International

We are pleased to respond to the invitation to comment on the Agenda Consultation.  Following consultation, this letter summarises the views of the BDO network ¹.

We welcome and support this first public consultation on the IASB’s future agenda.  We believe that this, and future consultations, will assist in strengthening the relationship between the IASB and its increasingly diverse range of constituents, and contribute to greater acceptance of the items which ultimately are, and are not, added to the IASB’s agenda.

We support the overall objective of developing, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based on clearly articulated principles.  We agree with many aspects of the IASB’s tentative view of the overall strategic direction and balance of the agenda, as articulated in the Agenda Consultation.

In the immediate future, the focus needs to be on completion of the current four major topics (Revenue from Contracts with Customers, Leases, Financial Instruments and Insurance Contracts).  As these projects move towards substantial completion, resources that become available should be focussed on completion of the revised Conceptual Framework.  We agree with the suggestion that the development of a disclosure framework would be an appropriate project to be carried out concurrently, but would not support the development of a presentation framework until the sections of the revised Conceptual Framework dealing with the elements of financial reporting have been completed.

 

While this might as a consequence give rise to what many describe as a ‘period of calm’ in standard setting, we do not consider that standard setting activities should cease for a period.  However, the primary focus should be on dealing with issues and concerns arising from existing standards and those which have recently been issued, with only those topics that are considered to require urgent attention giving rise to standards level projects.  This would permit preparers and users of financial statements to focus on the initial application of the new standards noted above, together with IFRSs 10-13, which cumulatively will bring significant changes for a wide range of entities.

Looking forward, when the IASB is considering adding a new standards level project to its agenda (or substantial modifications to an existing standard), we believe that a greater consensus should be sought before the commencement of any project to establish that there are major concerns with financial reporting arising from existing literature, or gaps, which require attention.  This might arise from inconsistencies in financial reporting, or where changes could significantly enhance the usefulness of financial statements for users.  We believe that had such an approach been adopted in prior years, some projects on which the IASB spent a substantial amount of time might not have been taken onto the agenda.

We hope that you will find our comments and observations helpful.  If you would like to discuss any of them, please contact Andrew Buchanan at +44 (0)20 7893 3300.
Yours faithfully


Andrew Buchanan
Global Head of IFRS
BDO IFR Advisory Limited

 

The overriding strategic priority of the IASB, as it develops its future agenda, is to focus on the objective of developing, in the public interest, a single set of high quality, understandable, enforceable and globally accepted financial reporting standards based on clearly articulated principles.  In doing so, the IASB needs to consider the relevance and usefulness to users of the information provided and its reliability, together with consideration of the implications of the accounting requirements on preparers of financial statements.

We agree with the view that the highest priority needs to be given to the completion of the outstanding four major projects:

These four accounting standards will have wide and far reaching effects, with the first three affecting almost all entities, and it is essential that sufficient time is taken in their ultimate development to ensure that they are based on clear, well articulated and understandable principles.  This is necessary in order that they can be interpreted and applied globally on a consistent basis; as suggested in the Agenda Consultation, this is increasingly important in the context of the increasing number of jurisdictions that have adopted, or are adopting, IFRS including the question of clarity of language and its associated translation into languages other than English. 

We also encourage the IASB to continue to work with the FASB to ensure, as far as possible, that the two boards reach fully converged requirements on these four accounting standards; this is of critical importance, in particular for financial instruments.  We consider that it would be undesirable for differences to exist, as this would give rise to the risk that entities reporting under IFRS might bring pressure to bear on the IASB to incorporate certain requirements of US GAAP.  The amendment made to IAS 39 in October 2008 is an example of this undesirable approach, which in principle has the clear potential to lead to a decline in the quality of financial reporting.

Unless changes in circumstances mean that there is a critical need to do so, we encourage the Board not to add any new projects to its agenda before resources become available as each of these four projects are substantially completed.  It would also be appropriate for the IASB to review their anticipated completion dates in order that a realistic timetable can be articulated to IFRS constituents so that they can make appropriate forward plans.
Once the IASB has the opportunity to add new projects to its agenda, we consider that these should be for the IASB in its own right with input being sought from the whole range of its constituents.  While National Standard Setters might assist the IASB with its work, we would not support further convergence projects, whether with the FASB or otherwise.

Question 1(a)
Do you agree with the categories we identified and the five strategic areas within them? If you disagree, how do you think the IASB should develop its agenda, and why?

We agree with the two main categories which have been identified, and consider that the five strategic areas within them are broadly appropriate.

We agree that, once resource becomes available through the substantial completion of the four projects referred to in our response to question 1, the continued development of the conceptual framework is a priority.  We noted, in our response to the Public Consultation: Status of Trustees’ Strategy Review, that:

Given that the overall objective of the Conceptual Framework project is to create a sound foundation for future accounting standards that are principles-based, internally consistent and internationally converged, the progression of the project would seem a key priority.  Having a set of overarching principles defining the elements of financial statements, and their recognition and measurement, is a preferable basis of developing standards as opposed to a perceived piecemeal approach to address anti-abuse considerations.

We also believe that the revisions to the Conceptual Framework need to be prioritised by section, with those dealing with what constitutes assets, liabilities and equity, together with what should be regarded as an entity’s financial performance, taking precedence over the other sections.  This might assist in dealing with the need to articulate clearly why certain items are recorded in profit or loss and others in Other Comprehensive Income (with an additional distinction for those latter items of whether and why they should subsequently be recycled to profit or loss).

While we agree that it is necessary to develop a disclosure framework, we do not agree that this should be combined with a presentation framework; these are separate and distinct issues.

The development of a disclosure framework is an urgent candidate for the IASB’s agenda, with this having been brought into sharp focus by criticism in recent years of excessive and boilerplate/poor quality disclosures being made, including immaterial items.  There is a critical need to consider the extent to which disclosures made by reporting entities can concentrate on the most significant aspects, reducing the potential for these to be obscured by an excess of detailed and less relevant information.

However, a presentation framework would need to be linked to revisions to the conceptual framework.  We believe that until the foundation for elements of financial statements has been dealt with, it would be premature to look further at their presentation.

We agree that the IASB should include research activities when determining whether a particular issue should be added to its agenda.  This links to our view that projects for new accounting standards should be undertaken only where there are major concerns that gaps in existing literature are such that transactions are being dealt with in different ways, or that a change in accounting approach would significantly enhance the usefulness of financial statements to users.

While the IASB should give consideration to areas such as integrated reporting and iXBRL, we do not consider that these are topics where significant time and resource should be applied at present, although they may become more significant in future.

We are supportive of post implementation reviews, with a focus on issues identified as contentious during the development of an IFRS and consideration of any unexpected costs or implementation problems that have been encountered.

It will be important for sufficient agenda space to be left available to deal with points identified from those reviews that indicate that an amendment is required to be made to an IFRS.  This links to a wider point, that a need for narrow scope amendments to IFRSs may be identified from a number of different sources, including the IFRS Interpretations Committee.  While some issues identified by the IFRS Interpretations Committee may be capable of being dealt with through the Annual Improvements process, others will not and it is essential that the IASB is in a position to deal with these quickly and effectively.

Question 2(b)
Adding new projects to the IASB’s agenda will require the balancing of agenda priorities with the resources available.
Which of the projects previously added to the IASB’s agenda but deferred would you remove from the agenda in order to make room for new projects, and why? Which of the projects previously added to the IASB’s agenda but deferred do you think should be reactivated, and why? Please link your answer to question 2(a).

As noted above, we believe that the completion of the current four main projects and the completion of the revised Conceptual Framework should take priority.  We also believe that the IASB needs to increase its capacity to undertake narrow scope projects that are too broad to be addressed by the IFRS Interpretations Committee and the annual improvements project.

Once agenda space becomes available, as indicated in our response to question 1, we consider that a project should only be undertaken where there are concerns about existing financial reporting requirements (or the lack of them).  Activities that should be undertaken in determining whether a project candidate meets those criteria are linked to the IASB’s improvements to its due process in recent years; we noted in our response to the IFRS Foundation Monitoring Board Consultative Report on the Review of the IFRS Foundation’s Governance:

We believe the IASB needs to build on its enhanced outreach activities to seek a greater consensus before the commencement of projects to establish that: