Comments from ACCA the International Accounting Standards Board, 10 June 2015. Reference: CDR1339.
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.
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.
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:
replacing ‘discretion’ in paragraph 73 of the Standard with ‘right’ to align it with the requirements of paragraph 69(d) of the Standard
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
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 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 non-current. 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 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 re-financing (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 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.