13 March 2014

Comments on IASB's ED Annual Improvements to IFRSs 2012 – 2014 Cycle: EFRAG, ESMA

EFRAG

EFRAG believes that in some circumstances it is unclear if the proposals would result in an outcome that is consistent with the IASB’s objectives (e.g. jurisdictions adopting stronger currencies of other countries, jurisdictions that have a deep market of high quality corporate bonds sharing a single currency with other countries which do not, and interactions with local requirements for post-employment benefit liabilities and on plan assets).

Therefore, EFRAG believes that the IASB – before finalising these proposals – should explain the objectives and the rationale in selecting and using a discount rate to measure post-employment benefit obligations so that constituents can exercise appropriate judgement in applying the requirements in paragraph 83 of IAS 19.

Press release

Full comment letter

ESMA

ESMA agrees that all the issues addressed by the IASB included in the ED meet the criteria of the IASB Due Process Handbook and believes they should be resolved as part of the annual improvements project. In its letter, ESMA commented on proposed amendment to IFRS 5 - Non-current assets held for sale and discontinued operations; IFRS 7 - Financial Instruments: Disclosure; IAS 19 - Employee Benefits; and IAS 34 - Interim Financial Reporting.

ESMA supports the proposed amendments to IFRS 5 which address concerns relating to the impact of a change in disposal method on the classification of assets held for sale and ESMA believes they bring clarity to the standard.

However, ESMA would like to draw IASB´s attention to some inconsistencies, which, if not corrected might lead to diversity in practice. In order to ensure consistent application of the standard, ESMA would like to recommend the IASB to ensure that the notions ‘held for distribution to owners’ and ‘cost for distribution’ are added/amended to all relevant parts of the standard.

ESMA agrees with the amendment that adds guidance which clarifies how an entity should apply paragraph 42C of IFRS 7 for servicing contracts. As clarified in this ED, it is possible to derecognise a financial asset under IAS 39 - Financial Instruments: Recognition and Measurement or IFRS 9 - Financial Instruments and to qualify as ‘continuing involvement’ for disclosure purposes as per IFRS 7.

ESMA would suggest the IASB to clearly state in paragraph B30A of IFRS 7 the principles to be applied in determining the existence, or not, of continuing involvement rather than providing an example of some of the possible considerations as currently proposed. ESMA would also propose to add at the end of the sentence starting with ‘Similarly’ the following part ‘unless the fee is fully independent of the performance of the financial asset (or cash flow collected from the financial asset)’. 

Full comment letter

ESMA's comment letter to EFRAG

ESMA confirms that all the issues addressed by the IASB included in the ED meet the criteria of the IASB Due Process Handbook.

Like EFRAG, ESMA supports the proposed amendments to IFRS 5 which address concerns relating to the impact of a change in disposal method on the classification of assets held for sale and ESMA believes they bring clarity to the standard.

However, ESMA would like to draw EFRAG´s attention to some inconsistencies, which, if not corrected might lead to diversity in practice. In order to ensure consistent application of the standard, ESMA would like to recommend the IASB to ensure that the notions ‘held for distribution to owners’ and ‘cost for distribution’ are added/amended to all relevant parts of the standard.

Like EFRAG, ESMA agrees with the amendment that adds guidance which clarifies how an entity should apply paragraph 42C of IFRS 7 for servicing contracts. As clarified in this ED, it is possible to derecognise a financial asset under IAS 39 - Financial Instruments: Recognition and Measurement or IFRS 9 - Financial Instruments and to qualify as ‘continuing involvement’ for disclosure purposes as per IFRS 7.

ESMA would suggest the IASB to clearly state in paragraph B30A of IFRS 7 the principles to be applied in determining the existence, or not, of continuing involvement rather than providing an example of some of the possible considerations as currently proposed. ESMA would also propose to add at the end of the sentence starting with ‘Similarly’ the following part ‘unless the fee is fully independent of the performance of the financial asset (or cash flow collected from the financial asset)’.

Like EFRAG, ESMA welcomes the amendments proposed by the IASB to IAS 19 and believes that these will solve the enforceability issue raised in its comment letter in relation to the issue of a regional market sharing the same currency.

However, ESMA would like to reiterate its request for clarification on whether the IAS 19 requirements for regional markets sharing the same currency also apply in the case where a currency is pegged to another currency.

Like EFRAG, ESMA welcomes the amendment clarifying the meaning of disclosure of information ‘elsewhere in the interim financial report’ and considers that requiring an explicit cross-reference is a positive development. However, this amendment will allow presenting all disclosures in other parts of the interim financial report whereas this is only allowed for IFRS 7 risk disclosures for the annual financial statements. In this context ESMA wonders whether the proposed amendments are not too broad. 

Full comment letter