Mr Hoogervorst began with an overview of the PFS project and provided comments related to subtotals (definition of operating profits and profit before financing and tax), labeling non-GAAP measurement as ‘management performance measures’, improvements to disaggregation, the disclosure of ‘unusual’ items of income or expenses, and the impact the PFS proposals will have to the quality and usefulness of the income statement.

Next, Mr Hoogervorst commented on the importance of management commentary (a topic he also covered in similar speech at the Climate-Related Financial Reporting Conference in April 2019) to provide broader financial information, such as the impact of intangibles. He mentioned the need to update the Management Commentary Practice Statement to accommodate new advances made in the environmental, sustainability and governance reporting space.

For more information, see the transcript of his speech on the IASB’s website.

The agenda for the DPOC meeting is summarised below.

Agenda papers for the meeting are available on the IASB's website.

The agenda for the meeting is sum­marised below:

For more in­for­ma­tion, see the agenda on the IASB's website.

In his more general remarks on the global economy, Mr Liikanen noted that the economic growth cycle is now maturing, with various factors that may impede its longevity. In fact, he noted, globalisation itself faces some challenges around the world.

Mr Liikanen then turned to the academic debate on whether digitalisation, the process of leveraging technology and digitisation to improve business performance can take up the slack in productivity. He described two schools of thought that have emerged and concluded that technology is an important enabler, but it needs to work itself through and the real benefits will only come once the procedures can be fully implemented.

Turning then to financial reporting, Mr Liikanen noted that investors seek diversification and investment opportunities. The digitisation of financial information can help them to achieve these goals if it facilitates cross-border transactions and supports transparent, accountable and efficient financial markets in a digital world.

At this point, Mr Liikanen pointed to the IFRS Taxonomy and and its increasing adoption around the world - most recently in Europe. He promised that the IFRS Foundation will continue to explore how technological developments affect the way financial information is consumed and what this means for the Foundation's Taxonomy strategy, as well as how technology-related innovations affect the standard-setting process.

Concluding, Mr Liikanen noted that the IFRS Foundation is about to embark on its own digital transformation. He pointed at a long-term plan for the IFRS Foundation to completely overhaul its technology systems that was signed off at the last meeting of the Trustees (the report from the meeting offers little detail but notes that plan will be discussed again at the next meeting of the Trustees, which will take place on 25-27 June 2019 in Munich).

Please click to access the full text of Mr Liikanen's speech on the IASB website.

The new guidelines on reporting climate-related information integrate the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) of the Financial Stability Board (FSB).

In short, the new guidelines:

• accompany and are consistent with the EU Non-Financial Reporting Directive published in November 2014;
• supplement the general guidelines on non-financial reporting published in July 2017, which are still applicable;
• are based on proposals from Technical Expert Group (TEG) on Sustainable Finance published in January 2019;
• integrate the recommendations of the TCFD published in June 2017; and
• are not legally binding.

The new guidelines can be downloaded from the EC website, which also offers a press release, a short summary of the guidelines, and frequently asked questions.

For translations of the guidelines into all official languages of the European Union, please refer to the Official Journal of the European Union.

In addition, the Commission welcomes three important expert reports published by the TEG on sustainable finance (all links to the EC website):

• A taxonomy for environmentally-sustainable economic activities that provides practical guidance for policy makers, industry and investors on how best to support and invest in economic activities that contribute to achieving a climate neutral economy.
• A report on an EU Green Bond Standard recommending clear and comparable criteria for issuing green bonds.
• A report on EU climate benchmarks and benchmarks' ESG disclosures setting out the methodology and minimum technical requirements for indices that will enable investors to orient the choice of investors who wish to adopt a climate-conscious investment strategy, and address the risk of greenwashing.

The CMAC is a group of pro­fes­sional financial analysts who meet three times a year with members of the IASB to provide the views of pro­fes­sional investors on financial reporting issues.

For more in­for­ma­tion, see the press release on the IASB's website.

We support the IASB’s response in proposing amendments to both IFRS 9 and IAS 39 that deal with the immediate need of addressing the effect of the uncertainty arising from changes in benchmark interest rates on the “highly probable” requirement for cash flow hedges and the designated risk for cash flow and fair value hedges and suggest the IASB work on finalizing these amendments and begin the work on its second phase of amendments concurrently.

In addition, we believe there is a lack of clarity in (1) the application to retrospective hedge effectiveness, (2) the measurement of hedge ineffectiveness, and (3) whether the amounts deferred in the cash flow hedge reserve should be reclassified to profit or loss when the entity ceases applying the amendment.

Please download the full comment letter here.

EFRAG agrees that most IASB proposals will improve the Due Process Handbook; however, it proposes that major projects should have detailed effect analysis reports issued when key due process documents are issued. In ad­di­tional, the EFRAG suggests that the IASB should “ensure in its due process that agenda decisions only contain explanatory material and references to the mandatory content of IFRS Standards and that diversity in practice and IFRS-like guidance is addressed through standard-setting such as through the annual improvements process.”

Comments on EFRAG's draft comment letter are requested by 12 July 2019. For more in­for­ma­tion, see the press release and the draft comment letter on the EFRAG website.

New Issues

The Committee decided to publish seven new tentative Agenda Decisions. These summaries reflect our understanding from the Committee’s discussions. The tentative decisions will be published in due course.  

IFRS 16 Leases — Incremental borrowing rate —The definition of incremental borrowing rate does not explicitly require a lessee to determine its incremental borrowing rate to reflect the interest rate in a loan with a similar payment profile to the lease payments.

IFRS 16 Leases — Lease term and useful life of leasehold improvement — (a) An  entity considers the economics of a contract when determining the enforceable period of the lease, and not only any contractual termination payment (such as the cost of abandoning or dismantling leasehold improvements). (b) IAS 16 provides sufficient guidance to enable an entity to determine the useful life of non-removable leasehold improvements. The life is not limited to the lease term of the related lease but the lease term must be considered in determining the useful life.

IFRS 9 Financial Instruments — Fair value hedge of foreign currency risk on non-financial assets — Foreign currency risk can be a separately identifiable and reliably measurable risk component of a non-financial asset held for consumption  that an entity can designate as the hedged item in a fair value hedge accounting relationship. 

IAS 7 Statement of Cash Flows — Changes in liabilities arising from financing activities — The requirements in IAS 7 for information about changes in liabilities arising from financing activities required by IAS 7 are clear.

IAS 1 Presentation of Financial Statements — Presentation of an uncertain tax position — A liability related to uncertain tax treatments is a current (or deferred) tax liability and not a provision.

IFRS 15 Revenue from Contracts with Customers — Compensation for delays or cancellations — An an obligation to compensate customers for delayed or cancelled flights (as set out in legislation) is recognised as part of the transaction price and not an obligation in accordance with IAS 37.

IAS 41 Agriculture — Subsequent expenditure — IAS 41 allows an entity to Capitalise or expense the costs related to the biological transformation of biological assets.

Agenda decisions finalised

The Committee finalised four tentative agenda decisions.

IFRS 15 Revenue from Contracts with Customers — Costs to fulfil a contract — When revenue is recognised over time (in this case from a property sale, using the output method to measure progress) any costs incurred to fulfil the performance obligation are recognised as an expense when they are incurred.

IFRS 16 Leases — subsurface rights — When a contract between a land owner and another party gives the other party the right to place an oil pipeline in a specified underground space, with the land owner retaining the right to use the surface area of the land above the pipeline, that contract contains a lease.

IAS 19 Employee Benefits — Effect of a potential discount on plan classification — The existence of a potential discount on the contribution an entity is obliged to make to a post-employment benefit plan, if the ratio of plan asserts to plan liabilities exceeds a set level, does not preclude the plan from being a defined contribution plan.

Holdings of a cryptocurrency — A cryptocurrency does not meet the definitions of cash or a financial asset. It meets the definition of an intangible asset is accounted for in accordance with IAS 38, unless it the cryptocurrency is held for sale in the ordinary course of business—in which case IAS 2 applies.

Continuing discussions

The Committee discussed potential narrow-scope amendments to IAS 21 to define “exchangeability” and a “lack of exchangeability” and specify the requirements that would apply when there a lack of exchangeability in a currency.

Work in progress

The staff have received requests in relation to the definition of a lease and foreign operations in consolidated financial statements. The staff are in the process of analysing those matters.

More information

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

As part of its ongoing endorsement activities relating to IFRS 17 Insurance Contracts, the European Financial Reporting Advisory Group (EFRAG) is considering the interaction of IFRS 9 Financial Instruments with IFRS 17 specifically in the area of hedge accounting.

The questionnaire considers the following aspects:

• Current economic hedging strategies
• Accounting for current economic hedging strategies
• Future economic hedging strategies
• Application of IFRS 9 (including continued use of IAS 39 hedge accounting)
• Economic mismatches
• IFRS 9 and risk mitigation under IFRS 17

Responses to the questionnaire are requested by 16 September 2019.

Please click for more information on the EFRAG website.