IASB Meeting August 2019
IASB Meeting August 2019
On 28 August 2019 the IASB held an additional meeting to discuss issues identified while reviewing the feedback on the Exposure Draft - Interest Rate Benchmark Reform.
Most respondents disagreed with the Board’s decision not to provide an exception for the retrospective assessment according to IAS 39.AG105. The background for these concerns is, that especially many financial institutions decided to continue to use the hedge requirements of IAS 39 when applying IFRS 9 for the first time (accounting choice). IAS 39 is more formal in proving hedge effectiveness.
Thus, the Board decided that IAS 39 should be amended to insert an exception for the retrospective assessment. As a result, an entity would not be required to terminate a hedging relationship just due to the uncertainty arising from the reform of interest rate benchmarks. An entity should be able to continue to apply hedge accounting to a hedging relationship for which effectiveness is outside the 80–125% range.
Furthermore, the Board decided that IFRS 9 and IAS 39 should be amended by another exception for macro hedges. Thus, an entity should assess whether a non-contractually specified risk component is separately identifiable only when the hedged item is initially designated. Once a hedged item has been designated within a macro hedge, there should be no reassessment of whether the risk component is separately identifiable at any subsequent redesignation. This would avoid discontinuation of hedge accounting solely caused by the benchmark reform.
In the feedback on the exposure draft, concerns have been raised that the scope of the amendment is to narrow. While discussing the feedback it was pointed out, that on the one hand, it was not the intention of the Board to exclude from the scope hedging relationships where interest rate risk is not the only hedged risk being designated (e.g. cross currency interest rate swaps). On the other hand, the Board decided that the scope of the amendment should be clarified. The exceptions should be applied only to those hedging relationships directly affected by uncertainties about the timing or amount of interest rate benchmark-based cash flows of the hedged item or hedging instrument arising from the reform.
When an entity designates a group of items as the hedged item (e.g. designation of a group of LIBOR-based loans) in accordance with paragraph 6.6.1 of IFRS 9 or paragraph 83 of IAS 39, the proposed exceptions in the Exposure Draft should apply to each item within the designated group of items. That means, an entity should cease applying the exceptions to a specific financial instrument when the uncertainty arising from the interest rate benchmark reform is no longer present with respect to that specific financial instrument.
As a consequence, a delay in terminating an ineffective hedging relationship should be prevented.
The Board decided that the amendment should not be re-exposed. The balloting process for the amendment of IFRS 9 and IAS 39 will start and the final amendments are planned to be issued in September 2019.
IASB published proposed amendments to IAS 1 and IFRS Practice Statement 2
On 1 August 2019 the IASB published ED/2019/6 Proposed Amendments to IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 Making Materiality Judgements.
IAS 1 requires companies to disclose their significant accounting policies. The Board proposes to replace the reference to significant with a requirement to disclose the material accounting policies.
This amendment is based on the difficulties entities face in understanding the difference between significant and material. The proposed amendments are based on the definition of material, which brought amendments to IAS 1 and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (issued in October 2018).
According to the proposed amendment to IAS 1, entities will be required to disclose their material accounting policies applied. Information about an accounting policy is defined to be material, if / when considered together with other information included in the financial statements, it can reasonably be expected to influence decisions of the primary users.
As opposed to that, the Board clarified that an entity should not disclose accounting policies which relate to immaterial transactions, other events or conditions.
The Board provided examples of accounting policies which might be material to its financial statements. An accounting policy might be material when it relates to material transactions, other events or conditions and:
- Was changed during the reporting period and this change resulted in a material change to the amounts included in the financial statements.
- Was chosen from one or more alternatives in an IFRS Standard (e.g option to measure investment property at either historical or fair value.
- Was developed in accordance with IAS 8 in the absence of an IFRS Standard that applies;
- relates to an area for which an entity is required to make significant judgement or assumptions in applying an accounting policy.
- Applies the requirements of an IFRS Standard in a way that reflects the entity’s specific circumstances.
Furthermore, the Board proposed to amend IFRS Practice Statement 2 by two examples to help companies applying the concept of materiality in making decisions about accounting policy disclosures.
The effective date of the amendment will be decided later. The amendments shall be applied prospectively.
The exposure draft is open for comment until 29 November 2019.