The International Accounting Standards Board (IASB) has published its December 2017 edition of Update, which highlights preliminary decisions made at its December 2017 meeting.
Primary Financial Statements
Regarding the objective of, and suitable locations for, the management performance measure, the IASB tentatively decided that entities should be required to identify a management performance measure and:
- present that 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; and
- otherwise provide the management performance measure in a separate reconciliation of that measure with a measure that is defined in IFRS Standards.
Regarding classification of interest and dividends in the cash flow statement by non-financial entities, the IASB tentatively decided to:
- remove from IAS 7 Statement of Cash Flows options for the classification of interest and dividends paid and of interest and dividends received and prescribe a single classification for each of these items.
- clarify that:
- cash flows arising from interest incurred on financing activities should be classified as financing cash flows.
- cash flows arising from interest paid that is capitalised as part of the cost of an asset should be classified as financing cash flows.
- cash flows arising from dividends paid should be classified as financing cash flows.
- amend the definition of ‘investing activities’ in IAS 7 to clarify that interest and dividends received should be classified as investing cash flows.
Regarding other targeted improvements to the cash flow statement, the IASB tentatively decided:
- to require a consistent subtotal as the starting point for the indirect reconciliation of cash flows from operating activities. This subtotal should be ‘profit before investing, financing and income tax’;
- not to align the operating section of the statement of cash flows with a corresponding section in the statement(s) of financial performance; and
- not to make any other further improvements to the statement of cash flows, besides the improvements mentioned in (a) and (b) above.
Goodwill and Impairment
The IASB tentatively decided to consider improving the application of IAS 36 Impairment of Assets by using the unrecognised headroom (the excess of the recoverable amount over the carrying amount) of a cash‑generating unit (or groups of units) as an additional input in the impairment testing of goodwill. It also tentatively decided to consider introducing requirements for the entity to disclose:
- each year, information about the headroom in a cash-generating unit (or groups of units) to which goodwill is allocated for impairment testing;
- a breakdown of goodwill by past business combination, explaining why the carrying amount of goodwill is recoverable; and
- the reasons for paying a premium that exceeds the value of the net identifiable assets acquired in a business combination, key assumptions or targets supporting the purchase consideration and a comparison of actual performance with those assumptions or targets.
Further, the IASB tentatively decided against pursuing the following approaches:
- providing relief from the mandatory annual quantitative impairment testing of goodwill;
- allowing goodwill to be tested for impairment at the entity-level or at the level of reportable segments;
- requiring disclosure of the payback period of an investment in a business combination; and
- changing the current requirement of using higher of value in use and fair value less costs of disposal to using a single method as the sole basis for determining the recoverable amount of an asset (or a cash‑generating unit).
The IASB tentatively decided that the following possible approaches are outside the scope of the goodwill and impairment research project:
- requiring disclosure of a measure of total assets and liabilities for each reportable segment; and
- reviewing the drafting of the disclosure requirements in IFRS 3 Business Combinations.
Finally, the IASB tentatively decided not to consider reintroducing amortisation of goodwill.
Dynamic Risk Management
Regarding the project plan to develop a dynamic risk management accounting model, the IASB decided to:
- focus first on developing a core model for the most important issues;
- seek feedback on the feasibility of the core model. The manner in which feedback is obtained will be determined at a later date; and
- address the non-core issues as a final step.
IFRS Implementation Issues
Regarding the transition requirements of proposed amendments to IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, the IASB tentatively decided to propose that entities apply the amendments to IAS 8 to voluntary changes in accounting policies made as a result of agenda decisions reached by the IFRS Interpretations Committee (IC).
The IASB also agreed with the proposal made by the IC that IFRS 1 First-time Adoption of IFRS should be amended to allow a subsidiary to measure cumulative translation differences using the amounts reported by its parent, based on the parent’s date of transition to IFRS Standards
Business Combinations Under Common Control
The IASB tentatively decided that the scope of the project also includes transactions involving transfers of one or more businesses where all of the combining parties are ultimately controlled by the same controlling party or parties, and the transactions are:
- preceded by an external acquisition and/or followed by an external sale of one or more of the combining parties; or
- conditional on a future sale such as in an initial public offering.
The full copy of IASB Update is available from the IASB web site here