This IASB Update highlights preliminary decisions of the International Accounting Standards Board (Board). The Board's final decisions on IFRS® Standards, Amendments and IFRIC® Interpretations are formally balloted as set forth in the Due Process Handbook of the IFRS Foundation and the IFRS Interpretation Committee.
The Board met on Wednesday 24 and Thursday 25 January 2018 at the IFRS Foundation's offices in London.
The topics, in order of discussion, were:
The Board met on 24 January 2018 to discuss:
- introducing management performance measures in the financial statements; and
- presenting the share of the profit or loss of ‘integral’ associates and joint ventures in the statement(s) of financial performance.
Requirements for management performance measures (Agenda Paper 21A)
The Board tentatively decided that:
- all entities should specify their key performance measure(s) in the financial statements;
- if any of these measures are not specified or defined in IFRS Standards, an entity should identify such measures as management performance measures; and
- the key performance measures identified in the financial statements should include, as a minimum, the key performance measures communicated in the annual report.
All 14 Board members agreed with this decision subject to the staff further clarifying when a measure is ‘specified or defined in IFRS Standards’ and which types of measures would be considered ‘key performance measures’.
In December 2017 the Board tentatively decided that entities should present a management performance measure as a subtotal in the statement(s) of financial performance, if it fits in the Board’s proposed structure for the statement(s) and satisfies the requirements in IAS 1 Presentation of Financial Statements for subtotals. At this Board meeting the Board tentatively decided:
- that if a management performance measure does not fit in the statement(s) of financial performance, a separate reconciliation should be disclosed in the notes between the management performance measure and the most appropriate measure specified or defined in IFRS Standards. Eleven Board members agreed and three Board members disagreed with this decision.
- that there should be no specific constraints on management performance measures provided in a separate reconciliation. Thirteen Board members agreed and one Board member disagreed with this decision.
- that the following disclosures should be required for each management performance measure (including a management performance measure presented as a subtotal in the statement(s) of financial performance):
- a description of why the management performance measure provides management’s view of performance, including an explanation of how the management performance measure has been calculated and why. Thirteen Board members agreed and one Board member disagreed with this decision.
- sufficient explanation, if there is a change in how the management performance measure is calculated during the year, to help users understand the reasons for and effect of the change. Thirteen Board members agreed and one Board member disagreed with this decision.
The Board decided not to require a five-year historical summary showing, for each year, the calculation of the management performance measure. Eight Board members agreed and six Board members disagreed with this decision.
- that the reconciliation between the management performance measure and the most appropriate measure specified or defined in IFRS Standards should be provided separately from the operating segment information disclosed in accordance with IFRS 8 Operating Segments. However, entities would not be prohibited from also including management performance measures within the operating segment information. Furthermore, the following disclosures would be required:
- an explanation of how the management performance measure differs from the total of the measures of profit or loss for the reportable segments; and
- if none of the management performance measures fits into the operating segment information, an explanation of why this is the case. Eleven Board members agreed and three Board members disagreed with this decision.
- not to specify in IFRS Standards that the management performance measures are not measures specified or defined in IFRS Standards. All 14 Board members agreed with this decision.
Presentation of the share of the profit or loss of ‘integral’ associates and joint ventures (Agenda Paper 21B)
The Board tentatively decided that:
- entities should be required to present the results of ‘integral’ associates and joint ventures separately from those of ‘non-integral’ associates and joint ventures. Twelve Board members agreed and two Board members disagreed with this decision.
- the project’s first due-process document should:
- use the Board’s proposed definition of ‘income/expenses from investments’ (from the November 2017 Board meeting) as the basis for the split between integral and non-integral investments in associates or joint ventures, and include a non-exhaustive list of indicators that could be used in making this distinction. Nine Board members agreed and five Board members disagreed with this decision.
- propose the presentation in the statement(s) of financial performance of the share of profit or loss of integral associates or joint ventures as a line item above the ‘income/expenses from investments’ category and require a new subtotal above that line item. Twelve Board members agreed and two Board members disagreed with this decision.
- discuss the alternative approaches considered by the Board for presenting the share of the profit or loss of integral associates and joint ventures, both within and outside the ‘income/expenses from investments’ category, and the Board’s reasons for rejecting those approaches. All 14 Board members agreed.
The Board will continue its discussions on topics within the scope of the project at future meetings.
The Board met on 24 January 2018 to discuss an issue raised on the pre-ballot draft of the FICE Discussion Paper.
The issue relates to how the Gamma Approach classifies non-derivative instruments with a complex payoff structure. The issue arises when an entity has the option to limit the amount of a claim to that entity’s available economic resources (for example, an option to settle a claim by delivering a fixed number of shares), but also has the option to settle at an amount that is affected by other variables that are independent of the entity’s economic resources. The Board discussed whether such an instrument could be analysed as an equity host and an embedded derivative asset if the issuer held the option to settle the claim.
In cases where the entity does not have the option to limit the amount of a claim to the entity’s available economic resources, the instrument would be analysed as a liability host and an embedded derivative. This position is consistent with the Board’s preliminary view on contingent events.
The Board tentatively decided:
- before proposing any particular accounting requirements, to raise the issue in the Discussion Paper and seek feedback on whether separating embedded derivatives may be a potential solution; and
- to raise a question in the Discussion Paper about whether and how the attribution requirements may help provide information about complex payoffs if the embedded derivative is not separated from the equity host contract.
All 14 Board members agreed with these decisions.
The Board expects to publish the Discussion Paper in Q2 of 2018.
The Board met on 25 January 2018 to receive an update on the current status of the Conceptual Framework project. The Board was not asked to make any decisions.
The Board plans to publish the revised Conceptual Framework in March 2018 and References to the Conceptual Framework with or shortly after the revised Conceptual Framework.
The Board met on 25 January 2018 to discuss implementation and maintenance projects.
Commodity loans and related transactions—potential new research project (Agenda Paper 12A)
The Board discussed some transactions that might form part of a research project to be added to its agenda, including transactions involving specific types of commodities, digital currencies and emissions allowances.
In particular, the Board discussed two distinct features of these transactions, namely, that they involve items held for investment purposes or items used in a similar way to cash.
The Board was not asked to make any decisions.
The Board will discuss whether to add a research project on some or all of these transactions at a future meeting.
Taxation in fair value measurements (IAS 41)—potential annual improvement (Agenda Paper 12B)
The Board discussed the IFRS Interpretation Committee recommendation to propose an amendment to IAS 41 Agriculture as part of the Board’s next Annual Improvements Cycle. The amendment would remove the requirement for entities to exclude cash flows for taxation when measuring the fair value of biological assets using a present value technique.
All Board members agreed with the proposal.
The Board tentatively decided to propose that entities apply the amendments to fair values measured after the effective date of the amendments, with earlier application permitted.
All Board members agreed with this decision.
The Board will discuss due process steps at a future meeting.
The Board met on 25 January 2018 to discuss whether it can simplify the value in use calculation without making the impairment test in IAS 36 Impairment of Assets less robust.
The Board tentatively decided to consider removing the requirement for an entity to exclude from the value in use calculation cash flows resulting from a future restructuring or a future enhancement.
Thirteen Board members agreed and one disagreed with this decision.
The Board also tentatively decided to consider removing the explicit requirement to use pre-tax inputs to calculate value in use and to disclose the pre-tax discount rates used. Instead, an entity would be required:
- to use internally consistent assumptions about cash flows and discount rates; and
- to disclose the discount rate(s) actually used.
All 14 Board members agreed with this decision.
At future meetings, the Board will:
- discuss whether to consider subsuming some intangible assets within goodwill acquired in a business combination; and
- decide whether the next stage in the project should be a discussion paper or an exposure draft.
The Board met on 25 January 2018 to discuss feedback from phase 2 of the Post-implementation Review (PIR) of IFRS 13 Fair Value Measurement (IFRS 13), including feedback from:
- the Request for Information on IFRS 13, published in May 2017 and closed for comment in September 2017;
- the external academic literature review, conducted from June to November 2017; and
- research by staff, completed during phase 2 of the PIR.
The work in phase 2 of the PIR focused on:
- disclosures about fair value measurements to gain a deeper understanding of both users’ and preparers’ perspectives on the usefulness of fair value measurement disclosures.
- whether to prioritise Level 1 inputs or the unit of account (the ‘p x q’ issue). The staff assessed the extent and effect of the issue as well as examining current practice.
- application of the concept of the ‘highest and best use’ when measuring the fair value of non-financial assets to better understand the challenges when applying this concept and whether further support could be helpful.
- application of judgement in some areas to assess the challenges and whether further support could be helpful.
- whether there is a need for further material, such as education material, on measuring the fair value of biological assets and unquoted equity instruments.
The Board was not asked to make any decisions.
The Board will discuss at a future meeting whether to take any steps as a result of this feedback.