Refining Current Standards Is Major Focus for IASB in 2016

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By David R. Jones

Jan. 4 — The International Accounting Standards Board probably will devote greater effort to fine-tuning its standards in 2016 while placing less emphasis on publishing new ones.

The board refines its standards following post-implementation reviews of standards and major amendments two years after they have come into force, as well as requests for clarifications from its International Financial Reporting Standards Interpretations Committee and other events.

“At the same time, we fully accept that there are areas for further development, and we are seeking feedback on how we should prioritize our time as part of the IASB's Agenda Consultation,” board Chairman Hans Hoogervorst told Bloomberg BNA Dec. 14 in an e-mail response to questions about the board's 2016 plans.

IASB currently is seeking stakeholder views on its Agenda Consultation, launched in August 2015 (11 APPR 743, 8/14/15), which will help set the board's work plan on IFRS running from mid-2016 to mid-2020.

Leases Standard

On the immediate horizon, Hoogervorst said the long-awaited leases standard would be released in the second week of January 2016 (see related story).

Publication of the standard—which largely matches the leases standard developed by the U.S. Financial Accounting Standards Board (09 APPR 420, 5/24/13)—would culminate five years of collaboration with FASB to issue a converged standard.

Overall, the forthcoming IFRS on leases establishes “the principles that entities would apply to report useful information to investors and analysts about the amount, timing and uncertainty of cash flows arising from a lease” by recognizing the assets and liabilities a lease creates, according to a notice on the board's web site.

IASB finished its deliberations on leases in October 2015 (11 APPR 965, 10/23/15).

The board voted to include a provision treating a change to lease as a separate new lease “only if the modification increases the scope of the lease by adding the right to use one or more underlying assets and if the consideration increases commensurate with that increase in scope,” an October 2015 IASB staff paper said.

The board also decided not to retain the requirements in IFRS 3: Business Combinations, for an acquirer to recognize assets and liabilities for short-term leases and leases of low-value assets in business combinations.

Other Pending Measures

Along with issuing the leases standard, Hoogervorst said in his e-mail that the board's near-term plans include publishing amendments to International Accounting Standard 7: Reconciliation of Liabilities from Financing Activities, in January 2016, and to IAS 12: Recognition of Deferred Tax Assets for Unrealized Losses, in mid- to late January.

In addition, IASB is slated to issue clarifications this year to:

• IFRS 2: Share-Based Payment Transactions in mid- to late March;
• IFRS 15: Revenue from Contracts with Customers in the first quarter; and
• IFRS 8: Operating Segments in the first half.

 

Timetables for setting or considering changes to other standards remain uncertain, with some projects still in their early days.

IASB has no specific timing, for instance, for issuing a discussion paper (DP) on Dynamic Risk Management, Hoogervorst noted, “but further work will be undertaken during 2016.”

Similarly, a DP on Rate Regulated Activities isn't expected before the second half of 2016, he said.

The board anticipates finishing its discussions on potential changes to IFRS 13: Fair Value Measurement in the first quarter of 2016.

Amendments would address the unit of account for financial assets that constitute investments in subsidiaries, joint ventures and associates measured at fair value when those investments are quoted in an active market.

A target date for issuing amendments to IFRS 13 is still to be determined.

Insurance Contracts

Though IASB expected to wrap up its deliberations on insurance contracts and issue a final standard in 2015 (11 APPR 92, 1/16/15), work will continue on the knotty topic this coming year.

The board expects to complete its discussions on the Insurance Contracts standard at its January 2016 meeting, Hoogervorst said in his email, after which the standard will be drafted.

“We do not expect to issue the final standard before the end of the year,” he said.

Current accounting practices for insurance contracts fail to give users information they need to fully understand an insurer's financial position, performance and risk exposure, IASB said, and have produced wide diversity in practice.

“The Insurance Contracts project aims to provide a single principle-based Standard to account for all types of insurance contracts, including reinsurance contracts that an insurer holds,” a project summary from the board said.

The project also is designed to make financial reporting among entities, jurisdictions and capital markets more comparable.

Conceptual Framework

More broadly, IASB is looking beyond drafting or modifying specific standards to setting out principles and measures for bolstering financial reporting through a project to revise its Conceptual Framework.

The framework helps guide IASB in developing and revising standards.

It also assists preparers in implementing consistent accounting policies when no IFRS applies to a given transaction or event, or when a standard permits a choice in accounting policy, IASB said.

Some aspects of the framework as revised in 2010, however, are unclear or outdated, the board said.

The Conceptual Framework isn't an accounting standard nd won't supplant current standards.

Further, the project won't overhaul the existing framework from top to bottom.

Instead, “IASB is building on the existing Conceptual Framework—updating it, improving it and filling in the gaps instead of fundamentally reconsidering all aspects of the Conceptual Framework,” according to a project summary.

The board published in May 2015 an exposure draft (ED) to rewrite the framework (11 APPR 510, 6/5/15).

Key measures in the ED would affirm that a statement of profit or loss provides the primary source of information about a company's performance and would reintroduce into the framework the notion of prudence—exercising caution when making judgments under conditions of uncertainty.

Controversial Provisions

Some proposed revisions in the ED have proved highly controversial, particularly reintroducing into the framework the notion of prudence and highlighting the importance of prudence for achieving neutrality in financial reporting.

Several stakeholders at a Sept. 4 forum in London criticized the proposal to put back into the framework the concept of prudence (11 APPR 832, 9/11/15).

The comment period on the ED ended Nov. 25, 2015, and IASB staff members currently are analyzing the comment letters received, Hoogervorst said in his e-mail.

“The analysis will be taken to the board in March, and the board will then determine the next steps for finalizing the Conceptual Framework,” he said.

Disclosure Initiative

Another wide-ranging IASB effort is the Disclosure Initiative, a collection of projects that aims to boost disclosures in financial statements—not reduce them.

“In general, the Disclosure Initiative views financial statements as a communication tool for reporting entities, and not just a compliance exercise,” Hoogervorst said.

The initiative looks to improve forthcoming and existing disclosure requirements in IFRS, Hoogervorst said in his e-mail.

“To do this, the IASB will look at how it identifies what information a standard should require to be disclosed and how it writes guidance to require this information,” Hoogervorst said.

Specifically, Hoogervorst told Bloomberg BNA, the initiative seeks to:

• provide clarifications where needed to existing guidance, such as amendments to IAS 1: Presentation of Financial Statements—IASB's general disclosure standard—that take effect in January 2016;
• enhance the principles in IAS 1 to help entities apply the disclosure requirements contained in individual standards in preparing their financial statements; and
• supply additional information that makes financial statements more useful and understandable to users—for example, the IFRS 7 debt-reconciliation amendments.

 

As part of the Disclosure Initiative, the board in October 2015 proposed nonbinding guidance on materiality in financial statements.

The guidance would consist of examples and explanations to help company managers determine whether information is material for inclusion in financial reports (11 APPR 1018, 11/6/15).

Companies wouldn't have to adhere to the guidance to ensure compliance with IFRS, although jurisdictions that permit or require IFRS could decide to incorporate the practice statement into their national financial reporting requirements.

The comment period for the materiality practice statement ends Feb. 26, 2016, and the board's next steps on the materiality statement, Hoogervorst said, will depend on feedback it receives.

“At the moment we would expect that the IASB would be in a position to make decisions on the next steps by the middle of 2016 and, depending on that decision, issue a final document by late 2016 or early 2017,” Hoogervorst said.

Other Disclosure Initiative projects in the works include a planned proposal on changes in accounting policies and estimates, and a discussion papeer on principles of disclosure.

Looking Ahead

The Disclosure Initiative offers an example of IASB's plans for the coming years.

The board expects to carry over the initiative into 2017 and beyond, Hoogervorst said—“not only because it is a mixture of research and implementation projects, but also because it is a substantial initiative that attempts to address numerous and significant issues.”

In addition, IASB's research agenda will take on added significance in 2016 and beyond.

The board has been spending more time on research than in previous years, “and this will also be the case going forward,” Hoogervorst said.

Research projects at the assessment stage—those evaluating potential concerns about accounting practice to determine if a financial reporting problem exists and, if so, how to address it—include discount rates, goodwill and impairment, pollutant pricing mechanisms (PPM), and share-based payments.

The board's work on PPM—determining whether an accounting model for carbon emissions can fit within the Conceptual Framework and IFRS (10 APPR 905, 10/10/14), (11 APPR 703, 7/31/15)—might assume greater urgency following adoption of the historic climate-change agreement by 195 countries on Dec. 12, 2015.

The staff expects to provide IASB with an update on the research agenda in the next three to four months.

IASB Membership, Structure Review

IASB's current structure encompassing 14 members is under review by the IFRS Foundation, which is seeking feedback on the board's optimal size as part of a consultation on the foundation's structure and effectiveness.

Foundation trustees have proposed cutting IASB to 13 members, saying a smaller board would operate more effectively because it would make communication among members easier and would free IASB resources for deployment elsewhere (11 APPR 660, 7/17/15).

“We will know more about the likely future size of the Board once they have completed the analysis and discussed the comments to the consultation,” Hoogervorst said.

Convergence Era Closes

Though IASB has hammered out over the past decade largely converged standards with FASB on such topics as leases and business combinations, the era of converged standards probably is drawing to a close.

No new converged standards are planned, Hoogervorst noted.

Still, IASB and FASB will continue to team up through ongoing deliberations conducted through IASB's Accounting Standards Advisory Forum, which represents standard setters and regional bodies.

“We are also working closely with the FASB on goodwill and impairment as well as the definition of business as part of the post implementation review of IFRS 3” on business combinations, Hoogervorst said.

IASB's activities in the years ahead will hinge in part on the outcome of its current Agenda Consultation.

The comment period for the consultation closed Dec. 31, 2015. The board has received more than 50 comments from such major accounting firms as Grant Thornton, PwC and EY, and from standard setters in Australia, Canada, Singapore and the U.K.

The consultation “will provide important input that will help the IASB determine which projects to focus on and how to prioritize them between now and 2020,” Hoogervorst said in his e-mail.

At the same time, he noted, the trustees of the IFRS Foundation, which oversees IASB activities, are asking whether IASB should become involved in new areas, such as reporting for nonprofit companies.

The board also plans to consider how to strengthen performance reporting.

“It is too early to say what the outcome of the consultation will be, but it will give important input to the IASB's future focus,” Hoogervorst said.

To contact the reporter on this story: David R. Jones in London at correspondents@bna.com

To contact the editor responsible for this story: Steven Marcy at smarcy@bna.com