EUROPEAN COMMISSION Directorate-General for Financial Stability, Financial Services and Capital Markets Union INVESTMENT AND COMPANY REPORTING Accounting and financial reporting

Endorsement of amendments under the International

Accounting Standards to IAS 1 Disclosure Initiative

Introduction, background and conclusions

Attachment: Endorsement advice prepared by the European Financial

Reporting Advisory Group (EFRAG)

1. INTRODUCTION

The European Commission and the European Financial Reporting Advisory Group

(EFRAG) prepare studies on the effects and interpretations of new international

accounting standards (IAS) before they are endorsed by the European Union. These

studies set out the accounting issues involved, the results of stakeholder consultations, and

an analysis of the effects of using the new accounting rules in the EU.

EFRAG has assessed whether the amendments to IAS 1 Disclosure Initiative meet the

technical requirements for endorsement. EFRAG has also provided the European

Commission with its analysis of the costs and benefits of the amendments.

2. BACKGROUND

On 18 December 2014, the International Accounting Standards Board (IASB) published

amendments to IAS 1 Disclosure Initiative. These amendments will apply for annual

periods beginning on or after 1 January 2016. Earlier application is permitted.

The amendments to IAS 1 include clarifications to current requirements under IAS 1

Presentation of Financial Statements. The amendments aim to improve the effectiveness

of disclosure and to encourage companies to apply professional judgement in determining

what information to disclose in their financial statements when applying IAS 1. In

particular, the amendments clarify that:

the concept of materiality applies to financial statements as a whole;

if relevant for understanding a company’s financial position and performance,

items in the financial statements may be disaggregated or subtotals added; and

companies have flexibility in structuring the notes to financial statements.

IASB due process and EFRAG consultations

In 2013, the IASB started the Disclosure Initiative, a package of projects aimed at

improving disclosure of financial information. The amendments to IAS 1 are part of this

initiative. Between March 2014 and July 2014, the IASB carried out a public consultation

on exposure draft ED/2014/1 Disclosure Initiative - Proposed amendments to IAS. The

IASB received 118 submissions commenting on the draft. After considering the results of

the consultation, the IASB decided to publish the amendments.

EFRAG carried out an initial evaluation of the amendments against the EU’s endorsement

criteria and consulted on the results of this initial evaluation. It finalised its assessment in

the light of comments received. In February 2015, EFRAG issued an invitation to

comment relating to the endorsement of the amendments. The consultation period closed

on 27 March 2015. EFRAG issued its endorsement advice to the Commission on 19 May

2015.

3. EFFECTS ANALYSIS

Assessment against the endorsement criteria of Regulation (EC) No 1606/2002

EFRAG assessed whether the amendments met the endorsement criteria set out in

Regulation (EC) No 1606/2002 on the application of international accounting standards.1

It must be noted that, in general, the amendments clarify rather than change the existing

requirements under IAS 1. As shown in the attachments, EFRAG concluded that the

amendments satisfy the criteria for EU endorsement.

Costs and benefits for preparers and users

EFRAG also carried out an assessment of the likely costs and benefits of implementing

the amendments in the EU.

In EFRAG’s assessment, the overall benefits of the amendments are likely to outweigh the

associated costs to implement them. Preparers and users are likely to benefit from the

amendments, as they enable companies to exercise more judgement in presenting and

disclosing information and hence result in improving the relevance for users of

information in financial statements. It is likely that the impact on costs for preparers will

be neutral. For users, the potential cost related to implementation of the amendments is

likely to be insignificant.

4. OVERALL COST-BENEFIT CONSIDERATIONS AND CONCLUSIONS

On the basis of EFRAG’s effects study, the Commission has considered the main costs

and benefits of endorsing the amendments to IAS 1. The Commission shares EFRAG’s

opinion that the overall benefits of the amendments are likely to outweigh the costs to

implement them.

Taking into account that the amendments to IAS 1 meet the criteria for endorsement, the

Commission agrees that the amendments to IAS 1 should be endorsed in the EU.

1 Regulation (EC) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the

application of international accounting standards (OJ L 243, 11.09.2002).

Attachment

Endorsement advice prepared by the European Financial Reporting Advisory Group

(EFRAG)

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