documenting a steep increase in a number of sustainability activities at stock exchanges. The report is available on the SSE website.

The Climate Disclosure Standards Board (CDSB) has published a report on how India is responding to sustainability challenges. The report compares India’s sustainability reporting practices with those of China and OECD countries, with a focus on the differences in disclosure channels, obligations and subjects disclosed. Please click to access the report on the CDSB website.

The Pan-African Federation of Accountants (PAFA) is conducting a survey to gain a sense of where people think sustainability is currently integrated into the continuous professional development and continuous professional education of the professional accountant. Please click to access the survey on the PAFA website.

AOOIFI publishes study of IFRSs from a Sharia'a perspective

25 Oct 2018

The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has published 'IFRS and the Shari'ah based reporting: A conceptual study'.

The study looks at IFRSs from Sharia'a, Islamic accounting, and Islamic finance accounting perspective and stresses the information needs of Shari'ah conscious users of financial statements. The authors, both of whom are from Pakistan, primarily cover Islamic finance accounting but also include general accounting observations and unique aspects of Sharia'a based reporting.

An electronic version of the 200 page study can be accessed free of charge on the AAOIFI website.

 

Additional educational modules on the IFRS for SMEs available

25 Oct 2018

The IFRS Foundation has issued eight new stand-alone educational modules which support the learning, application, and reading of financial statements prepared with the IFRS for SMEs Standard.

The IFRS Foundation expects to issue stand-alone modules for each section of the 2015 IFRS for SMEs Standard (35 in total). This is the third batch of modules released by the Foundation; the first three modules were posted in April 2018, another seven modules were announced in August. The eight new modules released since August cover the following topics:

  • Statement of Financial Position
  • Notes to the Financial Statements
  • Investments in Associates
  • Investments in Joint Ventures
  • Government Grants
  • Borrowing Costs
  • Impairment of Assets
  • Foreign Currency Translation

Please click to access all 18 IFRS for SMEs modules available so far (free registration required).

IASB discusses IFRS 17 at today's meeting

24 Oct 2018

At its meeting currently held in London, the IASB discussed IFRS 17 'Insurance Contracts' to determine whether the various concerns regarding the standard that have been brought to the IASB's attention require action of the Board. Aware of the attention this discussion would get, the IASB did not pull forward the discussion although it finished its other discussions early.

Since IFRS 17 was issued in May 2017, the Board has been monitoring the implementation and has learned about concerns and implementation challenges, among them the issues identified in the EFRAG letter sent to the IASB last month.

There were four papers for the meeting: A summary of the TRG meeting held in September, the TRG submission log, the criteria the staff of the IASB has developed for the Board to apply in assessing whether a concern warrants considering an amendment, and identified concerns and implementation challenges. All papers for this session are available on the IASB website (please scroll down).

The discussion focused on agenda paper 2C for the meeting revealing the criteria the staff of the IASB has developed for the Board to apply in assessing whether a concern warrants considering an amendment:

  1. the amendment would not result in significant loss of useful information relative to that which would be provided by IFRS 17 for users of financial statements and
  2. the amendment would not unduly disrupt implementation processes that are already under way or risk undue delays in the effective date of a standard that is needed to address many inadequacies in the existing wide range of insurance accounting practices.

In the paper, the staff also noted that even if the Board agrees that any potential amendment to IFRS 17 meets the criteria, it does not mean that all amendments meeting these criteria are justified. The staff also stressed that any changes would affect the effective date.

The Board made the following comments:

  • amendments need to be necessary, not just fulfil the criteria;
  • what's missing in the criteria is that changes should not compromise the criteria of IFRS 17;
  • the Board should deal with implementation issues only, not just anything that is connected with IFRS 17;
  • changes should be narrow in scope and should be able to be dealt with efficiently;
  • changes to IFRS 17, a final standard, would impact those who have already begun implementing it;
  • pushback must be expected;
  • 25 issues is many;
  • picking up some issues but not all will make some people happy and some very unhappy;
  • any changes would need to go through the full due process;
  • establishing a TRG meant the IASB is open to hearing about problems and to deal with them;
  • the IASB needs to consider interaction with IFRS 9;
  • do the issues identified relate to material new information or are they issues the Board has considered before?;
  • investors are waiting for the new standard, there needs to be a high hurdle for changing it;
  • benefits of changes need to exceed the costs;
  • are there items on the list for which the efforts or costs are underestimated?;
  • could practical expedients help?;
  • the IASB needs to avoid being pulled into something that seems to be unavoidable;
  • costs and efforts of the whole package of changes must be considered;
  • exceptions increase the complexity;
  • it must be prevented that the IASB having this discussion in the first place will lead to entities downing their tools;
  • how did the items get onto the list?;
  • should new unexpected costs be a criterion?;
  • a lot of work went into the standard;
  • a lot of feedback was gathered;
  • a lot of people are waiting for the standard to become effective.

Chairman Hans Hoogervorst concluded the discussion by stating that he had read the papers for the discussion with a heavy heart. He just hoped that the standard would get into place before the next financial crisis - as the markets were very nervous and there was much too much debt in the market. He therefore concluded that changes to IFRS 17 should be fine-tuning only and legitimised by decreasing costs. He also added that the whole package of issues should be looked at and that 25 issues were too many.

The Board voted unanimously for the criteria developed by the staff.

Another focus of the meeting was agenda paper 2D including some background information and providing for each identified concern or implementation challenge:

  • an overview of the IFRS 17 requirements;
  • a summary of the Board’s rationale for setting those requirements;
  • an overview of the concern or implementation challenge expressed; and
  • staff preliminary thoughts.

Only some of the individual concerns and challenges were discussed, none in detail, however, there was significant discussion around the issues related to the effective date of IFRS 17. It was noted by IASB Board individual members:

  • that a lot of users are waiting for IFRS 17;
  • that some preparers are calling for more time/don't want to be rushed/want to ensure a quality implementation;
  • that it is important to keep track of the different reasons for calling for a deferral;
  • that the effect of having no comparatives would need to be considered;
  • that the interaction with IFRS 9 would need to be considered; and
  • that a two-tier model (listed and unlisted companies) might help/ would take little pressure off the market.

The Board will be asked to consider at a future meeting whether any of the concerns and implementation challenges indicate a need for standard-setting to amend the requirements of IFRS 17.

The IASB itself has relaesed a short press release commenting on the session.

IFSB and AAOIFI sign Memorandum of Understanding

24 Oct 2018

The two leading Islamic finance standard-setting bodies Islamic Financial Services Board (IFSB) and Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) have signed a Memorandum of Understanding to facilitate international cooperation between the two organisations.

The AAOIFI is an Islamic international autonomous non-for-profit corporate body that prepares accounting, auditing, governance, ethics and Sharia'a standards for Islamic financial institutions and the industry. It was founded in 1991 and has so far issued a total of 100 standards.

The IFSB, which is based in Kuala Lumpur, started operations in March 2003. It serves as an international standard-setting body of regulatory and supervisory agencies that have vested interest in ensuring the soundness and stability of the Islamic financial services industry, which is defined broadly to include banking, capital market and insurance. Since its inception, the IFSB has issued 27 standards, guiding principles and a technical note for the Islamic financial services industry.

Areas of cooperation under the MoU between the IFSB and AAOIFI include:

  • Development and revision of prudential, Sharia'a, accounting and governance standards on areas of mutual interest;
  • Promotion of the implementation of prudential, Sharia'a, accounting and governance standards to facilitate the development of the Islamic financial services industry; and
  • Enhancement of awareness through knowledge sharing and organisation of executive programmes, workshops, conferences, and seminars.

Please click to access the press release published on the IFSB website.

EFRAG impact assessment surveys on the IASB's FICE DP

24 Oct 2018

The European Financial Reporting Advisory Group (EFRAG) seeks feedback from preparers and users of financial statements to assess the impact of the IASB’s Discussion Paper 'Financial Instruments with Characteristics of Equity' on distinction between debt and equity.

There are two seperate surveys: The users' survey will take approximately 30 minutes and the prepares' survey between 30-45 minutes to complete. EFRAG invites participants to complete the appropriate survey by 30 November 2018. Please click to access the surveys through the press release on the EFRAG website.

IASB finalises amendments to IFRS 3 regarding the definition of a business

22 Oct 2018

The IASB has issued 'Definition of a Business (Amendments to IFRS 3)' aimed at resolving the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020.

Background

The post-implementation review of IFRS 3 Business Combinations revealed that entities have difficulties when determining whether they have acquired a business or a group of assets. As the accounting requirements for goodwill, acquisition costs and deferred tax differ on the acquisition of a business and on the acquisition of a group of assets, the IASB decided to issue narrow scope amendments aimed at resolving the difficulties that arise when an entity is determining whether it has acquired a business or a group of assets.

In June 2016, the IASB published ED/2016/1 Definition of a Business and Accounting for Previously Held Interests (Proposed amendments to IFRS 3 and IFRS 11), combining two of its implementation projects at that time. The proposed amendments regarding the accounting for previously held interests were finalised as part of the annual improvements 2015-2017 on 12 December 2017. The proposed amendments regarding the definition of a business are being finalised today.

 

Changes

The amendments in Definition of a Business (Amendments to IFRS 3) are changes to Appendix A Defined terms, the application guidance, and the illustrative examples of IFRS 3 only. They:

  • clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs;
  • narrow the definitions of a business and of outputs by focusing on goods and services provided to customers and by removing the reference to an ability to reduce costs;
  • add guidance and illustrative examples to help entities assess whether a substantive process has been acquired;
  • remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs; and
  • add an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

 

Interaction with the FASB

The amendments note that IFRS 3 is the result of a joint project between the IASB and the FASB and the business combinations requirements under IFRSs and US GAAP are substantially converged. However, even though the FASB (that had received similar feedback) and the IASB have worked together to respond to problems with the definition of a business, the IASB amendments to the application guidance of IFRS 3 are different from the amendments issued by the FASB in 2017. Nevertheless, the IASB expects that the amendments in conjunction with the FASB amendments will lead to more consistency in applying the definition of a business between entities applying IFRSs and entities applying US GAAP.

 

Effective date and transition requirements

The amendments are effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2020 and to asset acquisitions that occur on or after the beginning of that period. Earlier application is permitted.

 

Additional information

Please click for:

ESAs comment on IFRS 17 endorsement process in the EU

19 Oct 2018

The European Supervisory Authorities (ESAs) have jointly written to the European Financial Reporting Advisory Group (EFRAG) to express concerns on the endorsement process for IFRS 17 'Insurance Contracts'.

In September 2018, EFRAG agreed on a letter to the IASB regarding IFRS 17 to bring concerns of European constituents regarding the standard to the IASB's attention. While EFRAG is waiting for the IASB to consider these (and other) concerns, the endorsement process for IFRS 17 is temporarily put on hold. The IASB will discuss IFRS 17 concerns and implementation challenges at its meeting next week but no decisions are expected as yet.

The ESAs note the delay in the endorsement process with concern. Their letter states:

While, at this stage, we do not express any detailed technical views on IFRS 17, we reiterate the need to continue to progress and to finalise the analysis of IFRS 17 in a timely manner against the background of the effective date of IFRS 17 of 1 January 2021.

Similarly, in a speech given in Madrid today, the Chair of the European Securities and Markets Authority (ESMA), which is one of the ESAs, also commented on IFRS 17. He said:

[W]hile we are still analysing its technical details, one thing that can already be affirmed with certainty is that IFRS 17 will improve comparability and transparency of financial information on insurance contracts when compared to the current situation. [...] Therefore, while it is important to exercise caution in assessing the changes introduced by IFRS 17, I think it is necessary to avoid any further delays in reaching a common set of accounting standards for insurance contracts. [...W]e are quite concerned by the delay that we are observing in the endorsement process of IFRS 17 in the EU.

And while the European Insurance and Occupational Pensions Authority (EIOPA), also one of the ESAs, does not explicitly refer to the endorsement process, it notes in its analysis of the benefits of IFRS 17 that has just now also become available:

EIOPA found that the expectedly increased transparency and comparability of insurers' financial statements through IFRS 17, providing better insights into insurers' business models, have the potential to strengthen financial stability in the European Economic Area (EEA). Therefore, EIOPA regards the implementation of IFRS 17 as beneficial for the European public good. [...] The introduction of IFRS 17 is a long overdue and positive shift of paradigm compared to IFRS 17's predecessor IFRS 4 Insurance Contracts.

Please click to access the the quoted documents:

IFRS Foundation Trustees chair discusses new role and upcoming priorities

18 Oct 2018

In a recent interview, the Chair of the IFRS Foundation Trustees Erkki Liikanen provided his thoughts on his new role, financial reporting in the global economy, and his priorities for the Trustees.

Mr Liikanen noted that financial reporting works best when standards and practices across jurisdictions are the same to maintain consistency and that the use of IFRS Standards have helped achieve this. In addition, he stated that his priorities for the Trustees are to look at core functions and strategies.

For more information, see the interview on the IASB’s website.

Recordings from the October 2018 DPOC meeting

18 Oct 2018

The Trustees of the IFRS Foundation are currently meeting in Johannesburg. On 16 October, the Due Process Oversight Committee (DPOC) of the Trustees held its meeting (the only part of the Trustees meeting held in public). Recordings from the meeting are now available.

The DPOC members discussed the following topics

  • Introduction and actions from DPOC meeting held on 5 June 2018
  • Technical activities: Key issues and update
  • Review of the post-implementation review of IFRS 13
  • Consultative groups — annual review and DPOC engagement
  • Reporting protocol — annual general report
  • Education material — review of due process
  • Due Process Handbook review
    • Proposals for improvements
      • Agenda decisions: Supporting consistent application
      • Adding projects to the Board’s work plan
      • Effects analysis
      • Taxonomy
      • Anonymous complaints about due process
    • Outline of timetable and next steps
  • Correspondence: update
  • Summary

The recordings are available on the IASB's website.

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