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April

IASB issues podcast on latest Board developments (April 2020)

30 Apr 2020

The IASB has released a podcast featuring IASB Chair, Hans Hoogervorst and Vice-Chair, Sue Lloyd discussing the deliberations at (1) the April IASB meeting and (2) the Board's supplementary meeting on COVID-19-related matters.

The podcast features discussions related to the effects of COVID-19 on stakeholders, specifically changes in the work plan timeline and proposed rent concession amendments to IFRS 16, Leases. The podcast also discusses:

  • Amendments to IFRS 17, Insurance Contracts.
  • Post-implementation reviews of IFRS 10, IFRS 11 and IFRS 12.
  • Management commentary.
  • Maintenance and consistent application.

The podcast can be accessed through the press release on the IASB website. More information on the topics discussed is available through our comprehensive notes taken by Deloitte observers at the April IASB meeting as well as the Board's supplementary COVID-19 meeting.

Responses to Accountancy Europe cogito paper show strong support for a global solution to non-financial reporting

30 Apr 2020

In December 2019, Accountancy Europe published a paper describing and calling for a global solution to interconnected standard-setting that can meet the need for reliable, consistent information in non-financial reporting that is interconnected with financial reporting. The comment deadline for the paper has now ended and the responses received show strong support for a global approach to standard setting in this area.

The paper had noted that the hundreds of non-financial information (NFI) reporting initiatives available are leading to confusion and the potential for greenwashing. For an effective response to these global issues and stakeholder demands, NFI reporting needs to be harmonised and interconnected with financial reporting. The paper then explored four approaches how this can be achieved, being (1) an international non-financial reporting standards board within the IFRS structures, (2) regional consolidation, (3) separate governance structure for financial and NFI reporting; and (4) global corporate reporting structure.

The responses so far made available on the Accountancy Europe website (17 responses that can be accessed here) show strong support for approach number four.

Of the large accounting organisations, ACCA very much supports overall the content and conclusions of the paper and agrees that approach 4 represents the best model for setting the standards needed to address the issues at hand. IFAC states that a global approach to international standard-setting is an optimal solution and notes: "IFAC strongly supports a global, versus regional or local, approach to “non-financial” standard setting, including the process of establishing a conceptual framework and standards, for the same reasons international standards were critical for the maturity of financial reporting. A regional or local approach ultimately leads to inefficiency and increased costs — for both companies and investors and might be challenging to retrofit at an international level."

The majority of national standard-setters also support the global approach. The German standard-setter ASCG states: "[W]e do not share the view of those that believe Europe should be first, go regional and create its own non-financial reporting environment. The reporting requirements are primarily targeting companies that are sourcing, selling and doing business beyond Europe's borders" and the Dutch standard-setter DASB believes that for any global initiative, clear support of major national and international stakeholders and jurisdictions is essential and notes that approach four may be most appropriate given the fact that also the United Nations have made promising progress in developing their SDGs.

The sustainability and integrated reporting organisations, apart from promoting their own standards and frameworks, favour global solutions as well. The CDSB warns that a "regional approach may not be the best method to develop a global standard. This problem is further exacerbated by the issue that jurisdictions outside of Europe may be hesitant to adopt regional concepts", GRI notes that a "globalized system will unlock the value of the information by easing comparability and analysis while minimizing reporting burden", and the IIRC comments: "We endorse the approach taken by Accountancy Europe in encouraging dialogue between stakeholders that will lead to a globally coordinated solution involving many different constituents on an inclusive basis."

Responses from academia offer careful analysis of all approaches and general statements in the paper. One comment letter notes: "Approach 4 has much greater potential with respect to global acceptance. It is unrealistic to expect global adoption of an approach that is designed and controlled locally. [...] This is especially important for NFI because the underlying challenges are global. [...] By creating barriers to global acceptance, Approach 2 risks undermining the EU’s policy ambition in this regard. Conversely, if the EU were to initiate, promote and support Approach 4, and commit to adopting the resulting standards (with appropriate endorsement process), then it would be in a strong position to ensure that the specific implementation of Approach 4 would reflect the EU’s views, against criteria such as public accountability and balanced member ship of the standard-setting body."

The responses from audit firms all support a global solution as well. Our Deloitte comment letter notes: "We agree that there is a need for a global solution in view of the global flow of capital and the urgent need to address issues such as climate change which have no borders. We urge capital market regulators and multi-lateral authorities to engage urgently in putting a robust global systemic solution in place."

Summary of the March 2020 GPF meeting

30 Apr 2020

Representatives from the International Accounting Standards Board (IASB) met with the Global Preparers Forum (GPF) in London on 5 March 2020. Notes from the meeting have now been released.

The topics discussed at the meeting included:

  • Primary financial statements — Overview over the ED and preliminary views of the members
  • IASB update
  • Goodwill and impairment — Overview of the Board’s preliminary views that will be included in the discussion paper and GPF members’ views on the feedback process for the project and areas of focus during the comment and outreach period
  • Disclosure initiative: Targeted standards-level review of disclosures in IAS 19 and IFRS 13 — next steps in the project

The next GPF meeting will be held jointly with the CMAC on 18 and 19 June 2020.

For more information, see the meeting page and the meeting summary on the IASB's website.

April 2020 IASB meeting notes posted

29 Apr 2020

The IASB met on 21–23 April 2020. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

Financial Instruments with Characteristics of Equity: At the December 2019 Board meeting, the Board discussed the staff’s preliminary analysis on how the fixed-for-fixed requirement in IAS 32 could be clarified. At this meeting the Board decided to articulate its foundation principle by stating that in a derivative on own equity that meets the fixed-for-fixed condition, the amount of functional currency units to be exchanged with each underlying equity instrument is fixed and does not vary other than (if applicable) with preservation adjustments and passage of time adjustments. The Board also supported the staff recommendations for how the preservation and passage of time adjustments should be expressed. The staff set out their plan for outreach with stakeholders on potential disclosures that can be developed as part of the project.

Post-implementation review of IFRS 10, 11 and 12: The Board decided to proceed with the PIR and publish (in December) a Request for Information to gather more information about the application of these Standards.

Disclosure Initiative—Subsidiaries that are SMEs: In the January 2020 meeting, the Board agreed to move the project from the research programme to the standard-setting programme. The objective is to develop a reduced disclosure IFRS Standard that would apply on a voluntary basis to subsidiaries that are SMEs, adapted from the disclosure requirements of the IFRS for SMEs. The staff expect to start drafting an ED or a DP in Q4 2020.

Maintenance and Consistent Application:

  • Commodity loans: In 2017, the IFRS Interpretations Committee (Committee) received a question about a particular commodity loan transaction and observed that the transaction may not be captured within the scope of any IFRS Standard. The Board decided to refer to commodity transactions as a potential project in its Request for Information on the 2020 Agenda Consultation.
  • Sale and leaseback with variable payments. At its March 2020 meeting, the Committee discussed a submission about a sale and leaseback transaction with variable payments. The Committee published a tentative agenda decision but its discussions highlighted that IFRS 16 is not as complete as it could be regarding the subsequent measurement of the lease liability arising in a sale and leaseback transaction. They therefore recommended that the Board make a narrow-scope amendment to IFRS 16. The Board decided to amend IFRS 16 to state that for lease modifications or changes in the lease term of a sale and leaseback transaction, the seller-lessee remeasures the lease liability by discounting the revised expected payments for the lease using a revised discount rate.
  • Lack of exchangeability. At its November 2019 meeting, the Board decided to propose an amendment to IAS 21 to address the accounting when the spot exchange rate is not observable (because of a lack of exchangeability between two currencies). The Board supported the staff recommendations for a definition of a lack of exchangeability, indicators for assessing exchangeability and disclosure requirements.
  • Deferred tax related to assets and liabilities arising from a single transaction. In July 2019 the Board published the Exposure Draft Deferred Tax related to Assets and Liabilities arising from a Single Transaction, proposing an amendment to IAS 12 to narrow the scope of the recognition exemption (which affects initial recognition of leases and decommissioning liabilities). The staff presented a summary of feedback received. Although a majority of Board members thought the staff should continue with the project, several members questioned whether the benefits of the change would exceed the costs.

Second comprehensive review of the IFRS for SMEs Standard: The staff have published a survey on 20 April 2020, with comments to be received by 27 July 2020, for stakeholders who do not have an existing process or do not have sufficient capacity or resources to submit a comment letter.

Management Commentary: The Board discussed disclosure objectives and the type of information that would support those objectives, focusing on business model, strategy and resources and relationships.

There was also an oral update on amendments to IFRS 17 Insurance Contracts. The amendments are expected to be finalised at the end of June 2020.

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

Agenda for the May 2020 Emerging Economies Group meeting

29 Apr 2020

The agenda is available for the upcoming meeting of the IASB's Emerging Economies Group (EEG), which is being held by remote participation on 11 and 12 May 2020.

The agenda for the meeting is summarised below:

Monday 11 May 2020 (11:00-15:30)

  • Welcome
  • Discussion paper on goodwill and impairment
    • Introduction to the discussion paper
  • IFRS 17 Insurance Contracts
    • Update on the amendments to IFRS 17
    • Discussion on implementation activities
  • Update on IASB projects
  • Applying IFRSs in 2020
    • Discussion on the impact of Covid-19

Tuesday 12 May 2020 (11:00-15:15)

  • 2019 Comprehensive review of the IFRS for SMEs
    • Discussion by EEG members on the request for information
  • Primary financial statements
    • Discussion by EEG members on the exposure draft
  • Management commentary
    • Introduction to the forthcoming exposure draft

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

    AcSB article series on COVID-19 accounting questions

    29 Apr 2020

    The Accounting Standards Board of Canada (AcSB) has published a series of short articles on accounting considerations in the context of the COVID-19 pandemic.

    So far, the following articles are available (all links to the AcSB website):

    • Going Concern and Liquidity Risk. Most companies, unless they are an essential service, are likely in a situation where they’ve had a significant drop in their operations or are closed, which may call into question their long-term viability or ability to continue as a going concern.
    • Potential Impact on Lease Accounting. The COVID-19 pandemic is affecting the ability of organisations to collect and pay rent and other lease obligations. This means companies should use professional judgement and consider the potential implications that COVID-19 could have relating to the accounting for leases under IFRS 16 Leases.
    • Events After the Reporting Period. Most companies, unless they are an essential service, are likely experiencing a material decline in their operations or are closed. This raises questions about whether they need to adjust their year-end or interim financial statements or provide additional disclosures for events after the reporting period.
    • Income Taxes. The COVID-19 pandemic is affecting the recoverability of deferred tax assets and has introduced new government relief measures. Entities should use professional judgment to assess how this will impact the accounting for income taxes in accordance with IFRS Standards.
    • Impairment of Non-financial Assets. COVID-19 is having a significant economic effect on companies, many of which are now facing declines in production, sales, and demand for their goods or services. These declines affect a company’s profitability and may give rise to events that indicate that its non-financial assets, such as intangible assets, goodwill, property, plant, and equipment may not be recoverable.
    • Potential Impact on IFRS 13 Fair Value Measurement. The COVID-19 pandemic continues to evolve rapidly and market-based measures like fair value are likely to change significantly and perhaps in unpredictable ways as a result.
    • Discount Rates. The risks and uncertainties arising from COVID-19 and the move by central banks to cut their overnight rates may affect discount rates used in asset and liability measurements.

    Please note that these articles are also available in the French language and can be accessed here.

    Note: The AcSB is continuing to expand the series - a collection of all articles can be accessed here.

    IFRS Foundation seeks IASB Board members

    29 Apr 2020

    The IFRS Foundation Trustees are seeking to appoint two new Board members, both from Europe.

    IASB members are appointed for an initial five-year term with the possibility of being reappointed for another three years (in exceptional circumstances for another five years). Nominations for IASB Board membership close on 26 June 2020. For more information, see the press release on the IASB’s website.

    IASB Chair discusses annual cohorts

    28 Apr 2020

    IASB Chair Hans Hoogervorst has issued an article explaining the reasons supporting the IASB’s recent decision to uphold the annual cohort requirement in IFRS 17 for grouping insurance contracts to measure and recognise profit.

    In the article, In Brief: IFRS 17 Insurance Contracts — why annual cohorts?, Mr Hoogervorst states:

    The Board is particularly concerned that financial reporting presents fairly the financial performance of businesses in each period and how profitability changes over time. As emphasised by the Board’s Conceptual Framework, IFRS Standards must result in useful information about financial performance as well as financial position. Much of existing insurance contract accounting is founded on prudential regulation that has a primary focus on solvency. We believe the dual focus of IFRS Standards on financial performance and financial position greatly enriches the information provided in financial statements. The statements of financial performance often serve as a canary in the coal mine. An erosion of profits may be a foreboding of problems to come.

    Mr Hoogervorst goes on to discuss:

    • most financial reporting is applied at the individual contract level;
    • why accounting for individual insurance contracts is not appropriate;
    • annual cohorts essential for prudent planning;
    • objections to annual cohorts raised during the recent consultation, including:
      • Do annual cohorts fail to reflect intergenerational sharing of risk?
      • Do annual cohorts result in arbitrary allocations?
      • Are annual cohorts too costly for contracts with intergenerational sharing of risks?
    • deliberations and redeliberations; and
    • implementing the standard.

    The article is available on the IASB's website. For more information on the IASB's decision on annual cohorts, see our meeting minutes from the IASB's February 2020 meeting.

    Feedback on the EFRAG discussion paper on pension plans with an asset-return promise

    28 Apr 2020

    The European Financial Reporting Advisory Group (EFRAG) has published a feedback statement summarising the main messages from respondents to EFRAG’s discussion paper 'Accounting for Pension Plans With an Asset-Return Promise'.

    The discussion paper, published in May 2019, explored alternative accounting treatments for post-retirement employee benefits promising the higher of the return on an identified item or group of items and a minimum guaranteed return. The discussion paper considered three alternatives for accounting for pension plans in the scope of the project: capped asset return approach, fair-value based approach, and fulfilment value approach.

    The feedback statement (link to EFRAG website) describes the main comments received from comment letters and presentation of the Discussion Paper at the July 2019 meeting of the Accounting Standards Advisory Forum (ASAF).

    IASB releases podcast on IFRS 17 (April 2020)

    27 Apr 2020

    The IASB has released a podcast featuring IASB member Darrel Scott and technical staff member Roberta Ravelli as they discuss the developments at the April 2020 Board meeting related to the amendments to IFRS 17 'Insurance Contracts'.

    During the meeting, the IASB was given a short oral update on the progress as regards finalising the amendments.

    The podcast can be accessed through the press release on the IASB website.

     

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