Comments from ACCA to the International Accounting Standards Board, 3 September 2012.
ACCA (the Association of Chartered Certified Accountants) welcomes the opportunity to consider and comment on the above Exposure Draft (ED). Our responses below reflect the consultation undertaken with our Corporate Reporting Global Forum.
We considered both the content and possible implications of the specific amendments to IFRS proposed in the ED. We also considered the reasoning for the improvements, as explained in the Basis for Conclusions supporting each one.
As noted below in our specific comments, we are mainly in agreement with the proposed improvements. We also found that the Basis for Conclusions sections assisted in providing a context for the proposed changes, and included clear reasoning.
ACCA also agrees with the proposed effective dates of the improvements, and agrees that earlier application should be permitted.
Where a proposed improvement does not represent a major change, we suggest that the IASB considers whether it might be saved until the time of a periodic overall review of the related Standard. This approach may well be more resource-efficient, and enable currently piecemeal changes to be understood in the broader context of the IASB’s overall plan for the Standards concerned.
We would not however, recommend that any changes be deferred in this manner if they would either provide an immediate practical benefit to the preparers and users of financial statements, or if no revision of the related Standard is planned within the next few years.
IFRS 2 – Share-based Payment
ACCA agrees with the IASB’s clarification of the definition of vesting conditions, which distinguishes conditions relating to a service period from those relating to a performance objective.
IFRS 3 – Business Combinations
We agree that when contingent consideration is a financial instrument, a decision will be made to classify it as either a financial liability or equity in accordance with the definitions in IAS 32, and if the former, the consideration will be subsequently measured at fair value.
We have considered this improvement at the same time as the Draft IFRIC Interpretation DI/2012/2 (Put Options on Non-controlling Interests), as both concern IFRS 3.
IFRS 8 – Operating Segments
We agree that when operating segments have been aggregated, disclosure should be required of the judgements made in the aggregation process.
We also agree with the principle that paragraph 28(c) should be amended, so that the reconciliation is disclosed if it is also regularly provided to the Chief Operating Decision Maker (CODM). This amendment for assets would make paragraph 28(c) consistent with para. 28(d) for liabilities.
ACCA continues to have a concern about whether the level of CODM is the most suitable for the purposes of determining the disclosure in the financial statements. Potentially, this level may be very high within the reporting entity, thereby providing information which could be more helpful to external analysts than other users of the financial statements. The Post-implementation Review of IFRS 8 which is currently underway does not specifically raise this matter, but we hope that views will be expressed by respondents as part of the opportunity to provide additional comments on IFRS 8 during the Review.
IFRS 13 – Fair Value Measurement
ACCA concurs with the view that the general principles for the application of materiality in IAS 8 should apply to the question of whether to discount certain short-term receivable and payables.
IAS 1 – Presentation of Financial Statements
We accept that there can be circumstances in which a current loan liability can be classified as non-current. However, we also have a concern that the consequently beneficial effect on an entity’s reported working capital will give an incentive to manipulate the proposed criteria. One way in which the criteria could be rendered stricter is by requiring that the entity should have taken definite steps to refinance the liability, as opposed to merely expecting to do so.
IAS 7 – Statement of Cash Flows
We agree that it is considered logical for the treatment of interest which is capitalised to follow the treatment of the related asset. However, the proposed change may make more difficult the process of tracing to the cash flow statement the interest payable figure in the income statement. Consequently, we suggest that at the same time, the IASB draws attention to the requirement to disclose in the cash flow statement the total amount of interest paid (para. 32 of IAS 7).
IAS 12 – Income Taxes
ACCA concurs with the proposed clarifications regarding the process of assessing deferred tax assets for recognition.
IAS 16 – Property, Plant and Equipment and IAS 38 – Intangible Assets
We agree with the proposed requirements for the adjustment of accumulated depreciation or amortisation on the revaluation of a tangible/intangible fixed asset.
IAS 24 – Related Party Disclosures
ACCA shares the IASB’s view that it is appropriate to bring within the definition of a related party an entity which provides key management personnel services to the reporting entity. We also agree that the appropriate related party expense disclosure is the amount incurred from the management entity, rather than a disclosure connected to the remuneration from the management entity of the individual who provides services, on its behalf, to the reporting entity.
Aside from related parties, there are others which may be of similar importance to the operation of the reporting entity. For example, certain counterparties may have a significant impact on an entity’s ability to continue to trade, and this raises the question of disclosure in the financial statements of the extent of this influence. This matter might be most appropriately considered as part of a wider review of disclosures relating to going concern.
IAS 36 – Impairment of Assets
We agree with the proposals to harmonise the disclosures for fair value less costs of disposal with those for value in use, when there has been a material impairment loss or reversal in the accounting period.