Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR)

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Cameron Benson
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1 Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) 35th SESSION October 2018 Room XVII, Palais des Nations, Geneva Thursday, 25 October 2018 Afternoon Session Agenda item 4. Issues of practical implementation of international standards of accounting and reporting in the public and private sectors Presented by Andrew Watchman Chief Executive Officer and Technical Expert Group Chairman European Financial Reporting Advisory Group This material has been reproduced in the language and form as it was provided. The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.

2 IFRS IMPLEMENTATION EFRAG S ROLE 35TH SESSION OF UNCTAD-ISAR 25 OCTOBER 2018

3 AGENDA EFRAG s core activities EFRAG s input to IFRS IFRS state of play Role of impact assessment Role of others 2

4 EFRAG S ACTIVITIES EFRAG s core activities Influencing IFRS (from the start of each project) Endorsement advice Research activities NEW EUROPEAN CORPORATE REPORTING LAB 3

5 EFRAG S INPUT TO IFRS During development Monitor IASB project Comment to IASB (or staff) where issues expected Contribute EFRAG research findings DP or ED issued Draft comment letter issued Outreach, field tests and earlystage impact assessment Finalise comment letter to IASB Standard issued Work plan based on request from EC Draft endorsement advice issued Outreach, field tests and impact assessment Finalise endorsement advice to EC 4

6 IFRS STATE OF PLAY (1) IFRS FOUNDATION PROFILED 166 JURISDICTIONS (98% OF GLOBAL GDP) 144 require use of IFRS Standards for all or most public companies 13 additional jurisdictions permit IFRS Standards for all or most domestic companies 6 IFRS Foundation estimates over 50% of domestic listed companies on 93 securities exchanges in the world use IFRS Standards >90% of those that do not use IFRS are in Japan, China, India and the US 5

7 IFRS STATE OF PLAY (2) MAJOR NEW IFRS STANDARDS AND THE PERIOD OF CALM IFRS 9 Financial Instruments Implement Apply IFRS 15 Revenue 6 from Contracts IFRS 16 Leases Implement Implement Apply Apply IFRS 17 Insurance Contracts Period of calm? Implement Std setting Apply Companies* * other than insurers 6

8 HOW DOES IMPACT ASSESSMENT SUPPORT IMPLEMENTATION? IFRS 16 LEASES AS A CASE STUDY Impact assessment provides insights into: Implementation costs Effect on the financial statements IFRS 16 costs ( k) Below 500m 500m 5bn Over 5bn Revenue band Impact on financial statements Average increase (excl financials) Utilities Telecoms Materials Information Technology Industrials Healthcare Energy Consumer Staples Consumer Discretionary 0% 5% 10% 15% 20% 25% 30% Costs initial Costs ongoing Increase in EBITDA Increase in reported debt 7

9 HOW DOES IMPACT ASSESSMENT SUPPORT IMPLEMENTATION? IFRS 16 LEASES AS A CASE STUDY Impact assessment provides insights areas of technical complexity and/or high levels of judgement Based on EFRAG s assessment these include: Applying the definition of a lease Determination of lease term Determining the incremental borrowing rate (smaller entities) 8

10 HOW DOES IMPACT ASSESSMENT SUPPORT IMPLEMENTATION? IFRS 16 LEASES AS A CASE STUDY Impact assessment provides insights into potential wider effects, e.g. 25% of lessees expect to have to renegotiate borrowing covenants (with most expecting this to be a straightforward exercise) 50% of analysts expect to continue to make adjustments to the IFRS 16-based numbers Modest decline (up to 3%) in demand for leases projected along with limited renegotiation of lease terms 9

11 ROLE OF OTHERS Standardsetters Preparers Auditors Regulators Academics Investors 10

The contents of this presentation is the sole responsibility of EFRAG and can under no

12 EFRAG receives financial support of the European Union - DG Financial Stability, Financial Services and Capital Markets Union. The contents of this presentation is the sole responsibility of EFRAG and can under no circumstances be regarded as reflecting the position of the European Union. EFRAG Aisbl - ivzw 35 Square de Meeüs B-1000 Brussel Tel. +32 (0)

Disclosure Initiative Principles of Disclosure

Disclosure Initiative Principles of Disclosure JOINT INVESTOR OUTREACH EVENT IN MILAN 18 September 2017 BACKGROUND BRIEF HISTORY OF THE DISCLOSURE PROBLEM 2005 Europe moves to IFRS Standard. Significant