The HKICPA and the ASBJ provided updates on their respective activities and exchanged views on how to improve the accounting for goodwill, business combinations under common control and intangible assets. They also discussed the quality of fair value measurement and the implementation of major new IFRSs in their jurisdictions.

HKICPA and ASBJ plan to continue these meetings.

Please click for the press release on the ASBJ website.

The analysis offers an assessment of the potential effects of the proposals in the discussion paper. It can inform and be one of the inputs to a more comprehensive impact analysis if the IASB were to further proceed with the project on financial instruments with characteristics of equity (FICE) in its current form.

This early-stage analysis is also a pilot study into the assessment of potential wider effects during the development of new IFRS requirements. The evidence gathering and analysis has been carried out at a level of detail appropriate to the proposals put forward in the IASB discussion paper.

Comments on the working paper are requested by 17 May 2019.

Please click to access the following information on the EFRAG website:

• Press release
• Early-stage analysis of the impact of the discussion paper
• EFRAG comment letter on the discussion paper (submitted 1 February 2019)

This issue highlights attributes of free cash flow (FCF) measures reported by lessees that limit comparability with FCF measures reported by companies that buy assets.

Issue 5 of The Essentials, as well as an archive of previous issues, is available on the IASB’s website.

The ITCG discussed the following:

• Proposed Taxonomy Update – Common Practice (IFRS 13): analysis of comments received
• Updates to the Preparer’s Guide

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

The full agenda for the meeting is summarised below.

On IFRS 17, Mr Hoogervorst stressed the IASB's efforts to support implementation. He noted that the IASB had always said it was willing to consider addressing problems that become obvious during the implementation phase as long as addressing them would not disrupt the implementation process. He explained about the list of issues the IASB is looking into and also about the IASB's tentative decision to defer the effective date of IFRS 17 by one year.

On wider corporate reporting, Mr Liikanen noted that the IFRS Foundation and the IASB are well aware of the fact that investors want more information about long-term risks and environmental, social and governance (ESG) matters. Mr Hoogervorst pointed to the IASB's project to update the management commentary practice statement and noted that management commentary provided the space for information that does not naturally fit into the financial statements but can have a financial effect nonetheless. He also used the opportunity to follow up on a question from an earlier exchange of views regarding country-by-country reporting and explained that while there was no direct fit with IFRSs, information on for example risky tax strategies could also very well be reported in the management commentary.

Questions from the almost empty room were few and were mostly focused on extra financial reporting. In response, Mr Hoogervorst explained that the IASB does not see itself as a sustainability standard-setter as it a) lacks the expertise in the area and b) as there are already many standard-setters ("too many") active in the field. Therefore, the updated management commentary practice statement will include guidelines how sustainability information can be included in the management commentary and will provide space for such information, but it will not contain any standards for doing so. He also agreed that insurance is an industry very much exposed to effects of the climate change, but he noted that between the information resulting from the forward-looking standard itself and the management commentary there is enough space to report on these effects. Finally, he noted that the management commentary is also the place to report on intangibles and crypto currencies that are not caught by the financial statements.

A recording of the exchange of views is available on the European Parliament website (begins at 09:11, ends at 09:54). There are intermittent problems with the English language and original language soundtrack, all other translations work well.

The module focuses on the general requirements for accounting and reporting by small and medium-sized entities (SMEs) that are involved in agriculture, extractive activities and service concession, applying Section 34 Specialised Activities of the IFRS for SMEs.

Please click to access all 34 IFRS for SMEs modules available so far (free registration required).

The survey will be available for a couple of weeks and is applicable to all interested parties, including, preparers and users of financial accounts, auditors, and others.

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

Agenda decisions to finalise

The staff recommend that the Committee finalise eight tentative agenda decisions.

IFRS 11 Joint Arrangements— Sale of output by a joint operator. When the output a joint operator receives in a reporting period is different from the output to which it is entitled, the joint operator recognises revenue that depicts the transfer of output to its customers in each reporting period, i.e. revenue recognised applying IFRS 15.

IFRS 11 Joint Arrangements—Liabilities in relation to a joint operator's interest in a joint operation. IFRS 11 requires a joint operator to recognise its liabilities, which will include those for which it has primary responsibility.

IAS 38 Intangible Assets—Customer's right to access the supplier's software hosted on the cloud. In a cloud-computing arrangement for which the customer does not receive a software asset, the customer receives a service and the arrangement does not contain a lease.

IFRS 9 Financial Instruments—Physical settlement of contracts to buy or sell a non-financial item. When an entity contracts to buy or sell a non-financial item in the future at a fixed price, it is not appropriate at the time of physical settlement for an entity to (a) reverse the accumulated gain or loss previously recognised in profit or loss on the derivative, and (b) recognise a corresponding adjustment to either revenue (in the case of a sale contract) or inventory (in the case of a purchase contract).

IAS 23 Borrowing Costs—Revenue recognised over time. Borrowing costs would not be capitalised when the borrowings relate to the construction of a residential multi-unit real estate development for which revenue is recognised over time.

IFRS 9 Financial Instruments—Application of the highly probable requirement in a cash flow hedge relationship. In a cash flow hedge, a forecast transaction can be hedged if, and only if, it is highly probable, which requires consideration of the uncertainty over both the timing and magnitude of the forecast transaction. Furthermore, in the fact pattern analysed, forecast energy sales cannot be specified solely as a percentage of sales during a period.

IFRS 9 Financial Instruments—Credit enhancement in ECL measurement. If a credit enhancement is required to be recognised separately by IFRS Standards, an entity cannot include the cash flows expected from it in the measurement of expected credit losses.

IFRS 9 Financial Instruments—Presentation of contractual interest. The reversal of the unwinding of discount is presented as a reversal of credit impairment when the asset is cured.

Additionally, the staff are recommending that IFRIC Update include a statement along the following lines:

The process for publishing an agenda decision might often result in explanatory material that provides new information that was not otherwise available and could not otherwise reasonably have been expected to be obtained. Because of this, an entity might determine that it needs to change an accounting policy as a result of an agenda decision. It is expected that an entity would be entitled to sufficient time to make that determination and implement any change (for example, an entity may need to obtain new information or adapt its systems to implement a change).

New issues

The Committee will discuss three new issues. In each case the staff are recommending that the Committee not develop an Interpretation or amendment but instead publish a tentative Agenda Decision.

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 for 20 years, 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.

Continuing discussions

Holdings of a cryptocurrency. The staff recommend that the Committee publish a tentative Agenda Decision stating that a cryptocurrency does not meet the definitions of cash or a financial asset but does meet the definition of an intangible asset. Accordingly, IAS 38 Intangible Assets applies to holdings of a cryptocurrency, unless it the cryptocurrency is held for sale in the ordinary course of business—in which case IAS 2 Inventories applies.

Future discussions

The staff are working on potential amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates to provide more guidance when a spot exchange rate is not observable.

The agenda for the meeting can be found here. We will update this page for any changes to the agenda and our Deloitte observer notes from the meeting as they become available.

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 22 March 2019. For more information, see the press release on the IASB’s website.