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 10 May 2016.
For more detailed and comprehensive information on the IC’s discussions: https://s3.amazonaws.com/ifrswebcontent/2016/IFRIC/May/May-IFRIC-2016.html
- A forthcoming draft Interpretation will clarify the interaction between IFRS 9 and IAS 28 in accounting for long-term interests in an associate or a joint venture that, in substance, form part of the net investment, but to which the equity method is not applied.
- The proposals in the draft Interpretation Foreign Currency Transactions and Advance Consideration are to be retained in the final Interpretation, with an additional explanation (in the Basis for Conclusions) that determining whether an item is non-monetary depends on the particular facts and circumstances and may require judgement.
- In carrying out the ‘10 per cent’ test under IAS 39 / IFRS 9 when assessing whether the terms of an exchange or a modification of a financial liability are substantially different and lead to the derecognition of the original financial liability, an entity should include only fees exchanged between the lender and the borrower (i.e. excluding fees paid to / received from other parties).
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 17-19 May 2016. Other topics discussed by the Board include its research projects on Financial Instruments with Characteristics of Equity, Equity Method of Accounting, and Goodwill and Impairment.
For more detailed and comprehensive information on the Board’s discussions: https://s3.amazonaws.com/ifrswebcontent/2016/IASB/May/IASB_May_Update.html
2015 Agenda Consultation (feedback statement due H2/2016)
- The Board’s work plan strategy for 2017-2021 should give greater prominence to improving communication effectiveness of relevant financial information from preparers to users of financial statements, involve national and regional standard-setters more effectively in the Board's research activities, and address a limited number of topics in a timely manner.
- The active research section of the work plan for the next five years should include the following topics: Disclosure Initiative (including Principles of Disclosure), Primary Financial Statements, Financial Instruments with Characteristics of Equity, Goodwill and Impairment, Dynamic Risk Management, and Business Combinations under Common Control.
- The Board’s research pipeline (i.e. topics which are not currently on its active research programme but on which work is expected to begin between 2017 and 2021) should include the following topics: Equity Method of Accounting, Extractive Activities, Pollutant Pricing Mechanisms, Review of IAS 37, Variable and Contingent Consideration, and three feasibility studies.
- The Board’s work plan should not include any further work on the following topics: Post-employment Benefits, Income Taxes, Foreign Currency Translation, and High Inflation.
- The interval between the completion of one agenda consultation and the commencement of the next should be extended from three to five years.
Insurance and IFRS 9 (amendments to IFRS 4 due September 2016)
- An entity that is eligible for the temporary exemption from applying IFRS 9 must reassess whether its activities are still predominantly related to insurance if and only if there has been a demonstrable change in the entity’s corporate structure that could result in a change in its predominant activities (e.g. acquisition or disposal of a business), and by computing the predominance ratio using the carrying amounts of the liabilities reported on the entity's balance sheet at the end of the annual reporting period immediately following that change.
- When an entity concludes, as a result of the above mandatory reassessment of eligibility for the temporary exemption, that its activities are no longer predominantly related to insurance, the entity must apply IFRS 9 from the earlier of (i) its second annual reporting period that begins on or after the change in corporate structure that changed its predominant activities, and (ii) its annual reporting period that begins on or after the fixed expiry date of the temporary exemption. Also, disclosure requirements will apply.
- An entity that previously was not eligible for the temporary exemption from applying IFRS 9 should be permitted to reassess its eligibility before 2018 if and only if there has been a demonstrable change in the entity’s corporate structure that could result in a change in its predominant activities (e.g. acquisition or disposal of a business), and by computing the predominance ratio using the carrying amounts of the liabilities reported on the entity's balance sheet at the end of the annual reporting period immediately following that change.
- When an entity concludes, as a result of the above optional reassessment, that it becomes eligible for the temporary exemption after the initial date of assessment it must satisfy specific disclosure requirements.
- The proposals in the exposure draft dealing with a fixed expiry date for the temporary exemption from applying IFRS 9, the absence of expiry date for the overlay approach and some other matters on transitioning to IFRS 9 are confirmed.
- Entities accounting for investments in associates and joint ventures applying the equity method are to be provided with an optional relief - available on an investment-by-investment basis - from the requirements in IAS 28 to use uniform accounting policies, when either the investor uses IFRS 9 in its financial statements but its investee uses the temporary exemption, or the investor uses the temporary exemption in its financial statements but its investee uses IFRS 9. Additional disclosures will be required.
- Contrary to the proposals in the ED, first-time adopters of IFRS will be permitted to apply the overlay approach or the temporary exemption (under certain conditions).
Conceptual Framework (due Q4/2016)
- There will be an explicit statement that a faithful representation represents the substance of an economic phenomenon instead of merely representing its legal form.
- The link between the objective of financial reporting and stewardship is to be clarified by explaining resource allocation decisions as decisions (i) to buy, sell or hold equity and debt instruments, (ii) to provide or settle loans and other forms of credit, and (iii) to exercise rights while holding investments (e.g. rights to vote or influence management's actions).
- The Basis for Conclusions will explain the meaning of the term 'stewardship', how it relates to the term 'accountability', and that increasing the prominence of stewardship within the objective of financial reporting does not imply a preference for a historical cost measurement basis.
- As proposed in the ED, there will be a reference to prudence described as the exercise of caution when making judgements under conditions of uncertainty.
- Measurement uncertainty should be described as a factor affecting faithful representation; the Basis for Conclusions will clarify that a trade-off can exist between the fundamental qualitative characteristics of relevance and faithful representation.