As autumn comes around again, it is time for ESMA’s annual publication on its priorities for 2015 financial statements. This year it is focusing on two key topics: the impact of financial market conditions (interest rates, commodities prices, country-specific risks) on issuers’ financial situation, and the statement of cash flows, which is key to understanding and assessing issuers’ performance.
By the end of the month, the IASB will have received the comment letters on its proposals for clarifying IFRS 15. Although they arise out of the work of the Joint Transition Resource Group (TRG), the amendments put forward by the IASB differ from those proposed by the FASB in its own consultation documents. So the desire of the two boards to develop twin standards has not managed to overcome the difference of philosophy between IFRS and US GAAP. During this ‘pre-interpretation’ phase, the FASB has made clear its appetite for a ‘rule-based’ approach. Leopards don’t change their spots.
Beyond (the) dates…
The IASB is making progress with its proposed amendments to IFRS 15, following on from the work of the Transition Resource Group.
As scheduled, the IASB has published its exposure draft, proposing a one-year deferral of the mandatory effective date of IFRS 15. This exposure draft is to be followed by a second, scheduled for July, proposing amendments to the standard (in the form of clarifications and additional examples) ensuing from the work of the TRG. Although further TRG meetings are scheduled, the IASB is not planning to make any further amendments.
As expected, following the FASB decision to defer the mandatory effective date of Topic 606, the IASB has now followed in its wake. An exposure draft will shortly be published proposing to defer the effective date of IFRS 15 to 1 January 2018. These decisions are a consequence of the work conducted in the TRG on the implementation difficulties of these twin standards, which will result in the upcoming publication of proposed amendments.
As rumoured over the past few weeks, the FASB is to publish a draft amendment proposing to defer the mandatory effective date of Topic 606, the US equivalent of IFRS 15. This decision will put pressure on the IASB to decide whether it will also defer the effective date. Meanwhile, much discussion continues over potential amendments to the two standards.
As we foresaw, the FASB and the IASB have decided to introduce amendments to their twin standards ASC 606 and IFRS 15 on revenue recognition. Although the amendments (and their due process) are likely to differ between the two Boards, the FASB taking a more prescriptive approach, they should not affect the principles of the standard, or the convergence achieved between the two accounting frameworks on the recognition of revenue.
As 2015 gets under way, discussions on the application of IFRS 15 are in full swing! Many technical subjects have now been discussed by the Joint Transition Resource Group, and already the idea of amending the standard as published has made some headway, at least on the FASB side.
While many businesses will spend 2015 working on the practical impact of the introduction of IFRS 15 and IFRS 9, the IASB has announced that other important publications will appear this year: the new draft conceptual framework should be available during the course of the first quarter, while the new standard on leases is expected at the end of the year.
The end of the year is fast approaching!
As entities begin to analyse the future impact of IFRS 15, the IASB and the FASB have published the report of the first meeting of the Transition Resource Group (TRG), charged with identifying any application problems that deserve the attention of the Boards. This is an opportunity for Beyond the GAAP to return to these discussions, and to the items on the agenda of the second meeting of the TRG.
After a short summer break, the IASB and the IFRS Interpretations Committee have returned to their work programme. September saw the publication of the Discussion Paper on rate-regulated activities and the continuation of discussions on the major insurance contracts and conceptual framework projects.
The IASB has taken advantage of the summer break to finalise a number of publications. These include the complete version of IFRS 9 on financial instruments, published in July.
At the beginning of the second half of 2014, it appears that some preparers have initiated an action plan to analyze their contracts with customers in the light of IFRS 15. Starting early this project will enable to identify practical implementation difficulties that deserve to be referred to the Transition Resource Group, which held its first meeting on 18 July.
At last! Between the publication in December 2008 of the Discussion Paper on Revenue Recognition, and the arrival of IFRS 15 at the end of May 2014, nearly five and a half years have passed. During this period, two exposure drafts were published (June 2010 and November 2011), and it took 30 months’ work to move from the second exposure draft to the final joint standard with the US GAAP.
In publishing the definitive version of the hedging provisions of IFRS 9, Financial instruments, the IASB had already taken a major step towards revising the accounting treatment of entities’ risk management activities.
In our January 2014 issue, we highlighted the ongoing differences of opinion between the IASB and the FASB as they tried to finalise the standard on financial instruments. After years of work on the joint standard, they seem unable to reach a consensus on either phase 1 (classification and measurement) or phase 2 (impairment).
The IASB published an update of its work plan on 25 February. According to this document, March 2014 should see the publication of the Discussion Paper on macro hedging and the draft amendment to IAS 1 resulting from the Disclosure Initiative. These two publications are eagerly awaited by stakeholders. Let us hope that they are not a disappointment!
November 2013 saw the publication of the final standard on hedge accounting that constitutes
phase 3 of IFRS 9, and which is explained in full detail in this issue of Beyond the GAAP. This standard represents a significant new direction for IFRSs, with a greater focus on entities’ operational risk management policy. From now on, the accounting treatment must be adapted to fit the management policy, rather than the other way around. This is the first step towards a “business model” approach that many have called for, and that is currently being discussed as part of the Conceptual Framework project.