IFRS, IAS, ISA Update

IASB concludes the Annual Improvements to IFRSs 2012-2014 Cycle

The International Accounting Standards Board (IASB) recently issued Annual Improvements to IFRSs 2012 2014 Cycle. The IASB uses the Annual Improvements process to make necessary, but non-urgent, amendments to IFRSs if those amendments will not be included as part of any other project. By presenting the amendments in the form of a single document rather than as a series of piecemeal changes, the IASB aims to ease the burden of change for all concerned.

Annual Improvements to IFRSs 2012–2014 Cycle is a series of amendments to IFRSs in response to issues raised during the 2012-2014 cycle for annual improvements. These amendments result from proposals that were contained in the Exposure Draft Proposed amendments to IFRS, Annual Improvements to IFRSs 2012–2014 Cycle, published in December 2013. The effective date of the amendments is 1 January 2016.

IASB Publishes Proposals For Measuring Quoted Investments In Subsidiaries, Joint Ventures And Associates At Fair Value

The IASB recently published for public comment an Exposure Draft detailing proposals concerning the measurement of investments in subsidiaries, joint ventures and associates at fair value when those investments are quoted in an active market.

The proposed amendments to IFRS 10 Consolidated Financial Statements, IFRS 12 Disclosure of Interests in Other Entities, IAS 27 Separate Financial Statements, IAS 28 Investments in Associates and Joint Ventures and IAS 36 Impairment of Assets aim to address questions received on:

  • the unit of account for investments in subsidiaries, joint ventures and associates and on the fair value measurement when those investments are quoted in an active market (quoted investments); and

  • the measurement of the recoverable amount of cash-generating units (CGUs) on the basis of fair value less costs of disposal when they correspond to entities that are quoted in an active market (quoted CGUs).

The proposed amendments clarify that an entity should measure the fair value of quoted investments and quoted CGUs as the product of the quoted price for the individual financial instruments that make up the investments held by the entity and the quantity of financial instruments. The Exposure Draft also includes proposed amendments to the Illustrative Examples for IFRS 13 Fair Value Measurement to clarify questions received relating to the application of the exception in paragraph 48 of IFRS 13. The example illustrates the fair value measurement of an entity’s net exposure to market risks arising from a group of financial assets and financial liabilities whose market risks are substantially the same and whose fair value measurement is categorised within Level 1 in the fair value hierarchy.

IASB issues Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28)

The IASB recently issued narrow-scope amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (2011).

The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011), in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. The amendments will be effective from annual periods commencing on or after 1 January 2016.

IASB publishes proposed amendments to IAS 12 Income Taxes

The IASB recently published proposed amendments to IAS 12 Income Taxes. IAS 12 addresses the accounting for income taxes, including deferred tax assets. The amendments published recently propose guidance that clarifies how to account for deferred tax assets related to debt instruments measured at fair value. The draft amendments are proposed in response to diversity in practice and are relevant in circumstances in which the entity reports tax losses. The ED Recognition of Deferred Tax Assets for Unrealised Losses (Proposed amendments to IAS 12) is open for comment for a period of 120 days.

IASB publishes narrow-scope amendments to IAS 27 Separate Financial Statements

The IASB recently published Equity Method in Separate Financial Statements (Amendments to IAS 27). The amendments to IAS 27 will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. The amendments will help some jurisdictions move to IFRS for separate financial statements, reducing compliance costs without reducing the information available to investors. The amendments respond to requests that the IASB had received during its inaugural public agenda consultation.

Consultation on the impact of International Financial Reporting Standards (IFRS) in the EU

The European Commission recently launched a public consultation on the impact of IFRS in the EU. All citizens and organisations are welcome to give their views on important aspects, such as the conditions all new IFRS should satisfy to become EU law as well as the costs and benefits which are usually associated with IFRS. In particular, the Commission aims to examine whether the adoption of IFRS improved the efficiency of EU capital markets by increasing the transparency and comparability of financial statements. IFRS are international accounting standards used by companies in more than 100 countries to prepare their financial statements. In the EU, Regulation 1606/2002 has required since 2005 all publically traded companies to prepare their consolidated financial statements according to IFRS. The Commission will report to the EU Council of Ministers and the European Parliament on the ongoing evaluation of Regulation 1606/2002 by the end of this year. The consultation will close on 31 October 2014.

ETHICS BOARD PROPOSES STRENGTHENED AUDITOR INDEPENDENCE STANDARD ADDRESSING LONG ASSOCIATION IN ETHICS CODE

The International Ethics Standards Board for Accountants® (IESBA®) recently released for public comment the Exposure Draft (ED), Proposed Changes to Certain Provisions of the Code Addressing the Long Association of Personnel with an Audit or Assurance Client. The proposals respond to stakeholder concern about the appearance of independence and the need to ensure that the threats created by the long association of audit firm personnel with an audit client are appropriately addressed on all audit engagements.

“The IESBA has not received evidence that the current provisions in the IESBA Code™ addressing long association, including partner rotation, have not been working effectively in practice,” notes interim IESBA Chair Wui San Kwok. “However, developments in key jurisdictions and substantive stakeholder feedback indicate that expectations are shifting on what are considered acceptable safeguards to effectively address long association risks. The IESBA is responsive and is proposing to strengthen certain safeguards in the Code, such as the engagement partner ‘cooling-off’ provisions, to ensure continued public confidence in the independence of the audit process.”

Among the proposed changes are:

  • Strengthened general provisions applicable to all audit engagements regarding the threats created by long association;

  • With respect to partner rotation, an increase in the mandatory “cooling-off” period, from two to five years, for the engagement partner on the audit of a public interest entity;

  • Strengthened restrictions on the type of activities that can be undertaken with respect to the audit client and audit engagement by any former key audit partner during the cooling-off period; and

  • A requirement to obtain the concurrence of those charged with governance regarding the application of certain exceptions to the rotation requirements.

The Ethics Board is also proposing strengthened provisions in Section 291 of the Code dealing with assurance engagements. “The issues that the board considered are complex and interconnected, particularly given that knowledge of and experience with the audit client and its business are important contributors to audit quality,” noted IESBA Technical Director Ken Siong. “The proposals reflect extensive and careful board deliberations into the options, weighing audit quality, cost, and practicality considerations.”

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