IASB Update September 2017

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 20 and Thursday 21 September 2017 at the IFRS Foundation's offices in London, UK.

The topics, in order of discussion, were:

• Dynamic Risk Management
• IFRS Implementation issues
• Rate-regulated Activities
• Business Combinations under Common Control
• Research update
• Primary Financial Statements
• Conceptual Framework

Related information

Future Board meetings:

• 23–27 October 2017
• 13–15 November 2017
• 11–15 December 2017

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Dynamic Risk Management (Agenda Paper 4)

The Board met on 20 September 2017 to view an educational presentation on the Dynamic Risk Management (DRM) research project. The presentation included information on:

1. why DRM must consider prepayment risk; and
2. common approaches to managing prepayment risk, including their shortcomings.

The Board also discussed the concept of 'capacity', and in particular, how it influences the information content of financial statements.

The Board was not asked to make any decisions.

Next steps

The Board will continue its deliberations.

IFRS Implementation issues (Agenda Paper 12)

The Board met on 20 September 2017 to discuss implementation and maintenance projects.

Accounting policy changes (Amendments to IAS 8)—Proposed threshold and timing challenge (Agenda Paper 12A)

The Board continued its discussions on how to address the challenges posed by the requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors for voluntary changes in accounting policies—in particular, those that result from agenda decisions published by the IFRS Interpretations Committee. 

Specifically the Board considered:

1. whether to propose amending IAS 8 to address the timing challenge posed by agenda decisions; and
2. what proposed threshold an entity would use to determine whether to apply retrospectively a voluntary change in an accounting policy resulting from an agenda decision. 

The Board tentatively decided not to amend IAS 8 to address the timing challenge posed by agenda decisions and explain its rationale for that tentative decision in the Basis for Conclusions on the proposed amendments.

Twelve of 14 Board members agreed with these decisions and two members disagreed. 

The Board tentatively decided to propose amending IAS 8 to specify that an entity would apply retrospectively a voluntary change in an accounting policy resulting from an agenda decision, unless:

1. determining the period-specific effects or the cumulative effect of the change would be impracticable; or
2. the cost of determining those effects would outweigh the expected benefits to users of financial statements of applying retrospectively the new accounting policy. 

If determining the effects of the change in accounting policy would be impracticable or the cost of determining those effects would outweigh the expected benefits to users of financial statements, an entity would apply the requirements in paragraphs 23–27 of IAS 8 when applying the new accounting policy. 

The Board also tentatively decided to provide application guidance on how an entity would assess the costs and benefits of applying retrospectively a change in accounting policy resulting from an agenda decision. 

Thirteen of 14 Board members agreed with this decision and one member was absent.  

Next steps

The Board will discuss due process steps at a future meeting.

Availability of a refund (Amendments to IFRIC 14) and Plan amendments, curtailment or settlement (Amendments to IAS 19)—Effects of IFRIC 14 amendments and finalising IAS 19 amendments (Agenda Paper 12B)

The Board received an update on the expected effects of the amendments to IFRIC 14 and discussed the due process steps on the amendments to IAS 19. 

The Board tentatively decided to perform further work to assess whether it can establish a more principles-based approach in IFRIC 14 for an entity to assess the availability of a refund of a surplus.

Fourteen Board members agreed with this decision.

The Board also tentatively decided to:

1. finalise, without re-exposing, the amendments to IAS 19 separately from the amendments to IFRIC 14; and
2. require entities to apply the amendments to IAS 19 to annual reporting periods beginning on or after 1 January 2019, with earlier application permitted.

Thirteen of 14 Board members agreed with these decisions and one member abstained. 

Thirteen of 14 Board members confirmed they were satisfied that the Board has complied with the applicable due-process requirements and it has undertaken sufficient consultation and analysis to begin the balloting process for the amendments to IAS 19. One member abstained from voting on this decision. 

No Board member indicated an intent to dissent from the issuance of the amendments to IAS 19.

Next Steps

The Board expects to issue amendments to IAS 19 in December 2017. The Board will further consider the amendments to IFRIC 14 at a future meeting. 

Annual Improvements to IFRS Standards 2015–2017 Cycle—Due Process Steps (Agenda Paper 12C)

The Board discussed the effective date and due process steps for Annual Improvements to IFRS Standards 2015–2017 Cycle.

The Board tentatively decided to finalise, without re-exposing, the following three proposed amendments as part of Annual Improvements to IFRS Standards 2015–2017 Cycle:

1. Accounting for previously held interests (amendments to IFRS 3 Business Combinations and IFRS 11 Joint Arrangements);
2. Income tax consequences of payments on financial instruments classified as equity (amendments to IAS 12 Income Taxes); and
3. Borrowing costs eligible for capitalisation (amendments to IAS 23 Borrowing Costs).

The Board tentatively decided:

1. that the amendments meet the criteria for inclusion in the annual improvements process; and
2. to require entities to apply the amendments to annual reporting periods beginning on or after 1 January 2019, with earlier application permitted.

Thirteen of 14 Board members agreed with these decisions and one member abstained. 

Thirteen of 14 Board members confirmed they were satisfied that the Board has complied with the applicable due process requirements and it has undertaken sufficient consultation and analysis to begin the balloting process for Annual Improvements to IFRS Standards 2015–2017 Cycle. One member abstained from voting on this decision.

No Board members indicated an intent to dissent from the issuance of Annual Improvements to IFRS Standards 2015–2017 Cycle.

Next Steps

The Board expects to issue Annual Improvements 2015–2017 Cycle in December 2017.

Rate-regulated Activities (Agenda Paper 9)

The Board met on 20 September 2017 to develop further a possible accounting model for activities subject to 'defined rate regulation'. The Board was not asked to make any decisions.

The Board received Agenda Paper 9A, a summary of discussions to date, for information only.

Measurement of regulatory assets (Agenda Paper 9B)

The Board discussed factors that could influence the selection of a measurement basis for regulatory assets created by the rate-adjustment mechanism in a regulatory agreement. The Board focused on those regulatory assets that arise when:

1. an entity has already incurred costs carrying out a required activity; and
2. the regulatory agreement gives the entity a right to increase the rate to charge customers in a future period with the aim of recovering those costs.

Next steps

The Board plans to discuss further aspects of the measurement of regulatory assets and of regulatory liabilities at its next meeting.

Business Combinations under Common Control (Agenda paper 23)

The Board met on 21 September 2017 to attend an educational session on the Business Combinations under Common Control research project, covering the status of the project; issues for the Board to consider; and proposed next steps. 

The Board was not asked to make any decisions.

Next steps

The Board expects to resume deliberations on the project in October.

Research update (Agenda Paper 8)

The Board met on 21 September 2017 to receive an update on developments in its research programme since the May 2017 meeting. Information on the Board's work plan, including its research programme, is available here.

The Board:

1. heard that work has recently restarted on the project on Business Combinations under Common Control; and
2. discussed factors to consider when deciding whether to start any project in the research pipeline.

The Board was not asked to make any decisions.

Next Steps

The Board expects to receive the next update on the research programme in around three or four months.

Primary Financial Statements (Agenda Paper 21)

The Board met on 21 September 2017 to discuss the Primary Financial Statements project, resuming discussions from the June 2017 Board meeting about improvements to the statement(s) of financial performance.

Structure of the statement(s) of financial performance—introduction of an investing category and additional subtotals (Agenda Paper 21A)

The Board tentatively decided to prioritise introducing into the statement(s) of financial performance subtotals that facilitate comparisons between entities, such as EBIT, over introducing a management-performance measure subtotal. At a future meeting, the Board will discuss how a management-performance measure could be included in the financial statements. All Board members agreed with this decision.

The Board agreed without voting to explore the introduction of an investing category into the statement(s) of financial performance.

The Board tentatively decided that, if it introduces both an investing category and an EBIT (or profit before financing and income tax) subtotal, finance income or expenses should consist of the following separate line items in the statement(s) of financial performance:

1. 'income related to capital structure';
2. 'expenses related to capital structure';
3. 'interest income on a net defined benefit asset or a net asset that arises when a liability not part of an entity's capital structure qualifies for offset with an asset'; and
4. 'interest expenses on liabilities not part of an entity's capital structure'.

Ten of 14 Board members agreed and four disagreed with this decision. 

Analysis of expenses by function and by nature (Agenda Paper 21B)

The Board tentatively decided to:

1. describe the 'nature of expense' method and the 'function of expense' method used to analyse expenses required by paragraph 99 of IAS 1 Presentation of Financial Statements. Fourteen Board members agreed. 
2. continue to require an entity to provide an analysis of expenses using the methodology, either by-function or by-nature, that provides the most useful information to users. Twelve of 14 Board members agreed with this decision and one member disagreed. One member was absent. 
3. develop criteria that entities could follow to determine whether a by-function or by-nature methodology provides the most useful information to users. One of those criteria would be that a function of expense analysis would not be appropriate if an entity is unable to allocate natural components to the functions presented on a consistent and non-arbitrary basis. Ten of 14 Board members agreed with this decision and three members disagreed. One member was absent.
4. provide no requirement for entities that use the ‘nature of expense' method to provide additional information using the ‘function of expense' method. Thirteen of 14 Board members agreed with this decision and one member disagreed.
5. require an entity to:
   1. present its primary analysis of expenses in the statement(s) of financial performance; and
   2. disclose in a single note any additional information required about expenses (ie an analysis by nature when an entity uses a 'function of expense' method). Fourteen Board members agreed.

Next steps

The Board will continue discussions at a future meeting.

Conceptual Framework (Agenda Paper 10)

The International Accounting Standards Board (Board) met on 21 September 2017 to discuss comments on the pre-ballot draft of the revised Conceptual Framework for Financial Reporting (Conceptual Framework) related to measurement uncertainty and the application of the fundamental qualitative characteristics of useful financial information.

The Board tentatively decided that Chapter 2—Qualitative characteristics of useful financial information in the revised Conceptual Framework should:

1. clarify that a trade-off may need to be made between relevance and faithful representation and specifically between relevance and measurement uncertainty; but
2. not discuss how such a trade-off is made.

All 14 Board members agreed with that decision.

Work plan—projected targets as at 22 September 2017

The work plan reflecting decisions made at this meeting was updated on the IFRS Foundation website on 22 September 2017. View it here.