Crowe Horwath Reporting Insights

Welcome to our third newsletter of 2017.

We include details of the IFRS developments including a new Practice Statement and an interpretation on materiality in financial statements. There is also information about the latest implementation guidance for IFRS 16 Leases and we comment on an initiative from Accountancy Europe to promote a discussion about improving the communication and presentation of financial information.

Cybersecurity is a critical risk management issue for business. Crowe Horwath LLP (US) maintains a practical resource centre about cybersecurity and the AICPA has issued a cybersecurity risk management reporting framework that all businesses should consult.

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Materiality in Financial Statements

The International Accounting Standards Board (IASB) has issued IFRS Practice Statement 2 Making Materiality Judgements. The publication encourages companies to apply judgement instead of using IFRS requirements as a checklist, so that financial statements focus on the information that is useful to investors.

The Practice Statement gathers all the materiality requirements in IFRS Standards and adds practical guidance and examples companies might find helpful in deciding whether information is material.

The Practice Statement is not mandatory and neither changes requirements nor introduces new ones. Companies are permitted to apply the guidance in the Practice Statement to financial statements prepared any time after 14 September 2017.

A short video introduces the guidance.

Principles of Disclosure

The International Accounting Standards Board (IASB) has been consulting on the Principles of Disclosure, with the aim of improving financial reporting. Crowe Horwath International's rel="noopener noreferrer" comment letter on the rel="noopener noreferrer" consultation can be read here.

New IFRS standards and guidance will be issued that will improve communication in financial reporting. At present, there is "disclosure overload" often leading to duplication and important information being lost amidst irrelevant and minor detail. A change in approach is essential for financial reporting to continue with its transition into new media and away from traditional bully printed documents. There is an opportunity to promote innovation and flexibility in financial reporting and at the same time improve quality and accessibility.

Uncertainty over Income Tax Treatments

IFRIC 23 Uncertainty over Income Tax Treatments has been issued by the IASB to specify how to reflect uncertainty in accounting for income taxes. Since IAS 12 Income Taxes specifies how to account for current and deferred tax, but not how to reflect the effects of uncertainty, IFRIC 23 adds requirements to those in IAS 12 to address this gap.

In applying IFRIC 23 the company has to consider whether a taxation authority might examine the uncertain tax position. Based on experience and expert advice the accounting treatment should reflect how the authority might conclude on the matter.

IFRIC 23 Interpretation is effective from 1 January 2019.

Implementing IFRS 17 Insurance Contracts

IFRS 17 Insurance Contracts was issued in May 2017. Following the issuance of the standard, the IASB released a series of resources to help with the implementation of IFRS 17. They include webinars, slides and presentations to meetings with investors, regulators and national standard setters.

IFRS 16 Leases

A webcast about the disclosure requirements for lessees in IFRS 16 has been added to the IFRS 16 Supporting Materials. The webcast covers:

• IASB's rationale for the disclosure requirements in IFRS 16;
• The information needs of users of financial statements; and
• Key considerations for a lessee in determining what information is most relevant to users of financial statements.

Future of Corporate Reporting

At an Accountancy Europe event held in Brussels on 18 September 2017, the paper Core & More - An opportunity for smarter corporate reporting was presented. A particular feature of the discussion at the event was the impact of changing technology on corporate reporting. One observation was "the status quo is going backwards."

Core & More aims to present corporate reporting in a smarter way, organising financial and non-financial information based on the interests of users. Information relevant for a wide range of stakeholders would be in the Core report, and supplementary details for a more limited audience would form the More reports. The paper explores how technology might support the Core & More concept, especially in the context of an online report. It also addresses the relationship between Core & More and the Integrated Reporting initiative, as well as the need to foster innovation.

Conflict Mineral Reporting in the EU

The EU Conflict Mineral Regulation introduces compliance and reporting obligations that apply from 2021. In advance, companies will need to ascertain whether they are subject to the Regulation and implement reporting systems and procedures.

Camillo Giovannini of Crowe Horwath Romania has prepared a detailed briefing introducing the Regulation. Crowe Horwath International member firms in the EU can provide support to companies that are impacted by the Regulation. An early discussion about the implications is strongly advised.

Cybersecurity - Keep Alert

• Cybersecurity Podcast: Threat Actors from Crowe Horwath LLP presents the capabilities, motivations and methods of "threat actors" and how organisations can protect against them.
• The AICPA has developed a cybersecurity risk management reporting framework that assists communication about relevant and useful information on the effectiveness of cybersecurity risk management programs. The framework is part of a new System and Organization Controls (SOC) for Cybersecurity engagement, through which a CPA reports on an organizations' enterprise-wide cybersecurity risk management program. This information can help senior management, boards of directors, analysts, investors and business partners gain a better understanding of organizations' efforts. There are resources available for auditors, users and organizations, including background materials, guidance and criteria, news and comment letters, and related CPE and tools that will also have relevance in other countries.

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