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Mario Abela, Research Director of the EFRAG, and Ron Lott, Research Director of the FASB, presented the status of the EFRAG’s and the FASB’s work on their respective disclosure framework projects.
However, there was general consensus among CMAC members that improving the quality of disclosures may not be achieved by simply reducing the disclosure requirements. Some CMAC members indicated that today’s problem with disclosures may not be the accounting standard’s disclosure requirements but the behaviour and judgement relating to the concept of materiality. There is a concern that preparers are not exercising enough judgement when determining what information to disclose. The work of the auditor and regulator plays an important factor. In response to this concern, Mr Abela highlighted that the disclosure framework project would give more guidance in this context. Furthermore, he indicated that there is a need for new terminology that would better reflect the necessary judgement by preparers.
Sara Glen, IASB staff member, described the IASB’s and FASB’s current tentative decisions about the ‘three-bucket’ approach for the impairment of financial assets measured at amortised cost. She asked CMAC members for their views on the presentation of impairment allowances for originated versus purchased loans.
For purchased and originated assets, CMAC members said they wanted information about each group, rather than about the comparability between the two groups. For example, CMAC members said that they need to know the gross amount and the duration of the contract. They were also interested in information on the yield and organic income, and separate disclosure of interest income. One CMAC member said that information about the asset when it was originated is less important than the path it will follow. Investors would be mainly interested in the ultimate collectible amount and the current standing. In addition, having information on the characteristics of purchased assets makes it possible to stress test them. Another CMAC member said that he would be interested to know how much release of reserves is related to originated versus purchased assets.
Patrina Buchanan and Aida Vatrenjak, IASB staff members, asked CMAC members for their views on the appropriateness of three possible ways of subsequently measuring lessee’s right-of-use asset.
Roxana Damianov and Michael Kavanagh of the ESMA gave a presentation about their November 2011 consultation paper, 'Considerations of materiality in financial reporting' (which was available for public comment until 29 February, 2012). Michael Kavanagh suggested that there should not be a focus on a quantitative assessment of materiality, but rather on the usefulness of the information being provided. He said that materiality would often be based on a percentage figure of the balance sheet or the profit and loss account.
Mr Kavanagh then described how materiality should be assessed from the perspective of those who could be influenced by the amount in question, rather than of those who would be influenced. He noted the shift from a wider range of users in the old version of the 'Conceptual Framework' to a focus on investors and creditors in the new version. However, the CMAC members appreciated the focus on investors.
Sarah Geisman, IASB staff member, gave an overview of the proposals on investment entities and asked CMAC members for their views on them, in particular on the proposal that investment entities could measure their investees at fair value if specified criteria are met.
The CMAC members agreed with the exception from consolidation for the controlled investees of investment companies, because the purpose of such entities is different from normal operating entities and investors assess the performance of investment entities through fair value information. However, they were worried about the presentation of and disclosure about fair value information. One CMAC member argued that simply having a single fair value number would not be useful without any supplementary information about individual investments.
Glenn Brady, IASB staff member, updated the CMAC members on the status of the revenue recognition project. He then presented illustrative examples of the proposed disclosures and discussed a survey provided by the Securities Analysts Association of Japan. Mr Brady summarised the concerns of preparers, accounting standard-setters, professional bodies and audit firms about the costs and complexity of preparing the new disclosure requirements. He noted that some preparers had said that they may not currently have access in their systems to all the required information. Other preparers were concerned about the information overload that the new disclosures would create.
IASB staff member April Pitman discussed the post-implementation review of IFRS 8 'Operating Segments'. The aim of such a review is to determine whether the standard achieved its stated objectives and whether it has improved financial reporting. To do that, the analysis would compare what companies disclose under IFRS 8 with the information that was disclosed under IAS 14 'Segment Reporting'.
CMAC members expressed general dissatisfaction with the segment disclosures provided under IFRS 8, because in their view, such information is often different from the needs of users of financial statements. Ms Pitman described the concerns of other users about the reduced comparability and usefulness of information after the adoption of IFRS 8.
Patrina Buchanan, IASB staff member, provided an update on the endorsement of IFRSs 10-12 in Europe. She explained that although EFRAG was planning to issue positive endorsement advice to the European Commission on these standards, it had indicated that it would recommend a one-year delay to the effective date. She noted that in January 2012 the IASB had discussed a request to defer the effective date of those standards but had decided not to do so. There were a number of reasons for that decision, the main one being because of the important improvements to financial reporting that would result from the implementation of those standards, including the disclosures about interests in unconsolidated structured entities in IFRS 12 'Disclosure of Interests in Other Entities'.