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AcSB updates research on extractive industries

11 Feb 2019

In 2018, the IASB started gathering evidence to help it decide whether to start a project to develop proposals to replace IFRS 6 'Exploration for and Evaluation of Mineral Resources'. Before deciding the scope and direction of a research project, the IASB asked the national standard-setters who contributed to the 2010 discussion paper on extractive activities to make the IASB aware of any new developments.

The Canadian Accounting Standards Board (AcSB) staff has now prepared a research update to identify accounting challenges faced and any developments since 2010 in the extractive sector as well as how those changes affect the research findings in the discussion paper.

Key research findings include:

  • A weak commodity price environment and pipeline capacity constraints are placing additional pressures on the extractive sector.
  • The decline in commodity prices reduces the profitability prospects and attractiveness of the sector.
  • These pressures have caused a decrease in the number of publicly traded entities as a result of mergers, acquisitions and bankruptcies.
  • Other than that, there have been no significant changes or developments in the Canadian extractive sector since 2010.
  • Many preparers, practitioners and regulators say that there are areas of accounting complexity both within and outside of the scope of IFRS 6.
  • However, non-authoritative guidance on many of these challenges are available, e.g. by CPA Canada Mining and the CPA Canada Oil and Gas Task Forces.

Please click to read the AcSB press release offering access to a short In Brief overview of the research update.

Applicants invited for IFRS Interpretations Committee membership

08 Feb 2019

The Trustees of the IFRS Foundation have invited applications for candidates to fill four vacancies on the International IFRS Interpretations Committee for terms that will expire on 30 June 2019.

Members are expected to attend approximately six two-day meetings each year held in London. Terms of membership will begin on 1 July 2019 and will expire on 30 June 2022. Membership is unpaid, but the IFRS Foundation meets members' expenses of travel on IFRS IC business.

Applications are accepted until 8 March 2019.

Please click for more information on the IASB's website.

IASB member discusses returns, reinvestment opportunities and dividend distribution

08 Feb 2019

IASB member Nick Anderson has issued an article discussing corporate performance and how investors seek to understand the quality of the profit number, not just the amount of earnings.

Mr Anderson notes that investors will consider questions such as

  • How much capital has the business deployed to generate its level of profit?
  • How persistent are earnings likely to be into the future?
  • Does net profit include gains or expenses that are unlikely to reoccur?
  • Is the pattern of future profits likely to exhibit volatility or cyclicality?
  • To what extent are profits supported by cash flow generation?
  • What are the long-term risks faced by the business, including material environmental and social factors?

when assessing the sustainability of future profits of an entity. And while they draw on the financial statements, management commentary and multiple other information sources, "no number in isolation can adequately capture corporate performance".

He goes on to discuss cash flows, dividend regulations, and accounting requirements, noting that while accounting is an important piece of information it is just ’one piece of the jigsaw’. Dividend policy reflects many other factors such as reinvestment opportunities, financing needs, the risks faced by the company, legal constraints and incentive arrangements - and all of these factors differ by company, by jurisdiction and over time. Therefore, Mr Anderson notes, responsibility to determine whether dividend payments are appropriate is beyond the remit of the IASB. But he concludes:

However, there is no impediment to complementing high quality financial statements prepared in accordance with IFRS Standards by providing additional disclosures about dividend policies and dividend payments, including any disclosures needed to meet jurisdiction requirements.

Please click to access the full text of Mr Anderson's contribution on the IASB website.

FASB and ASBJ hold biannual meeting

08 Feb 2019

On 7 and 8 February, the FASB and the Accounting Standards Board of Japan (ASBJ) met in Tokyo. The meeting was the 25th in a series of biannual meetings between the two standard-setters.

In addition to giving updates on their respective standard-setting activities at the meeting, the two boards exchanged views on technical topics in which they both have an interest, including business combinations and goodwill, performance reporting and disclosures, leases, and the distinction between liabilities and equity.

The next meeting between the FASB and ASBJ is expected to be held in the Second half of 2019 in Norwalk. For more information about the latest meeting, see the press release on the ASBJ website.

IASB decides on further potential amendments to IFRS 17

07 Feb 2019

At its meeting currently held in London, the IASB discussed IFRS 17 'Insurance Contracts' and 4 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 2018, the Board came to the following conclusions:

Issue identified at the October IASB meeting

Agenda paper with detailed description (link to IASB website)

Staff recommendation

Board decision

1 — Loans that transfer significant insurance risk

Agenda paper 2A

  1. To amend the scope of IFRS 17 and IFRS 9 for insurance contracts for which the only insurance in the contract is for the settlement of some or all of the obligation created by the contract to enable an entity to apply either IFRS 17 or IFRS 9 to such contracts

13/14 support staff recommendation (on portfolio basis)

23 — Transition: Optionality and comparative information

Agenda paper 2B

  1. To retain the IFRS 17 transition requirements without amendment that would reduce the optionality
  2. To retain the IFRS 17 requirement to present restated comparative information

14/14 support both staff recommendations

25 (and some aspects of 8) — Transition: Risk mitigation option and amounts accumulated in other comprehensive income on transition

Agenda paper 2C

  1. To retain the requirements in IFRS 17 relating to the prohibition of retrospective application of the risk mitigation option
  2. To retain the requirements in IFRS 17 with respect to the cumulative amounts included in other comprehensive income

13/14 support staff recommendation 1 (the staff will do further research and bring back the issue at a future meeting); 14/14 support staff recommendation 2

24 — Transition: Modified retrospective approach

Agenda paper 2D

  1. To retain the requirements in IFRS 17 that an entity:
    • (a) cannot use a specified modification in the modified retrospective approach to the extent that the entity has reasonable and supportable information to apply the related IFRS 17 requirement retrospectively
    • (b) can only use a specified modification in the modified retrospective approach when the entity has reasonable and supportable information to apply that modification
  2. To
    • (a) not amend IFRS 17 to permit an entity to develop its own modifications
    • (b) amend the transition requirements in IFRS 17 for a liability that relates to the settlement of claims incurred before an insurance contract was acquired as follows:
      • (i) to add a specified modification to the modified retrospective approach to require an entity to classify such liabilities as a liability for incurred claims
      • (ii) to permit an entity applying the fair value approach to choose to classify such liabilities as a liability for incurred claims
    • (c) not amend the specified modification in the modified retrospective approach related to the use of cash flows that are known to have occurred
    • (d) not amend IFRS 17 to permit an entity to apply the specified modifications related to groups of insurance contracts without direct participation features to determine the contractual service margin for groups of contracts with direct participating features

14/14 support both staff recommendations (additional guidance to be included)

Please click to access our full meeting notes from the session.

The staff notes that the only outstanding topics are now the level of aggregation of insurance contracts and a question about a risk mitigation option for general model contracts related to the December 2018 Board discussion on risk mitigation. The staff intend to present papers on the remaining topics and on possible sweep issues at the March 2019 Board meeting.

In addition, the IASB has issued a podcast, featuring IASB member Darrel Scott and Technical Staff Laura Kennedy, on the IFRS 17 discussion at the February IASB meeting.

FRC consults on the reporting of intangibles

06 Feb 2019

The UK Financial Reporting Council (FRC) has launched a consultation into possible improvements to the reporting of factors that are important to a business’ generation of value.

The FRC notes that there are frequent calls to reform the accounting for intangible assets, partly in response to the move to a knowledge-based economy. Therefore, the FRC paper published today considers the case for radical change to the accounting for intangible assets and the likelihood of such change being made in the near future.

It suggests that:

  • relevant and useful information could be provided without the need to recognise more intangible assets in companies’ balance sheets;
  • such information could cover a range of factors, broader than the definition of intangible assets in accounting standards, that are relevant to the generation of value;
  • improvements could be made on a voluntary basis within current reporting frameworks (such as the strategic report); and
  • participants in the reporting supply chain could collaborate to bring about improvements.

The paper is structured into five sections:

  • Section 1 introduces the subject and notes the objectives of the paper.
  • Section 2 discusses the implications of the IASB's Conceptual Framework for the reporting of intangibles. It relates its conclusions to the economic features of intangibles that are identified in the literature.
  • Section 3 considers possible improvements to the reporting of expenses incurred to develop intangibles that cannot be capitalised in financial statements but are expected to benefit future periods.
  • Section 4 discusses how narrative reporting, including the use of metrics, might be used to provide better information for investors on intangibles.
  • Section 5 notes that further consideration is required of the implementation of the suggestions made in the paper and the role of preparers, investors, and standard-setters in that process.

Please click to access the consultation paper on the FRC website. Comments are requested by 30 April 2019.

Accountancy Europe responds to EC expert group report on disclosure of climate-related information

06 Feb 2019

Accountancy Europe has responded to the report on companies' disclosure of climate-related information issued by the Technical Expert Group on Sustainable Finance set up by the European Commission (EC). While the response notes that the initiative brings a great opportunity to link financial and non-financial information, improving integration of corporate reporting, Accountancy Europe also voices some concerns.

The response to the report stresses that it is important to clarify the two directions of impacts: the Non-Financial Reporting Directive (NFRD) addresses the impact of the company’s activities on the environment and the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) the physical impact of the environment on the company. Accountancy Europe notes that the report is not entirely clear which approach is applied in which instance.

The response also notes that while the concept of materiality is an element of both the TCFD and the NFRD, they may be seen as differing in their interpretation. Accountancy Europe suggests clarifying both concepts and how they can be aligned to each other - which will also help to avoid boilerplate disclosures.

While the Accountancy Europe response expresses understanding for the urgency to focus firstly on climate change related issues, it also stresses the importance of addressing social aspects. Climate-related matters should not be treated in isolation as this could have a negative impact elsewhere.

Finally, the response notes that more and more stakeholders including investors want to know whether or not they can trust reported information by companies and therefore ask for independent assurance over the reported information. Therefore, Accountancy Europe believes that it may be necessary to discuss assurance over non-financial information.

Please click to download the full response from the Accountancy Europe website.

2019 required and annotated required IFRS Standards now available

04 Feb 2019

The IFRS Foundation announces that the annual publication formerly known as the 'Blue Book' is now available.

The IFRS Standards Required 1 January 2019 pub­li­ca­tion contains all official pro­nounce­ments that are mandatory on 1 January 2019. It does not include IFRSs with an effective date after 1 January 2019. The Annotated IFRS Standards Required 2019 includes the same content as IFRS Standards Required 1 January 2019 but with ad­di­tional an­no­ta­tions containing extensive cross-references, explanatory notes and IFRS Interpretations Committee agenda decisions.

In addition, the IFRS Foundation has released a video describing the differences in the four volumes it publishes each year.

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

Additional educational module on the IFRS for SMEs on leases

04 Feb 2019

The IFRS Foundation has issued an additional new stand-alone educational module, which supports the learning, application, and reading of financial statements prepared with the IFRS for SMEs Standard.

The module focuses on the accounting of leases applying Section 20 Leases of the IFRS for SMEs.

Please click to access all 33 IFRS for SMEs modules available so far (free registration required).

IPSASB publishes final guidance on accounting for social benefits and exposure draft on collective and individual services and emergency relief

01 Feb 2019

The International Public Sector Accounting Standards Board (IPSASB) has released International Public Sector Accounting Standard (IPSAS) 42 'Social Benefits' and an related Exposure Draft (ED) 67 'Collective and Individual Services and Emergency Relief (Amendments to IPSAS 19)' to address a wide range of significant government expenditures.

IPSAS 42 Social Benefits provides guidance on accounting for social benefits expenditure. It defines social benefits as cash transfers paid to specific individuals and/or households to mitigate the effect of social risk. The standard requires an entity to recognise an expense and a liability for the next social benefit payment. IPSAS 42 establishes principles and requirements for:

  • Recognising expenses and liabilities for social benefits;
  • Measuring expenses and liabilities for social benefits;
  • Presenting information about social benefits in the financial statements; and
  • Determining what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the social benefits provided by the reporting entity.

In order to extend IPSASB’s guidance to public services as well as cash transfers, ED 67 Collective and Individual Services and Emergency Relief proposes new requirements for accounting for collective services (such as defense at national-levels), individual services (such as healthcare) and emergency relief. For collective and individual services, ED 67 proposes that an expense is recognised at the point of service delivery. ED 67 also proposes that an expense and liability is recognised for some emergency relief, but not where emergency relief is delivered as an ongoing activity of government. The IPSASB notes that the distinction between social benefits and collective and individual services is important, but the accounting treatment of these transactions should be conceptually consistent. Comments on the ED are requested by 31 May 2019.

The following additional information is available on the IPSASB website:

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