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 IFRS Foundation and IFRS Interpretation Committee Due Process Handbook.
The Board met in public on Wednesday 21 and Thursday 22 June 2017 at the IFRS Foundation's offices in London, UK.
The topics for discussion were:
- Conceptual Framework
- Accounting Policies and Accounting Estimates (Proposed amendments to IAS 8)
- Primary Financial Statements
- Rate-regulated Activities
- IFRS Implementation Issues
- Prepayment Features with Negative Compensation (Proposed amendments to IFRS 9)
- Dynamic Risk Management (Education Session)
- Definition of a Business
The Board discussed a draft description in the Conceptual Framework of the boundary of a reporting entity that is not a legal entity. The description was developed in response to a tentative decision made at the September 2016 Board meeting.
The Board was satisfied with the direction of the drafting but decided to emphasise further that the information needs of users of financial statements play an important role in establishing the boundary of a reporting entity that is not a legal entity.
The Board discussed an issue that has arisen in drafting an exposure draft for proposed amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (ED). The Board decided to include in the ED a proposal to delete ‘IG Example 3—Prospective application of a change in accounting policy when retrospective application is not practicable’ from the Guidance on Implementing IAS 8.
All 13 Board members agreed with this recommendation.
The Board expects to publish the ED in the third quarter of 2017.
The Board met on 21 June 2017 to discuss the Primary Financial Statements project. The Board continued its discussion from the March 2017 Board meeting about introducing two subtotals in the statement(s) of financial performance—earnings before finance income/expenses and tax (EBIT) and a management performance measure.
No decisions were made at this meeting.
The staff will consider the feedback received by the Board and bring back revised proposals to a future meeting.
The Board met on 21 June 2017 to consider examples that demonstrate the operation of a possible accounting model for activities subject to ‘defined rate regulation’. The model recognises assets and liabilities that reflect rights and obligations arising from a rate-adjustment mechanism in a regulatory agreement.
Defined rate regulation establishes a basis for setting the regulated rate an entity can charge its customers for specified goods or services. That basis includes a rate-adjustment mechanism that gives the entity a right to increase the regulated rate for a future period, or an obligation to decrease that rate, to:
- correct past estimation variances; or
- reverse temporary differences that originated before the end of the current period. Such differences arise when the regulated rate in one period includes amounts related to specified activities the entity carries out in a different period.
The Board also received Agenda Paper 9A, a summary of discussions to date, for information only.
Rate adjustment examples (Agenda Paper 9B)
The Board discussed five examples that demonstrate common types of regulated rate adjustments. Each example shows how the model would recognise a regulatory asset or regulatory liability, together with a related regulated rate adjustment recognised in profit or loss. For each example, the Board considered the staff’s conclusions about:
- the timing and amount of the originating adjustment; and
- the pattern and timing of the reversal of the adjustment.
Eleven Board members agreed with the staff’s conclusions about the examples, and one disagreed. One Board member was absent.
The Board plans to discuss further aspects of the model at its July meeting.
The Board met on 22 June 2017 to discuss implementation and maintenance projects.
Amendments to IAS 28—Long-term interests in associates and joint ventures (Agenda Paper 12A)
The Board continued to discuss the proposed amendments to IAS 28 Investments in Associates and Joint Ventures. Specifically, it discussed transition requirements for first-time adopters and due process steps. The Board tentatively decided not to provide first-time adopters with any transition requirements other than those already included in IFRS 1 First-time Adoption of International Financial Reporting Standards.
Twelve of 13 Board members agreed with this decision and one member was absent.
Twelve of 13 Board members agreed that the Board has completed the necessary due process steps for the project and instructed staff to begin the balloting process for issuing the amendments to IAS 28. One member was absent.
One Board member indicated his intention to dissent from the decision to issue the amendments to IAS 28.
The Board expects to issue the amendments to IAS 28 in September 2017.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors—Accounting policy changes resulting from agenda decisions (Agenda Paper 12B)
The Board discussed whether, and if so how, to address the challenges posed by the requirements in IAS 8 for voluntary changes in accounting policies—in particular, changes in accounting policies that result from agenda decisions published by the IFRS Interpretations Committee. Specifically, the Board considered whether it should provide further exceptions in IAS 8 for retrospective application of voluntary changes in accounting policies, either for all voluntary changes in accounting policies or only for those changes that result from agenda decisions.
The Board tentatively decided to amend IAS 8 to lower the impracticability threshold regarding retrospective application of voluntary changes in accounting policies that result from agenda decisions. The proposed threshold would include a consideration of the benefits and costs of applying the change retrospectively.
Eight of 13 Board members agreed with this decision and three members disagreed. One member abstained and one was absent.
The Board also tentatively decided not to address whether a change that results from an agenda decision is the correction of an error or a voluntary change in an accounting policy. Eleven of 13 Board members agreed and one disagreed with this decision; one member was absent.
The Board will discuss the proposed new threshold at a future meeting.
The Board met on 22 June 2017 to consider feedback from the comment letters on the Exposure Draft Prepayment Features with Negative Compensation (proposed amendments to IFRS 9).
The Board also considered issues that need to be discussed in the redeliberation of the proposed amendments to IFRS 9.
The Board was not asked to make any decisions.
The Board redeliberation will take place at the July Board meeting.
The Board met on 22 June 2017 to view a presentation on the Dynamic Risk Management research project. The educational presentation included information on:
- how product maturity, product growth and the passage of time can influence the measurement of risk;
- what actions are taken in response to those events and the impact of those actions; and
- the importance of specificity when measuring risk against a stated objective.
The Board was not asked to make any decisions.
The Board will continue deliberations.
The Board met on 22 June 2017 to resume discussions on the comments received on the Exposure Draft Definition of a Business and Accounting for Previously Held Interests (ED).
The Board tentatively decided to:
- clarify that to be considered a business an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together are required to contribute significantly to the ability to create outputs.
- reaffirm the proposal to remove the following text from paragraph B8 of IFRS 3 Business Combinations: ‘However, a business need not include all of the inputs or processes that the seller used in operating that business if market participants are capable of acquiring the business and continuing to produce outputs, for example, by integrating the business with their own inputs and processes.’
- reaffirm the proposal to amend the definition of ‘output’ by removing the reference to the ability to reduce costs, and clarifying that ‘other revenues’ means other income arising from contracts that are within the entity’s ordinary activities but are outside the scope of IFRS 15 Revenue from Contracts with Customers.
- clarify that if an acquired set of assets generated revenues before the acquisition, but is integrated by the acquirer and no longer generates revenues after the acquisition, that set of assets is regarded as creating outputs.
- confirm the guidance proposed in the ED to assess whether a substantive process has been acquired, including the guidance on acquired outsourcing agreements, and to specify in the guidance on substantive processes that difficulties in replacing an acquired workforce may indicate that the workforce performs a substantive process.
- reaffirm the proposal to add illustrative examples to help with determining what is considered a business. The Board also tentatively decided to:
- explore the possibility of illustrating in an example how the guidance on outsourcing agreements may be applied; and
- clarify the fact patterns of the illustrative examples by separating the assumptions in each example from the conclusions.
- reaffirm the proposal that an entity would not be required to apply the proposed amendments to transactions that occur before the effective date of the amendments.
Twelve of 13 Board members agreed with these decisions and one was absent.
In addition, the Board tentatively decided to align the definition of a business in Appendix A of IFRS 3 with the revised definition of output in paragraph B7(c) of IFRS 3.
Nine of 13 Board members agreed and three disagreed with this decision; one member was absent.
The Board also tentatively decided:
- to remove from paragraph B12 of IFRS 3 the statement that a set of assets and activities in which goodwill is present is presumed to be a business; and
- not to include the statement, proposed in the ED, that the presence of more than an insignificant amount of goodwill may be an indicator that an acquired process is substantive.
Ten of 13 Board members agreed and two disagreed with this decision; one member was absent.
The Board will discuss a comparison between the FASB Accounting Standards Update 2017–01 Clarifying the Definition of a Business and the draft amendments to IFRS 3 at a future meeting. At that meeting, the Board will receive a request from staff for permission to begin drafting the final amendments.
Work plan—projected targets as at 23 June 2017
The work plan reflecting decisions made at this meeting was updated on the IFRS Foundation website on 23 June 2017. View it here.