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 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.
Under the IASB work plan, 2014 should see the conclusion of two major projects which were launched several years ago: revenue recognition and the impairment of financial assets. However, no publication timescale has been announced for the other two major topics, accounting for leases and insurance contracts. The work plan merely mentions ‘redeliberations’ on these subjects in the first quarter of 2014. The duration of the redeliberations on revenue recognition does, however, suggest that we should treat this timetable with great caution.
The comment period on the Leases exposure draft ended on 13 September 2013. The comments received by the IASB and the FASB are far from unanimous, and many criticisms have been expressed on both sides of the Atlantic, some even challenging the model upheld by the Boards. Even some organisations representing analysts or users of financial statements have suggested that the standard setters’ proposals do not meet their needs.
When in August 2010, the IASB and the FASB published a joint exposure draft on leases, they could have had no idea that they would have to re-expose their proposals three years later. This, however, is what they were forced to do on 16 May 2013, so generally hostile were responses to the initial draft, so complicated the redeliberations and so changeable the positions.
At a time when the American organisations are appointing new leaders to both the FASB and the SEC, the IASB is continuing its work, and expects to see an exceptional number of publications in 2013.
Key documents such as the second exposure draft on leases, or the exposure draft on insurance contracts, are due for publication before the end of June.
The final standards on revenue recognition and hedge accounting should follow soon after.
The first quarter of 2013 is coming to a quiet close – and there is even a gleam of hope in sight! At the end of its March meeting, the IASB finally decided to remove the proposed interpretation on puts on non-controlling interests from its work plan, and to review the controversial elements of IAS 32 with a view to a potential amendment.
Over the course of the year, the IASB has redoubled its efforts on the financial instruments, revenue recognition, leases and insurance contracts projects – but has not yet published final standards for any of them. December 2012 saw nothing more significant than the publication of the proposed limited amendments to IFRS 10 and IAS 28, and to IFRS 11.
Once again, year-end reporting has come around! Unfortunately, you might be tempted to say. As in 2011, it’s not the new accounting texts which will make this a tricky exercise; it’s the background of crisis. Yet again, much is expected of issuers in terms of the quality and clarity of their disclosures, in particular regarding the impairment of financial and non-financial assets, the discount rate of future pension liabilities, and provisions for risks and expenses. This is what emerges from ESMA’s recommendations.
The SEC’s report on the work plan for the endorsement of IFRSs, published last July, made a great impression, since it was entirely free of any recommendations for adoption of IFRSs by the United States. After the shock come the reactions, and the cautious attitude of the US is causing some gritting of teeth.