Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
26 November 2019Mr Hans HoogervorstInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Hans,IASB Exposure Draft ED/2019/6Disclosure of Accounting PoliciesThe 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 theopportunity to provide you with our views on this Exposure Draft (ED).The HKICPA appreciates the IASB’s efforts to propose narrow-scope amendments toIAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 MakingMateriality Judgements (Materiality Practice Statement) to help entities provideaccounting policy disclosures that are more useful to users of financial statements. Wealso agree that the concept of materiality should be applied to the disclosure ofaccounting policies and support the IASB’s proposal to require an entity to disclose‘material’ instead of ‘significant’ accounting policies.However, the HKICPA has some comments and recommendations on the proposals asfollows:
Proposed amendments to IAS 1 Presentation of Financial StatementsThe HKICPA thinks that it is difficult to understand the statement in proposed paragraph117A that ‘…not all accounting policies relating to material transactions, other events orconditions are themselves material’ without reading new example T in the MaterialityPractice Statement. We recommend the IASB should further elaborate in IAS 1 underwhat circumstances such an accounting policy would not be material to support thisstatement. We also suggest the second sentence of proposed paragraph 117A is movedbelow the proposed paragraph 117C to provide a more logical sequence of requirements.Furthermore, the HKICPA considers that the proposed paragraph 117B(a) is notconsistent with the principle of materiality. The example refers to ‘material change toamounts’, which implies only quantitative factors are considered. Whether an accountingpolicy is material requires consideration of qualitative factors as well. We also note achange in accounting policy may affect users’ decisions on the future operation ofcompany, and should not only be based on the financial impact of the change at a pointin time.Proposed amendments to the Materiality Practice StatementThe HKICPA considers that the ‘Diagram-determining whether an accounting policy ismaterial’ (Diagram) is useful for readers to apply the proposal. However, it only makesreference to the proposed paragraphs 117, 117A and 117D. We suggest that theDiagram should also demonstrate how to apply the proposed paragraphs 117B and117C to help readers understand the logical flow of these paragraphs and to provide acomplete thinking process for determining whether an accounting policy is material.The HKICPA notes that example S only demonstrates how to judge whether theaccounting policy is material and suggests the IASB to expand the example by providingguidance on what kinds of entity-specific information might be disclosed.Furthermore, the HKICPA considers that the analysis in example T might causeconfusion. Having identified that assets subject to impairment testing are material to thefinancial statements and the impairment accounting policy meets the proposedparagraph 117B(d), one would conclude that the accounting policy for impairment ismaterial. However, the separate accounting policy is not ultimately required to bedisclosed because it merely duplicates the IFRS requirements. We consider that it wouldbe easier for readers to understand the proposals if the IASB developed example T toillustrate two contrasting cases: (i) illustrating when an impairment accounting policy justduplicates IFRS requirements and is not material; and (ii) illustrating an impairmentaccounting policy that contains entity-specific information (eg one that describes howthe entity determines its cash generating units for impairment testing) and is consideredmaterial. In addition, the IASB should demonstrate how the proposed paragraphs 117-117D are applied in example T in order to help readers understand the logical flow ofthese paragraphs (ie provide a clearer link between the example and proposedparagraphs 117-117D).Overall commentsThe Conceptual Framework for Financial Reporting 2018 states that financial reports areprepared for users who have a reasonable knowledge of business and economicactivities and who review and analyse the information diligently. The HKICPA notes thatusers are not expected to be IFRS experts. If all accounting policies that only duplicatethe recognition or measurement requirements of IFRS are removed from the financialstatements, users who are unfamiliar with IFRS requirements may have to consult IFRSStandards in order to understand the financial statements.In this respect, we agree with Martin Edelmann’s comment in paragraph AV3 of the ED.We recommend the IASB should add guidance in the Materiality Practice Statementexplaining that if management thinks the disclosure of additional accounting policies mayhelp understanding for some financial statement users, for example when accountingrequired by an IFRS Standard is complex, then they should be disclosed. However, wesuggest this guidance emphasizes that when providing additional accounting policies,entities should:
provide entity-specific information where possible, rather than repeat IFRSrequirements; andexercise judgement in deciding where to disclose them to prevent obscuring materialaccounting policies, for example they might be disclosed in an appendix to the report.In addition, we recommend that the IASB should consider incorporating the Diagram andthe new examples in the illustrative examples supporting IAS 1 to make them moreaccessible and help readers apply the IAS 1 requirements.Finally, the HKICPA recommends the IASB should clarify that:
the proposed amendments only apply to making materiality decisions about thedisclosure of accounting policies for the purposes of preparing general purposefinancial statements; andtherefore, assessing materiality for purposes other than the preparation of financialstatements, for example determining key audit matters, is beyond the scope of thisproposal.Work undertaken by HKICPA in forming its views:
The HKICPA:
(a) issued an Invitation to Comment on the ED on 2 August 2019 to our stakeholders;
(b) sought input from its Disclosure Initiative Advisory Panel comprising technical andindustry experts and auditors from accounting firms; and(c) developed its views through its Financial Reporting Standards Committee, havingreflected on its stakeholder feedback. The Committee comprises of academics,preparer representatives from various industry sectors, investors, regulators, andtechnical and industry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contact meor Katherine Leung (katherineleung@hkicpa.org.hk) Associate Director of the StandardSetting Department.Sincerely,Christina NgDirector, Standard Setting Department
IASB Exposure Draft ED/2019/6 Disclosure of Accounting Policies
下载原件Our Ref.: C/FRSCSent electronically through the IASB Website (www.ifrs.org)
26 November 2019Mr Hans HoogervorstInternational Accounting Standards BoardColumbus Building7 Westferry CircusCanary WharfLondon E14 4HDUnited KingdomDear Hans,IASB Exposure Draft ED/2019/6Disclosure of Accounting PoliciesThe 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 theopportunity to provide you with our views on this Exposure Draft (ED).The HKICPA appreciates the IASB’s efforts to propose narrow-scope amendments toIAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 MakingMateriality Judgements (Materiality Practice Statement) to help entities provideaccounting policy disclosures that are more useful to users of financial statements. Wealso agree that the concept of materiality should be applied to the disclosure ofaccounting policies and support the IASB’s proposal to require an entity to disclose‘material’ instead of ‘significant’ accounting policies.However, the HKICPA has some comments and recommendations on the proposals asfollows:
Proposed amendments to IAS 1 Presentation of Financial StatementsThe HKICPA thinks that it is difficult to understand the statement in proposed paragraph117A that ‘…not all accounting policies relating to material transactions, other events orconditions are themselves material’ without reading new example T in the MaterialityPractice Statement. We recommend the IASB should further elaborate in IAS 1 underwhat circumstances such an accounting policy would not be material to support thisstatement. We also suggest the second sentence of proposed paragraph 117A is movedbelow the proposed paragraph 117C to provide a more logical sequence of requirements.Furthermore, the HKICPA considers that the proposed paragraph 117B(a) is notconsistent with the principle of materiality. The example refers to ‘material change toamounts’, which implies only quantitative factors are considered. Whether an accountingpolicy is material requires consideration of qualitative factors as well. We also note achange in accounting policy may affect users’ decisions on the future operation ofcompany, and should not only be based on the financial impact of the change at a pointin time.Proposed amendments to the Materiality Practice StatementThe HKICPA considers that the ‘Diagram-determining whether an accounting policy ismaterial’ (Diagram) is useful for readers to apply the proposal. However, it only makesreference to the proposed paragraphs 117, 117A and 117D. We suggest that theDiagram should also demonstrate how to apply the proposed paragraphs 117B and117C to help readers understand the logical flow of these paragraphs and to provide acomplete thinking process for determining whether an accounting policy is material.The HKICPA notes that example S only demonstrates how to judge whether theaccounting policy is material and suggests the IASB to expand the example by providingguidance on what kinds of entity-specific information might be disclosed.Furthermore, the HKICPA considers that the analysis in example T might causeconfusion. Having identified that assets subject to impairment testing are material to thefinancial statements and the impairment accounting policy meets the proposedparagraph 117B(d), one would conclude that the accounting policy for impairment ismaterial. However, the separate accounting policy is not ultimately required to bedisclosed because it merely duplicates the IFRS requirements. We consider that it wouldbe easier for readers to understand the proposals if the IASB developed example T toillustrate two contrasting cases: (i) illustrating when an impairment accounting policy justduplicates IFRS requirements and is not material; and (ii) illustrating an impairmentaccounting policy that contains entity-specific information (eg one that describes howthe entity determines its cash generating units for impairment testing) and is consideredmaterial. In addition, the IASB should demonstrate how the proposed paragraphs 117-117D are applied in example T in order to help readers understand the logical flow ofthese paragraphs (ie provide a clearer link between the example and proposedparagraphs 117-117D).Overall commentsThe Conceptual Framework for Financial Reporting 2018 states that financial reports areprepared for users who have a reasonable knowledge of business and economicactivities and who review and analyse the information diligently. The HKICPA notes thatusers are not expected to be IFRS experts. If all accounting policies that only duplicatethe recognition or measurement requirements of IFRS are removed from the financialstatements, users who are unfamiliar with IFRS requirements may have to consult IFRSStandards in order to understand the financial statements.In this respect, we agree with Martin Edelmann’s comment in paragraph AV3 of the ED.We recommend the IASB should add guidance in the Materiality Practice Statementexplaining that if management thinks the disclosure of additional accounting policies mayhelp understanding for some financial statement users, for example when accountingrequired by an IFRS Standard is complex, then they should be disclosed. However, wesuggest this guidance emphasizes that when providing additional accounting policies,entities should:
provide entity-specific information where possible, rather than repeat IFRSrequirements; andexercise judgement in deciding where to disclose them to prevent obscuring materialaccounting policies, for example they might be disclosed in an appendix to the report.In addition, we recommend that the IASB should consider incorporating the Diagram andthe new examples in the illustrative examples supporting IAS 1 to make them moreaccessible and help readers apply the IAS 1 requirements.Finally, the HKICPA recommends the IASB should clarify that:
the proposed amendments only apply to making materiality decisions about thedisclosure of accounting policies for the purposes of preparing general purposefinancial statements; andtherefore, assessing materiality for purposes other than the preparation of financialstatements, for example determining key audit matters, is beyond the scope of thisproposal.Work undertaken by HKICPA in forming its views:
The HKICPA:
(a) issued an Invitation to Comment on the ED on 2 August 2019 to our stakeholders;
(b) sought input from its Disclosure Initiative Advisory Panel comprising technical andindustry experts and auditors from accounting firms; and(c) developed its views through its Financial Reporting Standards Committee, havingreflected on its stakeholder feedback. The Committee comprises of academics,preparer representatives from various industry sectors, investors, regulators, andtechnical and industry experts from small, medium and large accounting firms.If you have any questions regarding the matters raised in this letter, please contact meor Katherine Leung (katherineleung@hkicpa.org.hk) Associate Director of the StandardSetting Department.Sincerely,Christina NgDirector, Standard Setting Department