Classification of Liabilities Proposed amendments to IAS 1 Exposure Draft ED/2015/1, issued by the International Accounting Standards Board in February 2015 Comments from ACCA 10 June 2015 Ref: TECH-CDR-1339 ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants. It offers business-relevant, first-choice qualifications to people of application, ability and ambition around the world who seek a rewarding career in accountancy, finance and management. ACCA supports its 170,000 members and 436,000 students in 180 countries, helping them to develop successful careers in accounting and business, with the skills required by employers. ACCA works through a network of 92 offices and centres and more than 8,500 Approved Employers worldwide, who provide high standards of employee learning and development. Through its public interest remit, ACCA promotes appropriate regulation of accounting and conducts relevant research to ensure accountancy continues to grow in reputation and influence. www.accaglobal.com 1
Further information about ACCA s comments on the matters discussed here may be obtained from the following: Paul Cooper Corporate Reporting Manager, ACCA Email: paul.cooper@accaglobal.com ACCA welcomes the opportunity to provide comments on the above Exposure Draft (ED). Our Global Forum for Corporate Reporting has considered the questions raised, and its views are reflected in the following general and specific comments. GENERAL COMMENTS ACCA mainly agrees with the proposals in the ED. As set out in our specific comments below, we do have some suggestions and potential concerns to express as well. 2
SPECIFIC COMMENTS We now comment on the specific questions raised in the ED, as follows: Q1. Classification based on the entity s rights at the end of the reporting period The IASB proposes clarifying that the classification of liabilities as either current or non-current should be based on the entity s rights at the end of the reporting period. To make that clear, the IASB proposes (a) replacing discretion in paragraph 73 of the Standard with right to align it with the requirements of paragraph 69(d) of the Standard (b) making it explicit in paragraphs 69(d) and 73 of the Standard that only rights in place at the reporting date should affect this classification of a liability, and (c) deleting unconditional from paragraph 69(d) of the Standard so that an unconditional right is replaced by a right. Do you agree with the proposed amendments? Why or why not? (a) We support the alignment of current paras 69(d) and 73 of IAS 1 by substituting discretion with right in the latter. In our 3
September 2012 response to similar earlier proposals (ED/2012/1 Annual Improvements to IFRSs 2010-2012 Cycle), we expressed concern that an expectation and discretion to refinance were not sufficiently robust to justify the classification of a liability as noncurrent. The ED proposes criteria of an expectation and a right in para 69(a) and (d) respectively: we believe that an intention (i.e., definite steps being taken) as well as a right should in fact be more robust. (b) We support the proposed emphasis on the situation at the end of the reporting period (proposed para 69(d), and amendments to current para 73). Changes to the classification of a liability shortly after the period-end can be appropriately reflected (and communicated to users of the financial statements) via a disclosure note. (c) We agree that, as explained in para BC2 of the ED, rights to defer settlement are rarely entirely unconditional, which has resulted in the proposal to replace an unconditional right with simply a right in para 69(d) of IAS 1. The IASB may need to consider, however, whether the retention of the descriptor unconditional would be important for certain more complex products such as embedded derivatives, potentially then accommodating these products whilst at the same time resolving the lack of clarity referred to in para BC2. (d) Additional point: in current para 73 of IAS 1, it is proposed that the right will be in relation to a roll-over, and not now a 4
refinancing too. We recommend that the IASB considers and clarifies the difference between a roll-over and a re-financing. This should assist users in implementing the revised Standard. The extent of changes to the terms of the liability is likely to be a key factor, such that a roll-over could take place with a different lender (due to the terms remaining identical, or almost so), whilst a refinancing (entailing more significant changes) could take place with the same lender (or its connected entity). Q2. Linking settlement with the outflow of resources The IASB proposes making clear the link between the settlement of the liability and the outflow of resources from the entity by adding by the transfer to the counterparty of cash, equity instruments, other assets or services to paragraph 69 of the Standard. Do you agree with that proposal? Why or why not? We agree that this additional wording provides the clarification intended by the IASB. Q3. Transition arrangements The IASB proposes that the proposed amendments should be applied retrospectively. Do you agree with that proposal? Why or why not? We support this proposal, with some reservations. The IASB does give practical supporting arguments in para. BC20 of the ED concerning the 5
ease of application of the proposed changes, and the usefulness of the information provided through the proposed retrospective application. As noted in para. BC19, the proposed changes do not constitute a change in accounting policy and strictly, therefore, should be applied prospectively. We therefore view the proposed retrospective application as an exception which whilst practical, ought not to be applied frequently. 6