Issue 88 - IFRS News in Brief
18 January 2019
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB) LATEST DECISIONS SUMMARY
The following is a summarised update of the main discussions and tentative decisions taken by the IASB at its meeting on 11, 12 and 13 December 2018.
For more details and comprehensive information on the IASB’s discussion see: https://www.ifrs.org/news-and-events/updates/iasb-updates/december-2018/
Updating a reference to the Conceptual Framework in IFRS 3 Business Combinations
The Board tentatively decided:
- To specify that levies within the scope of IFRIC 21 and other obligations within the scope of IAS 37 should be recognized on the acquisition of a business only if they would be identified as present obligations by an entity applying IFRIC 21 or IAS 37;
- To clarify that in applying the IFRS 3 recognition principle, an acquirer does not recognize contingent assets;
- That the amendments should be applied to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after a date to be decided at the completion of the due process;
- To permit earlier application without the need to disclose the fact that the amendments have been adopted early; and
- To permit entities to apply the amendments to annual reporting periods beginning before 1 January 2020 if:
- the proposed amendments are issued before 1 January 2020; and
- they also apply all the amendments made by Amendments to References to the Conceptual Framework in IFRS Standards at the same time.
- The Board also tentatively decided that these proposed amendments should be exposed for comment with a view of publishing it in the first half of 2019.
Primary Financial Statements
The Board tentatively decided:
To prohibit the use of columns to present information about management performance measures in the statement(s) of financial performance;
To add operating profit before depreciation and amortization to the list of measures that are not considered to be management performance measures; and
Not to provide examples of when it is potentially misleading for an entity to use the label ‘EBIT’ or ‘EBITDA’ to describe performance measures included on the financial statements.
Disclosure Initiative
The Board tentatively decided to require the disclosure of material accounting policies rather than significant accounting policies as currently required by paragraphs 117-124 of IAS 1 Presentation of Financial Statements.
Dynamic Risk Management (DRM) Model
The Board tentatively decided that:
An entity can apply the DRM model if designation of the asset profile, target profile and designated derivatives does not reflect any imbalance that would create misalignment that could result in an accounting outcome inconsistent with the purpose of the DRM model; and
There must be an economic relationship between the target profile and the combination of the asset profile and designated derivatives.
IFRS 17 Insurance Contracts
The Board tentatively decided to amend IFRS 17 so that the presentation of insurance contract assets and liabilities in the statement of financial position is determined using portfolios of insurance contacts rather than groups of insurance contracts.
At future Board meetings the Board will:
discuss the prohibition of retrospective application of the risk mitigation option;
consider the remaining topics discussed in Agenda Paper 2D Concerns and implementation challenges for the October 2018 Board meeting.
After the Board has considered all individual topics, the Board plans to consider the package of amendments as a whole, before concluding whether the benefits of making the amendments outweigh the costs.
Rate-regulated Activities
The Board discussed the discount rate to be used when measuring regulatory assets or regulatory liabilities arising from regulatory timing differences.
Regulatory timing differences that relate to items forming part of the regulatory capital base
The Board tentatively decided that an entity should include only the estimated future cash flows arising from the original regulatory timing difference and discount them at a rate of 0% i.e. the entity should exclude the cash flows relating to the regulatory overall return and recognise that overall return as revenue in profit or loss as it is included in the rate charged to customers.
Regulatory timing differences that relate to items forming part of the regulatory operating expenditure
The Board tentatively decided that:
A discount rate that reflects, at least, compensation for the time value of money and uncertainty inherent in the cash flows should be applied; but
When the regulatory interest rate or regulatory return rate provides an additional return above the compensation in 1), that regulatory interest rate or regulatory return rate should be used as the discount rate unless there is clear evidence that the excess relates to an identifiable transaction or event.
Regulatory timing differences relating to items of expense or income that will form part of the regulatory operating expenditure or the regulatory capital base when cash is paid or received
The Board tentatively decided to reject the staff’s recommended approach.
Implementation Matters
The Board tentatively decided:
Not to amend IAS 8 Accounting Estimates and Errors to specify when an entity should apply accounting policy changes resulting from Agenda Decisions published by IFRS Interpretations Committee;
In respect of the Exposure Draft Annual Improvements to IFRS Standards 2018-2020 Cycle:
not to permit or require previous first-time adaptors to apply the proposed amendment to IFRS 1 retrospectively; and
that the comment period for the Exposure Draft should be at least 90 days.
In addition to the topics above, the Board received an update on the following matters:
Provisions
Business Combinations under Common Control
Research Programme
Pension Benefits that Depended on Asset Returns
IBOR Reform and its Effects on Financial Reporting
The Board was not asked to make any decisions in respect of these matters.
Issue 87 - IFRS News in Brief
3 January 2019
PUBLICATIONS AND ANNOUNCEMENTS
The IASB issued the seventeenth edition of the ‘Investor Update’ on 27 November 2018. The issue provides investors with information that helps them keep up to date with changes in the world of IFRS and how those changes may affect their work.
https://www.ifrs.org/news-and-events/2018/11/issue-17-of-the-investor-update-published/
IFRS INTERPRETATIONS COMMITTEE LATEST DECISIONS SUMMARY
The following is a summarised update of the main discussions and tentative decisions taken by the IASB at its meeting on 27 November 2018.
For more details and comprehensive information on the Committee’s discussions see:
https://www.ifrs.org/news-and-events/updates/ifric-updates/november-2018/
Items on the current agenda
The Committee continued its discussion from September on an agenda decision regarding IAS 21 The Effects of Changes in Foreign Exchange Rates in relation to lack of exchangeability. No decisions were made in this meeting and the Committee will continue its discussion in a future meeting.
Committee’s tentative agenda decisions
The Committee tentatively decided not to add the following to its standard-setting agenda because the Committee concluded that the principles and requirements in IFRS provide an adequate basis for the following matters.
Sale of output by a joint operator (IFRS 11 Joint Arrangements):
The Committee concluded that if 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 only the transfer of output to its customers in each reporting period, i.e. revenue recognised by applying IFRS 15.
Physical settlement of contracts to buy or sell a non-financial item (IFRS 9 Financial Instruments):
The Committee concluded that when an entity contacts to buy or sell a non-financial item in the future at a fixed price, IFRS 9 neither permits nor requires an entity to an entity to reassess or change its accounting for a derivative contract solely because that contract is ultimately physically settled
Over time transfer of constructed good (IAS 23 Borrowing Costs):
The Committee concluded that when the borrowing is related to the construction of a residential multi-unit real estate development for which revenue is recognized over time, borrowing costs should not be capitalized.
Customer’s right to access the supplier’s software hosted on the cloud (IAS 38 Intangible Assets):
This relates to the situation where a customer contracts to pay a fee in exchange for a right to access the supplier’s application software which runs on cloud infrastructure managed and controlled by that supplier and the customer accesses the software on an as-needed basis over the internet or via a dedicated line. The Committee concluded that:
a contract that conveys to the customer only the right to receive access to the supplier’s application software in the future is a service contract.
a software lease is a licensing agreement within the scope of IAS 38, and not of IFRS 16.
if the customer has the right to use software, it recognises that right-of-use as an intangible asset at the contract commencement date, and the intangible asset is measured initially at cost as required by IAS 38.
Credit enhancement in the measurement of expected credit losses (IFRS 9 Financial Instruments):
The Committee concluded that, if a credit enhancement is required to be recognized separately by IFRS Standards, an entity cannot include the cash flows expected from it in the measurement of expected credit losses.
Curing of a credit-impaired financial asset (IFRS 9 Financial Instruments):
The Committee concluded that the reversal of the unwinding of discount is presented as a reversal of credit impairment when the asset is cured.
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB) LATEST DECISIONS SUMMARY
The following is a summarised update of the main discussions and tentative decisions taken by the IASB at its meeting on 14-15 November 2018.
For more details and comprehensive information on the IASB’s discussion see:
https://www.ifrs.org/news-and-events/2018/11/november-iasb-update-and-work-plan-updated/
IFRS 17 Insurance Contracts
The Board has tentatively decided to defer the effective date of IFRS 17 Insurance Contracts, and the expiry date of the temporary exemption to IFRS 9 Financial Instruments in IFRS 4 Insurance Contracts by one year.
The Board will continue discussion in the next meeting.
Primary Financial Statements
The Board tentatively decided:
not to require presentation of EBITDA in the statement(s) of financial performance, nor its disclosure in the notes. However, the Board asked staff to propose a description or definition of EBITDA based on operating profit before depreciation and amortization.
To develop non-mandatory examples to illustrate the statement(s) of financial performance, cash flows, and notes to clarify how the required line items are presented.
Implementation
IAS 16 Property, Plant and Equipment:
The Board tentatively decided to proceed with the proposed amendment to IAS 16 Property, Plant and Equipment with some modifications including clarifications on how to identify the costs related to sales of items produced before an item of property, plant and equipment is capable of operating together with disclosure and presentation requirements.
Cryptocurrencies:
The Board decided not to add to its work plan a project on holdings of cryptocurrencies or initial coin offering at this time. The Board decided to ask the IFRS Interpretations Committee to consider publishing an agenda decision that would explain how entities apply existing IFRS to holdings of cryptocurrencies.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets:
The Board tentatively decided to permit early application the proposed amendments to IAS 37 in relation to costs of fulfilling a contract.
Management Commentary
The Board discussed the staff’s recommendation that the objective of management commentary should be to given context for the financial statements.The Board will discuss this matter in a future meeting.
Exposure Draft, IAS 1 Presentation of Financial Statements
The Board tentatively decided to make the following proposed amendments to IAS 1 in relation to classification of liabilities as current or non-current:
A liability should be classified as current if an entity does not have a right at the end of the reporting period to defer settlement of the liability for at least 12 months after the reporting period.
To add a reminder that an entity’s right to defer settlement must have substance.
To clarify that an entity’s right to defer settlement is not affected by:
management’s expectations about whether the entity will exercise the right; and
settlement of a liability between the end of the reporting period and the date the financial statements are authorized for issue.
Updating a Reference to the Conceptual Framework, IFRS 3 Business Combinations
The Board tentatively decided to begin the updating of IFRS 3 instead of waiting for a possible future project to amend IAS 37, and to develop proposals to avoid conflicts between IFRS 3 and IAS 37 by updating the reference and adding an exception to the initial recognition requirements in IFRS 3.
Rate-regulated Activities
The Board discussed the accounting model being developed for activities subject to defined rate regulation and tentatively decided:
Interactions between the model and IFRS Standards:
The measurement requirements of IAS 36 Impairment of Assets and IFRS 5 Non-current Assets Held for Sales and Discontinued Operations should not be applied to regulatory assets and regulatory liabilities.
The model should include application guidance, but not an explicit statement, about its interaction with IAS 12 Income Taxes.
The model should not carry forward the related presentation and disclosure requirement in IFRS 14 Regulatory Deferral Accounts.
Any requirements and application guidance on interactions between the model and other IFRS should be included in a future Standard on rate-regulated activities, rather than adding to those other Standards.
Presentation and disclosure decisions:
An entity should present regulatory assets and liabilities as separate line items, apply IAS 1, classifying as current or non-current, and offset regulatory assets and liabilities only when they are expected to lead to adjustments to the same future rate(s) charged to customers.
An entity should present regulatory income and expenses in profit or loss rather than in other comprehensive income, netted as separate line items, and immediately below the revenue line item(s) required by IAS 1.
An entity would not be prohibited from disaggregating the required line items and presenting additional line items or subtotals in the primary financial statements when it is relevant to an understanding of the entity’s financial position or performance as required by IAS 1.
Disclosure objectives and requirements and illustrative disclosures
The overall disclosure objective for defined rate regulation should be focused on the effects that the transactions or other events that give rise to regulatory timing differences have on an entity’s financial performance and financial position.
The specific disclosure objectives should focus on information to help users of financial statements:
to understand the effects of regulatory timing differences on the entity’s financial performance by distinguishing between: (1) fluctuations in revenue and expenses compensated for through the rate-adjustment mechanism; and (2) fluctuations in revenue and expenses for which there is no such compensation;
to understand and assess the amount, timing and uncertainty of (prospects for) future cash flows that will result from the entity’s regulatory assets and regulatory liabilities; and
to understand how the entity’s financial position was affected during the period by transactions or other events that caused changes in the carrying amounts of regulatory assets and regulatory liabilities.
An entity should disclose
a breakdown of the regulatory income or expense line item in profit or loss into defined components,
a maturity analysis of the carrying amounts of regulatory assets and liabilities at the end of the period,
the discount rate(s) used to discount the estimated cash flows reflected in the carrying amounts of regulatory assets and liabilities at the end of the period, and
a reconciliation of the carrying amount of regulatory assets and liabilities from the beginning to the end of the period.
The entity should assess whether the information provided through the disclosure requirements is sufficient to meet the overall disclosure objective.