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 7 – 8 February 2019.    

For more details and comprehensive information on the IASB’s discussion see:

https://www.ifrs.org/news-and-events/updates/iasb-updates/february-2019/

IBOR Reform and the Effects on Financial Reporting

The Board tentatively decided to propose amendments to IFRS 9 Financial Instruments and IAS 39 Financial Instruments: Recognition and Measurement to address concerns related to uncertainties arising from IBOR reform. The proposed amendments include:

• An entity can assume that IBOR-based contractual terms will remain unchanged when assessing whether a forecast transaction designated as a hedged item is ‘highly probable’;
• Regarding the existence of an economic relationship and the expectation that a hedge will be highly effective in achieving offsetting, an entity should base such assessments on existing contractual cash flows from the hedging instrument and the hedged item;
• An entity should be allowed to continue hedge accounting when an IBOR risk component meets the separately identifiable requirement at the inception of the hedging relationship, although identification may be affected by IBOR reform in the future;
• An entity should cease to apply the proposed relief when the nature and timing of designated future cash flows are certain;
• An entity should provide specific disclosures about the extent to which it applies the proposed relief; and
• An entity should apply the proposed amendments retrospectively.

The Board will discuss whether the proposed relief should be optional in the next meeting in March 2019.

The proposed effective date of the above amendments is 1 January 2020 with early application permitted. 

Amendment to IFRS 17 Insurance Contracts

The Board continued to assess concerns and implementation challenges about the following requirements in the IFRS 17:

• Loans that transfer significant insurance risk
• transition

Loans that transfer significant insurance risk

The Board tentatively decided to amend the scope of IFRS 17 and IFRS 9 for insurance contracts that provide insurance coverage only for the settlement of the policyholder’s obligation created by the contracts. The amendments would allow entities issuing such contracts to account for them under either IFRS 17 or IFRS 9. This choice would be made for each portfolio as defined in IFRS 17.

Transition

The Board tentatively decided to retain the transition requirements except the transition requirement for liabilities that relate to the settlement of claims incurred before an insurance contract was acquired as follows:

• to add a specified modification to the modified retrospective approach so that an entity classifies such liability as a liability for incurred claims, and
• to permit an entity applying the fair value approach to choose to classify such liability as a liability for incurred claims.

The Board will continue its discussion on the possible amendments to IFRS 17 at future meetings.

Primary Financial Statements 

In revising earlier decisions, the Board tentatively decided that:

• An entity that provides financing to customers as a main business activity:
• is required to include the following in operating profit,
  • Expenses from financing activities and income from cash and cash equivalents relating to the provision of financing to customers; or
  • All expenses from financing activities and income from cash and cash equivalents;
• Shall not present the ‘profit before financing and income tax’ subtotal if the entity does not present expenses from financing activities or income from cash and cash equivalents below operating profit;
• An entity that, in the course of their main business activities invests in assets that generate a return individually or largely independently of other resources held by the entity is required to include in operating profit, income/expenses from investments made in the course of its main business activities;
• Both the above types of entities (financial entities) shall classify cash flows from dividends received, interest paid and interest received each in a single section of the statement of cash flows; 
• All entities shall classify cash flow from dividends:
  • paid as financing cash flows, and
  • received from associates and joint ventures accounted for using the equity method as investing cash flows.

The starting point for the indirect reconciliation of operating cash flows is the operating profit subtotal for all entities.

The Board also tentatively decided to replace the description of aggregation and disaggregation which was decided in March 2017 and provide additional guidance for material balances comprised of immaterial items.   

Comprehensive review of IFRS for SMEs Standard

The Board tentatively decided to look into whether and how the IFRS for SMEs Standard should be updated to take account of full IFRS Standards and amendments not currently incorporated into the IFRS for SMEs Standard.

Management Commentary

The Board received an update from the Management Commentary Group.

UPCOMING COMMENT DEADLINES