News from the 2018 IFRS Conference

A change of focus from standard setting to help with implementation
After issuing the big new standards on financial instruments, revenue and leasing in quick succession, the IASB's attention has turned to education and implementation guidance to assist with the consistent interpretation and application of the standards.
As well as publishing webcasts and notes to assist with applying the new standards, the IASB at its recent conference in Frankfurt also drew attention to the work of the Interpretations Committee, not just in terms of the issue of formal Interpretations, but also the reasons that it publishes for its other agenda decisions, including decisions not to issue a formal interpretation.  Anyone can refer an issue to the Interpretations Committee and a referral can result in 3 types of output:

• An agenda decision, giving reasons why the Committee has decided not to issue an Interpretation, drawing on the provisions of IAS and IFRS standards that have already been issued;
• A decision to refer a matter to the board as the issue requires amendment of existing standards 
• An Interpretation.

Because only a few interpretations actually get issued, the agenda decisions form an important body of guidance.  While they have no status as standards, they reflect the considered views of senior members of the profession as to how the standards as currently drafted should be applied.
But where do we find agenda decisions? They are published in the IFRIC Update newsletter as they occur and the IASB's subscription service and books annotate the standards where an agenda decision has been made that supplements a particular paragraph.  The IASPlus website is one free source that groups agenda decisions with the standards they support but does not give the text of the standards and interpretations themselves. 
 

Voluntary changes in accounting policies proposed amendment to IAS 8
The renewed focus on interpretive guidance and the work of the Interpretations Committee has given rise to proposals to amend IAS 8 (AASB 108) "Accounting Policies, Changes in Accounting Estimates and Errors" in respect of voluntary changes in accounting policy undertaken as a result of an Agenda Decision.  The IASB proposes to allow such changes to be done prospectively rather than retrospectively where the costs of retrospective application would outweigh the benefits.
 

Issues in implementing the new standards - Revenue
Because IAS 11 "Construction Contracts" has gone, together with its specific requirements applying the percentage of completion method to construction contracts, contracts that used to be accounted for under that standard now fall under IFRS 15, "Revenue from Contracts with Customers" and are posing implementation challenges what exactly are the performance obligations within the contract and should revenue be recognised at a point in time or over time? This is an issue that the Interpretations Committee addressed in considerable detail in March 2018 in the context of real estate developments to provide direction as to how the standard should be applied, focusing on the timing of the right to receive payment.  Such detailed treatments by the IFRIC are designed to assist with consistent application of the new standard.
A further issue that has arisen with the demise of IAS 11 is how to deal with contracts that have become onerous as the IAS 11 requirements relating to expected losses have now gone.  The relevant standard is now IAS 37 "Provisions, Contingent Liabilities and Contingent Assets" and the Board has decided to revise it to improve it in this context.  In July 2018 the board agreed to undertake a project to clarify the meaning of the term "unavoidable costs" in the IAS 37 definition of an onerous contract, as a result of a recommendation from the IFRIC.

Judgements and estimates
Judgements and estimates were the subject of a panel discussion involving a standard setter, a preparer, analyst, an auditor and a regulator.  Judgements and estimates remain within the top 3 audit weaknesses noted by regulators world wide, with auditors not challenging management sufficiently.  The point was made that the auditors remain responsible for the work of an external expert engaged by them and must be capable of evaluating that work.  It is not enough to rely on the expert's work without arriving at a critical understanding of it.  The auditors therefore need substantial up to date industry knowledge.
The analyst on the Panel also issued a plea for detailed disclosure of inputs and assumptions to enable users to understand the basis on which valuations have been made, enabling analysts to do their own sensitivity analysis.
 

The revised Conceptual Framework
The revised Conceptual Framework has been the subject of much discussion in Australia, because of its implications for the reporting entity concept and special purpose financial reports.  Other less well known aspects of the revision include
New material on measurement and selecting a measurement basis
The use of the profit and loss account and OCI (other comprehensive income) in principle OCI items are recycled as the profit and loss is the primary statement
 

Other developments
Other projects being actively pursued by the IASB at present include:

• The revised Conceptual Framework, applicable from 2020
• Support for IFRS 17 "Insuracne Contracts" which comes into force in 2021
• Work on the definition of a business (as opposed to an asset) in IFRS 3 "Business Combinations" and accounting for business combinations under common control
• Guidance on financial instruments with the characteristics of equity
• Development of templates for the primary financial statements, a project referred to as Better Communication in Financial Reporting, resulting from the 2017 consultation on Principles of Disclosure
• A definition of material, stemming from the Disclosure Initiative project and the problem of financial reports containing too little relevant information and too much irrelevant detail