IASB Update March 2018

Disclosure Initiative—Principles of Disclosure (Agenda Paper 11)

The Board met on 21 March 2018 to decide the next steps in the Disclosure Initiative—Principles of Disclosure project.

Prioritisation of discussion paper topics (Agenda Paper 11A)

The Board tentatively decided to consider the feedback received on the following Discussion Paper topics within the Primary Financial Statements project and not within the Disclosure Initiative—Principles of Disclosure project:

1. roles of the primary financial statements and the notes;
2. presentation of EBIT and EBITDA;
3. presentation of unusual or infrequently occurring items; and
4. fair presentation of performance measures.

All 14 Board members agreed with this decision.

The Board tentatively decided not to pursue the following Discussion Paper topics any further within the Disclosure Initiative—Principles of Disclosure project:

1. guidance on the use of formatting in the financial statements;
2. guidance on the location of accounting policy disclosures; and
3. location of disclosure objectives and requirements in IFRS Standards. 

In addition, the Board tentatively decided not to clarify the use of ‘present’ and ‘disclose’ in IFRS Standards as a separate activity but instead to consider the feedback on the use of these terms when considering how the Board drafts IFRS Standards (see Agenda Paper 11B below).

All 14 Board members agreed with this decision.

The Board decided that the staff should perform further analysis about whether and how to further pursue the following Discussion Paper topics for discussion at a future Board meeting:

1. location of information (that is, IFRS information outside the financial statements and non-IFRS information inside the financial statements); and
2. which accounting policies to disclose.

All 14 Board members agreed with this decision.

The Board decided that the staff should prepare a summary of the relationships between the Board’s Better Communication projects for discussion at a future Board Meeting.

All 14 Board members agreed with this decision.

The Board decided that the staff should perform further analysis about whether and how to consider the effect of technology and digital reporting within the scope of the Principles of Disclosure project for discussion at a future Board meeting. 

All 14 Board members agreed with this decision.

The Board tentatively decided it will consider whether to perform any further activities relating to materiality when the Board has:

1. more information about the practical effects of recent Board publications including Practice Statement 2: Making Materiality Judgements and Better Communication in Financial Reporting: Making disclosures more meaningful; and
2. made progress on the separate Disclosure Initiative—Definition of Material (Amendments to IAS 1 and IAS 8) project.

All 14 Board members agreed with this decision.

The disclosure problem (Agenda Paper 11B)

The Board decided to perform a targeted Standards-level review of disclosure requirements. Specifically, the Board tentatively decided to:

1. develop guidance for the Board itself to use when developing and drafting disclosure requirements. The Board tentatively decided to develop this guidance as a set of Board decisions and obtain formal stakeholder feedback when the guidance is subsequently used as part of standard-setting;
2. identify one or two IFRS Standards on which to test the guidance developed for the Board;
3. test the guidance for the Board by applying it to the Standard(s) identified in (b). The objective of applying the guidance to the Standard(s) will be to improve their disclosure requirements to help stakeholders improve the usefulness of disclosures provided to the primary users of financial statements. The objective will not be to change the volume of disclosure requirements, although this may be a consequence; and
4. prepare an Exposure Draft of amendments to the disclosure requirements of the Standard(s) identified in (b). The Board tentatively decided that the Basis for Conclusions for the Exposure Draft would include a description of the Board’s approach to developing amendments to the disclosure requirements to give stakeholders the opportunity to comment on the guidance for the Board.

All 14 Board members agreed with this decision.

Next steps

At a future meeting, the Board will discuss:

1. the relationships between the Better Communication projects;
2. whether and how to further pursue considerations in the Discussion Paper about the location of information and which accounting policies to disclose;
3. whether and how to consider the effect of technology and digital reporting within the scope of the project;
4. the content of guidance for the Board to use when developing and drafting disclosure requirements; and
5. which Standard(s) should be the subject of the Board’s targeted Standards-level review. 

Dynamic Risk Management (Agenda Paper 4)

The International Accounting Standards Board (Board) met on 22 March 2018 to discuss the target profile—one of the core areas of the dynamic risk management accounting model.

The Board was also given a summary of discussions to date in Agenda Paper 4A, which was provided for information only. No decisions were made.

Target profile (Agenda Paper 4B)

The Board discussed the role of the target profile within the dynamic risk management model. In particular, the Board discussed what is a target profile, how it is determined, consistency of the asset profile and target profile, and the time horizon of the target profile. The paper also briefly discussed laddering strategies along with other matters that will be relevant regarding the target profile in future Board discussions.

The Board tentatively decided the staff should continue developing the model based on the following:

1. the target profile represents management’s objective for a given asset profile;
2. the entity’s risk management strategy should define the target profile considering:
   1. the contractual terms of financial liabilities; and
   2. the entity’s approach to core deposits where present.
3. the notionals of the asset profile and the target profile are required to be the same but not the tenors; and
4. the time horizon of the target profile is the period of time over which the entity is managing interest rate risk.

All Board members agreed with this decision.

Next steps

In April, the staff plan to discuss the qualifying criteria for items within the target profile and the dynamic nature of the model.

Rate-regulated Activities (Agenda Paper 9)

The Board met on 22 March 2018 to discuss the possible accounting model being developed for activities subject to ‘defined rate regulation’.  In particular, the Board discussed:

1. which features of defined rate regulation are both necessary and sufficient for the origination of regulatory assets and regulatory liabilities and so should define the scope of the model for recognition and measurement (Agenda Paper 9B); and
2. the criteria for recognising regulatory assets and regulatory liabilities in the financial statements (Agenda Paper 9C).

The Board also received background information about the accounting model with a summary of tentative decisions to date (Agenda Paper 9A, which was provided for information only).

The Board tentatively decided that:

1. the accounting model should apply to defined rate regulation established through a formal regulatory framework that:
   • is binding on both the entity and the regulator; and
   • establishes a basis for setting the rate for specified goods or services that includes a rate-adjustment mechanism. That mechanism creates, and subsequently reverses, rights and obligations caused by the regulated rate in one period including amounts related to specified activities the entity carries out in a different period.

Thirteen Board members agreed and one disagreed with this decision.

2. the accounting model:
   • should require the recognition of regulatory assets or regulatory liabilities if it is more likely than not that they exist—the model sets a symmetrical recognition threshold in cases of existence uncertainty; and
   • should not set thresholds that would prevent recognition of a regulatory asset or regulatory liability for which there is (i) low probability of an inflow or outflow of economic benefits or (ii) high measurement uncertainty.

Thirteen Board members agreed and one disagreed with this decision.

Next Steps

The Board will discuss proposals for the measurement requirements of the model before deciding whether to publish an Exposure Draft or a Discussion Paper as the next consultation document for the project. 

At a later meeting, the Board will discuss whether, for disclosure purposes only, it wishes to extend the scope of the resulting IFRS Standard to require disclosures about forms of rate regulation other than defined rate regulation.

Proposed amendments to IAS 8 Accounting Policies and Accounting Estimates (Agenda Paper 26)

The Board met on 22 March 2018 to discuss a summary of comments on the Exposure Draft Accounting Policies and Accounting Estimates (proposed amendments to IAS 8).

The proposals were published in September 2017 and closed for comment in January 2018.

The Board was not asked to make any decisions.

Next steps

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

Improvements to IFRS 8 Operating Segments (Agenda Paper 27)                                                                     

The Board met on 22 March 2018 to discuss the direction of the project, Improvements to IFRS 8 Operating Segments (Amendments to IFRS 8 and IAS 34). The Board published an Exposure Draft in March 2017 in response to the findings from the post-implementation review (PIR) of IFRS 8. 

The Board decided not to proceed with the following proposals:

• those relating to the identification of the Chief Operating Decision Maker (CODM). Thirteen Board members agreed with this decision; one was absent.
• those clarifying how to apply the ‘similar economic characteristics criterion’ for aggregation. Ten Board members agreed with this decision, three disagreed and one was absent.
• those relating to disclosure of additional segment information that may be provided if it helps an entity meet the core principle in paragraphs 1 and 20 of IFRS 8. Ten Board members agreed with the decision, three disagreed and one was absent.

The Board initially supported the following proposals:

• to require disclosure of the title and description of the CODM role. Thirteen Board members present supported the proposal; one was absent.
• to assess whether to narrow the scope of the proposal that an entity link its IFRS 8 reportable segments with other parts of the annual reporting package. Nine Board members supported the proposal; four disagreed and one was absent.
• to clarify the level of detail required to explain the reconciling items in reconciliations of segment disclosures to financial statements. Twelve Board members supported the proposal; one disagreed and one was absent.
• to require that all interim periods of the current and prior financial years be restated and presented in the first interim report after a change in the composition of reportable segments, unless the information is not available and the cost to develop it would be excessive. Thirteen Board members supported the proposal; one was absent.

However, the Board decided that, when taken in aggregate, the proposals would not result in sufficient improvements in information to investors to justify the costs that stakeholders would incur if the Board were to amend IFRS 8. Consequently, the Board decided not to amend IFRS 8. Eight Board members agreed with the decision, five disagreed and one was absent.

Next steps

The staff plan to publish a summary of the feedback and the Board’s response in the second half of 2018.

Post-implementation Review of IFRS 13 Fair Value Measurement (Agenda Paper 7)

The Board met on 22 March 2018 to:

1. assess, based on the feedback received, whether IFRS 13 Fair Value Measurement is working as intended; and
2. decide whether, as a result of the Post-implementation Review (PIR), it wants to consider performing any follow up work.

The Board concluded that IFRS 13 is working as intended.

The Board decided to:

1. feed the PIR findings regarding the usefulness of disclosures into the work on Better Communications in Financial Reporting, in particular, the projects on Principles of Disclosure and Primary Financial Statements. Eleven of 14 Board members agreed, one disagreed and two were absent;
2. continue liaising with the valuation profession, monitor new developments in practice and promote knowledge development and sharing. Twelve of 14 Board members agreed and two were absent; and
3. conduct no other follow-up activities as a result of findings from the PIR, for example not to perform any work in the area of prioritising the unit of account or Level 1 inputs because the costs of such work would exceed its benefits. Twelve of 14 Board members agreed and two were absent.

Next steps

The staff will prepare a Report and Feedback Statement on the PIR.

Management Commentary (Agenda Paper 15)

The Board met on 22 March 2018 to review plans for updating IFRS Practice Statement 1 Management Commentary. The Board noted that in undertaking the project the Board will need to think about how broader financial reporting could complement and support IFRS financial statements. The Board was not asked to make any decisions.