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  • February IASB Update Available

February IASB Update Available

28 February 2017

The International Accounting Standards Board (IASB) has published its February edition of Update, which summarises its meeting on 22-23 February 2017

The tentative decisions made by the IASB during the meeting are further summarised below.

Modifications and exchanges of financial liabilities

The Board considered the IFRS Interpretations Committee’s (the Interpretations Committee) tentative decision to develop a draft Interpretation on modifications and exchanges of financial liabilities measured at amortised cost that do not result in derecognition of the financial liability. The Interpretations Committee had concluded at its November 2016 meeting that all revisions to estimated cash flows should arising from modifications should be discounted at the liability’s original effective interest rate, with any adjustment to the amortised cost recognised in profit or loss at the date of the modification or exchange.

The IASB agreed with the Interpretations Committee’s technical conclusions on the matter, but expressed concerns about issuing a draft Interpretation in this situation as it was concluded that the standard was clear and therefore an Interpretation was unnecessary. Consequently, the Board objected to issuing a draft Interpretation. However, given the importance of the matter, in particular that it represents a significant change to the way many entities interpreted the requirements of IAS 39 Financial Instruments: Recognition and Measurement, the IASB will consider other ways to highlight the matter.

Insurance Contracts

The IASB tentatively decided that:

  • for contracts measured under the general model all changes in estimates of the present value of future cash flows arising from non-financial risks are adjusted against the contractual service margin.
  • for contracts measured under the variable fee approach all changes in estimates of the present value of future cash flows that are unrelated to the underlying items and that arise from non-financial risks are adjusted against the contractual service margin.
  • the changes in estimates adjusted against the contractual service margin include changes directly caused by experience adjustments with two exceptions.  Firstly where the change relates to incurred claims and secondly where any increases in estimates exceed the carrying amount of the contractual service margin, or any decreases are allocated to a loss component.
  • the definition of an experience adjustment should be revised to exclude investment components.
  • the amount of the contractual service margin for a group of insurance contracts recognised in profit or loss in each period is determined by allocating the carrying amount of the contractual service margin after all other adjustments have been made to the carrying amount of the contractual service margin at the start of the period.
  • if there are specific constraints in law or regulation on an entity’s practical ability to set price or benefit levels that vary according to policyholder characteristics, an entity should be exempt from the requirement to divide a portfolio into a groups of contracts that are onerous at inception, not significantly likely to be onerous, and other contracts.

Financial Instruments with Characteristics of Equity

Concerning contractual terms, the IASB tentatively decided:

  • to require an entity to apply the Gamma approach to the contractual terms of a financial instrument consistently with IAS 32 Financial Instruments: Presentation and IFRS 9 Financial Instruments;
  • to consider whether it should take any action to address the accounting for mandatory tender offers, including potential disclosure requirements; and
  • not to reconsider IFRIC 2 Members’ Shares in Co-operative Entities and Similar Instruments, given that it is not aware of any challenges to its application

Symmetric Prepayment Options

The IASB tentatively decided to allow 30 days for comments on the proposed amendment to IFRS 9 Financial Instruments dealing with Symmetric Prepayment Options

Post-implementation Review of IFRS 13

The Board decided: that the response period for the request for information on would be 120 days at a minimum.

Rate-regulated Activities

The IASB:

  • examined how the principle proposed in the new accounting model, as well as its general approach, make use of principles in IFRS 15 Revenue from Contracts with Customers and of the Board’s latest thinking in the Conceptual Framework project. The Board tentatively decided that the staff should continue developing the model using the general approach.
  • tentatively decided that scope criteria for the model should focus on enforceable rights and obligations created through a formal regulatory pricing (i.e. rate-setting) framework but exclude other features of rate regulation. Other features would instead be used as indicators for the existence and enforceability of the regulatory rights and obligations.

Conceptual Framework for Financial Reporting

The Board tentatively decided that:

  • the revised Conceptual Framework would include a description of cash-flow-based measurement techniques
  • the work assessing the effects of the revised Conceptual Framework is sufficient;
  • minor comments received on concepts supporting the definitions of asset and liability do not give rise to action or can be addressed in drafting;
  • the Board and the IFRS Interpretations Committee will start using the revised Conceptual Framework as soon as it is issued.

The full copy of IASB Update is available from the IASB’s web site here.

A podcast summarising the February IASB meeeting is also available from the IASB's website here.