The International Accounting Standards Board (IASB) has published the September 2018 edition of IASB Update, which summarises its September 2018 Meeting.
Dynamic risk management (DRM)
The IASB discussed the information that should be provided in situations of imperfect alignment, agreeing that, for items designated in the DRM model, measuring imperfect alignment provides information about the extent to which an entity has achieved its risk management strategy and therefore quantifies the resulting potential impact on the entity’s future economic resources. It also tentatively decided that:
- entities should measure imperfect alignment on an on-going basis;
- when an entity over-hedges, it should present the difference between changes in fair value of the designated and benchmark derivatives in the statement of profit or loss as imperfect alignment;
- the ‘lower of’ test should be retained within the DRM accounting model;
- the target profile within the DRM accounting should be defined as a single outcome; and
- the DRM model should require a minimum level of alignment in the form of qualitative thresholds supported by quantitative analysis.
Costs considered in assessing whether a contract is onerous
The Board tentatively decided that the comment period for the proposed amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets should be at least 120 days.
Primary Financial Statements
Regarding the proposal for a ‘profit before finance income / expenses and income tax’ subtotal, the Board tentatively decided in principle that:
- entities are not required to present this subtotal if their main business activity is to provide financing to customers and if they separately present financing income.
- entities that do not present this subtotal must include in the ‘business profit from consolidated entities’ subtotal:
- interest income on cash and cash equivalents calculated using the effective interest method;
- other income from cash and cash equivalents and financing activities; and
- expenses from financing activities.
- entities with insurance finance income or expenses should include it in the ‘business profit from consolidated entities’ subtotal. Related investment income and expenses would also be included in that subtotal.
Regarding the proposal for a ‘profit before income/expenses from investments, finance income/expenses and income tax’ subtotal, the Board tentatively decided that:
- entities are not required to present a ‘profit before income/expenses from investments, finance income/expenses and income tax’ subtotal if, in the course of their main business activity, they invest in assets that generate a return individually and largely independently from other resources held by the entity; and
- entities that do not present a ‘profit before income/expenses from investments, finance income/expenses and income tax’ subtotal must include income/expenses from investments made in the course of their main business activity within the ‘business profit from consolidated entities’ subtotal and below that subtotal present all other income/expenses from investments..
Regarding the presentation of subtotals by entities with more than one business activity, the Board tentatively decided they are not required to present:
- a ‘profit before finance income/expenses and income tax’ subtotal, but instead include, within the ‘business profit from consolidated entities’ subtotal, the following line items:
- interest income on cash and cash equivalents calculated using the effective interest method;
- other income from cash and cash equivalents and financing activities; and
- expenses from financing activities.
- a ‘profit before income/expenses from investments, finance income/expenses and income tax’ subtotal, but instead must include income/expenses from investments made in the course of their investing business activity within the ‘business profit from consolidated entities’ subtotal and below that subtotal, present all other income/expenses from investments.
The Board tentatively decided that all entities are required to separately present the share of profit or loss from integral and non-integral associates and joint ventures below the ‘business profit from consolidated entities’ subtotal.
Regarding unusual or infrequent items, the Board tentatively decided to:
- require separate disclosure of information about unusual or infrequent items regardless of whether an entity chooses to disclose a management performance measure;
- require separate disclosure of unusual or infrequent items in the notes to the financial statements and require that those items be attributed to line items in the statement(s) of financial performance; and
- develop principle-based guidance to help entities identify unusual or infrequent items.
Disclosure Initiative
The Board tentatively approved draft guidance to use when developing and drafting disclosure objectives and requirements, asking the staff to move on to testing the guidance on IAS 19 Employee Benefits and IFRS 13 Fair Value Measurements.
For further details, the full version of the September edition of IASB Update is available from the IASB’s web site here.