2020

European Union formally adopts IFRS 4 amendments regarding the temporary exemption from applying IFRS 9

16 Dec 2020

The European Union has published a Commission Regulation endorsing 'Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4)'.

The amendments change the fixed expiry date for the temporary exemption in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, so that entities will be required to apply IFRS 9 for annual periods beginning on or after 1 January 2023 (instead of 1 January 2021).

The Commission Regulation amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council was published in the Official Journal of the European Union on 16 December 2020.

EFRAG has updated its endorsement status report to reflect that the European Union has adopted the amendments.

IVSC publishes exposure draft on valuing financial instruments

15 Dec 2020

In December 2018, the International Valuation Standards Council (IVSC) set up a new Financial Instruments Board, tasked with reviewing and improving IVS 500 'Financial Instruments'. The Board has now published a first exposure draft that addresses improvements to IVS 500 regarding governance and data.

On governance, the exposure draft provides guidance on the processes that entities should follow to ensure proper governance around financial instrument valuations. The guidance requires that a valuation process should be systematic, consistently applied, economically sound, and controlled.

The section on data outlines the principles for creating a data taxonomy or dictionary to categorise, assess and control all data that is used in valuations. It also notes specific requirements that need to be met for different types of data. The section also describes the controls necessary for aggregating and managing data in an organisation and how the concept of proportionality applies in determining the requirements concerning the use of data.

The exposure draft on the improvements to IVS 500 will be published in stages. This first draft addresses governance and data while methods and models as well as controls and reporting will be adressed later. As there are interdependencies between the areas, the different versions of the exposure draft will be cumulative. The exposure draft containing the proposals on methods and models as well as controls and reporting will also include the sections included in this first exposure draft to address any interdependencies and facilitate stakeholder comments on the proposals.

Comments on this first exposure draft are requested by 19 April 2021. It is available on the IVSC website.

GRI comments on the Trustees' sustainability consultation

15 Dec 2020

The Global Reporting Initiative (GRI) has commented on the IFRS Foundation Trustees’ consultation paper on sustainability reporting published in September 2020.

In its comment letter, GRI agrees with the assessment of the IFRS Trustees that demand for reporting on sustainability is growing, and that a global solution has to reflect the needs of the companies preparing sustainability reports together with the information needs of their stakeholders, including investors, as well as the information needs of the jurisdictions they operate in.

GRI also notes that not only is a global solution needed, sustainability reporting should also become mandatory to truly contribute to better decision-making. The comment letter also states that financial reporting itself must be strengthened to reflect the financial implications of sustainability issues on the reporting entity. Enhanced financial reporting would then exist alongside sustainability reporting. Under such a regime, GRI believes, financial reporting will be able to leverage the information made available through sustainability reporting so as to fully reflect the financial implications of all impacts of corporate activities.

GRI also comments on the role of the IFRS Foundation:

The IFRS Foundation is in a position to support the further evolution of the existing public interest oversight mechanism to become inclusive of sustainability reporting, thereby allowing even more jurisdictions that have mandated a global solution for financial reporting to do the same for sustainability reporting.

Please click to access the full comment letter through the press release on the GRI website.

GRI also offers two webinars on its response to the consultation: On 17 December 2020, at 9:00 GMT and at 17:00 GMT (links are to registration pages).)

Option for Member States to delay ESEF by one year

15 Dec 2020

The European Parliament and the Council agreed to an amendment of the Transparency Directive allowing Member States to delay by one year the application of the European Single Electronic Format (ESEF) requirements for listed companies' annual financial reports, provided that they notify the Commission of their intention to do so, and of their sufficiently justified reasons.

Listed companies who wish to publish their ESEF annual financial reports in 2021 will still be able to proceed.

The announcement Coronavirus: EU agrees to rules to make it easier for firms to raise capital through the 'EU Recovery Prospectus' is available on the European Commission website.

IFAC comments on the Trustees' sustainability consultation

11 Dec 2020

The International Federation of Accountants (IFAC) has commented on the IFRS Foundation Trustees’ consultation paper on sustainability reporting published in September 2020.

In September 2020, even before the Trustees launched their sustainability consultation, IFAC had already called for an IASB sister board for setting global sustainability standards.

In response to the Trustees' consultation, IFAC now reiterates its call for an international sustainability standard-setting Board under the IFRS Foundation. The comment letter states (emphasis in original):

The Consultation identifies important and challenging questions that should be considered by the IFRS Trustees — including the scope and sequencing of standards, the approach to materiality, and how to build off existing initiatives. However, in answer to the fundamental issues at stake—is there a need for a global set of internationally recognized sustainability reporting requirements, and should the IFRS Foundation play a leading role through the establishment of a new sustainability standards board (SSB) — IFAC believes, based on extensive stakeholder outreach, that the answer is a resounding “Yes.”

Please click to access the full comment letter on the IFAC website.

IPSASB publishes amendments regarding public sector financial instruments

11 Dec 2020

The International Public Sector Accounting Standards Board (IPSASB) has published 'Non-Authoritative Amendments to IPSAS 41 'Financial Instruments'' with amendments that supplement the IPSASB’s existing guidance in IPSAS 41 for topics that are unique to the public sector and have a significant impact on government finances.

The amendments clarify existing guidance for four public sector instruments:

  • Monetary gold;
  • Currency in circulation;
  • IMF quota subscriptions; and
  • IMF special drawing rights.

Please click to access Non-Authoritative Amendments to IPSAS 41 'Financial Instruments', a short introductory webinar and an At a Glance introduction on the IPSASB website.

Understanding the differences between U.S. GAAP and IFRS Standards

11 Dec 2020

Deloitte has released a comprehensive 380-page publication focusing on some of the most common and significant differences that may affect financial statements when converting from U.S. GAAP to IFRS Standards and vice versa.

In 2002, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) issued a Memorandum of Understanding, which set out priorities and milestones to be achieved on major joint projects. The two boards worked together to improve their standards and seek convergence. The results were mixed with respect to convergence. There has been significant convergence in topics such as business combinations and revenue recognition. However, key differences have increased for topics such as financial instruments and the subsequent measurement of leases.

This comprehensive publication reflects differences for standards that are mandatory as of 31 December 2019, for public business entities that have a calendar-year annual reporting period. In addition, since ASC 326 Financial Instruments – Credit Losses became effective for public business entities with fiscal years beginning after 15 December 2019, the publication also offers Appendix A Allowance for expected credit losses in loans and receivables and some debt securities to highlight the key differences between ASC 326 Financial Instruments – Credit Losses and IFRS 9 Financial Instruments.

The publication generally does not cover (1) disclosure-related differences, (2) any guidance related to IFRS Standards for small and medium-sized entities, (3) any guidance related to Private Company Council alternatives for private companies under U.S. GAAP, or (4) any impact of U.S. GAAP industry-specific accounting guidance. It does cover U.S. GAAP and IFRS Standards differences in segment reporting as the impairment rules under both frameworks depend upon the identification of operating segments.

Please click to download the publication here.

ICAS report on IAS 37 and decommissioning liabilities

10 Dec 2020

The Institute of Chartered Accountants of Scotland (ICAS) has released a report examining the application of IAS 37 'Provisions, Contingent Liabilities and Contingent Assets' in accounting for the costs of decommissioning and clean-up operations in polluting industries, including oil and gas, mining and utilities.

IAS 37 mandates that the future cost of clean-up be estimated and accounted for using an appropriate discount rate to calculate the present value of these costs. However, the standard does not mandate for businesses to disclose the rate they have used, nor makes clear whether the basis for calculating the discount rate should be an accounting choice.

The ICAS research used a large international sample across the mining, utilities, and oil and gas sectors, and found substantial variations exist in companies’ choice to disclose the discount rate when accounting for decommissioning and environmental liabilities. Furthermore, the research notes that when a company with a decommissioning liability becomes insolvent the clean-up liability remains attached to the asset, which may therefore become less attractive to a potential buyer, and so, if eventually the asset remains unsold, the taxpayer ends up picking up the decommissioning tab. ICAS points out that this scenario is likely to be more frequent in a post-COVID world.

The report arrives at two recommendations:

  • Standard setters should require disclosing the discount rates applied to facilitate comparability and thus allow for users of financial statements and other key stakeholders to see inside the ‘black box’ of accounting for decommissioning liabilities; and
  • Preparers should include, and auditors demand, enhanced disclosures, to include not only the discount rate but also undiscounted future estimated cash flows and timing of decommissioning activities, augmented by a comprehensive narrative on the major uncertainties surrounding these items.

Please click to access Black Box Accounting: Discounting and disclosure practices of decommissioning liabilities on the ICAS website.

AASB Research Forum – presentations available

10 Dec 2020

The Australian Accounting Standards Board (AASB), in conjunction with the University of New South Wales, hosted the 2020 AASB Virtual Research Forum on 30 November 2020.

Academics and financial reporting stakeholders from the public sector, for-profit and not-for-profit sectors discussed the following projects:

  • The Use and Usefulness of Equity Accounting
  • Implementing AASB 16 Leases: The User and Preparer Perspectives
  • Are Accounting Standards Understandable?

In addition, there were presentations on the IASB’s work programme and research opportunities and on how financial statements are used by professional investors. The slides for all presentations as well as recordings of the presentations are available on the AASB website.

The three paradoxes of sustainability reporting

09 Dec 2020

Steven Maijoor, Chair of the European Securities and Markets Authority (ESMA), gave speech at a webinar organised by the French Ministry of the Economy, Finance and Recovery and discussed three (apparent) paradoxes of sustainability reporting and how to address them.

The three apparent paradoxes Mr Maijoor identified were:

  • the need to ensure that reporting standards are, at the same time, international and jurisdiction-specific;
  • the importance of ensuring that the disclosure standards are sufficiently robust to help prevent the risk of greenwashing, while at the same time allowing for sufficient flexibility for entities to tell their own story; and
  • the difficulty of establishing a robust and extensive disclosure regime covering as many companies as possible so to ensure that information by (actual or potential) investee companies is available, while maintaining a proportionate set of requirements especially for smaller companies.

On the first paradox, he stated that he did not believe that global and EU-specific standardardisation are in contradiction, rather, he said, they would be complementary to one another. Mr Maijoor explained that to be effective, a set of international standards would need to be modular to cater for the needs of jurisdictions that are at different stages of progress in the area of sustainable finance.

On the second paradox, Mr Maijoor explained that principles-based standards are typically well-suited to support the efforts of those issuers that aim at innovating in their reporting practices, but they are also helpful in preventing the risk that non-financial reporting is merely based on a check-list approach.

And on the third paradox, he suggested that one potential way forward would be to acknowledge that the size of a company alone is an imperfect proxy of its ESG impact, but that at the same time it is a relatively good indicator of the resource constraint that a company might face if a heavy reporting burdens is imposed on it.

Mr Maijoor concluded his speech by noting:

The future of sustainability reporting depends, in my view, upon good international cooperation, robust, proportionate and principles-based reporting requirements and, most importantly, on a standard-setting process that is centred around the public interest. Like for any standard setting process, extensive and thorough consultation of all relevant stakeholders will also be essential.

Please click to access the full text of Mr Maijoor's speech on the ESMA website.

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