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January IFRS Highlights

January 15, 2019

IFRS Highlights


IASB Amends Definition of “Material”

As part of its Better Communication project, the IASB published amendments to IAS 1 and IAS 8 on October 31, 2018, to amend and clarify the definition of “material”.

The amendments aim to:

  • Align the definition of “material” across the Conceptual Framework and IFRS standards, and make minor improvements to the definition;
  • Incorporate some of the provisions of IAS 1 into the definition of “material” in order to give them more prominence;
  • Clarify the explanation accompanying the definition of “material”.

The new definition states that “information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity”.

The IASB expects that the amendments will help entities make better materiality judgements, without substantially changing existing requirements.

The amendments are mandatory from 1 January 2020 and shall be applied prospectively. Early application is permitted.


Share-Based Payment Research Project

On 31 October, the IASB published a document entitled Share-based Payment — Research on Sources of Accounting Complexity on its website. This document summarizes work performed and conclusions reached in the project.

It reviews the reasons why the IASB launched the project (i.e. accounting complexity, many requests for interpretation, the need to assess whether there is a financial reporting problem); enumerates the sources of information used; presents the research findings (i.e. variety and complexity of terms and conditions / structures, issues relating to grant-date fair value measurement, and disclosures); and discusses interactions with other standards and projects (notably the Financial Instruments with Characteristics of Equity (FICE) project).

In the light of the work performed, the IASB has concluded that there is no significant financial reporting problem that would require amendments to IFRS 2, and there is no need to carry out further research on the topic or seek further feedback from stakeholders. As a result, the topic is closed for the present.

The document is available on the IASB’s website via the following link:             https://www.ifrs.org/news-and-events/2018/10/share-based-payment-project-summary-now-available/.


Update on IFRS 17

At its November meeting, the IASB decided to postpone the introduction of IFRS 17 – Insurance Contracts for a year. This means that instead of coming into effect for reporting periods commencing as of 1 January 2021, the standard will eventually be of mandatory application to periods beginning on or after 1 January 2022.

The IASB also decided to extend for a year (i.e. to 2022) the maximum deferral period for the application of IFRS 9 – Financial instruments by insurance entities. This option to defer IFRS 9 was introduced through a 2016 amendment to IFRS 4 – Insurance contracts and it is subject to conditions (in particular, entities must have a predominance of insurance liabilities).

These decisions must be seen against the background of a more general review of IFRS 17 after stakeholders reported a number of problems (see Beyond the GAAP no 122 of May 2018).

IASB staff identified 25 areas in which IFRS 17 had been criticized or had posed implementation challenges which may require IFRS 17 to be re-opened.

The staff paper can be consulted on the IASB site at the following address:       https://www.ifrs.org/-/media/feature/meetings/2018/october/iasb/ap02d-ifrs17.pdf.

In the coming months, the IASB should review these areas in order to identify the priority themes and to define the scope and content of future amendments, in accordance with the criteria for reopening IFRS 17 agreed in October.

The IASB may reopen certain topics only where the amendments:

  • Would not result in significant loss of useful information relative to that which would be provided for by the existing text of IFRS 17 (i.e. any amendment would avoid reducing the relevance or the faithful representation of information, or creating inconsistency with other IFRS standards or increasing complexity for users of financial statements); and
  • Would not unduly disrupt implementation processes that are already under way or risk even longer delays in the effective date of the standard.

Finally, the European endorsement process for IFRS 17 has been suspended pending the IASB’s deliberations: http://www.efrag.org/Assets/Download?assetUrl=%2Fsites%2Fwebpublishing%2FSiteAssets%2FEFRAG%2520Endorsement%2520Status%2520report%25202%2520November%25202018.pdf).


European Highlights

European Commission Adopts IFRIC 23 Interpretation

On 24 October, Commission Regulation (EU) 2018/1595 of 23 October 2018 was published in the Official Journal of the European Union, formally adopting IFRIC 23 – Uncertainty over Income Tax Treatments.

The mandatory effective date in the EU is the same as that set by the IASB, i.e. for financial periods commencing on or after 1 January 2019.

The regulation is available here:
https://eurlex.europa.eu/legalcontent/EN/TXT/uri=uriserv:OJ.L_.2018.265.01.0003.01.ENG&toc=OJ:L:2018:265:TOC.


The European Commission Publishes Results of its Consultation on Public Reporting By Companies

On 18 November 2018, the European Commission published a summary of the 338 responses received in its public consultation entitled Fitness check on the EU framework for public reporting by companies (see Beyond the GAAP no 120 of March 2018).

The aim of this consultation was to assess whether the European reporting framework was still relevant for meeting its objectives, fit for new challenges (sustainability, digitalization) and added value at the European level.

The 338 respondents came from 23 European Union Member States and 25 third party countries. Not all of the 338 respondents responded to all 67 questions of the consultation. 60% of responses came from four countries: Germany (representing 25%), the United Kingdom (11%), Belgium (9%) and France (8%).

For the majority of respondents, the EU framework for public reporting overall brings added value, and is coherent, effective and relevant for achieving its main intended objectives: safeguarding stakeholders’ interests, ensuring financial stability, developing the internal market and integrated EU capital markets and promoting sustainability.

However, preparers of financial statements reported that it could be more efficient in terms of the costs compared to actual benefits when it comes to non-financial information and electronic reporting.

IFRS standards help reduce the cost of capital and increase investments in the EU, and hence are seen as effective in terms of developing the internal market and promoting integrated EU capital markets. A majority of respondents believe that the EU IFRS endorsement process is appropriate, and do not want the European Union to be able to make additions to IFRSs (“carve-in”).

A large majority of respondents is opposed to an EU conceptual framework underpinning the IFRS endorsement process, and, similarly, rejected endorsement of the IASB conceptual framework, because it is not binding for IASB standard setting and endorsing it at EU level would create more legal issues than it would resolve.

A majority of respondents saw no evidence that IFRSs had led to pro-cyclicality and short-termism, while several pointed out that the criterion of “being conducive to the EU public good” should allow for adequate consideration of sustainability and long-term investment concerns during the endorsement process, without the need to spell these out specifically in the endorsement criteria.

Most respondents believed that national implementation of the Accounting Directive had little impact on cross-border transactions. There was no call from respondents to address the differences arising from national implementation. If differences needed to be addressed, some respondents suggested using IFRSs as a point of reference. The concept of “minimum harmonization” was generally approved, as it accommodates different reporting cultures among Member States.

Users of financial statements called for the increasing digitalization of financial information and its publication, using standardized formats.

Finally, in terms of non-financial information, a large number of respondents stated that in their view it was too early to say anything definitive about the impacts of the regulatory framework, which had only just come into effect.

The outcomes presented in this report will be incorporated into a more general report to be published by the European Commission in mid-2019.

The report, in English only, is available at the following address:

https://ec.europa.eu/info/sites/info/files/business_economy_euro/banking_and_finance/documents/2018-companies-public-reporting-feedback-statement_en.pdf


EFRAG Answers A European Commission Question on Accounting For Equity Interests in IFRS 9

During the IFRS 9 endorsement process, Europe noted that the “Fair value in Profit or Loss” category did not accurately reflect the performance of long-term investments, while the other category open to equity instruments, “Fair value through Other Comprehensive Income”, had the disadvantage of failing to reflect gains and losses in the income statement. This is because latent gains or losses are recognized in OCI with no option to recycle to P&L when the assets are derecognized.

The European Commission therefore requested EFRAG to carry out an analysis in two stages:

  1. Study on the potential impact of IFRS 9 on long-term investment; EFRAG’s response was published in January 2018 (see Beyond the GAAP no 118 of January 2018);
  2. Study, from a conceptual perspective, on the reintroduction of an option to recycle results from OCI to P&L alongside the reintroduction of an impairment model for equity instruments. This study should also consider the various impairment models that could accompany the reintroduction of recycling.

EFRAG’s newly published analysis represents its response to this second request.

The response can be downloaded from the EFRAG site: https://www.efrag.org/News/Project-340/EFRAG-publishes-its-technical-advice-to-the-European-Commission

EFRAG is also conducting a further analysis at the request of the European Commission, this time into alternative accounting treatments to measurement at fair value in profit or loss for equity instruments held in the context of long-term business models. It should report its conclusions to the Commission by the end of the second quarter of 2019.

 


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