The IASB has published amendments to IFRS 15 – Revenue from Contracts with Customers, which will have the same effective date as the standard itself, i.e. 1 January 2015. They emerge from the discussions of the Transition Research Group (TRG), which was set up jointly by the IASB and FASB to work on issues relating to implementation of the standard.
Just over a month after the IASB published IFRS 16 – Leases, the FASB has published its own, broadly equivalent, standard. There is still one major difference between the two frameworks, namely the timing of recognition of the total lease expense (the FASB has opted for straight-line recognition for operating leases). However, the rules are the same as regards the principle of recognition in the balance sheet, the definition of a lease, determining the lease term, and the accounting treatment of variable lease payments.
The long-awaited (but not necessarily hoped-for) publication of IFRS 16 on 13 January was accompanied by a number of educational tools designed to facilitate understanding of the standard and of the issues at stake: Project Summary and Feedback Statement, Effects Analysis, Webcast, Video: Introducing the new Leases Standard, Investor Perspectives A New Lease of Life.
As this issue goes to press, the IASB has just published the final version of the IFRS 16 – Leases standard. Originally scheduled for publication in time for Christmas, it turned out to be more of a New Year’s gift. Now it is finally here, issuers need to start preparing to recognise operating leases in the balance sheet from 2019 onwards.
The end of the year is approaching rapidly!
This means it is time for us to provide our yearly overview of the small number of standards and amendments that are mandatory for the 2015 financial period, as well as those for which early application is permitted.
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.