News

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Recordings from the June 2018 DPOC meeting

07 Jun 2018

The Trustees of the IFRS Foundation are currently meeting in London. On 5 June, the Due Process Oversight Committee (DPOC) of the Trustees held its meeting (the only part of the Trustees meeting held in public). Recordings from the meeting are now available.

The DPOC members discussed the following topics:

  • Introduction and Actions from DPOC meeting held on 31 January 2018
  • Technical activities: Key issues and update
  • Agenda decisions: The IFRS Interpretations Committee’s approach in responding to questions
  • Due Process Handbook Review
    • Summary of discussions and progress since the last DPOC meeting
    • Analysis of key due process steps as set out in the Due Process Handbook
  • Management commentary advisory group membership
  • Correspondence: Update

The recordings are available on the IASB's website.

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SEC Chief Accountant warns against superimposing additional objectives onto general purpose financial reporting

07 Jun 2018

Wesley R. Bricker, Chief Accountant at the US Securities and Exchange Commission (SEC), gave a speech yesterday at the Institute of Chartered Accountants in England and Wales (ICAEW) on the topic of 'The intersection of financial reporting and innovation'. While the speech was far more wide ranging, it also contained two messages regarding financial reporting.

The first point made in relation to financial reporting regarded general purpose financial reporting, special purpose financial reporting, and the expectation gap that results from confusing or mixing these two forms of reporting. While general purpose financial reports come with the objective of providing financial information about the reporting entity that is useful to existing and potential investors, lenders, and other creditors in making decisions about providing resources to the entity, special purpose financial reports are prepared using a particular framework to address specific needs of specific users and these frameworks can include intentions to achieve a certain behaviour. Mr Bricker warned against applying expectations regarding special purpose financial reports to general purpose financial reports and against beginning standard-setting with additional objectives in mind that go beyond providing decision useful financial information. He noted:

I make the distinction between general and special purpose objectives to emphasize the value of keeping and maintaining general purpose financial reporting free from other objectives. [...] When formulating standards for general purpose financial reporting, the IASB and the FASB do not seek to influence the outcome of investor capital allocation decisions or actions taken by management; instead, the boards’ design standards that provide better information to inform those decisions and actions. The alternative, whereby standards are designed to privilege specific objectives, economic activities, financial products, or market participants, could diminish confidence in the accuracy or quality of reported information, which could thereby impair capital formation, and in turn, negatively impact economic activity.

Nevertheless, Mr Bricker expressed the belief that general purpose financial reporting needs to continue to evolve and the standard-setters must continue to strive to set standards that provide the best information to a broad baseline of investors and investment advisers while preparers need to use judgement in applying the standards:

Consequently, management with responsibility for making decisions and judgments about how to prepare information – and standard setters with responsibility for establishing standards to guide management’s decisions – must try to find the balancing point among many different users. This work of preparing information (or writing standards for preparation of information) is one of walking a fine line between preparing (or requiring) disclosure of too much or too little information for inclusion in general purpose financial information.

The second point Mr Bricker made followed on from the need to continue to advance general purpose financial reporting to address expectations around financial reporting and any gaps that might exist. He stressed that everyone in the financial reporting structure needs to support the work of the accounting standard-setters and that thinking needs to be shared. In his comments, he clearly went beyond the previous bilateral co-operation of IASB and FASB:

The collaboration of everyone involved in the financial reporting structure should transcend geographies. In my view, it is essential to continue a policy of ongoing coordination and collaboration on national and international standards, practices, and needs so that the best thinking is identified, shared with each other, and can prompt action.

Please click to access the full text of the speech on the SEC website.

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Draft programme for the World Standard-setters meeting in October available

07 Jun 2018

A draft programme has been released for the upcoming World Standard-setters meeting, which is being held in London on 1-2 October 2018.

A summary of the programme is set out below:

Monday, 1 October 2018 (09:00 - 18:15)

  • Opening remarks
  • Welcome address
  • IASB technical programme update
  • The need for a Conceptual Framework
  • Overview of the Conceptual Framework
  • Conceptual Framework – small-group discussions
  • Breakout sessions
    • Business combinations under common control
    • Better communications — focus on primary financial statements and disclosures
    • Financial instruments with characteristics of equity — discussion paper
    • Goodwill and impairment
    • IFRS Interpretations Committee update and implementation of new standards strategy

Tuesday, 2 October 2018 (09:00 - 13:00)

  • Breakout sessions (repeated from previous day)
  • Feedback on Conceptual Framework sessions
  • Management Commentary Practice Statement

Papers for the meeting are expected to be made available in due course on the IASB's website. The WSS meeting will be immediately followed by a meeting of the International Forum of Accounting Standard Setters (IFASS).

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Summary of the April 2018 ITCG meeting

06 Jun 2018

The IASB has published the summary to the IFRS Taxonomy Consultative Group (ITCG) meeting held on 19 April 2018.

The ITCG discussed the following:

  • Better communication theme — short update
  • Principles of Disclosure ― technology and digital reporting
  • IFRS Taxonomy — technology review
  • IFRS Taxonomy implementation support
  • IFRS Taxonomy content — areas for discussion
  • Handling of entity-specific disclosures
  • Update by ITCG members on developments directly relating to the IFRS Taxonomy and/or the use of technology for financial reporting

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

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Korea to adopt IFRS 17

06 Jun 2018

The Korea Accounting Standards Board (KASB) has issued an announcement that it will issue a new insurance contract standard, K-IFRS 1117 'Insurance Contracts', which will be a Korean translation of IFRS 17 as issued by the IASB.

K-IFRS 1117 will be subsequently submitted to the Financial Services Commission (FSC) for endorsement; and will then be implemented in Korea starting from 1 January 2021. 

The KASB and FSC plan to provide continuous support towards successful implementation of the new standard in practice.

Please see the full announcement on the KASB website.

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Agenda for June 2018 joint CMAC-GPF meeting

05 Jun 2018

Representatives from the International Accounting Standards Board (IASB) will meet with both the Capital Markets Advisory Council (CMAC) and Global Preparers Forum (GPF) in London on 14 and 15 June 2018. The agenda for the joint meeting has been released.

The full agenda for the meeting is sum­marised below:

Thursday, 14 June 2018 (10:10-17:15)

  • IASB update.
  • Targeted Standards level review of disclosures project — staff presentation and breakout sessions on a list of nine IFRS Standards that the Board is considering as potential candidates for a targeted Standards-level review of disclosures.
  • Primary financial state­ments — staff pre­sen­ta­tion and breakout sessions related to the com­pa­ra­bil­ity and flex­i­bil­ity in per­for­mance reporting.

Friday, 15 June 2018 (09:00-12:10)

  • Business combinations under common control — staff pre­sen­ta­tion and breakout sessions.
  • Management commentary — staff pre­sen­ta­tion and breakout sessions related to supporting management commentary.

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

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Agenda and pre-meeting summaries for the June 2018 IFRS Interpretations Committee meeting

05 Jun 2018

The IFRS Interpretations Committee meets in London on Tuesday 12 June 2018. The Committee will discuss seven issues, including two new interpretation requests.

Finalisation of a draft agenda decision

The staff are recommending that the Committee finalise a tentative agenda decision in relation to the classification of short-term loans and credit facilities and whether a short-term bank arrangement that is always overdrawn can qualify as a component of cash and cash equivalents.

Continuing discussions

The Committee will continue its discussions in relation to three matters.

IAS 12 Income Taxes Deferred tax—tax base of assets and liabilities. The staff are recommending an amendment to IAS 12 to narrow the scope of the initial recognition exemption so that it does not apply to transactions that give rise to both deductible and taxable temporary differences to the extent that an entity recognises a deferred tax asset and liability of the same amount in respect of those temporary differences.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets—the meaning of ‘unavoidable costs’, The staff are recommending that no new disclosure requirements be added and that the proposed amendments apply only to contracts existing at the date of initial application. 

IAS 21 The Effects of Changes in Foreign Exchange Rates—foreign exchange restrictions. The staff recommend the Committee not develop an interpretation but publish a tentative agenda decision, discussing the use of an estimated closing rate in those circumstances and the exchange rates at the dates of the transactions, and referring to applicable disclosure requirements.

New issues

There are two new issues, both in relation to IAS 23. The Committee received submissions asking whether:

  • in determining the expenditures on which to apply the capitalisation rate, an entity includes expenditures incurred on the qualifying asset before obtaining the general borrowings in the case that the entity incurs expenditures on the qualifying asset both before and after it incurs borrowing costs on the general borrowings.
  • an entity ceases to capitalise borrowing costs in respect of expenditures incurred in developing land once it begins constructing the building on the land or continues to capitalise borrowing costs in respect of the land development while it constructs the building.

The Staff are recommending that the Committee not add either of these items to its agenda on the grounds that IAS 23 provides an adequate basis for an entity to determine the appropriate accounting.

Advice from the Committee for the IASB

In June 2017, the Board published the Exposure Draft Property, Plant and Equipment––Proceeds before Intended Use (ED). The staff are concerned that the feedback in the comment letters received suggests that there is a risk that in reducing the diversity in the reporting of sale proceeds, the proposed amendments could create new diversity in the costs recognised in profit or loss. The staff are seeking advice from the Committee on how best to proceed on this project.

Other work in progress

There are three continuing topics that are not being discussed at this meeting, plus one new issue that the staff are still analysing.

The full agenda for the meeting and our pre-meeting summaries 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.

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ECON draft resolution on IFRS 17

04 Jun 2018

At its meeting on 18-19 June 2018, the members of the Committee on Economic and Monetary Affairs (ECON) of the European Parliament will vote on a draft motion for resolution on IFRS 17 'Insurance Contracts'. The draft has now become available.

The draft notes that IFRS 17 will bring "a harmonisation of the accounting rules for insurance contracts across different constituencies" and "is intended to provide a more realistic description and better comparability of financial statements within the insurance sector". However, the draft also notes that the benefits of more consistency and transparency comes at the price of a fundamental accounting change entailing significant efforts and costs as the standard is deemed to be complex.

It is in this context that the draft notes concerns of the ECON members. While the IASB implementation support is positively noted, the draft also calls on EFRAG (in developing its endorsement advice) and the European Commission (in deciding on the final endorsement):

  • to examine the potential effects on financial stability, on competitiveness, on the insurance markets and the cost-benefit analysis;
  • to consider broader tests, including field tests, to assess the effects and interactions;
  • to consider the concerns put forward by EBA and ESMA and the issues identified by EFRAG itself;
  • to assess in particular whether IFRS 17 meets the endorsement criteria of understandability and public good;
  • to consider the aspects of long-term investment and possible pro-cyclicality;
  • to assess the potential interaction and mismatches between IFRS 9 and IFRS 17;
  • to examine the achievability of the current implementation timeline of IFRS 17; and
  • to closely monitor its implementation in the EU if IFRS 17 is endorsed at the EU level.

The full draft resolution is available on the website of the European Parliament.

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The Bruce Column — Boosting the bottom line with integrated thinking, sustainability and value

01 Jun 2018

In a forthright interview with our regular columnist Robert Bruce, the CFO and sustainability chief of chemicals giant Solvay, Karim Hajjar, explains how connecting and integrating financial and what he calls extra-financial information creates value and feeds directly to benefits for the bottom line.

For Karim Hajjar, the link between sustainability and value is clear, though he might quibble with the strict use of the word sustainability. ‘If people ask me if I am a strong believer in sustainability I will say no’, he says. ‘I am actually a big believer in sustainable value’. And he made the difference clear in a statement he made in Solvay’s latest integrated report. ‘With over a 150 years of history we are deeply aware of the importance of value that stands the test of time’, he wrote. ‘Sustainability without strong profits is unsustainable, while strong profits to the detriment of sustainability undermine the longevity of a business’. He is also increasingly clear on the strong links between ESG, environmental, social and corporate governance factors, and share price and returns.

In a video interview, he explains how integrated thinking should be the driver for integrated management, how investors are catching up, slowly, with an understanding of how all these ESG factors feed into the bottom line, and the value that non-financial, (what he calls extra-financial), measures create when strongly linked to the traditional financial measures. And he talks of how all these benefits provide much greater clarity in the quality and effectiveness of management.

Things changed when he realised that he could ‘make a much clearer link between sustainability and the bottom line, and risk’, he says. ‘That created a very strong imperative for me’. For example remuneration began to be dependent not only on financial goals but also on extra-financial goals, variable remuneration based on, for example, CO2. ‘CO2 is part of remuneration short-term and long-term’, he said. ‘That is one very obvious way to ensure people integrate’. This consistent measurement connecting the established financial processes with the measurement and monetisation of, for example, emissions reductions (e.g. through taxation) and safety (e.g. through reduced absence), leads to rounded decision-making. ‘It is now part of our performance dashboards on a quarterly basis’, he said. And the cost of emissions taxation is now part of Solvay’s investment decisions. ‘It does impact decisions. It does impact resource allocation’.

And being bold in your own decisions is part of the process. ‘For us the starting point had to be integrated thinking, integrated management, in fact’, he said. ‘I want to ensure we are very transparent...Materiality is key’, he said, ‘even if you don’t have all the answers. For example we are one of the early signatories of the Task Force on Climate-Related Financial Disclosure requirements. We did that knowing that we had a couple of holes in our racquets’, he said. ‘As a finance person I get anxious that I publish things when I don’t have the answers’. But he felt the important point was showing intent. ‘I am proud of the fact that we did that, because what we were saying to the investors is that we don’t have all the answers but we are working on it and I’m hoping that next year I’ll have more answers than now’. Being honest about the direction of travel tells people more than any number of boxes that have been ticked.

‘CFOs’, he points out, ‘are motivated by facts more than anything else’. And, as he says, ‘there are a lot of facts that say that ESG helps to enhance risk-adjusted returns’. As an example he looks at earnings-per-share volatility. ‘EPS volatility for over a thousand companies across ten years shows that the top 20% of ESG companies have an EPS volatility of 32%, the median is 47%, the bottom quartile is 93%. So factually EPS volatility, which is an indicator of rate-adjusted returns over time, is better for ESG companies’.

Hajjar is following the facts. And he sees investors as showing an increasing interest. ‘Investors care about how extra-financials link with and influence the financials’, he says ‘There is more engagement’, he says. At Solvay’s annual general meeting, just before our interview, investors had asked ‘some incredibly important strategic questions on CO2’. ‘That’s the first time’, he says. ‘I believe that there is an opportunity for investors to take note and to really engage with companies far more proactively’. But he accepts that there is a long way to go. ‘Investors need to engage in these conversations far more than they do’, he says, ‘and be much more strategic and long-term’. But there is a problem for investors. ‘They don’t know how to integrate it at the most elementary levels into their economic models of companies’. He wants companies and investors to work together more in this new world for investors. ‘One of the issues they are faced with is that in finance we have a big advantage. And that is called IFRS. We have real, common standards which are audited. The role of extra-financial indicators is huge but it is still evolving. We don’t have standards. We don’t require auditing and external verification’. And that is why Hajjar insists Solvay does. ‘I make sure that everything we publish is verified’, he says. But it will take time to build confidence.

And he can also come at the question from a different angle. ‘As a leader of a major corporate which has over Euro4bn of pension scheme assets we have an indirect influence to work via our pension stewards to influence asset managers’, he says. ‘And here is what we intend to move towards, engaging, asking our asset managers to ask companies a) to disclose [extra-financial indicators] where they are not, and b) to ensure that the information is verified externally, and if there is reticence on either of those two I would like to take that as a signal of risk that we should best avoid. As a corporate, as CFOs in particular, we have a major opportunity to shift the needle in this regard’.

After all, as he says, there is ‘a direct link between the extra-financial indicators and the financials. Extra financials is what we talk about and that is where we define value’. It is the connection between profits, cash and returns and planet, issues like emissions, people, safety, and societal issues, which shows where the value really lies. ‘It’s good for our customers. It’s really good for the bottom line and it actually happens to be very helpful and positive for the planet’, he says. ‘To my mind that link between bottom line, top line, and sustainability, it is music. That is what completely motivates and propels us to integrate and embrace the subject ourselves’, he says. ‘We have just taken the trouble to measure it and have it audited’.

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Joint investor event hosted by CFA Institute and IFRS Foundation

01 Jun 2018

On Tuesday, 5 June, the CFA Institute and the IFRS Foundation offer a joint investor event 'Transforming the impact of financial information—the role of technology' in London.

The panel discussion will consider the effective communication of accurate, trustworthy, insightful information and how technological changes are affecting information consumption.

For more information, please see the diary entry on the IASB website.

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