Annual improvements to IFRS: 2012-14 cycle

Comments from ACCA the International Accounting Standards Board (IASB)

12 March 2014


General comments

As set out in the specific comments section below, ACCA mainly supports the IASB’s view that the proposed changes will provide useful clarifications for the preparers and users of financial statements.

Our main concern relates to whether the proposed amendments to IAS 19 will be workable in practice without, at least, further clarification. This concern could well be resolved as part of the IASB’s broader project on discount rates and post-employment benefit obligations, which we would encourage the IASB to begin at the earliest opportunity.

We also agree with most of the proposals for the implementation process of the changes in the ED. Aspects which we have questioned below concern principally the length of time before certain changes become a requirement.    


Specific comments


Question 1- Proposed amendment

Do you agree with the IASB’s proposal to amend the Standards as described in the Exposure Draft? If not, why and what alternative do you propose?

Question 2- Transition provisions and effective date

Do you agree with the proposed transition provisions and effective date for the issue as described in the Exposure Draft? If not, why and what alternative do you propose?

Taking each of the five proposals in turn.


IFRS 5 ‘Non-current Assets Held for Sale and Discontinued Operations’

1.    A clarification regarding a change in classification of the assets between ‘held for sale’ and ‘held for distribution’. In addition, changes are proposed in order to apply, to assets held for distribution, similar criteria as currently apply to assets held for sale.

2.    The proposed changes will apply prospectively for periods commencing on or after 1 January 2016 (earlier adoption is permitted).

Qu.1 – ACCA agrees with the proposal, which we view as a clarification of the existing requirements of IFRS 5. There are already indications that the categories of ‘held for sale’ and held for ‘distribution’ are considered very much alike (for example, the heading before para. 6 of IFRS 5). Consequently, it would be reasonable to assume that they are effectively interchangeable for accounting purposes.

The IASB may, however, wish to leave scope for the above assumption to be rebuttable, as it is feasible that changes between the categories of ‘held for sale’ and ‘held for ‘distribution’ may, in a small number of cases, be part of more major changes facing an entity.

Qu. 2 – The IASB does not explain why the proposed changes should be applied prospectively. As the proposed implementation date gives entities sufficient time to prepare, and widespread changes should not be needed, prospective application should not be necessary, and hence the more usual retrospective application could be required.


IFRS 7 ‘Financial instruments: Disclosure’ – Servicing Contracts

1.    Additional guidance is proposed on whether a servicing contract for a transferred financial asset constitutes ‘continuing involvement’ (which in turn entails disclosure obligations), through the entity retaining an interest in the future performance of the asset.

2.    The change will apply retrospectively for accounting periods starting on or after 1 January 2016 (earlier adoption is permitted). To avoid the use of hindsight, the guidance need not be applied in previous periods. A consequential amendment to IFRS 1 is proposed.

Qu.1 - ACCA agrees that the proposed changes provide clarification. We concur that the scenarios described in respect of service contracts do constitute ‘continuing involvement’.

We note that whilst servicing contracts are mentioned in the proposed additional guidance, they are not defined by the IASB. The IASB may want to consider whether a definition is needed, or alternatively whether this would be unhelpful (for example, because there are many different possible types of servicing contract, or that in general, it should be obvious where one is in place).

Qu.2 - We agree that the implementation date, and the relief for previous periods, appear reasonable. Entities may need time to undertake a review of their service contracts, and may find it difficult to apply hindsight.


IFRS 7 ‘Financial instruments: Disclosure’ – Condensed Interim Financial Statements

1.    A proposed clarification that the 2011 amendments to IFRS 7 (‘Disclosure – Offsetting Financial Assets and Financial Liabilities’) do not, of themselves, impose additional disclosure requirements in condensed interim financial statements.

2.    The clarification would take effect at the same time as the 2011 amendments (annual periods beginning on or after 1 January 2013).

Qu.1 – ACCA supports the proposed clarification, insofar as it resolves the misunderstanding mentioned in the ED. In addition, the proposal provides a confirmation that, in respect of the required content of condensed interim financial statements, entities will apply IAS 34 without having the concern that further requirements are contained in various places within other Standards.

Qu. 2 - As the change is a minor clarification, we believe that an implementation date which is the same as for the 2011 amendments, should be feasible.  


IAS 19 ‘Employee Benefits’

1.    The discount rate applied to obligations is to be determined by reference to high-quality corporate bonds issued in the same currency, and not just the same country.

2.    The changes will be effective for accounting periods starting on or after 1 January 2016 (with retrospective application), and early application is permitted.

Qu.1 – This change would be especially applicable to countries in a common-currency area, such as the Eurozone or in East Africa. However, ACCA has a concern that it would also apply to countries with less stable economies which need to adopt an international currency, such as the US Dollar. A pension scheme in such a weaker economy would be unlikely to invest in US corporate bonds, or even to have access to the US market.

We believe that IAS 19 needs to be more specific about when an entity can look internationally to bonds (corporate or government) denominated in the same currency. There is a reference to ‘a regional market sharing the same currency’, although this term is included on the Basis for Conclusions only, rather than in the main body of IAS 19. 

In addition, however, even within established currency areas, such as the Eurozone, there are noticeable differences between countries, due to the differing strengths of national governments and economies.

Furthermore, from the information provided in the Basis of Conclusions, it is difficult to ascertain why the IASB regards this proposed change as being technically correct.

ACCA is aware that the IASB is also intending to look more broadly at the issue of discount rates to be adopted for post-employment benefit obligations, and we would encourage this review to start as soon as is practicable. The current proposed change could then be supported, to the extent that it would be temporary, and as long as it reduces divergence in practice and does not create additional problems in the meantime.

Qu. 2 – We agree with the overall provisions for transition and the effective date.


IAS 34 ‘Interim Financial Reporting’

1.    A clarification that certain required information can be presented either within the interim financial statements, or the wider interim financial report. This is subject to ensuring that the information is made available to users entitled to receive it, and it is adequately cross-referenced from the interim financial statements.

2.    The changes will be effective for accounting periods starting on or after 1 January 2016 (with retrospective application), and early application is permitted.

Qu.1 – ACCA supports this clarification, which is practical in the case of information which, whilst of significance to the interim financial statements, is often more usefully presented elsewhere in the financial report (such as certain risk information). The proposed clarification should also remind preparers about whom to make such information in the wider financial report available.

The IASB does not specify how the cross-references should be presented. It would be good practice to prescribe additionally that, for example, the references should take the form of a list in the notes to the interim financial statements. This list would be given a heading that makes clear that, whilst the information referred to is within the wider financial report, it is nevertheless part of the required disclosures for interim financial statements.

On a final point, we do find it difficult to understand why the proposed amendments are considered to extend the scope of the interim financial statements to information presented elsewhere (as set out Para BC 3 of the ED). This is because Para 10 of IAS 34 already considers the disclosures concerned to be part of the interim financial statements.

Qu. 2 - The effective date of the proposed changes is accounting periods starting on or after 1 January 2016. As the proposed changes can be readily dealt with, ACCA believes that an implementation date of a year earlier should be feasible.

We agree that application should be retrospective, and that early adoption should be permitted.