RSM Global

Issue 65 – IFRS News In Brief

The IFRS Foundation’s Constitution amended effective 1 December 2016

In conclusion of their latest public consultation on the IFRS Foundation’s structure (link to RSM comment letter, the Trustees of the IFRS Foundation (the IASB’s oversight body) announced, on 30 November 2016, amendments to the Constitution, including a reduction in the number of Board members (from 16 to 14), a geographical re-distribution of Board members and Trustees, and amendments to their professional background requirements.

For more information:


The following is a summarised update on some of the main discussions or provisional decisions taken by the IC at its meeting on 8 November 2016.

For more detailed and comprehensive information on the IC’s discussions:

  • A draft Interpretation should be developed to clarify the accounting under IFRS 9 for modifications or exchanges of financial liabilities that do not result in derecognition (i.e. the financial liability continues to be accounted for as the same financial liability). In particular, an entity should recalculate the amortised cost of the modified financial liability by discounting the modified contractual cash flows using the original effective interest rate, and any adjustment to the amortised cost arising from such a modification should be recognised in profit or loss at the date of the modification or exchange.
  • The IC clarified the following regarding the investment entity (IE) requirements in IFRS 10:
    • An entity that possesses all three elements of the definition of an IE is an IE, even if it does not have one or more of an investment entity’s typical characteristics. In the latter case, the entity applies additional judgement in determining whether it possesses the three elements of the definition.
    • An IE responsible for providing investment management services to its investors can outsource the performance of these services to a third party.
    • An IE does not consider the holding of investments by a subsidiary as beneficial owner to be a service that relates to its investment activities.
    • An IE can provide investment-related services (either directly or through a subsidiary) to third parties to the extent that those services are ancillary to its core investing activities and, thus, do not change its business purpose.
  • The IC clarified that the fact that an entity does not amortise an intangible asset with an indefinite useful life does not necessarily mean that the entity will recover the carrying amount of that asset only through sale and not through use. Consequently, for the purposes of measuring deferred tax under IAS 12, an entity should determine its expected manner of recovery of the carrying amount of an intangible asset with an indefinite useful life, which could be through use or sale, as the recovery of an asset’s carrying amount does not depend on whether the asset is amortised.


The following is a summarised update on the main provisional decisions taken by the IASB at its meeting on 14-16 November 2016. Other topics discussed include (i) due process steps to amend IAS 28 (for long-term interests in an associate or joint venture), and IAS 16 (for proceeds and costs of testing property, plant and equipment), and (ii) the Financial Instruments with Characteristics of Equity research project.

For more detailed and comprehensive information on the IASB’s discussions:  

Insurance Contracts (IFRS 17 due March 2017)

  • A portfolio is defined as a group of contracts subject to similar risks and managed together as a single pool. Contracts within each product line would be expected to have similar risks, hence contracts from different product lines would not be expected in the same portfolio.
  • Entities should identify onerous contracts at inception and group them separately from contracts not onerous at inception. Contracts could be measured together if they can be grouped with others based on available information at inception.
  • Entities should measure insurance contracts not onerous at inception by dividing them into groups: a group of contracts with no significant risk of becoming onerous and a group of other profitable contracts.
  • Entities will be prohibited from grouping contracts issued more than one year apart.
  • Entities should allocate the contractual service margin (CSM) for a group of contracts on the basis of the passage of time, thus over the current period and expected remaining coverage period.
  • An entity should be permitted to use a weighted average discount rate for the accretion of interest on the CSM, with an averaging period of up to one year.
  • For contracts measured under the general model, when an experience adjustment directly causes a change in the estimate of the present value of future cash flows, the combined effect of the experience adjustment and the change in the estimate of the present value of the future cash flows should be recognised in profit or loss rather than adjusting the CSM.
  • For contracts accounted for using the variable fee approach, experience adjustments arising from non-financial risk that do not affect the underlying items and any directly caused changes in the estimates of the present value of future cash flows should be recognised in profit or loss (rather than adjusting the CSM).
  • IFRS 17 is to be applied retrospectively with transition provisions, a modified retrospective approach in certain circumstances, and specific disclosures.

Revised Conceptual Framework (final due H2/2017)

  • The concepts supporting the liability definition should specify that the entity must have ‘no practical ability to avoid’ transferring an economic resource, and in order to conclude that an entity has no practical ability to avoid a transfer:
    • the factors considered should depend on the type of transaction under consideration (e.g. an entity may have no practical ability to avoid a transfer if all avoiding actions would have economic consequences significantly more adverse than the transfer itself), and
    • it would never be sufficient that the entity’s management intends to make the transfer or that the transfer is probable.
  • The concepts supporting the liability definition should explain the meaning of the phrase ‘as a result of past events’ by referring to an activity of the entity that will or may oblige it to transfer an economic resource that it would not otherwise have had to transfer, and by clarifying that the enactment of a law is not in itself sufficient to give an entity a present obligation; the entity must have conducted an activity to which a present law (or other present enforcement mechanism, policy, practice or statement) applies.
  • The definitions of an asset and a liability should include both the term ‘present’ and the phrase ‘as a result of past events’.

Disclosure Initiative: Materiality Practice Statement (final due H2/2017)

  • The materiality assessment of a ‘cumulative error’ should be based on conditions existing when the financial statements for the period are authorised for issue.
  • The Practice Statement (PS) will include guidance on assessing the materiality of information about the existence and terms of a covenant, or a covenant breach, where an entity might consider the consequences of a breach on its financial position, financial performance and cash flows, and the likelihood of the breach occurring.
  • The PS is non-mandatory guidance, and is not intended for entities applying the IFRS for SMEs Standard.

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