What’s next after the new IFRS standards?

SUITS THE C-SUITE By Ma. Emilita L. Villanueva

Business World (08/07/2017 – p.S1/2)

In the last three years, the International Accounting Standards Board or IASB has issued four new major International Financial Reporting Standards (IFRS). First on the list was the final version of IFRS 9, the new standard on financial instruments, followed by IFRS 15, the new revenue recognition standard. Both standards were issued in 2014 and are effective for annual periods beginning Jan. 1, 2018. In 2016, the IASB issued IFRS 16, the new leases standard, which will be effective in 2019. And last, but certainly not the least, came IFRS 17, the much-anticipated new standard on insurance, which takes effect in 2021.

With these new standards completed and issued, one might ask what will happen next? What is the future like for IFRS?

These questions are, apparently, also being considered by the IASB. Two years ago, the IASB issued its 2015 Agenda Consultation to gather views from the various sectors and markets on the balance and direction of the IASB’s projects for the next three to five years. In requesting such views, the IASB invited respondents to comment on certain matters such as the remainder of the IASB’s various activities and its projects; its research program; its activities related to the maintenance of the current standards, and the level and pace of the changes being implemented.

By the end of 2015, the IASB received 119 responses or comment letters. These letters came from various jurisdictions and they represent a variety of roles. For the roles, 31% came from the preparers of financial statements, while 23% and 22% were submitted by auditors and accounting bodies, as well as the standard-setters, respectively. In terms of jurisdictions, almost half of the respondents were from Europe, followed by Asia and Oceania (23%).

We will discuss briefly the results of the Agenda Consultation as well as the IASB responses.

Almost two years ago, one of the key messages brought up by the respondents was the prioritization of the completion of the IASB’s standard-setting projects, such as the new standards on leases and insurance and the revised Conceptual Framework. Since then, the IASB has issued IFRS 16 and IFRS 17. The IASB also laid down its plans for the completion of the remaining existing projects. For the amendments to the Conceptual Framework, which has been identified as a critical project as it provides the foundation upon which the IASB develops consistent and high-quality IFRS standards, these are set to be finalized and issued by the last quarter of 2017.

A second key message was the need to enhance the information that users of financial statements receive to make them more relevant. The respondents pointed out that there is a need to improve the current financial information as, nowadays, “boilerplate” statements and numerous disclosures are preventing them from identifying which information is relevant and useful. They urged the IASB to push through with its Disclosure Initiative projects, particularly the Principles of Disclosure.

As a result of this key message, the IASB decided to prioritize, at least for the next few years, projects that are geared towards ensuring “better communication in financial reporting” through improvements in presentation and disclosure. Specifically, the IASB identified, other than the Principles of Disclosure project, certain important projects, such as the research project in Primary Financial Statements and the Materiality Practice Statement.

The third key message involves the major new standards that will become effective in 2018 and onwards, as well as the amendments to the Conceptual Framework. The respondents commented that these new standards have led to a higher level of consultation among the various stakeholders, which resulted in what they refer to as “consultation fatigue.” Because of this, the respondents requested the IASB to focus on activities that will provide support when these new standards are implemented. They also requested the IASB to develop fewer standard-setting projects and to refrain from developing too many narrow-scope amendments. This is to allow the entities to concentrate on the implementation phase.

The IASB agreed with these requests. In particular, they pointed out that to support the implementation, they have assigned additional staff and established transition resource groups (for IFRS 15 and the impairment of financial assets under IFRS 9). They have also developed educational materials and created dedicated pages on their website to bring together all the materials they have developed for these new standards. Moving forward, the IASB will continue to respond to application questions through the maintenance of an ‘effective interpretation process’ and to assess the quality of not only the existing standards, but also their implementation through performance of post-implementation reviews.

The fourth and last key message relates to the research programs that IASB has introduced since 2012. These research programs are geared towards analyzing potential problems in financial reporting. IASB conducts research to obtain enough evidence of the existence of an accounting problem and to determine if the problem is important enough to require setting a standard. Although many respondents stated that they support the introduction of the research programs and an evidence-based approach towards developing new standards, several of them were unclear about the various aspects of these programs such as the objectives, strategy and processes. The respondents also have mixed views on the number of research programs the IASB should undertake at any given time. Concurrently, many respondents expressed frustration at the lack of or untimely progress of the research projects, a sentiment echoed by the IASB.

After considering this last key message, the IASB commented that it will focus its efforts on fewer research projects to ensure more timely progress on these tasks and to more efficiently utilize their resources. Additionally, having fewer projects will have the added advantage of placing a lower burden on the stakeholders who follow such projects.

Going back to the question, what’s next for IFRS? Based on the results of the Agenda Consultations and the IASB’s responses, it would seem that there will be a lull in the issuance of new standards, at least for the next three to five years. Although we are looking at one more major issuance — the amendments to the Conceptual Framework — the IASB has committed to focus its efforts on the four key comments stated above.

While there is certainly still much to be done in the future, it is also encouraging to see how the open and continuous dialogue between the IASB and its stakeholders are resulting in more streamlined, coordinated and consistent efforts to improve the global regulatory environment — and this can only redound positively on companies, auditors and regulators alike.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the authors and do not necessarily represent the views of SGV & Co.

Ma. Emilita L. Villanueva is a Senior Director of SGV & Co.