IASB Update June 2018

The International Accounting Standards Board (IASB) has published its June 2018 edition of IASB Update, which summarises its June 2018 meeting.

Disclosure Initiative

Regarding the development of disclosure requirements, the IASB tentatively decided that, when developing disclosure objectives and requirements in future, a member of the IFRS Taxonomy team will be assigned in an advisory capacity to each of the IASB's active projects.  The IASB also tentatively decided that it will further develop a five-step approach to developing disclosure objectives and requirements. This will involve consideration of disclosure objectives and requirements at all stages of a project by:

• Step 1—understanding issues;
• Step 2—understanding what stakeholders want and why;
• Step 3—understanding what disclosures would be required to support proposed recognition and measurement requirements;
• Step 4—performing a cost/benefit analysis; and
• Step 5—understanding and documenting the effects of the proposed disclosure objectives and requirements.

Regarding the definition of material, the IASB tentatively decided:

• to confirm the proposed amendment to include the concept of 'obscuring information' in the bold definition of material and replace the proposed wording explaining 'obscuring information' in the explanatory paragraphs with a clearer description and examples;
• to confirm the proposed amendment(s) that align terminology in the definition of material with terminology in the Conceptual Framework for Financial Reporting; and that will replace the term 'could influence' with 'could reasonably be expected to influence' in the definition of material;
• to replace the definition of material in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors with a reference to the definition of material and explanatory paragraphs in IAS 1 Presentation of Financial Statements; and
• the effective date of amendments be for annual periods beginning on or after 1 January 2020 with early application permitted.

Dynamic Risk Management (DRM)

The IASB tentatively decided:

• the DRM model should permit the use of interest rate swaps, including basis swaps and forward starting swaps, in addition to forward rate agreements;
• options would be considered in the second phase of the model depending on the feedback received;
• the DRM model should require formal designation and documentation of derivatives; and
• the DRM model should require all designated derivatives to have a counterparty external to the reporting entity.

Insurance Contracts

The IASB tentatively decided to propose the following minor amendments to IFRS 17 (and other Standards amended by IFRS 17) as part of the IASB’s annual improvements to IFRSs:

• to amend the terminology in paragraph 27 of IFRS 17 to include insurance acquisition cash flows relating to insurance contracts in the group yet to be issued. All 14 IASB members agreed with this decision.
• to amend the terminology in paragraph 28 of IFRS 17 to achieve the intended timing of recognition of contracts within a group. All 14 IASB members agreed with this decision.
• to remove requirements that could result in double-counting of the risk-adjustment for non-financial risk in the insurance contracts reconciliation disclosures and revenue analyses. All 14 IASB members agreed and with this decision.
• to correct the terminology in the sensitivity analysis disclosures. All 14 IASB members agreed with this decision.
• to exclude business combinations under common control from the scope of the requirements for business combinations in IFRS 17. All 14 IASB members agreed with this decision.
• to amend IFRS 3 Business Combinations so that the amendment made by IFRS 17 on the classification of insurance contracts applies prospectively.
• to amend IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments and IAS 32 Financial Instruments: Presentation to achieve the intended scopes of these financial instruments Standards and the scope of IFRS 17, particularly with respect to insurance contracts held. All 14 IASB members agreed with this decision.
• to add an explanation that, in Example 9 of the Illustrative Examples on IFRS 17, the time value of the guarantee changes over time.
• to clarify the definition of the coverage period for insurance contracts with direct participation features. The proposed amendment would clarify that the coverage period for such contracts includes periods in which the entity provides investment-related services.

Business Combinations under Common Control

The IASB decided not to explore the 'full fair value approach'. Under that approach, a receiving entity would recognise:

• a contribution to equity, or a distribution from equity, measured as the difference between the fair value of the consideration transferred and the fair value of the acquired business; and
• goodwill measured as the excess of the fair value of the acquired business over the identifiable net assets acquired.

Further information is available on the IASB’s web site here.