Page 1 of 2Our Ref.: C/FRSCSent electronically through the IFRS Website (www.ifrs.org)
16 November 2021Sue LloydIFRS Interpretations CommitteeColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Sue,Tentative agenda decision – Demand Deposits with Restrictions on Use(IAS 7 Statement of Cash Flows)
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants in Hong Kong. We are grateful for the opportunityto provide you with our views on this tentative agenda decision (TAD).The HKICPA and its respondents agree with the conclusion in the TAD with respect tothe specific fact pattern in the submission. However, our respondents are concernedabout the potential implications of the following principle introduced in the TAD:
“The Committee concluded that restrictions on use of a demand depositarising from a contract with a third party do not result in the deposit no longerbeing cash, unless those restrictions change the nature of the deposit in away that it would no longer meet the definition of cash in IAS 7.”
In particular, our respondents questioned whether, and if so, how the above principleapplies to similar fact patterns in the real estate industry and to entities holding clientmoney, which are prevalent in Hong Kong and Mainland China. For example,a) In Mainland China, pursuant to local regulatory requirements, property developersare required to place proceeds from pre-sale of properties to designated bankaccounts, which can only be withdrawn to settle construction costs of the associatedproperty projects before reaching specific completion milestones. Each withdrawalneeds to be supported by invoices from contractors.b) In Hong Kong, proceeds from pre-sale of properties are placed in stakeholders’accounts under the custodian of lawyers. Similarly, funding in the stakeholders’accounts can only be used for settling construction costs of the associated propertyprojects before reaching specific completion milestones.c) Securities brokers hold client money in segregated bank accounts and the use ofsuch client money is subject to laws and regulations.Our respondents noted that a lot of the restrictions on the entities’ ability to access thedeposits are not necessarily imposed by contracts but by laws and regulations, andtherefore questioned whether and how the effect of laws and regulations would changethe nature of the deposits applying the above principle in the TAD. Our respondents alsoquestioned whether the conclusion would differ simply because the related contractshave or have not incorporated the requirements of the laws and regulations.Page 2 of 2We acknowledge our respondents’ concerns and consider that the IASB should furtheranalyse the interplay between laws and regulations and contractual terms. In particular,we note that such question also arises in other financial reporting areas, e.g.classification of financial instruments as liabilities or equity which the IASB is trying toaddress as part of its Financial Instruments with Characteristics of Equity (FICE) project.In this regard, we recommend that the IC:
a) consider carefully the timing of finalising the TAD and the exposure draft (ED) of theFICE project1 given that the outcomes of both the TAD (once finalised as an agendadecision) and the ED could have potential implications on how entities shouldconsider the interaction between laws and regulations and contractual terms; andb) provide guidance on how the principle in the TAD would apply to arrangementswhere restrictions on the use of deposits are imposed by laws and regulations, if theIC were to finalise the TAD before the publication of the FICE ED.Work undertaken by HKICPA in forming its views:
In response to this TAD, the HKICPA:
a) issued an Invitation to Comment on the TAD to its members and other stakeholders;
b) sought input from its Disclosure Initiative Advisory Panel and Financial InstrumentsAdvisory Panel, which are mainly comprised of technical and industry experts fromaccounting firms; andc) developed its views through its Financial Reporting Standards Committee, whichcomprises academics, preparer representatives from various industry sectors,regulators, as well as technical and industry experts from small, medium and largeaccounting firms.If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk) or Katherine Leung (katherineleung@hkicpa.org.hk),Associate Director of the Standard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting Department1 The IASB has not yet decided on the timeline for the ED of the FICE project according to its work plan asof 16 November 2021.
Tentative agenda decision – Demand Deposits with Restrictions on Use ( IAS 7 Statement of Cash Flows )
下载原件Page 1 of 2Our Ref.: C/FRSCSent electronically through the IFRS Website (www.ifrs.org)
16 November 2021Sue LloydIFRS Interpretations CommitteeColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Sue,Tentative agenda decision – Demand Deposits with Restrictions on Use(IAS 7 Statement of Cash Flows)
The Hong Kong Institute of Certified Public Accountants (HKICPA) is the only bodyauthorised by law to set and promulgate standards relating to financial reporting, auditingand ethics for professional accountants in Hong Kong. We are grateful for the opportunityto provide you with our views on this tentative agenda decision (TAD).The HKICPA and its respondents agree with the conclusion in the TAD with respect tothe specific fact pattern in the submission. However, our respondents are concernedabout the potential implications of the following principle introduced in the TAD:
“The Committee concluded that restrictions on use of a demand depositarising from a contract with a third party do not result in the deposit no longerbeing cash, unless those restrictions change the nature of the deposit in away that it would no longer meet the definition of cash in IAS 7.”
In particular, our respondents questioned whether, and if so, how the above principleapplies to similar fact patterns in the real estate industry and to entities holding clientmoney, which are prevalent in Hong Kong and Mainland China. For example,a) In Mainland China, pursuant to local regulatory requirements, property developersare required to place proceeds from pre-sale of properties to designated bankaccounts, which can only be withdrawn to settle construction costs of the associatedproperty projects before reaching specific completion milestones. Each withdrawalneeds to be supported by invoices from contractors.b) In Hong Kong, proceeds from pre-sale of properties are placed in stakeholders’accounts under the custodian of lawyers. Similarly, funding in the stakeholders’accounts can only be used for settling construction costs of the associated propertyprojects before reaching specific completion milestones.c) Securities brokers hold client money in segregated bank accounts and the use ofsuch client money is subject to laws and regulations.Our respondents noted that a lot of the restrictions on the entities’ ability to access thedeposits are not necessarily imposed by contracts but by laws and regulations, andtherefore questioned whether and how the effect of laws and regulations would changethe nature of the deposits applying the above principle in the TAD. Our respondents alsoquestioned whether the conclusion would differ simply because the related contractshave or have not incorporated the requirements of the laws and regulations.Page 2 of 2We acknowledge our respondents’ concerns and consider that the IASB should furtheranalyse the interplay between laws and regulations and contractual terms. In particular,we note that such question also arises in other financial reporting areas, e.g.classification of financial instruments as liabilities or equity which the IASB is trying toaddress as part of its Financial Instruments with Characteristics of Equity (FICE) project.In this regard, we recommend that the IC:
a) consider carefully the timing of finalising the TAD and the exposure draft (ED) of theFICE project1 given that the outcomes of both the TAD (once finalised as an agendadecision) and the ED could have potential implications on how entities shouldconsider the interaction between laws and regulations and contractual terms; andb) provide guidance on how the principle in the TAD would apply to arrangementswhere restrictions on the use of deposits are imposed by laws and regulations, if theIC were to finalise the TAD before the publication of the FICE ED.Work undertaken by HKICPA in forming its views:
In response to this TAD, the HKICPA:
a) issued an Invitation to Comment on the TAD to its members and other stakeholders;
b) sought input from its Disclosure Initiative Advisory Panel and Financial InstrumentsAdvisory Panel, which are mainly comprised of technical and industry experts fromaccounting firms; andc) developed its views through its Financial Reporting Standards Committee, whichcomprises academics, preparer representatives from various industry sectors,regulators, as well as technical and industry experts from small, medium and largeaccounting firms.If you have any questions regarding the matters raised in this letter, please contact me(ceciliakwei@hkicpa.org.hk) or Katherine Leung (katherineleung@hkicpa.org.hk),Associate Director of the Standard Setting Department.Sincerely,Cecilia KweiDirector, Standard Setting Department1 The IASB has not yet decided on the timeline for the ED of the FICE project according to its work plan asof 16 November 2021.