IASB Update November 2017

Dynamic Risk Management (Agenda Paper 4)

The Board met on 14 November 2017 to discuss two proposed approaches for an accounting model that better reflects dynamic risk management in financial reporting.

Specifically, the Board discussed the objectives of the model and whether it should follow:

• cash flow hedge mechanics; or
• fair value hedge mechanics.

The Board tentatively agreed that the staff should focus on further developing a model based on cash flow hedge mechanics.

Fourteen Board members agreed, and none disagreed with this decision.

Next steps

The staff will present a project plan at the next Board meeting.

Improvements to IFRS 8 Operating Segments (Agenda Paper 27)

The Board met on 14 November 2017 to discuss a summary of comments on the Exposure Draft Improvements to IFRS 8 Operating Segments (proposed amendments to IFRS 8 and IAS 34).

The proposals arise from the post-implementation review of IFRS 8. The proposals were published in March 2017 and closed for comment in July 2017.

The Board was not asked to make any decisions.

Next steps

The Board will discuss its approach to the project at a future meeting.

Primary Financial Statements (Agenda Paper 21)

The Board met on 14 November 2017 to discuss the Primary Financial Statements project, resuming its discussions from the September 2017 Board meeting about improvements to the statement(s) of financial performance.

Presentation of an investing category in the statement(s) of financial performance (Agenda Paper 21A)

The Board tentatively decided:

1. to relabel the ‘investing’ category as ‘income/expenses from investments’. Twelve Board members agreed and one member disagreed with this decision. One member was absent.
2. 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’. Eleven Board members agreed and three members disagreed with this decision.
3. 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. Thirteen Board members agreed and one member disagreed with this decision.
4. not to label the subtotal before the ‘income/expenses from investments’ category as ‘operating profit’. Ten Board members agreed and four disagreed with this decision.

The Board did not reach a decision on the presentation of the share of the profit or loss of associates and joint ventures accounted for using the equity method. The Board therefore directed the staff to include in the project’s first due-process document a discussion of the different possible approaches. That discussion would, in particular, consider the following two approaches:

1. including the share of the profit or loss of all associates and joint ventures accounted for using the equity method within a single category.
2. including the share of profit or loss of integral associates or joint ventures above the ‘income/expenses from investments’ category; and the share of profit or loss of non-integral associates or joint ventures within the ‘income/expenses from investments’ category.

Definition of finance income/expenses (Agenda Paper 21B)

The Board tentatively decided to:

1. use ‘cash and cash equivalents’ in the definition of ‘finance income/expenses’ as a proxy for cash and temporary investments of excess cash. Ten Board members agreed and four members disagreed with this decision.
2. require that ‘finance income/expenses’ consist of the following five line items:
   1. ‘interest income from cash and cash equivalents calculated using the effective interest method’;
   2. ‘other income from cash, cash equivalents and financing activities’;
   3. ‘expenses from financing activities’;
   4. ‘other finance income’; and
   5. ‘other finance expenses’.

   Twelve Board members agreed and two members disagreed with this decision. Some Board members made some drafting suggestions for the line items. The Board also noted that a separate line item for impairment of cash and cash equivalents may be needed, if material.

3. clarify the current description of ‘financing activities’ in IAS 7 Statement of Cash Flows by indicating that a financing activity involves:
   1. the receipt or use of a resource from a provider of finance (or provision of credit).
   2. the expectation that the resource will be returned to the provider of finance.
   3. 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.

   All fourteen Board members agreed. Some Board members made drafting suggestions.

Better ways to communicate other comprehensive income (OCI) (Agenda Paper 21C)

The Board tentatively decided to rename the two categories in the OCI section of the statement(s) of financial performance as follows:

1. ‘remeasurements reported outside profit or loss’ (currently ‘OCI items that will not be reclassified subsequently to profit or loss’); and
2. ‘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’).

Eight of 14 Board members agreed and six disagreed with this decision.

The Board tentatively decided 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’. Twelve of 14 Board members agreed with this decision and two disagreed.

The Board tentatively decided:

1. 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:
   1. presenting items of OCI either net of related tax effects, or before related tax effects (paragraph 91 of IAS 1); and
   2. presenting reclassification adjustments in the statement(s) of financial performance or in the notes (paragraph 94 of IAS 1).

   All Board members agreed with this decision.

2. 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. Thirteen of 14 Board members agreed with this decision and one abstained.
3. 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. All Board members agreed with this decision.

Next steps

The Board will continue its discussions at a future meeting.

Wider Corporate Reporting (Agenda Paper 28)

The Board met on 14 November 2017 to discuss:

1. an update on developments in wider corporate reporting; and
2. a proposal to add a project to its agenda to update IFRS Practice Statement Management Commentary, issued in 2010.

Update on developments (Agenda Paper 28B)

The Board noted an update on developments since March 2017 in wider corporate reporting.

The Board was not asked to make any decisions.

Scope of the Foundation’s interest in wider corporate reporting (Agenda Paper 28B)

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.

Twelve Board members agreed and two disagreed with this decision.

Proposal to add a project to revise and update the 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.

Twelve Board members agreed and two disagreed with this decision.

Next steps

At a future meeting, the Board will discuss the scope of the project on management commentary and how it will be taken forward.