IASB Update April 2018

Primary Financial Statements (Agenda Paper 21)

The Board met on 24 April 2018 to discuss requirements for management performance measures and management-defined adjusted earnings per share (adjusted EPS).

Clarifying requirements for management performance measures (Agenda Paper 21A)

The Board continued its discussion from the February 2018 Board meeting about proposals for management performance measures.

The Board tentatively decided: 

1. all entities shall identify a measure (or measures) of profit or comprehensive income that, in the view of management, communicates to users the financial performance of the entity. This measure will:
   1. often be a subtotal or total required by paragraph 81A of IAS 1 Presentation of Financial Statements. If so, an entity shall identify this measure.
   2. sometimes be identified by management as a measure that is not a subtotal or total required by paragraph 81A of IAS 1, but would complement those subtotals or totals. Such a measure is a management performance measure.
2. the following requirements apply to management performance measures described in paragraph a(ii):
   1. a reconciliation would be provided in the notes between that measure and the most directly comparable subtotal or total required by paragraph 81A of IAS 1;
   2. the measure would be labelled in a clear and understandable way so as not to mislead users; and
   3. the following disclosures are required, in addition to the disclosures the Board tentatively decided to require at the January 2018 Board meeting:
      1. an explanation of how the measure provides useful information about an entity’s financial performance; and
      2. a statement that the measure provides management’s view of the entity’s financial performance and is not necessarily comparable with measures provided by other entities.

For the purposes of these proposals, paragraph 81A of IAS 1 would include the existing subtotals in that paragraph and the proposed new subtotals developed as part of this project, for example, profit before investing, financing and tax.

All 14 Board members agreed with this decision subject to clarifying in drafting that management performance measures provide additional information that complements the subtotals and totals required by paragraph 81A of IAS 1, rather than provides a better view of financial performance.

This tentative decision updates the Board’s tentative decisions made in December 2017 and January 2018. It describes disclosure requirements for management performance measures in the notes only. Consequently, it does not affect the presentation of additional subtotals in the statement(s) of financial performance in accordance with paragraphs 85–85A of IAS 1.

The Board reconfirmed its tentative decision in January 2018 to require the reconciliation described in paragraph b(i) to be disclosed in the notes rather than be provided below the statement(s) of financial performance.

Management-defined adjusted earnings per share (adjusted EPS) (Agenda Paper 21B)

The Board tentatively decided that if an entity identifies a management performance measure, it is required to:

1. disclose in the notes adjusted EPS calculated consistently with that management performance measure. To calculate the numerator of adjusted EPS, an entity shall make the following adjustments, and no other, to the management performance measure:
   1. add or deduct all income or expenses between the most directly comparable subtotal or total required by paragraph 81A of IAS 1 (ie the subtotal or total used for the management performance measure reconciliation in paragraph b(i) for Agenda Paper 21A above) and profit or loss attributable to ordinary equity holders of the parent entity (ie the numerator of EPS); and
   2. if the management performance measure is a pre-tax and/or pre-non-controlling interests measure, make further adjustments for the effects of tax and/or non-controlling interests on the differences between the management performance measure and the most directly comparable subtotal or total required by paragraph 81A of IAS 1.

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

2. disclose the effects of tax and non-controlling interests separately for each of the differences between the numerator of adjusted EPS and the numerator of EPS. Ten of 14 Board members agreed and four disagreed with this decision.

The Board tentatively decided that an entity should be prohibited from presenting adjusted EPS in the statement(s) of financial performance. All 14 Board members agreed with this decision.

The Board tentatively decided that an entity would continue to be permitted to disclose other adjusted EPS. All 14 Board members agreed with this decision.

If an entity identifies more than one management performance measure, the above requirements would apply to all management performance measures. However, the Board asked the staff to bring proposals to a future meeting that consider ways to provide relief from disclosures about multiple adjusted EPS.

Next steps

The Board will continue discussing topics within the project’s scope at future Board meetings.

Business Combinations under Common Control (Agenda Paper 23)

The Board met on 24 April 2018 to discuss the Business Combinations under Common Control research project.

The Board discussed two alternative approaches the staff are currently developing for a subset of transactions within the scope of the project.

The Board was not asked to make any decisions.

Next Steps

The Board expects to continue its discussion on the methods of accounting for transactions within the scope of the project at future meetings.

Goodwill and Impairment (Agenda Paper 18)

The Board met on 25 April 2018 to continue its discussions on the Goodwill and Impairment project.

The Board decided not to consider allowing any identifiable intangible assets acquired in a business combination to be included within goodwill.

Ten of the 14 Board members agreed and four disagreed with this decision.

The Board discussed whether the next stage in the research project should be a Discussion Paper or an Exposure Draft. The Board did not make a decision on this question. To enable the Board to decide the form of consultation document, the Board directed the staff:

1. to assess the advantages and disadvantages of developing a document, such as a Request for Information, to seek targeted feedback about the benefits and costs of using unrecognised headroom of a cash-generating unit (or group of units) as an additional input in the impairment testing of goodwill.
2. to identify the extent of work that would be required to enable the Board to develop and issue an Exposure Draft on some or all of the following matters:
   1. removing from IAS 36 Impairment of Assets:
      1. the restriction that excludes from the calculation of value in use cash flows that are expected to result from a future restructuring or from a future enhancement; and
      2. the requirement to use pre-tax inputs in calculating value in use.
   2. adding requirements to disclose:
      1. each year, information about the headroom in a cash-generating unit (or groups of units) to which goodwill is allocated for impairment testing.
      2. each year, a breakdown of goodwill by past business combination, explaining why the carrying amount of goodwill is recoverable.
      3. in the year in which a business combination occurs, the reasons for paying a premium that exceeds the value of the net identifiable assets acquired in a business combination, key assumptions or targets supporting the purchase consideration; and subsequently each year, a comparison of actual performance with those assumptions or targets.

All 14 Board members agreed with this decision.

Next steps

At a future meeting, the staff will present an analysis of the next steps.

Dynamic Risk Management (Agenda Paper 4)

The International Accounting Standards Board (Board) met on 25 April 2018 to discuss the Dynamic Risk Management research project. The Board was given a summary of discussions to date in Agenda Paper 4A, which was provided for information only. No decisions were made.

Target profile: Designation and Qualifying Criteria (Agenda Paper 4B)

The Board discussed the application of qualifying criteria to the target profile, as well as designation of items within the target profile and the documentation requirements. The Board tentatively decided the staff should continue developing the model to:

1. set qualifying criteria for items used to determine the target profile;
2. allow for designation of portfolios;
3. allow for designation of a percentage of a portfolio, when it meets defined criteria;
4. preclude voluntary de-designation;
5. require de-designation when specified events take place; and
6. require formal documentation of the items used to determine the target profile.

All 14 Board members agreed with this decision.

Regarding core demand deposits, the staff proposed that financial liabilities can be treated as demand deposits within the model when the following qualifying criteria are met:

• they have a demand feature; and
• they will not reprice with a change in market interest rates.

In addition, Board members directed the staff to add a criterion stating that the notional amount of core demand deposits and their tenor must be based on reasonable and supportable information.

Board members also directed staff to clarify that, for a financial liability to be a demand deposit, the interest rate paid can change only at the discretion of the issuer and the issuer is not contractually obligated to change the interest rate paid when market interest rates change.

Thirteen of 14 Board members agreed and one disagreed with this decision.

The Dynamic Nature of Portfolios (Agenda Paper 4C)

Through a series of hypothetical scenarios, the Board discussed how the dynamic nature of portfolios will affect both the asset and target profiles in the dynamic risk management accounting model. The Board also discussed how the dynamic nature of portfolios will affect the interaction between the asset and target profiles.

No decisions were made.

Next steps

At future meetings, the staff plan to discuss derivative instruments used for dynamic risk management purposes and begin the discussions on performance assessment.

Disclosure Initiative—Definition of Material (Agenda Paper 11)

The International Accounting Standards Board met on 25 April 2018 to discuss the comments received on the Exposure Draft Definition of Material—Proposed amendments to IAS 1 and IAS 8.

No decisions were made.

Next steps

At a future Board meeting, the Board will redeliberate the proposals in the Exposure Draft. 

Implementation Issues in IFRS Standards

The Board met on 25 April 2018 to discuss implementation and maintenance projects.

IFRIC^® Update and Interpretations Committee Process (Agenda Papers 12A–12C)

The Board received an update on the January and March 2018 meetings of the IFRS Interpretations Committee (Committee). Details of this meeting were published in IFRIC^® Update (Agenda Papers 12A and 12B). 

The Board also received an update on recent Committee discussions about the way it responds to questions it receives, including those involving highly specific fact patterns (Agenda Paper 12C).

The Board was not asked to make any decisions.