In 2015, the FRC published a discussion paper on the same topic found that ‘whilst the system of financial reporting is not fundamentally flawed, there is a higher incidence of poorer quality annual reports by smaller quoted companies than by their larger counterparts’. Therefore, the FRC has deveopled a guide that offers practical, cost-effective suggestions on how smaller quoted companies can improve the quality of their financial reporting and suggested questions for audit committees to ask themselves and those associated with the financial reporting process that are designed to encourage the smaller quoted companies to reflect on current practices and consider areas for improvement. The guide not only builds on the 2015 discussion paper but also includes more recent developments such as three new international accounting standards, on revenue (IFRS 15), leases (IFRS 16) and financial instruments (IFRS 9), coming into effect in the last three years.

Please click to access the guide on the FRC website.

The topics covered during the meeting were the following (numbers in brackets are references to the corresponding paragraphs of the summary):

• Accounting treatment of ICOs and tokens in France (1–14): The ANC member provided an overview of the accounting regulation for Initial Coin Offerings and tokens issued by the ANC in December 2018. Aspects considered by the ASAF members were the application of IFRS, holders, prevalence, and legitimisation.
• Management commentary (15–36): The objective of the session was to receive the ASAF members' input on the staff's proposals. Aspects considered by the ASAF members were the interaction between management commentary and other reports, providing information 'through the eyes of management' and the interplay with users' information needs and with the concept of neutrality, forward-looking information in management commentary, and information about tax in management commentary.
• IFRS 17 Insurance Contracts (37–46): The objective of the session was to ask ASAF members’ views on the Board’s tentative decisions on possible amendments to IFRS17 Insurance Contracts. Topics discussed by the ASAF members were loans that transfer insurance risk, acquisition cash flows for renewals, profit allocation for some contracts, the risk mitigation option, balance sheet presentation, transition, and the level of aggregation.
• Onerous Contracts — Cost of Fulfilling a Contract (47–52): ASAF members provided preliminary views on the exposure draft.
• Accounting Policy Changes (53–58): ASAF members provided views on how to proceed with this project.
• Provisions (59–68): ASAF members provided views on research to date and future of this project. Topics discussed by the ASAF members were aligning the liability definition with the Conceptual Framework, clarifying which costs to include, clarifying whether the discount rate should reflect the own credit risk, and several other topics.
• Subsidiaries that are SMEs (69–74): The objective of the session was to obtain ASAF members’ views on the likelihood of a standard that permits a subsidiary of a parent entity that applies IFRSs to apply the recognition and measurement requirements of IFRSs and the disclosures requirements in the IFRS for SMEs, should the Board proceed with the project, being adopted in the ASAF members' jurisdictions.
• Application of IFRS Practice Statement 2: Making Materiality Judgements to reporting climate related and other emerging risk issues on financial statements (75–81): The AASB presented its December 2018 guidance Climate-related and other emerging risks disclosures: assessing financial statement materiality using AASB Practice Statement 2. The objective of the session was to obtain ASAF members’ advice on whether the guidance is useful and any similar recent developments in ASAF member jurisdictions.
• Improving the impairment testing model in IAS 36 Impairment of Assets (82–89): A representative of the AASB presented the AASB Research Report 9 Perspectives on IAS 36: A case for standard setting activity. The objective of the session was for the AASB to share the results of their research and seek feedback from other ASAF members.
• Business Combinations under Common Control (90–94): ASAF members provided views on the accounting approach to business combination under common control between entities that are wholly owned by the controlling party.
• Targeted standards-level review of disclosures (95–105): The purpose of the session was to seek ASAF members’ views on potential disclosure requirements identified by users of financial statements during outreach relating to IAS 19 Employee Benefits and IFRS 13 Fair Value Measurement.
• IFRS Foundation – Due Process Handbook Review (106–113): The staff presented what was at the time of the meeting a preview of the amendments that were proposed on 30 April to the Due Process Handbook. The main amendments relate to effects analysis and agenda decisions.

A full summary of the meeting is available on the IASB's website.

The Board will consider three “sweep issues” related to its package of amendments to IFRS 17 Insurance Contracts. Additionally, the staff provide a summary of the discussions of the Transition Resource Group for IFRS 17 (TRG) meeting held on 4 April 2019. (See our IFRS in Focus for a summary of the meeting)

For goodwill and impairment the staff are responding to issues raised by the Board in April in relation to possible new disclosures that the acquirer of a business would be required to provide to help a user assess whether a business combination was a good investment decision and whether that business is performing as expected. The papers include a discussion of ways to present equity (or net assets) excluding goodwill. The staff are also proposing that the Discussion Paper propose that the requirement for an annual test for impairment of goodwill and intangible assets with an indefinite life staff be removed and an indicator-only approach be used.

One of the threads in the Disclosure Initiative is a targeted Standards-level review of disclosure requirements. The Board has been developing internal guidance for setting disclosure requirements which it decided to test on IAS 19 Employee Benefits and IFRS 13 Fair Value Measurement. The staff present summaries of the outreach they have been undertaking since November 2018 and the different approaches they plan to take when reviewing IAS 19 and IFRS 13 disclosures.

For Primary Financial Statements, the staff are recommending that the Board develop an Exposure Draft for a new IFRS Standard to replace IAS 1 Presentation of Financial Statements, and that a Discussion Paper is not required.

The staff will present a summary of the feedback received on the Exposure Draft Onerous Contracts—Cost of Fulfilling a Contract. (See our IFRS in Focus for a summary of the ED).

Now that the IASB has published a revised Conceptual Framework, the IASB is considering whether IAS 37 Provisions, Contingent Liabilities and Contingent Assets should be revised. The staff are recommending that the Board align the definition of a liability in IAS 37 with the definition in the Conceptual Framework, including potentially replacing IFRIC 21 Levies with new requirements and illustrative examples in IAS 37. They also recommend that the Board clarify which costs to include in the measure of a provision and specify whether the rate at which an entity discounts a provision for the time value of money should include or exclude the entity’s own credit risk.

There is an education session for Rate-regulated Activities at which the staff will ask the Board for any suggestions to improve the understanding and clarity of the model that has been developed thus far.

The staff set out their approach to revising the Management Commentary Practice Statement and recommend that the Board provide additional guidance on the objective of management commentary, how to consider qualitative characteristics of useful financial information when providing management commentary and the content of management commentary.

The staff recommend that the IFRS for SMEs Standard should be aligned with new and amended IFRS Standards. The alternative would be to provide a stable platform that is updated only for specific problems brought to the Board’s attention. If the Board decides to take the recommended approach the staff set out ways to phase in updates. The staff also discuss IFRS 16 Leases to identify ways to simplify the requirements for SMEs.

More information

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

The report for 2018 provides an overview of the IFRS Foundation’s activities during the past year and sets out the Foundation’s and IASB’s priorities for 2019.

For more information, see the press release and annual report (available in PDF format and inline XBRL version) on the IASB’s website.

The consultation represents the EFRAG’s efforts to meet the European Commission’s Action Plan on Sustainable Finance initiative. Through the use of a questionnaire, the EFRAG will gather views from constituents on possible alternative accounting treatments meeting the following objectives:

• “[P]roperly portray the performance and risks of long-term investment business models, in particular for those equity and equity-type investments that are much needed for achieving the UN Sustainable Development Goals and the goals of the Paris Agreement on Climate Change;”
• “[P]referably enhance investors’ insight in the long-term performance of investments, as opposed to recognising point-in-time market-based value changes in reported profit or loss during the duration of the equity investment.”

Comments on the questionnaire are due by 5 July 2019. Respondents are encouraged to read the accompanying EFRAG Secretariat background paper. For more information, see the press release on the EFRAG’s website.

In an effort to better communicate with its constituents, the IPSASB is testing a new consultation approach. Therefore, the consultation document contains two separate sections:

• A concepts-based discussion in the consultation paper which
  
  • lays out proposed guidance for measurement bases for the assets and liabilities most commonly used by public sector entities when applying IPSAS;
  • proposes the development of a single standard which will provide definitions and guidance on the main measurement bases, while other IPSAS will continue to provide guidance on which particular measurement basis is to be used;and
  • identifies areas where the IPSASB has reached preliminary views; and
• An illustrative exposure draft, which illustrates what a draft IPSAS could look like, given the IPSASB’s preliminary views.

Comments on the consultation paper are requested by 30 September 2019.

Please click for the following information on the IPSASB website:

• Press release
• Access to the consultation paper, an At a Glance overview, and a 25 minute webinar on the proposals

The Board will discuss the following:

• Provisions
• Implementation matters
• Primary financial statements
• Amendments to IFRS 17 Insurance Contracts
• Disclosure initiative — Targeted standards-level review of disclosures
• Management commentary
• Review of the IFRS for SMEs
• Rate-regulated activities
• Goodwill and impairment

The session on amendments to IFRS 17 Insurance Contracts will be rather short (30 minutes on Wednesday afternoon) as the IASB will only discuss sweep issues and the comment period for the forthcoming exposure draft, which the staff, after obtaining permission of the DPOC, proposes to set at 90 days.

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.

For more information, please see our November 2018 story on the EFRAG's DP as well as the press release discussing the comment extension on the EFRAG website.

Background

Interbank offered rates (IBORs) are interest reference rates, such as LIBOR, EURIBOR and TIBOR, that represent the cost of obtaining unsecured funding, in a particular combination of currency and maturity and in a particular interbank term lending market.

Recent market developments have brought into question the long-term viability of those benchmarks. The Board is monitoring further developments in this regard in order to determine whether there are any implications for the existing accounting requirements. The focus of the project is currently on financial instruments although an IBOR reform would later definitely also have impact on any standard dealing with discounting.

The amendments proposed today deal with issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark with an alternative interest rate and consider the implications for specific hedge accounting requirements in IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement, which require forward-looking analysis. 

Suggested changes

The changes proposed in ED/2019/1 Interest Rate Benchmark Reform (Proposed amendments to IFRS 9 and IAS 39)

• modify specific hedge accounting requirements so that entities would apply those hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform;
• require specific disclosures about the extent to which the entities' hedging relationships are affected by the proposed amendments; and
• note that the amendments would be mandatory.

The proposed amendments also note that the Boards proposes to amend the hedge accounting requirements only as specified in the exposure draft and that the proposals are not intended to provide relief from any other consequences arising from interest rate benchmark reform. Moreover, the exposure draft notes that if a hedging relationship no longer meets the requirements for hedge accounting for reasons other than those specified in the exposure draft, then discontinuation of hedge accounting is still required.

Comments on the proposed changes are requested by 17 June 2019.

Effective date

The exposure draft proposes that the amendments would be effective for annual periods beginning on or after 1 January 2020 and would be applied retrospectively. Early application would be permitted.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• Short Snapshot overview of the proposed amendments (link to IASB website)
• Deloitte's IFRS in Focus newsletter explaining the proposed amendments
• Our IAS Plus project page on IBOR reform and the effects on financial reporting, especially on financial instruments

Mr Golden began his speech by acknowledging that comparable global accounting standards help reduce complexity and costs in financial reporting. He stated, however, that “by 2013, [the FASB had] come to realize that the ideal of single set high-quality global accounting standards was just that—an ideal. Different starting points, different cultures, and different legal systems made bilateral convergence impossible to achieve.”

After he highlighted the success of the joint FASB-IASB projects on business combinations, noncontrolling interests, fair value measurements, borrowing costs, segment reporting, stock compensation, and nonmonetary exchanges, Mr Golden reflected on the diverging strategies for the Boards’ projects on revenue recognition, leases, credit losses, and insurance. He closely examined the reasons for divergence, which were usually due to cost and complexity for US stakeholders.

Mr Golden discussed how the FASB is working to “[forge] a new model for how we support the goal of more comparable, high-quality accounting standards worldwide,” which includes:

• Development of high-quality GAAP — Mr Golden noted that considering opportunities to align with IFRS when possible is ‘embedded’ in the FASB’s process. He said the FASB is in ‘constant contact’ with the IASB about the IASB’s projects and that the Boards share research activities to “continue progress toward improved, aligned solutions.”
• Active participation in the Accounting Standards Advisory Forum (ASAF) — Mr Golden described the FASB’s commitment to the ASAF, which advises the IASB as it develops IFRS. He called the FASB’s involvement “an important opportunity to represent U.S. interests in the IASB’s standard-setting process” and noted that the ASAF provides a “valuable opportunity to work together with other standard setters on issues of common interest.”
• Enhancing relationships with other national standard setters — Mr Golden mentioned that the FASB meets individually with standard setters from many countries to “exchange ideas on improving our respective standards. This process also helped promote the broader flow of information and ideas that mutually inform our thinking. And to contribute to an environment that will foster greater alignment of standards across the globe.”

He made clear in his speech that the FASB will continue to work closely with the IASB to improve accounting standards worldwide. He also briefly provided his own opinion on sustainability reporting:

I think we should follow the IASB’s lead and remain focused on improving the financial statement. And leave sustainability reporting and other performance metrics—however important they may be—to other experts.

The full text of Mr Golden’s speech is available on the FASB's website.   

The research paper, originally published in December 2018, contains several updates and guides directors, preparers and auditors when preparing and auditing financial statements. Even though the guidance is not mandatory, it represents the IASB’s best practice interpretation of materiality.

Please click to access the updated research paper on the AASB website.