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Survey on XBRL reveals that only few investors extract all the data they need manually from reports

06 Dec 2016

The CFA Institute, a global association of investment professionals, has published the results of a member survey on XBRL.

While the focus of the survey is the lack of knowledge of XBRL, the poor quality of XBRL information companies provide, and the fact that neither companies nor investors regard XBRL as a communication platform, the study also provides interesting insights into where and how investors get their information.

Only 11% of respondents extract all the information they need directly and manually from financial statements and other source documents. This number has halved since 2009. On the other hand, the share of those respondents who either rely exclusively on information by third-party providers or obtain most of the data used in their evaluation of companies from third‐party data providers with only a limited amount of data extracted manually has gone up from 42% in 2009 to 58% in 2016.

The study concludes that if companies changed their approach to the use of structured data and no longer just tagged their information at the end of the financial reporting process simply to meet regulatory compliance needs, it could revolutionise financial reporting and would raise the level of awareness of XBRL which currently has 90% of investors not using XBRL because they are either unaware of XBRL (55%) or are aware but not up-to-date on its usage in financial reporting (35%). Whether better XBRL usage and awareness would also stop the trend of increasingly relying on third-party data is not a question looked at in the study.

Please click to access the full report on the CFA Institute website.

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SEC Chief Accountant discusses IFRS in the US

06 Dec 2016

At the annual American Institute of Certified Public Accountants (AICPA) Conference on Current SEC and PCAOB Developments currently taking place in Washington, the new Chief Accountant of the US Securities and Exchange Commission (SEC) spoke about a broad range of topics including IFRSs in the United States.

Wesley R. Bricker, who took office as SEC Chief Accountant last month, noted that IFRS is very significant for both U.S. investors and companies, with investors relying on financial statements of companies that operate globally and companies frequently looking abroad for potential targets and investees that use IFRS. Nevertheless, he stated:

On the question of possible further use of IFRS for domestic issuers, I believe that for at least the foreseeable future, the FASB’s independent standard setting process and U.S. GAAP will continue to best serve the needs of investors and other users who rely on financial reporting by U.S. issuers.

Still, he encouraged the FASB and IASB to continue to work together to eliminate differences between their standards. And he noted, that he believed it was worth "continuing to consider the proposal that Jim Schnurr described at an earlier conference of allowing domestic issuers to provide IFRS-based information as a supplement to GAAP financial statements".

Please click to access the full text of Mr Bricker's speech on the SEC website. Generally, the speeches of the SEC represenatives at the conference are worth noting. Among other topics they touch on revenue recognition, "new GAAP" in general, non-GAAP measures, and application of accounting standards. Access to all speeches is available here.

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Recent sustainability and integrated reporting developments

06 Dec 2016

A summary of recent developments at the SASB and the IIRC.

The United States Sustainability Accounting Standards Board (SASB) has published it's first annual State of Disclosure Report, a reference document that provides an overview of the quality of existing corporate disclosure across 79 industries in hundreds of SEC filings across every major industry. The report shows 81 percent of all disclosures analysed across all SASB disclosure topics indicate some level of disclosure in SEC filings, which indicates companies acknowledge these topics materially impact their business. However, more than 53 percent use boilerplate language and less than 24 percent of these disclosures contain metrics – demonstrating that many companies take a minimally compliant approach to sustainability disclosure. Please click to access the report on the SASB website.

The International Integrated Reporting Council (IIRC) has published the results of a first stakeholder feedback survey. The purpose of the survey was to obtain views on integrated reporting and on the work of the IIRC. While 87% of responses strongly agree or agree that integrated reporting promotes a more joined up and efficient approach to corporate reporting and 74% strongly agree or agree that integrated reporting is an ‘umbrella’ for corporate reporting, providing the context and linkage for other forms of reporting, views on the work of the IIRC including on its institutional arrangements and composition of the IIRC Board and Council are more mixed with 45% of the total global responses saying they do not know whether the institutional arrangements for the IIRC are appropriate to the overall aims of the IIRC relating to integrated reporting. Please click to access the report on the IIRC website.

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ASBJ publishes proposed amendments to 'Japan’s Modified International Standards'

06 Dec 2016

The Accounting Standards Board of Japan (ASBJ) has completed consideration of IASB pronouncements as at 30 September 2016 and proposes additional amendments to 'Japan’s Modified International Standards (JMIS)'.

The ED proposes the adoption of IFRS 14 Regulatory Deferral Accounts. It also notes that the endorsement process for the following pronouncements has not yet started:

  • IFRS 15 Revenue from Contracts with Customers
  • Effective Date of IFRS 15
  • Clarifications to IFRS 15 'Revenue from Contracts with Customers'
  • IFRS 9 Financial Instruments (2014)
  • Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)
  • Effective Date of Amendments to IFRS 10 and IAS 28
  • IFRS 16 Leases
  • Classification and Measurement of Share-based Payment Transactions (Amendments to IFRS 2)
  • Applying IFRS 9 'Financial Instruments' with IFRS 4 'Insurance Contracts' (Amendments to IFRS 4)

Please click for access to all exposure documents as well as a press release on the ASBJ website (all documents available in the English language).

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The Bruce Column — Going for the heart of the global debate

05 Dec 2016

Richard Howitt has just taken over as Chief Executive of the International Integrated Reporting Council, following in the footsteps of Paul Druckman. Our regular, resident columnist Robert Bruce has just interviewed him on film. Here he reports on what Howitt had to say in that interview. It is clear that the global adoption of integrated reporting and its use as a catalyst for reform more generally of global corporate governance systems are going to feel the full force of his powers of persuasion and implementation.

There will be no slowing of momentum at the International Integrated Reporting Council. Richard Howitt, its new chief executive, has hit the ground running. In a film interview I did with him it was clear that global adoption of integrated reporting and its use as a catalyst for much reform of global corporate governance systems is going to feel the full force of his powers of persuasion and implementation. As an MEP Howitt was involved with integrated reporting almost from the outset and now he has taken over from Paul Druckman as chief executive. After Druckman’s five years of travelling the world and building momentum behind integrated reporting ideas, Howitt says he feels ‘a huge responsibility on me to drive it forward’, with hopes of moving ‘towards global adoption’. He intends there to be a seamless but equally energetic transition. ‘I bring huge energy and ideas to the task’, he said, ‘but I am absolutely signed up to the concept and there will be big continuity’.

The Druckman years were of building experience, understanding, acceptance and momentum. Now Howitt can build on that. ‘I want to send a very clear signal to all our international partners that IIRC continues and will be enhanced as a global coalition and a global movement’. The spreading of the word and the spreading of its application in practice is, as Howitt put it, ‘deeply exciting’. He is encouraged, as he put it, ‘that no one single company anywhere in the world having decided to go down the road of integrated reporting has gone back on that. They see the advantages’. And he is working off the back of successes. In Japan over 300 companies are producing integrated reports. In Malaysia over 20 major companies are committed to producing integrated reports. And South Africa has just introduced a new corporate governance code that explicitly embeds integrated reporting within it. ‘This is something with deep international momentum behind it’, said Howitt. ‘There are going to be very exciting times in the months and years ahead’. But it is not about simply implementing a system. ‘This is not a numbers game’, he said. ‘It’s not about quantity. It’s about quality’. And it is about a much wider influence. ‘We want integrated reporting to be a key part of corporate governance’, he said. He talked of the debates going on around the world about reform of the capital markets, the shift to long-termism by investors. ‘All those are our debates’, he said, and across the coming five years ‘integrated reporting will be seen as a means, a tool, by which these aims can be realized and we will be at the heart of shaping that debate’. And within companies it will be just as powerful a tool. ‘Integrated reporting is not an add-on’, he said, ‘not disclosure for disclosure’s sake, but genuinely about companies building long-term value, being better managed, understanding and managing risk, and therefore reducing costs but creating value. This is a very, very strong message’.

And it all has a wider significance around the world. Howitt sees it as being at the heart of the debate around the idea of inclusive capitalism, articulated by the UK’s Prime Minister but also, as Howitt pointed out, a global movement. He hopes the UK Government will take to heart his views that within company law politicians, in his words, ‘stick to a backward looking definition of shareholder primacy’, whereas in the Corporate Governance Code ‘they are working exactly along the lines that the IIRC does to say that there should be a concentration for boards and for executives on long-term value creation’. Talking about the conversations the IIRC has had with Government Howitt pointed out that ‘we have said to them that aligning corporate governance codes and stewardship codes to the principles of integrated reporting and long-term value creation is an important contribution’.

He also wants, through the Corporate Reporting Dialogue, to bring the major standard-setting frameworks involved in both financial reporting and sustainability reporting around the world together. ‘I am very proud that we have convened and led that work’, he said. And he also raised the importance of the accounting profession as a key element in the change that integrated reporting is bringing about. ‘The accounting profession have been key drivers in this’, he said. ‘They share the same aim of wanting better corporate reporting. They don’t want to be part of the old compliance world. They want to ensure that their work is improving the management for good business strategy. It is all part of that long-term value creation story’. And he urged the profession to bring its skills to bear on traditional areas like assurance, hitherto rarely discussed in the integrated reporting arena. ‘It shows how important it is for the accounting community internationally that we drive ahead on this goal of assuring integrated reporting’.

He is also very keen to ensure that business is not seen in the public arena as something untrustworthy. He is keen to speak up for business. He sees more moral strength in business than elsewhere. His view after the recent Rio Summit for sustainable development is that ‘there was no doubt there that the business leaders were ahead of the governmental representatives on what they wanted to see’. And his experience around the international business world generally leads him to say: ‘I am not meeting people who are morally neutral and ambiguous people’, he says. ‘I’m meeting people with vision, people with passion, people who are committed, who can see they have the opportunity in their business, in their work, to be able to realise aims that many people outside of business would share’. He intends using his energy to put this across and build it into the international debates taking place. ‘It is part of how we are going to deliver integrated reporting ‘, he says.

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Pre-meeting summaries for the December IASB meeting

05 Dec 2016

The International Accounting Standards Board (IASB) will meet at its offices in London on 13–14 December 2016. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. For each topic to be discussed we summarise the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

Tuesday 13 December

The last meeting for 2016 starts with a brief oral update on IFRS 15 Revenue from Contracts with Customers.

Two implementation issues are being discussed. The first is a proposal to amend IAS 19 Employee Benefits and IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction. The second is to discuss whether or how to address issues that have arisen in the application of IFRS 9 Financial Instruments in relation to prepayment options and the assessment of the SPPI condition.

The Financial Instruments with the Characteristics of Equity Project has a discussion of derivatives on ‘own equity’, assessing how application of the model being proposed would be affected by seven variables.

The Rate Regulated Activities project returns to the Board for its first substantive discussion since July 2015. This is an education session, which means that the Board will not be asked to make any technical decisions. The session includes an analysis of the model being proposed.

Wednesday 14 December

The Wednesday sessions begin with a session on the Conceptual Framework. They will discuss papers on Measurement—redrafting the factors to consider in selecting a measurement basis; Business activities and long-term investment; Concepts of capital and capital maintenance; and Derecognition.

The Board will discuss its project on the Primary Financial Statements, focusing on the scope of the planned discussion paper. The staff are proposing a narrow scope project, with targeted improvements. The main focus will be on the Statement of Comprehensive Income, with some possible changes to the Statement of Cash Flows. The staff are also examining developing templates for a small number of industries.

The Disclosure Initiative has two topics—materiality and disclosures about restrictions on cash and cash equivalents.

The Board will conclude its discussions on the materiality practice statement and are recommending that the final document be prepared. Relatedly, the staff are now recommending that the Board issue a separate exposure draft to amend the definition of materiality in IAS 1 Presentation of Financial Statements. Previously the Board had decided to wait until they had received feedback on the Principles of Disclosure discussion paper.

For disclosures about restrictions on cash and cash equivalents, the staff are now recommending that the Board not proceed with the proposed amendments to IAS 7 Statement of Cash Flows that were exposed in 2014.

The meeting concludes with an education session to inform the Board of the upcoming release of the IFRS Taxonomy Update for the 2015/2016 common practice project, which focused on agriculture, leisure, franchises, retail, and financial institutions.

More information

Our pre-meeting summaries are available on our December meeting note page and will be supplemented with our popular meeting notes after the meeting.

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IASB asked to consider adding a limited-scope project on IFRS 9 to its agenda

05 Dec 2016

A paper for the upcoming IASB meeting dealing with IFRS 9, symmetric ‘make whole’ and fair value prepayment options, and the assessment of the SPPI criterion has been posted to the IASB's website.

The issue arose from a submission to the IFRS Interpretations Committee related to whether a debt instrument with a symmetric make whole prepayment option or a fair value prepayment option could meet the ‘solely payments of principal and interest on the principal amount’ (SPPI) criterion for measurement at amortised cost under IFRS 9. The IFRS IC discussed the issue at its November 2016 meeting where the majority of members concluded that the prepayment options described in the submission do not meet the requirements in IFRS 9.B4.1.11(b) which states:

Contractual provisions that permit the issuer or holder to extend the contractual term of a debt instrument (ie an extension option) result in contractual cash flows that are solely payments of principal and interest on the principal amount outstanding only if:

(a) [...]; and

(b) the terms of the extension option result in contractual cash flows during the extension period that are solely payments of principal and interest on the principal amount outstanding.

As a consequence the IFRS IC concluded that the IASB should consider changing the requirements in IFRS 9 in this respect (taking into account the broader range of prepayment options that exist in practice and not only the options described in the submission) as well as the measurement basis that would provide the most relevant and useful information about particular financial assets that would otherwise meet the SPPI condition, but fail it because of the existence of a symmetric ‘make whole’ prepayment option. Nevertheless, the IFRS IC Chairman cautioned against the extent of the expectation that the Committee should have on how far the Board would take the issue given past decisions on similar issues.

The staff has now prepared a paper for the upcoming IASB meeting detailing the background to the issue, the staff analysis and conclusion, the feedback from the Interpretations Committee, and the original submission received. The staff recommendation is that the Board considers adding a limited-scope project on this issue to its agenda. The Board will discuss this recommendation on 13 December 2016.

Please click to access the staff paper on the IASB website.

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December 2016 IASB meeting agenda posted

02 Dec 2016

The IASB has posted the agenda for its next meeting, which will be held at its offices in London on 13–14 December 2016.

The meeting will include discussions on:

  • Revenue from contracts with customer — Update.
  • IFRS implementation issues.
  • Financial instruments with characteristics of equity — Summary of discussions to date.
  • Rate-regulated activities
  • Conceptual framework — Measurement and concepts of capital and capital maintenance.
  • Primary financial statements — Project scope.
  • Disclosure initiative — Restrictions on cash and cash equivalents.
  • IFRS Taxonomy — Education session.

The full agenda for the meeting can be found here. We will post any updates to the agenda, our comprehensive pre-meeting summaries as well as observer notes from the meeting on this page as they become available.

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Chair of the IFRS Advisory Council reappointed

01 Dec 2016

The Trustees of the IFRS Foundation have announced that Joanna Perry has been reappointed as Chair of the IFRS Advisory Council.

The IFRS Advisory Council provides a forum for the IASB to consult a wide range of interested parties affected by the IASB's work, with the objective of advising the Board on agenda decisions and priorities in the Board's work, informing the Board of the views of the organisations and individuals on the Council on major standard-setting projects, and giving other advice to the Board or to the Trustees. The Council used to meet three times a year, however, yesterday's changes to the constitution of the IFRS Foundation saw the numer of meetings of the Council reduced to two a year.

Ms Perry's second term begins on 1 January 2017. Please see the press release on the IASB website for more information.

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Trustees update IFRS Foundation Constitution

30 Nov 2016

The Trustees of the IFRS Foundation have announced amendments to the IFRS Foundation Constitution. These amendments include the reduction of Board members from 16 to 14 and a reclassification of the geographical distribution of Board members and Trustees.

In July 2015, the Trustees began its review of the structure and effectiveness of the IFRS Foundation. The review focused on three strategic areas: (1) relevance of IFRS, (2) consistent application of IFRS, and (3) governance and financing of the IFRS Foundation. In June 2016, the Trustees completed its review and issued an exposure draft with the proposed amendments. After reviewing feedback on its amendments, the Trustees agreed in October 2016 to update the Constitution. The updated Constitution is effective on 1 December 2016.

For more information, see the press release and the updated Constitution on the IASB’s website.

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