KEY CURRENT ISSUES

 The revised Conceptual Framework

 Accounting policy changes
 Materiality
 Defined benefit plan amendments, curtailments and settlements
 Better communication projects
 Management commentary
 Business combinations
 Debt and equity
 Deferred Tax
Accounting policies (ED/2018/1)
The problem
Calculating the prior year impact of accounting policy changes is a costly and time-
consuming process. The Board is concerned that retrospective application discourages
entities from voluntarily changing accounting policies, even though the change would
benefit financial statement users.
The Board is particularly concerned about changes in policy that arise as a result of agenda
decisions made by the IFRS Interpretations Committee.
The proposal
The Board has issued an Exposure Draft ED/2018/1 Accounting Policy Changes. In this the
Board proposes that an accounting policy change resulting from an agenda decision should
be implemented retrospectively unless:
• it is impracticable to do so (due to a lack of data) (Lower the impracticability threshold)
• the cost of working out the effect of the change exceeds the benefits to the users of the
financial statements. (Cost vs Benefits)

When considering the benefits to users of retrospective application, the Board

proposes that entities consider:
• the magnitude of the change could be witnessed as an adjustment to the opening RE is
made
• the pervasiveness of the change across the financial statements
• Nature of change, user could well understate the impacts that arises over several periods
(comparability)

Impact on cost
  Additional efforts & cost in accumulating the data
 Will the change in a/c policy affect materiality results already disclosed in the last
periods?

Materiality
Issue: further guidance is needed on how to apply it to the preparation and interpretation
of financial statements.
The Practice Statement
The Board have issued a Practice Statement called Making Materiality Judgements. This
provides non-mandatory guidance that may help preparers of financial statements when
applying IFRS Standards.
Old definition: Information is material if omitting or misstating it could influence decision
that users make on the basis of financial info about a specific reporting entity.
New definition
The Board are proposing to expand the definition of materiality to say that an item is also
material if obscuring (transactions scattered, disclosed using unclear language) reasonably
be expected to influence the economic decisions of financial statement users.
Summary of changes:

 Addition of the word obscuring

 Addition of the word could reasonably be expected to influence
 The concept of materiality does not just help to determine whether transaction is
recognised in the FS but also how they are presented.
When assessing whether information is material, an entity should consider:
• Quantitative factors – measures of revenue, profit, assets, and cash flows
• Qualitative factors – related party transactions, unusual transactions, geography, and
wider economic uncertainty.
Materiality judgements are relevant to recognition, measurement, presentation and
disclosure decisions.

When organising information, entities should:

• Emphasise material matters
• Ensure material information is not obscured by immaterial information
• Ensure information is entity-specific
• Aim for simplicity and conciseness without omitting material detail
• Ensure formats are appropriate and understandable (e.g. tables, lists,
narrative)
•Provide comparable information
• Avoid duplication.
The Board recommends a systematic process when making materiality judgements:

1. Identify the material item

2. Asses whether the information is material
3. Organise the information
4. Review the draft FS
Defined benefit plan amendments, curtailments and settlements

The problem
Even though the reporting entity remeasures the defined benefit deficit in the event of a
PASC, IAS 19 did not require the use of updated assumptions to determine current service
cost and net interest for the period after the PASC.
The Board argued that ignoring updated assumptions is inappropriate, because these are
likely to provide a more faithful representation of the impact of the entity’s defined benefit
pension plan during the reporting period.
Amendments
The Board amended IAS 19 to clarify that the reporting entity must determine:

 the current service cost for the remainder of the reporting period after the PASC
using the actuarial assumptions used to remeasure the net defined benefit liability
 net interest for the remainder of the reporting period after the PASC using the
remeasured defined benefit deficit and the discount rate used to remeasure the
defined benefit deficit.

Better communications project

Financial statements are often poorly presented, it can be difficult and time consuming for
users of financial statements to identify the most useful information. Consequently, many
stakeholders in particular the investors suggested that the board should focus on projects
that would improve the communication of existing info provided in the FS
The main problems with disclosures: (The disclosure info)

 Too much irrelevant info

 Too less relevant info
 Ineffective communication of information

The projects main focus is on the statements of financial performance and the board is
exploring a number of possible improvements including.

 Requiring an EBIT (operating profit as subtotal)

 Requiring an income and expense from investment category
 Providing guidance on presentation of management performance measures
 Better ways of communing OCI
Management commentary
Purpose of Management Commentary
The IFRS Practice Statement Management Commentary (non-binding guidance documents)
provides a framework for the preparation and presentation of management commentary on
a set of financial statements.
Management commentary provides users with more context through which to interpret the
financial position, financial performance and cash flows of an entity.
Framework for presentation of management commentary
The purpose of a management commentary is:
• to provide management’s assessment of the entity’s performance, position and progress
•to supplement information presented in the financial statements, and to explain the
factors that might impact performance and position in the future.
Elements of management commentary
Management commentary should include information that is essential to an
understanding of:
•the nature of the business
• management’s objectives and strategies
•the entity’s resources, risks and relationships
the key performance measures that management use to evaluate the entity’s performance.

Business combinations
The Board has acknowledged the difficulties that entities face in deciding whether they have
acquired a business or not. As such, they have issued an exposure draft (ED/2016/1
Definition of a Business and Accounting for Previously Held Interests) in which they propose
enhanced guidance on this issue.
The Board wish to clarify that:
• A set of assets that currently produces no outputs is only a business if it includes an
organised workforce able to convert another acquired input into an output.
•A transaction is not a business combination if substantially all of the fair value of the total
assets acquired is concentrated in a single asset (e.g. a licence) or a group of similar assets
(e.g. five plots of land).

Debt and equity (DP/2018/1)

With reference to IAS 32, the absence of clear rationale or guidance with respect to what
constitutes as liability or equity has led to the correct application & classification of fin
instrument in the FS
Consequences of classification;

 Equity & liability are both presented in the different portions in the SOFP
 Due to subsequent remeasurement the change in carrying amount of liabilities are
reported in the financial performance but not for equity
 Disclosures requirements for liabilities are more severe for fin liability than equity
Proposals
The Board propose that a financial instrument should be classified as a liability if it exhibits
one of the following characteristics:
Timing feature: An unavoidable contractual obligation to transfer cash or another financial
asset at a specified time other than liquidation
AND
Amount feature: An unavoidable contractual obligation for an amount independent of the
entity’s available economic resources’ (DP/2018/1: IN10)
For many financial instruments, these proposals would not impact their classification or
measurement. It just improves the existing standard.
  A bond that pays 5% interest per year
 Ordinary shares
 An obligation to issue shares worth $30 million in 5 years’ time
 Irredeemable fixed-rate cumulative preference shares

Deferred Tax to assets & liabilities arising from a single transaction (ED/2019/5)

A company recognises deferred tax when recovering an asset or settling a liability in the future will
have tax consequences (affects the amounts of tax the company will pay)

As per the recognition criteria under IAS 12 a deferred tax liability is not recognised on initial
recognition of asset or liability with no SOPL consequences. This is known as the recognition
exemption.

Proposal

The board also noted the recognition exemption is not needed for transaction that give rise to both
an asset and liability.

The board is proposing amendments to require a company to recognise deferred tax for temporary
differences that arises on such transactions.

CROWDFUNDING

Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a
new business venture. Crowdfunding makes use of the easy accessibility of vast networks of people
through social media and crowdfunding websites to bring investors and entrepreneurs together,
with the potential to increase entrepreneurship by expanding the pool of investors beyond the
traditional circle of owners, relatives and venture capitalists.

Types of crowdfunding

Equity based  IAS 32 (Sh cap/pre/oce)

Debt based  As per IFRS 9

Reward based  As per IFRS 15

Charity donation  Treat it as an income

ACCOUNTING FOR CRYPTOCURRENCY

Cryptocurrency  Digital “currency “designed to function as a medium of exchange

Decentralised  I.e. No legal tender

Recorded in a distributed ledger  ‘Blockchains’

Why not accounted as a currency?

 Not meeting the definition of cash under IAS 7 Statement of Cashflow

 Can be used in exchange for some goods/services  Not widely used
 No legal tender
 Monetary value derived from some other currencies

Why not accounted as Financial instrument?

A financial instrument is any contract that gives rise to a financial asset to one entity and a financial
liability or equity instrument of another entity

How to account Then!!

Cryptocurrency are accounted as an Intangible Assets (IAS 38)

 An identifiable non-monetary asset without physical substance

If held for trading (dealers/brokers)  IAS 2 Inventories (FV – Cos) as per commodity

Other purpose  As per IAS 38

How miners account for cryptocurrencies?

What miners do:

 Validate transactions and include them in the blocks (using cryptography) = Transaction Fee
 Create blocks, verify them & update the ledger = Blockchain = Block reward

Block reward

To create valid block, miners needs to guess to the correct proof of work

Miners does not mine anything but provides a service

Apply conceptual framework  include in profit or loss

Transaction fee

Earned for including the transaction in the block and validating it

Paid by the originator  Creates a contract  Account as a revenue