Download ABAC Comments to IASB on Conceptual

APFF
ASIA-PACIFIC FINANCIAL FORUM
ABAC comments on the IASB
public consultation
“Conceptual Framework for
Financial Reporting”
August 2015
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APFF (Asia Pacific Financial Forum)
APFF: Public-private collaboration in
developing financial systems
• Importance of regional public-private collaboration:
– Legal and regulatory frameworks
– Financial market infrastructure
– Financial market integration
• APFF: informal, inclusive and advisory public-private
platform for collaboration in the development of
common strategies for developing sound, efficient
and integrated Asia-Pacific financial markets
– Governments and regulatory bodies
– Private sector
– International organizations (IFIs, SSBs, others)
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APFF Interim Report 12 Action Plans
1) A pathfinder initiative to develop credit information sharing systems
2) A pathfinder initiative to improve the legal and institutional architecture for security
interest creation, perfection and enforcement and related workshops
3) Dialogues on regulatory issues in trade and supply chain finance
4) Workshops on emerging facilitators of trade and supply chain finance
5) A pathfinder initiative to develop classic repo markets
6) Workshops to develop strategies to improve legal and documentation infrastructure for
the development of OTC derivative market
7) Self-assessment templates on information for capital market investors
8) ARFP (Asian Region Funds Passport) support initiative
9) Workshop series to develop an enabling Asia-Pacific securities investment ecosystem
10) Dialogue series on regulation and accounting issues impacting the
long-term business of the insurance industry in Asia Pacific
economies and longevity solutions
11) Collaboration with APEC Finance Ministers’ Process in promoting
long-term investment, including infrastructure
12) Conference and workshop series on linkages on structural issues
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Accounting issues and high-level recommendations
 Volatility in the balance sheet
 Short-term fluctuation should be avoided
• Assets-liabilities interaction should be reflected
for a wide range of products sold in the region
•
Discount rate should reflect the business model
 Volatility in the income statement
 The (optional) use of OCI for insurance liabilities
and corresponding assets
 The proposed IFRS contain other significant issues for
traditional long-duration products (complexity,
consistency, transition requirements, and presentation)
 ABAC comments to IASB/FASB on insurance contracts, October 2013
 APFF 2014 Interim Report to the APEC Finance Ministers
Annex H: Constrains on Promoting Long-Term Investment in the Asia-Pacific
Region https://www.abaconline.org/v4/download.php?ContentID=22611898
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IASB Consultation and positions of ABAC comments
 The IASB (International Accounting Standards Board) issued a public
consultation paper on the Conceptual Framework for
Financial Reporting, dated May 2015 (Comments to be
received by 26 October 2015)
 ABAC comments identify and address high-level issues
and not intend to respond to all technical questions
 ABAC comments focus on the issues relevant to the
objective of the APFF to promote long term roles of the
insurance and pension industry
 Q13 Reporting items of income or expenses in other
comprehensive income
 Q14 Recycling
 Q16 Business activities
 Q17 Long-term investment
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Main issues and corresponding questions/responses
Q13 Reporting items of income or expenses in other
comprehensive income
 The Exposure Draft proposes that income or expenses could be
included in OCI, only if (a) the income or expenses related to assets
and liabilities at current values; and (b) excluding those items from the
statement of profit or loss would enhance the relevance of information.

The ABAC supports a wider use of OCI both in assets and
liabilities to better reflect the long-term nature of the business;

Short-term fluctuations in the statement of profit or loss may
distort the relevance of the information on performance for the
period, where such fluctuations are irrelevant for predicting the
cash flows of the entity;

Nevertheless, the use of OCI should be optional in order to avoid
accounting mismatch between assets and liabilities;

The treatment of changes in estimated cash flows and that of
discount rates should be consistent to reflect economic reality
and to provide relevant and useful information to users;
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Main issues and corresponding questions/responses
Q14 Recycling
 The Exposure Draft proposes a rebuttable presumption that items of
income or expenses including in OCI in one period will be
reclassified in to the statement of profit or loss in some future period
(recycled), if doing so will enhance the relevance of the information.

The ABAC believes that items of income and expenses
presented in OCI should be permitted to be recycled, since it
often reflects how an entity conduct its business and leads to
a faithful representation of the performance for the period;

It would also build a clearer linkage between financial
performance and financial condition;

We are not persuaded why the recycling criteria are different
for debt and equity instruments;

The absence of recycling of equity investments may disincentivize the institutional investors to engage in such
investment as a possible unintended consequence arising
from this inconsistency;
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Main issues and corresponding questions/responses
Q16 Business activities
 The Exposure Draft does not include a general discussion on the role
of a business model in financial reporting, but discusses how an entity
conducts its business activities may affect (a) the unit of account, (b)
the selection of a measurement basis, (c) presentation and disclosure,
including the items of income and expenses in OCI.

The ABAC supports the view that financial instruments could be
more relevant if standards reflect how an entity conducts its
business;

Furthermore, consideration of the business model may provide
a faithful representation of the economic reality and result in
more relevant information;

It is also important to take into account the different
development stage;

The application of prescriptive international standards may not
ensure overall comparability or a level playing field, due to the
existing diversity in the region and around the globe;
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Main issues and corresponding questions/responses
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Q17 Long-term investment
 The IASB disagree with the view that information needs may differ from
those of short-term investors, and concluded that the Conceptual Framework
contains sufficient and appropriate discussions of primary users and
information needs, and appropriately address the needs of long-term
investors. It also emphasizes that transparent financial reporting would
promote long-term investment, and encouraging or discouraging investments
with particular characteristics is not the role of accounting standards.

Short-term oriented economic valuation tends to capture the
assessment with a snapshot do not necessarily provide useful
information for long-term investors, who wish to determine such
investments that are good in the long run, rather than appear good at
a given moment. Short-term fluctuations may not be relevant to the
entity’s capacity to meet long-term obligations. The interaction
between assets and liabilities should be properly reflected;

Accounting standards which do not reflect the long-term nature of
business activities would not provide transparency for long-term
investors. As a result, it would dis-incentivize long-term investments;
ABAC comments on the IASB public consultation
“Conceptual Framework for Financial Reporting”
For more details on the APFF, visit mackglobe.com
or email Makoto Okubo, Nippon Life ([email protected])
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