FINANCIAL REPORTING STANDARDS COUNCIL MEETING HELD ON 15 JULY 2016

Transcription

1 FINANCIAL REPORTING STANDARDS COUNCIL (FRSC) NEWSLETTER JULY 2016 FINANCIAL REPORTING STANDARDS COUNCIL MEETING HELD ON 15 JULY 2016 Dear Stakeholder The Financial Reporting Standards Council (FRSC) held its third meeting for the year on 15 July At this meeting, the FRSC considered the following matters that are highlighted in this newsletter: Financial Reporting Pronouncements for which comment has closed Amendments to the FRSC Rules of Procedure. The Preface to Financial Reporting Pronouncements and Guides. A discussion on the scope of the technical project on the Reduced Disclosure Framework. Pronouncements approved and/or issued for comment by the IASB. Update on other events. RECAP OF THE ROLE OF THE FRSC The FRSC was formed in October 2011 and is the legally constituted financial reporting standard-setter for companies in South Africa. The FRSC was established by the Minister of Trade and Industry in terms of section 201 of the Companies Act, Act no 71 of 2008, and has the following responsibilities in terms of section 204 of the Companies Act: to receive and consider any relevant information relating to the reliability of, and compliance with financial reporting standards and to adapt international reporting standards for local circumstances; to advise the Minister of Trade and Industry on financial reporting standards matters; and to consult with the Minister of Trade and Industry on regulations establishing financial reporting standards. 1

2 THE CURRENT MEMBERS OF THE FRSC Suresh Kana Christine Ramon Johan Brink Kim Bromfield Garth Coppin Khaya Dludla Dawn Earp Naidene Ford-Hoon Bruce Mackenzie Dumisani Manana Precious Mbingo Matshepo More Rory Voller Tania Wimberley Chairperson Deputy Chairperson There are currently three vacancies on the FRSC. TECHNICAL MATTERS FROM MEETING HELD ON 15 JULY 2016 A. Financial Reporting Pronouncements for which comment has closed The FRSC noted that the comment period for the following Financial Reporting Pronouncements have closed: Substantively Enacted Tax Rates and Tax Laws Under IFRS and IFRS for SMEs The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction Under IFRS in the South Africa Pension Fund Environment Accounting for Black Economic Empowerment (BEE) Transactions Under IFRS and IFRS for SMEs. Comment received on the three pronouncements will now be assessed. The FRSC will consider the final pronouncements for approval at its November 2016 meeting. B. Amendments to the FRSC Rules of Procedure The FRSC Rules of Procedure outlines the due process followed by the FRSC in the development of Financial Reporting Pronouncements (FRPs) and Financial Reporting Guidelines (FRGs). It also outlines the administrative procedures followed by the FRSC in performing its duties. At its last meeting, the FRSC agreed that two of its members should review the FRSC Rules and Procedures for amendments. At this meeting, the FRSC considered the final draft of the updated FRSC Rules and Procedures following this review. 2

3 It was agreed that a marked-up copy should be circulated to all members for final comment and input. Any matters of principle will be discussed and debated at the next FRSC meeting. The final FRSC Rules and Procedures will be considered for approval at the November 2016 meeting. C. Preface to Financial Reporting Pronouncements and Guides Preface to Financial Reporting Pronouncements and Guides The FRSC considered the draft Preface to Financial Reporting Pronouncements and Guides. The proposed Preface was approved by all members present, subject to an amendment to the copyright page. Following this approval, the Preface to Financial Reporting Pronouncements and Guides will now be included on the FRSC s website. Preface to Summarised Financial Statements In addition, the FRSC also considered the draft Preface to be included in the Financial Reporting Guideline (FRGs) on Summarised Financial Statements. The Preface clarifies that the FRG provides guidance on the requirements for preparing summarised financial statements which an entity may provide in terms of section 29(3) of the Companies Act. It further clarifies that the FRSC may issue FRGs, which is non-authoritative guidance on the application of financial reporting frameworks as prescribed in Regulation 27 to the Companies Act. The proposed Preface was approved by all FRSC members present. D. Reduced Disclosure Framework The Chair of the Financial Reporting Technical Committee (FRTC) shared feedback on discussions held by the Reduced Disclosure Framework s sub-committee discussions on the project to develop a reduced disclosure framework. It was noted that the FRTC considered the guidance from the United Kingdom, Australia and New Zealand as a starting point to commence with the development of a local reduced disclosure framework. Specific feedback was required from the FRSC members on the scope of the project. The FRTC proposed that a reduced disclosure framework should be developed for the subsidiary companies of parent companies that apply IFRS in preparing consolidated financial statements for the group. The FRSC members debated this proposal. It was agreed that, as opposed to the development of a framework, the FRTC should rather commence the project with the development of a Discussion Paper. The objective of the Discussion Paper will then be to highlight the reduced disclosure frameworks of other countries, with a proposal and a request to respondents on whether a similar framework should be developed for local circumstances. The Reduced Reporting Framework as issued by the UK will be used as a starting point in developing an example of how such a framework would look like. In addition, the Discussion Paper will also request comment on the entities to which the framework should be applied, if respondents support the development thereof. The FRSC agreed to put forth the view in the Discussion Paper that such a framework may be applied by 3

4 wholly owned subsidiaries of parent companies that apply IFRS as their reporting framework, in accordance with the Companies Act. The FRTC s sub-committee will commence work on the Discussion Paper so that the first draft can be considered by the FRSC at its November 2016 meeting. E. Pronouncements approved and/or issued for comment by the IASB FINAL PRONOUNCEMENT ISSUED Amendments to IFRS 2 Share-based Payments During June 2016, the International Accounting Standards Board (IASB) approved three amendments to IFRS 2 Share-based Payments, namely: (a) (b) Accounting for a modification of a share-based payment transaction that changes its classification from cash-settled to equity settled This amendment requires that the equity-settled share-based payment transaction should be recognised in equity to the extent that goods or service have been received at the date at which modifications are made to the terms and conditions of equity-settled share-based payments. This measurement is made by reference to the modification date fair value of the equity instrument granted. In addition, the liability from the original cash-settled share-based payment should be derecognised on the modification date, as it is considered to be settled when the entity grants the replacement equity-settled share-based payment. Any difference between the carrying amount of the derecognised liability and the amount of the recognised equity on the modification date, is immediately recognised in profit and loss. Guidance was also provided to account for a grant of equity instruments that has been identified as a replacement for a cancelled cash-settled share-based payment. This accounting treatment is different from the accounting for modifications of equity-settled awards when the entity does not identify new equity instruments granted as replacement equity instruments for the cancelled equity instruments. In this case, the entity does not reverse the expense recognised for the cancelled original equity-settled award, but recognise an expense for the new grant of equity instruments. The guidance implies that if an entity does not identify a grant of equity instruments as a replacement, the entity would have to reverse the expense recognised for the cash-settled share-based payment and recognise an expense for the new equity-settled share-based payment. Share-based payment transactions with a net settlement feature for withholding tax obligations Paragraph 34 of IFRS 2 indicates that a share-based payment transaction, or components of the transaction, should be classified as a cash-settled share-based payment transaction if, and to the extent that the entity has incurred a liability to settle in cash or other assets. Consequently, a transaction with such a net settlement feature would be divided into two components. Each component would be accounted for consistently with how it is settled. The component that reflects the entity s obligation to pay cash to the tax authority would be accounted for as a cash-settled share-based payment, while the component that reflects the entity s obligation to issue equity instruments to the employee, would be accounted for as an equity-settled share-based payment. 4

5 (c) The IASB decided to make an exception to this requirement, which requires that the transaction should be classified as equity-settled in its entirety, if it would have been so classified had it not included the net settlement feature. This exemption is, however, limited to share-based payments described in paragraph 33E of IFRS 2. Paragraph 33G was also added to clarify that the accounting for the amount transferred to the tax authority in respect of the employee s tax obligation associated with the sharebased payment, is consistent with the accounting described in paragraph 29, i.e. as if the entity had repurchased the vested equity instruments. The IASB also decided to require an entity to disclose the estimated amount that it expects to transfer to the tax authority when this disclosure informs users about the future cash-flow effects associated with the share-based payment. Effects of vesting conditions on the measurement of a cash-settled share-based payment The IASB amended some of the guidance in IFRS 2 and added additional guidance to clarify the effect that market and non-market vesting conditions and non-vesting conditions have on the measurement of the liability incurred in a cash-settled payment transaction. The IASB noted that if an employee does not receive a payment because of failure to satisfy any condition, this should result in remeasuring the liability to zero. The amendment to IFRS 2 makes it clear that the cumulative amount ultimately recognised for goods or services received as consideration for a cash-settled sharebased payment, will equal the amount of cash, or other assets, that is paid. The above amendments to IFRS 2 become effective for annual periods beginning on or after 1 January PRONOUNCEMENTS ISSUED FOR COMMENT ED 2016/1 Definition of a Business and Accounting for Previously Held Interests This Exposure Draft proposes amendments to IFRS 3 Business Combinations and IFRS 11 Joint Arrangements to clarify: (a) (b) the definition of a business; and the accounting for previously held interests when an entity obtains control of a business that is a joint operation, and when it obtains joint control of a business that is joint operation. As the financial reporting requirements for the acquisition of a business is different from the requirements for the purchase of a group of assets that does not constitute a business, the amendment proposed to the definition of a business is aimed at providing entities with clearer application guidance to help with the distinction between a business and a group of assets when applying IFRS 3. The IASB further agreed to clarify the diversity in practice in accounting for interests that the entity held in the assets and liabilities of a joint operation before obtaining control of the joint operation. The proposed amendment therefore clarifies that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. Comment to this Exposure Draft is due by 31 October

6 Trustee s review of structure and effectiveness: Proposed amendments to the IFRS Foundation Constitution In July 2015 the trustees issued a document Request for Views Trustee s Review of Structure and Effectiveness: Issues for the Review. In its new Exposure Draft, the trustees proposes changes to its constitution following the comment received on the July 2015 Request for Reviews. Comment on these amendments is due by 15 September F. Update on Other Events Report on the activities of the IFRS Foundation Professor Wiseman Nkuhlu, member of the IFRS Foundation, provided feedback to the FRSC members on the activities of the IFRS Foundation. In addition to highlighting the proposed changes to the Foundation s Constitution as proposed in the Exposure Draft, it also noted highlights from the IASB s work programme for the period 2017 to Amendments proposed to the Companies Act The FRSC noted that the Department of Trade and Industry has not yet issued proposed amendments to the Companies Act. It was noted that the draft Amendment Bill is likely to be issued during August 2016, while the amendments are expected to be issued early in PAFA Conference An FRSC member, Bruce McKenzie, has accepted an invitation to present at the August 2016 Pan African Federation of Accountants (PAFA) Conference to be held in Kenya. As PAFA is seeking nominations for a new Chair to its technical committee, the FRSC agreed to nominate Bruce McKenzie for this position. IASB s Emerging Economies Group (EEG) meeting in 2016 It has been confirmed that the next EEG meeting will be hosted by South Africa on 3 and 4 November Proposed amendments to the JSE Listing Requirements A proposed amendment to the JSE Listing Requirements was noted. In terms of the proposed amendment, all equity and debt issuers are now required to prepare and submit, within four months of the end of the financial year, its audited financial statements to the JSE. In addition, it is proposed that debt issuers will also be required to prepare interim results. The proposed amendments is open for public comment until 15 July NEXT FRSC MEETING The FRSC s next meeting is scheduled for 15 November Observers are welcome to attend these meetings, but it should be noted that, because space is limited, observers and interested parties who want to attend meetings are requested to send an to frsc@thedti.gov.za for confirmation. 6

7 Accessing documents issued by the FRSC Persons and organisations that are interested in the activities of the FRSC should monitor the website to be advised of the release of any new Exposure Drafts for public comment. Participation The FRSC welcomes participation in the Standard setting process in South Africa, and therefore encourages stakeholders to be part of this process. Yours sincerely Suresh Kana Chairman of the FRSC 7

8 The FRSC acknowledges the contribution of the Financial Reporting Technical Committee whose membership comprises: CHAIRMAN Professor Danie Coetsee University of Johannesburg ACADEMICS Warren Maroun Gareth Olivier WITS Monash/CA Connect STANDARD SETTING BODIES, REGULATORS and GOVERNMENT Lindy Bodewig Jeanine Poggiolini Sadhir Issirinarain National Treasury Accounting Standards Board IRBA PROFESSIONAL BODIES Dr Rashied Small Daleen MacDonald Bongeka Nodada SAIPA SAIBA SAICA COMMERCE AND INDUSTRY Stephen Brickett Brenda Baijnath Samantha Barnfather Standard Bank SASOL Naspers PREPARERS AND USERS Tania Wimberley Jacob Buys Kilford Gondo AUDITORS Cynthia Mbili Nita Ranchod James Luke Zubair Wadee Heather de Jongh Justine Combrink (alternate for Zubair) Theunis Schoeman (alternate for Nita) JSE Eskom Transnet SizweNtsalubaGobodo Deloitte EY PWC KPMG Mazars Grant Thornton SECRETARIAT Ian Mtegha IRBA Technical Assistant: Standards 8