20/08/2019 - EFRAG final comment letter on the IASB's ED/2019/2 Annual Improvements to IFRS Standards 2018-2020 Cycle

• Issue 1 - IFRS 1 First-time Adoption of International Financial Reporting Standards. Subsidiary as a first-time adopter.
  The IASB proposes to require a subsidiary that elects to apply paragraph D16(a) of IFRS 1 to measure cumulative translation differences using the amounts reported by the parent, based on the parent’s date of transition to IFRSs.
• Issue 2 - IFRS 9 Financial Instruments. Fees included in the '10 per cent' test for derecognition of financial liabilities.
  The IASB proposes to clarify the fees that an entity includes when assessing whether the terms of a new or modified financial liability are substantially different from the terms of the original financial liability.
• Issue 3 - IFRS 16 Leases. Illustrative example 13. The IASB proposes to amend Illustrative Example 13 accompanying IFRS 16 to
  remove the illustration of payments from the lessor relating to leasehold improvements. The proposed amendment would remove potential for confusion regarding the treatment of lease incentives applying IFRS 16.
• Issue 4 - IAS 41 Agriculture. Taxation in fair value measurement. The IASB proposes to remove the requirement in paragraph 22 of IAS 41 for entities to exclude cash flows for taxation when measuring fair value applying IAS 41.

EFRAG has published its final comment letter in rensponse to the ED. EFRAG generally agrees with the proposals in the ED and considers that these minor changes will improve the consistency and understandability of the IFRS standards concerned. However, EFRAG proposes that:

• Issue 1: the IASB clarifies that this amendment to paragraph D16 does not prevent a first-time adopter from using the exemption in paragraph D13 to set the cumulative translation differences at zero at the date of transition to IFRSs;

• Issue 2: IAS 39 Financial Instruments: Recognition and Measurement be amended in the same way as the amendment proposed to IFRS 9 Financial Instruments. In addition, EFRAG considers that the phrase in paragraph B3.3.6 "including fees paid or received by either the borrower or the lender on the other's behalf" is unclear; we recommend that an example of such fees is provided; and

• Issue 3: additional guidance to be added to IFRS 16 Leases on where the reimbursement of leasehold improvements may be considered as a lease incentive.

The final comment letter is available here.