PUBLICATIONS AND ANNOUNCEMENTS
IFRS 15 Revenue from Contracts with Customers amended for its effective date
The amendment published by the IASB on 11 September 2015 formalises the one-year deferral of the effective date of the new revenue Standard (as previously announced by the Board in July 2015) to 1 January 2018; earlier application continues to be permitted.
Proposals for postponing accounting changes for transactions between investors and associates or joint ventures open for comment until 9 October 2015
On 10 August 2015, the IASB published an exposure draft aimed at deferring indefinitely the effective date of the narrow-scope amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture – issued in September 2014 and applicable to transactions occurring in annual periods beginning on or after 1 January 2016 - until such time as it has finalised amendments that might result from its research project on the equity method, although earlier application would continue to be permitted.
IASB’s 2015 Agenda Consultation open for comment until 31 December 2015
On 11 August 2015, the IASB published a request for views on its work plan (research projects, standard-setting projects, maintenance and implementation projects) and priorities until 2020, seeking feedback on whether it has correctly identified the most important issues in its research programme and whether any adjustment is needed in how its Standards-level programme is prioritised.
IFRS INTERPRETATIONS COMMITTEE
LATEST DECISIONS SUMMARY
The following is a summarised update on some of the main discussions or provisional decisions taken by the IFRS Interpretations Committee (IC) at its meeting on 8-9 September 2015.
For more detailed and comprehensive information on the IC’s discussions:http://media.ifrs.org/2015/IFRIC/September/IFRIC-Update-September-2015.html
Topics retained on the IC’s agenda with no decisions taken
- Whether the measurement (including impairment) of long term interests that, in substance, form part of the ‘net investment’ in an associate or joint venture should be governed by IFRS 9 or IAS 28.
- Whether the amount by which the proceeds received from selling items produced while testing an item of PPE under construction exceed the costs of testing should be recognised in profit or loss or as a deduction from the cost of the PPE.
- Issues related to payments made by an operator to a grantor in a service concession arrangement (IFRIC 12) and to variable payments for the acquisition of PPE and intangible assets (in particular, whether the same principles developed in the Leases project would apply).
Topics to be followed by recommendations to the IASB
- IFRS 3 should be amended to clarify that previously held interests in the assets and liabilities of a joint operation that constitutes a business should be remeasured to fair value when the acquisition of an additional interest results in the acquirer obtaining control over the joint operation.
- IFRS 11 should be amended to clarify that previously held interests in the assets and liabilities of a joint operation that constitutes a business should not be remeasured to fair value when the acquisition of an additional interest results in the investor becoming a joint operator (i.e. assuming joint control) in the joint operation.
Topics not taken on the IC’s agenda
- The amount of impairment to be recognised for a disposal group would not be restricted by the fair value less costs of disposal or value in use (as per IAS 36.105) of the non-current assets that are within the measurement requirements of IFRS 5.
- Intragroup transactions between continuing and discontinued operations would be eliminated in accordance with IFRS 10, with additional disclosures where needed under IFRS 5 (based on specific facts and circumstances).
- A hedging relationship could not be treated as continuing on transition from IAS 39 to IFRS 9, if the entity changes the hedged item from an entire non-financial item (as per IAS 39) to a component of the non-financial item (as per IFRS 9) in order to align the hedge with its risk management objective.
- Hedge designations of an entire non-financial item under IAS 39 could continue on transition to IFRS 9 as long as they meet the qualifying criteria in IFRS 9.
- The liability for an issued prepaid card with specific features (no expiry date, not refundable, redeemable only for goods or services at selected merchants, not issued as part of a customer loyalty programme, etc.) would be in the scope of IAS 39 / IFRS 9 as a financial liability.
- Separation of an embedded interest rate floor from a floating rate host contract in a negative interest rate environment should follow the same guidance as in a positive interest rate environment (i.e. IAS 39.AG33(b)).
INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)
LATEST DECISIONS SUMMARY
The following is a summarised update on the main provisional decisions taken by the IASB at its meeting on 21-24 September 2015. In addition, initial discussions were held jointly with the FASB on their respective projects related to their business combinations Standards (definition of a business, goodwill and impairment, identifiable intangibles, etc.).
For more detailed and comprehensive information on the Board’s discussions:http://media.ifrs.org/2015/IASB/September/IASB-Update-September2015.html
Insurance Contracts (new IFRS due in 2016)
- Disaggregation in the statement of comprehensive income of changes arising from changes in market variables:
- For all insurance contracts, changes in estimates of the amount of cash flows that result from changes in market variables should be presented in the same location in the statement of comprehensive income consistently with the changes in discount rates.
- For contracts with no economic mismatch between the insurance contract and the related assets and liabilities held by the entity, the difference between the changes in the fair value of the underlying items and the insurance investment expense would be recognised in OCI (‘the current period book yield approach’).
- For all other insurance contracts, the difference between presenting insurance investment expense in profit or loss (P/L) using a cost measurement basis and a current measurement basis would be recognised in other comprehensive income (OCI), and those amounts reverse (‘the effective yield approach’).
- Change between the effective yield approach and the current period book yield approach would follow specific recognition and disclosure requirements (no restatement of the opening accumulated balance of OCI and of prior period comparatives, recognition in P/L of the accumulated balance of OCI in the period of change and in future periods, etc.).
- For all insurance contracts, an entity could choose, as its accounting policy (applied to groups of similar contracts), either to disaggregate changes in market variables between P/L and OCI, or to present the insurance investment expense in P/L using a current measurement basis.
- When retrospective application on first application of the new insurance contracts Standard is impracticable, simplified transition requirements would be available for the accumulated balance of OCI.
- Specific requirements would avoid accounting mismatches that could arise when the entity uses the variable fee approach to measure insurance contracts (i.e. contracts with direct participation features) and uses a derivative measured at fair value through profit or loss (FVPL) to mitigate the financial market risk from the guarantee embedded in the insurance contract.
Insurance Contracts - Different effective dates of IFRS 9 and the new insurance contracts Standard (exposure draft to amend IFRS 4 due late 2015)
- An entity would be permitted to apply the ‘overlay approach’ (i.e. adjust P/L and OCI to remove from P/L the effect of newly measuring financial assets at FVPL in accordance with IFRS 9) to financial assets that meet both of the following eligibility criteria:
- they are designated by the entity as relating to contracts that are within the scope of IFRS 4 (such designation might change only if there is a change in the relationship between the financial assets and those contracts); and
- they are classified as FVPL in accordance with IFRS 9 but would not have been classified as FVPL in their entirety in accordance with IAS 39.
- On redesignation of financial assets, the overlay approach might be applied prospectively when the eligibility criteria are met, and should cease when financial assets no longer meet those criteria (with any accumulated balance of OCI relating to the overlay adjustment immediately recycled to P/L).
- The overlay approach would be permitted only when an entity first applies IFRS 9 (including if applied early), with the following transition provisions:
- Retrospective application to eligible financial assets on transition to IFRS 9: the opening balance of OCI would be adjusted by an amount equal to the difference between the fair value of financial assets and their amortised cost or carrying amount determined in accordance with IAS 39 immediately prior to transition to IFRS 9.
- Restatement of comparative information to reflect the overlay approach if, and only if, the entity also restates that comparative information in accordance with IFRS 9.
- Ceasing of the overlay approach: mandatory on application of the forthcoming new insurance contracts Standard and elective in any reporting period; reclassification then of any accumulated balance of OCI relating to the overlay adjustments to retained earnings at the later of (i) the beginning of the earliest reporting period presented, or (ii) the beginning of the reporting period when the overlay approach was first applied.
- A single line item should be presented for the amount of the overlay adjustment in the P/L or the OCI section of the statement of comprehensive income or both (with possible disaggregation in P/L).
- Specific disclosures include the fact that the entity has made an overlay adjustment, the financial assets to which the overlay adjustment relates and the entity’s policy in this respect, an explanation of the amount of the total overlay adjustment in each period in a way that enables users of the financial statements to understand how it is derived, the effect of the overlay adjustment on line items in P/L (if not separately identified), etc.
- An entity would be permitted to defer the effective date of IFRS 9 for all financial assets held if its predominant activity is issuing contracts within the scope of IFRS 4 (‘the deferral approach’).
- Assessing whether insurance activities are predominant for the entity should be based on the level of gross liabilities arising from contracts within the scope of IFRS 4 relative to the entity’s total liabilities at the date when the entity would otherwise be required to initially apply IFRS 9 (i.e. for annual periods beginning on or after 1 January 2018), but with no quantitative threshold.
- A reassessment at subsequent annual reporting dates would be required if there is a demonstrable change in the corporate structure of the entity that could result in a change of its predominant activities. If as a result of the reassessment insurance activities are no longer predominant, the entity would be required to apply IFRS 9 from the beginning of the next annual reporting period with specific disclosure to that effect.
- An entity that has previously applied IFRS 9 would not be permitted to revert to applying IAS 39.
- An entity applying the deferral approach should disclose the fact that it made that election, an explanation of how it concluded that it is eligible for the deferral, and information about the characteristics and credit quality of financial assets.
- Ceasing of the deferral approach (i.e. application of IFRS 9): mandatory on application of the forthcoming new insurance contracts Standard, and elective at the beginning of any annual reporting period before then. The entity should follow the transition provisions in IFRS 9 and stop providing disclosures required under the deferral approach.
Disclosure Initiative–Amendments to IAS 7 (redeliberations of the December 2014 exposure draft)
The ED proposal to require the disclosure of a reconciliation of liabilities arising from financing activities would be retained subject to including an objective for the disclosure requirement, clarifying that an entity has flexibility to determine what information is needed to meet that objective, and providing a further illustrative example.
Conceptual Framework (exposure drafts issued May 2015)
The comment period for both exposure drafts Conceptual Framework for Financial Reportingand Updating References to the Conceptual Framework is extended by 30 days: revised deadline for comments is now 25 November 2015.
UPCOMING COMMENT DEADLINES
|9 October 2015||ED/2015/7 - Effective Date of Amendments to IFRS 10 and IAS 28|
|19 October 2015||ED/2015/5 - Remeasurement on a Plan Amendment, Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan (Proposed amendments to IAS 19 and IFRIC 14)|
|28 October 2015||ED/2015/6 - Clarifications to IFRS 15|
|25 November 2015||ED/2015/3 - Conceptual Framework for Financial Reporting|
|25 November 2015||ED/2015/4 - Updating References to the Conceptual Framework (Proposed amendments to IFRS 2, IFRS 3, IFRS 4, IFRS 6, IAS 1, IAS 8, IAS 34, SIC-27 and SIC-32)|
|30 November 2015||Request for Views - Trustees’ Review of Structure and Effectiveness: Issues for the Review|
|31 December 2015||Request for Views - 2015 Agenda Consultation|