The purpose of the session is to obtain feedback from academics on the proposals in the March 2020 DP and to discuss relevant academic evidence.

Please click for more information on the AASB website.

The agenda for the DPOC meeting is sum­marised below.

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

The podcast (16 minutes) is hosted by IFRS In­ter­pre­ta­tions Committee Chair and IASB  Vice-Chair Sue Lloyd and Technical Staff member Patrina Buchanan and focuses on sale and leaseback transactions, IBOR amendments, and recent changes to the Due Process Handbook.

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

The presentation focused on two aspects around going concern assumptions.

The New Zealand External Reporting Board (XRB) has recently released new reporting requirements regarding going concern disclosures as the COVID-19 pandemic has shown again the diversity in practice over the information to be provided in circumstances when the financial statements are prepared on a going concern basis, but management are aware of events or conditions that may cast significant doubt on this judgement. The XRB came to the conclusion that it had to act fast in the context of COVID-19, in view of the fact that many New Zealand companies have a 31 March year-end, and as there was a perceived disconnect between the requirements in accounting and in auditing standards.

As New Zealand has adopted full IFRSs, the new requirements have to be followed in addition to the IFRS requirements. To the extent not already disclosed in accordance with IFRS requirements, where an entity prepares its financial statements on a going concern basis, and management is aware of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, it shall disclose information about the significant judgements and assumptions made as part of its assessment of whether the going concern assumption is appropriate. Furthermore, when management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, it shall disclose:

• (a) that there are one or more material uncertainties related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern;
• (b) information about the principal events or conditions giving rise to those material uncertainties;
• (c) information about management’s plans to mitigate the effect of those events or conditions; and
• (d) that, as a result of those material uncertainties, it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The XRB representative noted that while New Zealand felt the need to act quickly, they would prefer the IASB undertook a project on going concern. This wish was seconded by other IFASS participants, also by representatives from jurisdictions where local standard-setting had been considered but not undertaken.

Another case for international standard-setting was then brought forward by the Australian Accounting Standards Board (AASB). The AASB representative argued that the current requirements where an entity is no longer a going concern (disclose the fact, adjust the basis of preparation, disclose why the entity is not a going concern) do not specify how the basis of preparation should be adjusted or what the revised basis should be. He noted that clear guidance is needed as there is a lack of comparability between companies where the going concern assumption is no longer appropriate and as some entities that are no longer a going concern continue to lodge financial statements stating compliance with IFRSs. He noted that preparers would benefit from there being clear guidance, users would have access to more comparable information, and auditors would have a clear basis of accounting to provide an opinion against.

Again, the suggestion to have a fundamental review of the requirements related to the going concern basis of accounting where the going concern assumption is no longer appropriate and disclosures and to carry out research to evaluate the need for standard-setting activity was supported by IFASS members.

The agenda is summarised below:

Agenda papers for this meeting will be made available on the IASB website.

The five standard setters found that even among their group of five there were different perspectives on the accounting for intangibles - some seeing the difference between book value and market value of a company as a problem, some seeing the difference between book value and market value as a problem that can be solved by disclosures, some seeing no problem in the difference between book value and market value. The purpose of the presentation was to provide a balanced discussion of the alternative perspectives to support community-wide consideration of the issues and stimulate relevant academic research.

FASB Board member Christine Botosan presented the view of those that believe there is a problem, which needs resolving by additional recognition of intangibles. Her arguments included:

• Failure to recognise important intangible items understates book value of equity and financial performance;
• failure to recognise important intangible items reduces the relevance of financial statements;
• recognition of some amount is better than no recognition:
  • Measurement challenges should not preclude recognition; and
  • verifiability concerns should not preclude recognition.

Ms Botosan also commented on measurement bases and their application to intangible assets. She differentiated between "in-exchange" assets that are used on a standalone basis and readily convertible to cash and "in-use" assets that are used in combination and not readily convertible to cash. Ms Botosan noted that most intangible items are "in-use" an that the relevant measurement basis should be historical cost or replacement cost. However, these costs are difficult to determine. Similarly, determining the fair value of intangible assets is difficult as intangible assets tend to be unique.

Kelly Khalilieh, Director of Accounting Standards at AcSB Canada, presented the view of those that believe there is no problem or not a problem that cannot be solved by additional disclosures. She noted that research shows that financial information is not declining in relevance and that it is not the objective of financial statements to show the market value of a company. Ms Khalilieh explored the benefits  of mandatory and voluntary disclosures. She noted that mandatory disclosures could be subject to audit and would be comparable and consistent. Voluntary disclosures would provide greater flexibility and would allow for more tailored disclosures. On possible disclosures she noted the following:

• Disaggregated information on expenditures of intellectual capital (“future-orientated intangibles”),
• an additional classification for “intangible activities” in the cash flow statement;
• a statement of intangible assets or intellectual capital flows; and
• an explanation in the notes of expenditures on intangible items.

Outside of financial statements she suggested to link intangible activities to the discussion of the organisational strategy and objectives and to supplement it with human capital metrics.

The paper of the five standard setters is currently under review at an academic accounting journal.

The podcast discusses:

• Management Commentary;
• Rate-regulated Activities;
• Business Combinations under Common Control;
• Extractive Activities; and
• Maintenance and consistent application.

The podcast (12 minutes) can be accessed through the press release on the IASB website.

The detailed notes taken by Deloitte observers at the meeting are available here.

We support the Board’s initiative to improve how information is communicated in the financial statements, in particular the information included in the statement of profit or loss. However, we strongly disagree with the proposals on unusual items and on management performance measures (MPMs).

In addition, we support the objective of improving comparability. However, we believe that this objective will be achieved only if the underlying principles for the determination of the operating category proposed for the statement of profit or loss are expressed more clearly.

Lastly, we disagree with two proposals on classification of items in the statement of profit or loss and the proposal to present income and expenses from cash and cash equivalents as part of financing activities.

Click to view the comment letter.

The event will have a wide range of high-level speakers and will be seeking input from the community of interested stakeholders on the IASB’s preliminary views included in the Discussion Paper Business Combinations —  Disclosures, Goodwill and Impairment and the EFRAG’s Draft Comment Letter.

Please click for more in­for­ma­tion and reg­is­tra­tion for the event on the EFRAG website.

The Board achieved consensus on all issues with the exception of annual cohorts, with nine Board members voting in favour of the cohorts meeting the endorsement criteria and seven members disagreeing. Comments on the DEA are requested by 29 January 2021. Please click to access the different consultation documents and appendices through the press release on the EFRAG website.

EFRAG has also updated its endorsement status report to the issuance of the positive draft endorsement advice.