Technical

INTERNATIONAL

iFac responds to the iiRc’s consultation draft of the international <iR> Framework 2020

IFAC welcomes the International Integrated Reporting Council’s (IIRC’s)revision of the <IR> Framework, which should be an important step in its continued development. In its response to the IIRC, IFAC is broadly supportive of the proposed revisions to the <IR> Framework, including strengthening the statement of responsibility for an integrated report, emphasising the importance of the role of those charged with governance, clarifying terms within the business model, and addressing the need for more balanced reporting of positiveandnegative outcomes.

TheConsultation Draftalso asked for feedback on more strategic questions in “charting a path forward”. IFAC believes non-financial and financial information needs to be connected through a framework that captures relevant aspects of value creation and sustainable development. The <IR> Framework is the starting point for such a conceptual framework, given it is the only comprehensive reporting framework. However theConsultation Draftdoes not explicitly address the fundamental issue of how the <IR> Framework needs to further evolve to be considered an all-encompassing connected conceptual framework for reporting.

IFAC believes this should be the priority focus for the IIRC and its strategic partners.

For the <IR> Framework to be more widely recognised as a connected umbrella conceptual framework for reporting, it must: ● provide the foundation for understanding and reporting on multi-faceted value drivers based on financial and non-financial information – and demonstrating the connections between them; ● provide the principles and key concepts around“how to report”with respect to scope, content and presentation. This is the foundation for“what to report”provided by other standards; ● support the convergence and comparability of reporting through incorporation of significant initiatives and standards that are the building blocks to converging and aligning metrics, including those related to sustainability/ESG; and ● enable assurance, which is critical to confidence in all corporate reporting and most effective when applied against metrics and narrative disclosures that are supported by clear best practices or reporting standards.

Achieving this will require a pragmatic approach. With that in mind, IFAC believes: ● In order to promote long-term relevance of the <IR> Framework and continued expansion of its use, it is vital that integrated reporting be positioned as an immediate solution to current market demands for consistent, reliable information that enables rigorous measurement and reporting of factors material to value creation and sustainable development. The primary users of an integrated report must remain the providers of financial capital, which will help ensure: a)concise and focused reporting on value creation; b)the alignment of the <IR>

Framework with the IASB’s

Management Commentary

Practice Statement; and c)the assurance of integrated reporting. The <IR> Framework must incorporate corporate impacts on society and the environment that are not expected to impact financial performance in the short term but are relevant to a broader corporate purpose, reputation and licence to operate, with a view that these broader impacts can ultimately have material financial impacts. The <IR> Framework may need to be rebranded as a Framework for Understanding and Reporting on Value Creation to position it more clearly as being about integrated thinking and reporting, and may also help to deal with the challenge that in many countries the adoption of integrated reporting is through existing regulatory requirements for management reporting.

INTERNATIONAL

IFAC endorses Joint Statement from the Secretariats of the International Organisations

The OECD has hosted the seventh annual meeting of the Partnership of International Organisations for Effective International Rulemaking (IO Partnership). The meeting concluded with the publication of a “Joint Statement of International Organisations in Support of Effective International Rulemaking”. Signed by nearly 50 major international organisations, as diverse as the World Health Organisation (WHO), World Trade

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Organisation (WTO), United Nations Educational, Scientific and Cultural Organisation (UNESCO) , the International Energy Agency (IEA) and the International Organisation for Securities Commissions (IOSCO), the Joint Statement reiterates the central role that international organisations play in promoting the global public good, tackling transboundary issues, and achieving the United Nations Sustainable Development Goals (SDGs). IFAC is proud to be a member of the OECD IO Partnership and a signatory to the Joint Statement. The Joint Statement complements IFAC’s G20 Call to Action and its themes of Recommit to Global Collaboration and Resist Regulatory Fragmentation. “The COVID crisis has been a wakeup call,” said Kevin Dancey, IFAC CEO. “No one can address the problems of the 21st century acting alone. The OECD IO Partnership is invaluable because it positions us to learn from one another and better deliver on our respective public interest mandates and SDGs.”

Nicola Bonnuci, IO partnership facilitator, commented, “The IO Partnership provides an ideal space to exchange on the challenges facing IOs in adapting our rulemaking activities to arising emergencies and the changes of the digital era, to rethink the forms of cooperation between IOs, and to deliver instruments that are trusted by governments and civil society.”

IFAC calls for creation of an international sustainability standards board alongside the International Accounting Standards Board

IFAC called for the creation of a new sustainability standards board that would exist alongside the International Accounting Standards Board (IASB) under the IFRS Foundation. The proposed board would address the urgent and growing demand from investors, policy makers and regulators for a reporting system that delivers consistent, comparable, reliable and assurable information relevant to enterprise value creation, sustainable development and evolving stakeholder expectations. IFAC’s overview of the objectives, structure and building blocks of the proposed board can be found at The Way Forward. Kevin Dancey, CEO of IFAC, said, “The time for a global solution is now. Given the momentum that has developed this year – because of work by Accountancy Europe, WEF/IBC, the European Commission, the IOSCO Task Force and the five leading reporting initiatives – we have a unique opportunity to act in concert to do the right thing in the public interest. IFAC believes the IFRS Foundation, with the backing of public authorities, is optimally positioned to lead and coordinate this initiative, and they would do so with our full support. We recommend that the proposed board adopt a ‘building blocks’ approach, working with and leveraging the expertise and disclosure requirements of the CDP, CDSB, GRI, IIRC and SASB.” Veronica Poole, Global IFRS Leader and Head of Corporate Reporting at Deloitte, said: “Transparent measurement and disclosure of sustainability performance is a fundamental part of effective business management and is essential for preserving trust in business as a force for good. IFAC’s vision is fully aligned with the joint vision of the leading standard-setters on how their current standards and frameworks could complement IFRS Standards and US GAAP, and serve as a natural starting point for progress towards a more coherent, comprehensive corporate reporting system. “We now have a unique opportunity to accelerate progress and house all the relevant standards under one roof, as suggested by IFAC, to connect sustainability disclosure standards focused on enterprise value creation to financial GAAP. Integrated reporting together with the IASB’s work on Management Commentary can provide a framework for this connectivity. IOSCO has stated its commitment to bring about the system change for the capital markets, and the IFRS Foundation trustees indicated that they are going to consult on introducing a sustainability focused standard-setter under the umbrella of the IFRS Foundation. The stars are lining up to bring about the fundamental shift in reporting that investors, business and society at large have been calling for.” Charles Tilley, IIRC Chief Executive Officer, said, “The IIRC has long championed a vision of a comprehensive and cohesive corporate reporting system to drive effective corporate governance and sustainable value creation. Bridging the gap between the two worlds of financial reporting and sustainability reporting is a vital element in fulfilling this vision and we support the development of a conceptual framework, based substantially on integrated reporting principles, to facilitate the linkages that will break down silos and restore trust.” Barry Melancon, AICPA President and CEO, and IIRC Board Chair, added, “IFAC’s recommendations are powerful, coming out at a time when the world is in search of answers. This is an important moment for the IFRS Trustees, as businesses and investors need robust and trusted standards and interconnected oversight. A cohesive approach to reporting is not just more efficient; it is essential to unlock the positive force of value creation. We also need innovation to complete the corporate reporting system to ensure we have an assurance process that is fit for purpose and the technology to support high quality reporting and governance.”

IASB completes response to IBOR reform with amendments to IFRS Standards

The International Accounting Standards Board (Board) has finalised its response to the ongoing reform of inter-bank offered rates (IBOR) and other interest rate benchmarks by issuing a package of amendments to IFRS Standards. The amendments are aimed at helping companies to provide investors with useful information about the effects of the reform on those companies’ financial statements.

The amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform. The amendments in this final phase relate to the following: ● Changes to contractual cash flows: A company will not have to derecognise or adjust the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate. ● Hedge accounting: A company will not have to discontinue its hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria. ● Disclosures: A company will be required to disclose information about new risks arising from the reform and how it manages the transition to alternative benchmark rates.

Hans Hoogervorst, Chair of the Board, said: “Our response to IBOR reform helps companies deal with its effect on their financial instruments and enables them to continue providing useful information to investors.”

These amendments are effective for annual reporting periods beginning on or after 1 January 2021, with early adoption permitted.

UK AND IRELAND

IAASA outlines Covid-19 and Brexit as two key considerations when preparing 2020 financial statements

IAASA, Ireland’s accounting enforcer, has published its annual Observations paper highlighting some significant topics that those charged with governance should consider when preparing their financial statements for 2020. IAASA’s paper highlights some key areas that warrant close scrutiny by those preparing, approving and auditing 2020 financial statements in the upcoming reporting season including: ● the pervasive impact of the Covid-19 pandemic on the recognition, measurement, presentation and disclosure of income, expenses, assets and liabilities in companies’ financial statements; and ● the challenges and uncertainties facing companies from Brexit.

comprehensive disclosures that enable the users of their financial reports to understand: a) the impact that these events have had on their financial performance, financial position, cash flows and risks; b) the sources of estimation uncertainty and changes in the key assumptions underpinning assets, liabilities, income, expenses and cash flows; c) the mitigating actions taken to respond to Covid-19 challenges and to Brexit; and d) the expected impact on future financial performance, financial position, cash flows and risks.

This 2020 Observations paper is addressed primarily to the preparers, approvers and auditors of financial statements. However, IAASA believes that it will also be helpful to users of financial statements and assist them in understanding the significant judgments made by companies in preparing their financial statements. The paper seeks to highlight matters users may wish to be aware of and focus on when reviewing 2020 financial statements. While IAASA’s remit extends only to companies with securities admitted to trading on a regulated market (principally the Main Market of Euronext Dublin – the Irish Stock Exchange), the topics identified in the 2020 Observations paper could usefully be taken into consideration by a much wider range of companies with the aim of producing high quality financial reports more generally and increasing the transparency and usefulness of financial statements for users.

ASIA PACIFIC

Singapore’s Covid-19 relief measures: duration of alternative arrangements for meetings to be extended

The Ministry of Law, in consultation with relevant ministries and agencies, intends to extend the duration of legislation that enables entities to hold meetings via electronic means to 30 June 2021. This will provide entities with greater legal certainty to plan their meetings, and the option to hold virtual meetings to minimise physical interactions, amid the continuing Covid-19 situation. Background The Covid-19 (Temporary Measures) Act was passed in Parliament on 7 April

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2020. Section 27 of the Act empowers the Minister for Law to prescribe, by order, alternative arrangements for meetings otherwise requiring personal attendance. Pursuant to Section 27 of the Act, Covid-19 (Temporary Measures) (Alternative Arrangements for Meetings) Orders have been promulgated to enable various types of entities to convene, hold or conduct meetings by electronic means, even if this is not allowed under the written law or legal instrument which provides for the meeting.

Planned extension of the Meetings Orders The Ministry of Law plans to extend the Meetings Orders to 30 June 2021. Amendments to the Act were passed in Parliament on 4 September 2020 to permit the Minister for Law to do so. If the president assents to the amendments to the Act, the amendments to extend the duration of the Meetings Orders will be gazetted, once the amendments to the Act come into force.

The extension of the Meetings Orders to 30 June 2021 will give entities the option to hold virtual meetings, even where the entities are permitted under safe distancing regulations to hold physical meetings. This will help keep physical interactions and Covid-19 transmission risks to a minimum. The need to keep Covid-19 transmission risks to a minimum will remain in the long term, even as safe distancing regulations are gradually and cautiously relaxed. Deferral provisions However, existing provisions in the Meetings Orders which allow for meetings to be deferred to a date no later than 30 September 2020 will not be extended to 30 June 2021. To give a further grace period to those entities that need more time to overcome practical difficulties in organising meetings (whether virtual or physical), the deferral provisions for certain types of entities will be extended, but only to permit deferrals to a date no later than 31 December 2020.

For the avoidance of doubt, entities can choose to rely on meeting arrangements permitted by their governing instruments, as long as they can do so in compliance with prevailing safe distancing regulations.

Further announcements will be made when the extension and amendments to the Meetings Orders come into effect. In the meantime, for further information and enquiries, entities may check the websites of or approach their respective regulators. Guidance notes and regulators’ contact information is at www.mlaw.gov.sg/ covid19-relief/alternative.

MASB publishes amendments to Insurance Standards and defers theeffective date of amendment to MFRS 101

The Malaysian Accounting Standards Board (MASB) has issued the following pronouncements: ● Amendments to MFRS 17 Insurance Contracts; ● Extension of the Temporary Exemption from Applying MFRS 9 (Amendments to MFRS 4 Insurance Contracts); and ● Classification of Liabilities as Current or Non-current – Deferral of Effective

Date.

The above pronouncements are wordfor-word the respective pronouncements issued by the International Accounting Standards Board (IASB). The “Notice of Issuance” can be downloaded from the MASB website.

Amendments to MFRS 17 Insurance Contracts MFRS 17 Insurance Contracts was issued in August 2017. In response to many of the concerns and challenges raised by companies implementing MFRS 17, the Amendments are issued to continue supporting the implementation by reducing costs and making it easier for companies to explain their results when they apply the Standard. The Amendments are designed to minimise the risk of disruption to implementation already underway and do not change the fundamental principles of the Standard or reduce the usefulness of information for investors. Amendments to MFRS 17 also defers the effective date of MFRS 17 by two years, to annual reporting periods beginning on or after 1 January 2023. The decision to defer the effective date will enable companies to implement the new Standard in a timely manner which MASB considers to be beneficial for investors, preparers and other stakeholders.

Extension of the Temporary Exemption from Applying MFRS 9 (Amendments toMFRS 4Insurance Contracts) The Amendments to MFRS 4 extends the expiry date for the temporary exemption from applying MFRS 9 Financial Instruments by two years to

annual periods beginning on or after 1 January 2023. The extension maintains the alignment between the expiry date of the temporary exemption and the effective date of MFRS 17, which replaces MFRS 4. Classification of Liabilities as Current or Non-current – Deferral of Effective Date The Amendment defers by one year the effective date of Classification of Liabilities as Current or Noncurrent (Amendments to MFRS 101 Presentation of Financial Statements). The said MFRS 101 amendments were issued by MASB on 16 March 2020, effective for annual reporting periods beginning on or after 1 January 2022. However, in response to the Covid-19 pandemic, the effective date is now deferred to 1 January 2023 to provide companies with more time to implement any classification changes resulting from the amendments.

There are no changes to the original amendments other than the deferral of the effective date.

UNITED STATES

FASB issues proposal to simplify how private company franchisors evaluate certain performance obligations

The Financial Accounting Standards Board (FASB) has issued a proposed Accounting Standards Update (ASU) that would provide a practical expedient that simplifies how franchisors would analyse certain activities when determining their performance obligations in a franchise agreement. Stakeholders are encouraged to review and provide input on the proposal by 5 November 2020.

When a business owner (the franchisee) opens a new branch of a franchise, the franchise agreement generally stipulates that the franchisor will support certain pre-opening activities to support the new branch. Those activities may include services such as training or site selection.

The proposed practical expedient would permit certain pre-opening services listed within the guidance to be accounted for as a single bundled, separate performance obligation, if it is probable that the continuing fees in the franchise agreement would be sufficient to cover the franchisor’s continuing costs plus a reasonable profit. FASB approves accounting updates to presentation and disclosures by not-for-profit entities for contributed non-financial assets

The FASB has issued an Accounting Standards Update (ASU) intended to improve transparency in the reporting of contributed non-financial assets, also known as gifts-in-kind, for not-forprofit organisations. Examples include fixed assets such as land, buildings and equipment; the use of fixed assets or utilities; materials and supplies, such as food, clothing or pharmaceuticals; intangible assets; and recognised contributed services. “The ASU responds to feedback from not-for-profit stakeholders who identified gifts-in-kind as an area where the reporting could be improved,” stated FASB member Susan Cosper. “It addresses their concerns by requiring more prominent presentation of contributed non-financial assets and enhanced disclosures about the valuation of those contributions and their use in programmes and other activities, including any donor-imposed restrictions on such use.” The ASU requires a not-for-profit organisation to present contributed non-financial assets as a separate line item in the statement of activities, apart from contributions of cash or other financial assets. It also requires a not-for-profit to disclose: ● contributed non-financial assets recognised within the statement of activities disaggregated by category that depicts the type of contributed non-financial assets; and ● for each category of contributed non-financial assets recognised (as identified in (a)): 1. qualitative information about whether the contributed nonfinancial assets were monetised or utilised during the reporting period. If utilised, a description of the programmes or other activities in which those assets were used; 2. the not-for-profit’s policy (if any) about monetising rather than utilising contributed non-financial assets; 3. a description of any donor-imposed restrictions associated with the contributed non-financial assets; 4. the valuation techniques and inputs used to arrive at a fair value measure, in accordance with the requirements in Topic 820, Fair Value Measurement, at initial recognition; and 5. the principal market (or most advantageous market) used to arrive at a fair value measure if it is a market in which the recipient NFP is prohibited by a donor-imposed restriction from selling or using the contributed non-financial assets.

The amendments in this ASU should be applied on a retrospective basis and are effective for annual reporting periods beginning after 15 June 2021, and interim periods with annual reporting periods beginning after 15 June 2022. Early adoption is permitted. The ASU, including a FASB In Focus, is available at fasb.org.

FASB seeks public comment on private company council proposal on determining current price of an underlying share for equityclassified share-option awards

The FASB has issued a proposed Accounting Standards Update (ASU) intended to reduce cost and complexity for private companies when determining the fair value of the shares underlying a share-option award on its grant date or modification date. Stakeholders are encouraged to review and provide comment on the document – a proposal of the Private Company Council (PCC) – by 1 October 2020. “Members of the PCC conveyed concerns that current guidance on determining fair value for these shares creates unnecessary cost and complexity for some stakeholders,” stated FASB chair Richard R. Jones. “The proposed ASU puts forth a potential solution to this issue, and we look forward to hearing what our stakeholders think about it.”

The PCC shared stakeholder concerns that determining the fair value of traditional private company share-option awards is often costly and complex. This is primarily because the private company equity shares underlying the share option often are not actively traded and, thus, observable market prices for those shares or similar shares do not exist. The proposed ASU would allow a nonpublic entity to determine the current price of a share underlying an equity-classified share-option award using a valuation method performed in accordance with specific regulations of the US Department of the Treasury that provide acceptable methodologies to comply with the “presumption of reasonableness” requirements of Section 409A of the US Internal Revenue Code. The proposed ASU is available at www.fasb.org.

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