IASB Update November 2017

The International Accounting Standards Board (IASB) has published its November 2017 edition of Update, which highlights preliminary decisions made at its November 2017 meeting.

Dynamic Risk Management

The IASB discussed accounting models that better reflects dynamic risk management in financial reporting, and whether it should follow cash flow hedge mechanics or fair value hedge mechanics, tentatively agreeing that the staff should focus on further developing a model based on cash flow hedge mechanics.

Primary Financial Statements

Regarding the presentation of an investing category in the statement(s) of financial performance, the IASB tentatively decided:

• to relabel the ‘investing’ category as ‘income/expenses from investments’.
• to define ‘income/expenses from investments’ using a principle-based approach as ‘income/expenses from assets that generate a return individually and largely independently of other resources held by the entity’.
• to provide a list of some items that would typically be treated as ‘investing’ and a list of some items that would typically not be treated as ‘investing’ for non-financial entities.
• not to label the subtotal before the ‘income/expenses from investments’ category as ‘operating profit’.

Regarding the definition of finance income/expenses, the IASB tentatively decided to:

• use ‘cash and cash equivalents’ in the definition of ‘finance income/expenses’ as a proxy for cash and temporary investments of excess cash.
• require that ‘finance income/expenses’ consist of the following five line items:
  • ‘interest income from cash and cash equivalents calculated using the effective interest method’;
  • ‘other income from cash, cash equivalents and financing activities’;
  • ‘expenses from financing activities’;
  • ‘other finance income’; and
  • ‘other finance expenses’.
• clarify the current description of ‘financing activities’ in IAS 7 Statement of Cash Flows by indicating that a financing activity involves:
  • the receipt or use of a resource from a provider of finance (or provision of credit).
  • the expectation that the resource will be returned to the provider of finance.
  • the expectation that the provider of finance will be appropriately compensated through the payment of a finance charge. The finance charge is dependent on both the amount of the credit and its duration.

Regarding better ways to communicate other comprehensive income(OCI), the IASB tentatively decided:

• to rename the two categories in the OCI section of the statement(s) of financial performance:

• ‘remeasurements reported outside profit or loss’ (currently ‘OCI items that will not be reclassified subsequently to profit or loss’); and
• ‘income and expenses to be included in profit or loss in the future’ (currently ‘OCI items that will be reclassified subsequently to profit or loss’).
• not to introduce a new subtotal between the two categories in the OCI section of the statement(s) of financial performance called ‘income after remeasurements reported outside profit or loss’
• that the staff should explore whether there is a demand to remove the following presentation options in IAS 1 Presentation of Financial Statements for OCI:
  • presenting items of OCI either net of related tax effects, or before related tax effects (paragraph 91 of IAS 1); and
  • presenting reclassification adjustments in the statement(s) of financial performance or in the notes (paragraph 94 of IAS 1).
• not to develop separate guidance or educational material on the presentation of other comprehensive income for entities, but to consider both profit or loss and OCI when developing proposals for better aggregation/disaggregation and additional minimum line items.
• not to develop educational material for investors in the form of case studies that illustrate why it is important for users of financial statements to consider items of OCI in their analysis of companies.

IASB Foundation’s Interest in Wider Corporate Reporting

The Board decided that the Foundation’s interest in wider corporate reporting should be limited to the provision of other financial information to meet the needs of existing and potential investors, lenders, and other creditors, as defined in the Conceptual Framework for Financial Reporting.

Management Commentary Practice Statement

The Board decided to add a project to its standard-setting agenda to revise and update IFRS Practice Statement Management Commentary, issued in 2010.

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