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2019

IASB publishes proposed amendments to IAS 12

17 Jul 2019

The International Accounting Standards Board (IASB) has published an exposure draft 'Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Proposed amendments to IAS 12)' that aim at clarifying how companies account for deferred tax on leases and decommissioning obligations. Comments are requested by 14 November 2019.

 

Background

The IFRS Interpretations Committee received a submission about IAS 12 Income Taxes and the recognition of deferred tax in relation to leases (when a lessee recognises an asset and a liability at the lease commencement) and decommissioning obligations (when an entity recognises a liability and includes the decommissioning costs in the cost of the item of of property, plant and equipment). The submitted fact pattern assumed that lease payments and decommissioning costs were deductible for tax purposes when paid and identified different approaches in practice.

The Committee discussed the submission at its meetings in March 2018 and June 2018 and came to the conclusion that the matter was relevant and widespread, as there are various kinds of contracts and fact patterns affected. Moreover, the question as to whether tax deductions are attributable to a contract, a (single) asset/liability, or rather to cash flows, and as to which consequences this may have for determining temporary differences, is fundamental within IAS 12. Therefore, the Committee recommended that the IASB develop clarifying amendments to IAS 12.

The IASB discussed the issue in October 2018 (general discussion of the issue and agreement with the IFRS Interpretations Committee's recommendation) and January 2019 (transition, retrospective application, and early application) and has now published an exposure draft of proposed clarifying amendments.

 

Suggested changes

The main change proposed in ED/2019/5 Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Proposed amendments to IAS 12) is a proposed exemption from the initial recognition exemption provided in IAS 12.15(b) and IAS 12.24. Accordingly, the initial recognition exemption would not apply to transactions in which both deductible and taxable temporary differences arise on initial recognition that result in the recognition of deferred tax assets and liabilities of the same amount. This is also explained in the newly inserted paragraph IAS 12.22A.

    Comments on the proposed changes are requested by 14 November 2019.

     

    Effective date and transition

    The exposure draft does not contain a proposed effective date as the IASB intends to decide on this after exposure. The proposed amendments would be applied retrospectively in accordance with IAS 8 and early adoption would be permitted.

    For practical and cost reasons, some simplification is provided for the assessment of the probability that a taxable profit will be available against which the deductible temporary difference can be utilised. A similar simplification is proposed for first-time adopters.

     

    Additional information

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    ESMA publishes 23rd enforcement decisions report

    16 Jul 2019

    The European Securities and Markets Authority (ESMA) has published further extracts from its confidential database of enforcement decisions taken by European national enforcers. This batch deals with decisions in relation to IFRS 10/IAS 7, IAS 7, IFRS 10/IFRS 12/IFRS 13/IAS 1, IFRS 9, IAS 40, IFRS 2, and IAS 34/IAS 36.

    The European national enforcers of financial information monitor and review financial statements published by issuers with securities traded on a regulated European market and who prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

    ESMA has developed a confidential database of enforcement decisions taken by individual European enforcers as a source of information to foster appropriate application of IFRS.

    The publication of enforcement decisions is designed to inform market participants about which accounting treatments European national enforcers may consider as complying with IFRS, i.e. whether the treatments are considered as being within the accepted range of those permitted by IFRS. ESMA considers the publication of the decisions, together with the rationale behind them, will contribute to a consistent application of IFRS in the European Union.

    Topics covered in the latest batch of extracts, covering the period from December 2016 to December 2018, include:

    Standard Topic
    IFRS 10 — Consolidated Financial Statements
    IAS 7 — Statement of Cash Flows
    Presentation of cash flows arising from changes in ownership interests in a subsidiary
    IAS 7 — Statement of Cash Flows Presentation and disclosure of restricted cash balances
    IAS 7 — Statement of Cash Flows Definition of cash and cash equivalents
    IFRS 10 — Consolidated Financial Statements
    IFRS 12 — Disclosure of Interests in Other Entities
    IFRS 13Fair Value Measurement
    IAS 1Presentation of Financial Statements
    Disclosure of fair value measurement of investments by investment entity
    IFRS 9 — Financial Instruments
    Impact of forbearance on assessment of significant increase in credit risk
    IAS 40 — Investment Property
    Accounting treatment of leased-out property acquired with a view to redevelopment
    IFRS 2 — Share-based Payment Vesting and non-vesting features of performance conditions in share-based payment plans
    IAS 34Interim Financial Reporting
    IAS 36 — Impairment of Assets
    Indications of impairment of assets

    Click for access to the full report (link to ESMA website). The ESMA has also published an updated overview of all enforcement decisions ever published.

    ESMA issues statement on the application of IAS 12

    15 Jul 2019

    The European Securities and Markets Authority (ESMA) has issued a public statement to help promote consistent application of IAS 12, ‘Income Taxes’.

    The statement provides issuers, auditors and audit committees with information related to two areas that European enforcers often challenge. These areas are:

    • “The probability that future taxable profits will be available against which unused tax losses and unused tax credits can be utilised (paragraph 34 of IAS 12), assessed through the criteria provided by paragraph 36 of IAS 12;”
    • “The ‘convincing other evidence’ that sufficient taxable profit will be available against which the unused tax losses or unused tax credits can be utilised by the issuer (paragraph 35 of IAS 12), in cases where the issuer has a history of recent losses.”

    For more information, see the press release on the ESMA website.

    EFRAG draft comment letter on proposed amendments to IFRS 17

    15 Jul 2019

    The European Financial Reporting Advisory Group (EFRAG) has issued a draft comment letter on the IASB exposure draft ED/2019/4 ‘Amendments to IFRS 17'.

    The exposure draft addresses concerns and implementation challenges that were identified after IFRS 17 'Insurance Contracts' was published in 2017.

    EFRAG is broadly supportive of the changes proposed; however, it has identified possible considerations for the IASB related to the (1) retrospective application of risk mitigation option on transition, (2) issuance of amendments to IFRS 4 which extends the optional deferral of IFRS 9 to allow adequate time for endorsement in Europe, (3) an exception for annual cohorts requirement for certain contracts, and (4) implementation challenges on the restrict use of the modified retrospective approach.

    Comments on EFRAG's draft comment letter are requested by 2 September 2019. For more in­for­ma­tion, see the press release and the draft comment letter on the EFRAG's website.

    EFRAG is looking for new TEG members

    15 Jul 2019

    The European Financial Reporting Advisory Group (EFRAG) is inviting applications for its Technical Expert Group (TEG).

    Ten of the sixteen members of EFRAG TEG will reach the end of their current term of ap­point­ment on 31 March 2020 and one of the country liaison members will reach the end of their current term on 31 October 2019. While all members are eligible for reap­point­ment, EFRAG welcomes all ap­pli­ca­tions and in par­tic­u­lar seeks can­di­dates from central and eastern Europe and other countries not yet represented on the EFRAG TEG.

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

    IASB will hold additional meeting in August

    15 Jul 2019

    The IASB, which normally does not meet in August, will hold an additional meeting on 28 August to discuss feedback received on ED/2019/1 'Interest Rate Benchmark Reform (Proposed amendments to IFRS 9 and IAS 39)'.

    ED/2019/1 was published on 3 May 2019 with comments requested by 17 June 2019. Agenda papers for the meeting will be available in due course on the IASB website.

    ESMA answer to the EFRAG questionnaire on alternative accounting treatments for equity instruments

    15 Jul 2019

    The European Securities and Markets Authority (ESMA) has submitted to EFRAG its response to the current consultation, which addresses (potentially inappropriate) accounting requirements for equity and equity-type instruments that are held in a long-term business model. In the consultation, EFRAG seems to suggest that current measurement requirements under IFRS 9 might be inappropriate - a view that is not supported by ESMA.

    In addition to the completed questionnaire, ESMA has included a cover letter that notes the following points:

    • Public financial disclosures should remain focused on depicting economic reality in a neutral way, while avoiding the possibility of giving rise to structuring opportunities.
    • The current provisions in IFRS 9 already cater for an adequate depiction of financial instruments. Particularly, the economic characteristics of equity instruments would generally not be adequately reflected by cost-based measurement, especially when current value information is reliable and available.
    • Concerns with respect to reported volatility are acknowledged, however, IFRS 9 provides an option to mitigate this volatility.
    • It is not yet possible to assess any potential effects of IFRS 9 on long-term investment decisions.
    • ESMA is not currently aware that the application of IFRS 9 has caused any obstacles to or provided disincentives to long-term investment decisions.
    • Elaborating an alternative accounting model for equity and equity-type instruments, in advance of having identifed evidence of any concrete issues regarding long-term investment arising from the application of IFRS 9, may result in a solution that may ultimately not be effective.

    ESMA concludes:

    In line with the above-mentioned considerations, at this stage, ESMA does not support any of the alternative accounting solutions illustrated in EFRAG's background document.

    Please clickt to access the cover letter and completed questionnaire on the ESMA website.

    ESMA updates ESEF Reporting Manual

    15 Jul 2019

    The European Securities and Markets Authority (ESMA) has published an update of its European Single Electronic Format (ESEF) Reporting Manual. The manual is aimed at all market participants involved in the implementation of the requirements set out in the ESEF Regulation, and in particular in the first-time preparation of IFRS consolidated financial statements in Inline XBRL.

    The manual was originally published by ESMA in December 2017. It is intended to provide guidance on issues commonly encountered when generating Inline XBRL instance documents in compliance with the ESEF Regulation. Following feedback from market participants, ESMA decided to publish a revised version of the manual to expand existing guidance and update the guidance included in the original publication.

    Please click to access the updated manual on the ESMA website.

    EFRAG publishes a feedback statement on its early-stage analysis of the FICE discussion paper

    15 Jul 2019

    The European Financial Reporting Advisory Group (EFRAG) has published a feedback statement on its early-stage analysis of some possible effects of the IASB Discussion Paper DP/2018/1 'Financial Instruments with Characteristics of Equity'.

    The EFRAG analysis offered an assessment of the potential effects of the proposals in the discussion paper. It could inform and be one of the inputs to a more comprehensive impact analysis if the IASB were to further proceed with the project on financial instruments with characteristics of equity (FICE) in its current form. The early-stage analysis was also a pilot study into the assessment of potential wider effects during the development of new IFRS requirements.

    The feedback statement describes the main comments received by EFRAG in response to its analysis.

    Please click to access the feedback statement on the EFRAG website.

    July 2019 IASB meeting agenda posted

    12 Jul 2019

    The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 22–25 July 2019, which includes a joint educational session with the FASB on 23 July.

    The Board(s) will discuss the following:

    • SME Standard review and update
    • Implementation matters: IFRIC Update
    • Classification of liabilities as current or non-current (amendments to IAS 1)
    • Goodwill and impairment
    • Management commentary
    • Business combinations under common control
    • Segments
    • Primary financial statements
    • Financial instruments with characteristics of equity
    • IBOR reform
    • Disclosure initiative
    • Implementation of revenue and leases
    • Rate regulated activities
    • Dynamic risk management

    The full agenda for the meeting can be found here. We will post any updates to the agenda, our com­pre­hen­sive pre-meet­ing summaries as well as observer notes from the meeting on this page as they become available.

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