IASB Update September 2017

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

Amendments to IAS 8

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. The Board tentatively decided:

• not to amend IAS 8 to address the timing challenge posed by IFRS Interpretations Committee agenda decisions and explain its rationale for that tentative decision in the Basis for Conclusions on the proposed amendments.; and
• 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.

Amendments to IFRIC 14 and IAS 19

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

Annual Improvements to IFRS Standards 2015-2017 Cycle

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

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

It also tentatively decided:

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

Primary financial statements

Regarding the structure of primary financial statements, 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.
• 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:
  • income related to capital structure;
  • expenses related to capital structure;
  • 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
  • interest expenses on liabilities not part of an entity’s capital structure.

Regarding an analysis of expenses by function and by nature, The Board tentatively decided to:

• 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;
• 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;
• 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;
• provide no requirement for entities that use the ‘nature of expense’ method to provide additional information using the ‘function of expense’ method; and
• require an entity to:
  • present its primary analysis of expenses in the statement(s) of financial performance; and
  • disclose in a single note any additional information required about expenses (i.e. an analysis by nature when an entity uses a 'function of expense' method).

Conceptual Framework

The Board discussed comments on the revised Conceptual Framework for Financial Reporting related to measurement uncertainty and the application of the fundamental qualitative characteristics of useful financial information and tentatively decided that Chapter 2—Qualitative characteristics of useful financial information should:

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

The full version of IASB Update can be downloaded from the IASB’s web site here.