Highlights of the podcast include discussions on:

• Supplementary meeting on proposed amendments to the IFRS for SMEs Accounting Standard on international tax reform.
• Decisions and developments related to the projects on primary financial statements, disclosure initiative — subsidiaries without public accountability: disclosures, dynamic risk management, business combinations — disclosures, goodwill and impairment, and management commentary.

Access the podcast on the IASB website.

Background

In March 2022, the OECD released technical guidance on its 15% global minimum tax agreed as the second ‘pillar’ of a project to address the tax challenges arising from digitalization of the economy. This guidance elaborates on the application and operation of the Global Anti-Base Erosion (GloBE) Rules agreed and released in December 2021 which lay out a coordinated system to ensure that multinational enterprises with revenues above €750 million pay tax of at least 15% on the income arising in each of the jurisdictions in which they operate.

The IASB decided to respond to stakeholders’ concerns about the potential implications of the imminent implementation of these rules on the accounting for income taxes by jurisdictions. In particular, the IASB noted that the situation is very complicated as:

• jurisdictions may change statutory tax rates to avoid being considered a low-tax environment;
• companies might decide to move their business to jurisdictions with higher statutory tax rates; and
• companies might engage in business that comes with tax incentives that might bring down their statutory tax rate to below 15% although the jurisdiction they are doing business in is not generally considered a low-tax environment.

All of these and further considerations would entail most complicated calculations of deferred tax in a situation that is highly volatile due to the fact that jurisdictions implement the OECD rules at different speed and different points of time. Due to the many unknown variables involved, the IASB has decided to develop a mandatory exemption until the global tax system has settled and reestablished itself and the IASB can thoroughly assess the situation and provide a reliable solution.

Changes

The amendments in International Tax Reform — Pillar Two Model Rules (Amendments to IAS 12) are:

• An exception to the requirements in IAS 12 that an entity does not recognize and does not disclose information about deferred tax assets and liabilities related to the OECD pillar two income taxes. An entity has to disclose that it has applied the exception.
• A disclosure requirement that an entity has to disclose separately its current tax expense (income) related to pillar two income taxes.
• A disclosure requirement that states that in periods in which pillar two legislation is enacted or substantively enacted, but not yet in effect, an entity discloses known or reasonably estimable information that helps users of financial statements understand the entity’s exposure to pillar two income taxes arising from that legislation.
• The requirement that an entity applies the exception and the requirement to disclose that it has applied the exception immediately upon issuance of the amendments and retrospectively in accordance with IAS 8. The remaining disclosure requirements are required for annual reporting periods beginning on or after January 1, 2023.

The IASB will continue to monitor developments related to the implementation of the pillar two model rules. It plans to undertake further work to determine whether to remove the temporary exception — or to make it permanent — after there is sufficient clarity about how jurisdictions implemented the rules and the related effects on entities.

Review the press release on the IASB website.

Background

The IFRS Interpretations Committee received a submission about supply chain finance arrangements asking:

• How an entity presents liabilities to pay for goods or services received when the related invoices are part of a supply chain finance (or reverse factoring) arrangement; and
• what information about reverse factoring arrangements an entity is required to disclose in its financial statements.

In response to that submission, the Committee published an agenda decision in December 2020. However, feedback and input received — in particular from investors and analysts — suggested the information entities provide about supplier finance arrangements applying existing IFRS requirements does not meet all investor information needs.

In response to that feedback, the Board decided to amend IAS 7, Statement of Cash Flows, and IFRS 7, Financial Instruments: Disclosures to add disclosure requirements, and ‘signposts’ within existing disclosure requirements, that ask entities to provide qualitative and quantitative information about supplier finance arrangements.

Key changes

The amendments in Supplier Finance Arrangements (Proposed amendments to IAS 7 and IFRS 7): 

• Do not define supplier finance arrangements. Instead, the amendments describe the characteristics of an arrangement for which an entity is required to provide the information. The amendments note that arrangements that are solely credit enhancements for the entity or instruments used by the entity to settle directly with a supplier the amounts owed are not supplier finance arrangements.
• Add two disclosure objectives. Entities will have to disclose in the notes information that enables users of financial statements
• to assess how supplier finance arrangements affect an entity’s liabilities and cash flows and

• to understand the effect of supplier finance arrangements on an entity’s exposure to liquidity risk and how the entity might be affected if the arrangements were no longer available to it.
• Complement current requirements in IFRSs by adding to IAS 7 additional disclosure requirements about:
• the terms and conditions of the supplier finance arrangements;

• for the arrangements, as at the beginning and end of the reporting period:
• a) the carrying amounts of financial liabilities that are part of the arrangement and the associated line item presented;

• b) the carrying amount of financial liabilities disclosed under a) for which suppliers have already received payment from the finance providers;

• c) the range of payment due dates (for example, 30 to 40 days after the invoice date) of financial liabilities disclosed under a) and comparable trade payables that are not part of a supplier finance arrangement; and
• the type and effect of non-cash changes in the carrying amounts of the financial liabilities that are part of the arrangement.

The IASB decided that, in most cases, aggregated information about an entity’s supplier finance arrangements will satisfy the information needs of users of financial statements.

• Add supplier finance arrangements as an example within the liquidity risk disclosure requirements in IFRS 7.

Effective date and transition

An entity applies the amendments to IAS 7 for annual reporting periods beginning on or after 1 January 2024 (with earlier application permitted) and the amendments to IFRS 7 when it applies the amendments to IAS 7. There is a certain amount of transition relief provided, including relief regarding comparative information and interim period information.

Review the press release on the IASB website.

The IASB has decided that while reviewing IFRS 9 in its entirety, it will do so in three parts:

• In 2022, the IASB completed its review of the classification and measurement requirements, concluding that these requirements are working as intended.
• With the request for information published today, the IASB is seeking feedback on the impairment requirements.
• The IASB will seek feedback separately on the hedge accounting requirements.

After discussing feedback from outreach, the Board decided in February 2023 to examine further:

• the general approach to recognition of expected credit losses (ECL),
• significant increases in credit risk,
• the measurement of ECL,
• the prevalence of particular questions from entities on how to apply the ECL requirements to purchased or originated credit-impaired financial assets,
• the simplified approach to recognition of ECL for trade receivables, contract assets and lease receivables,
• the accounting for loan commitments, collateral and other credit enhancements held, and issued financial guarantee contracts that are in scope of IFRS 9,
• the application of the ECL requirements alongside other requirements in IFRS 9 or in other IFRS Accounting Standards,
• the effects of transition reliefs provided by the IASB and the balance between reducing costs for preparers of financial statements and providing useful information to users of financial statements,
• and the disclosure requirements for credit risk in IFRS 7.

Comments on the RFI are requested by September 27, 2023.

Review the press release and the Request for Information on the IASB website.

Below is an analysis of all changes made to the work plan since our last analysis on March 27, 2023.

Standard-setting projects

•  Climate-related disclosures — The IFRS Sustainability Disclosure Standard is now expected in June 2023 (previously Q2 2023).
• Equity Method — This project was moved from the research agenda to the standard-setting agenda and is now in the exposure draft phase, no expected date given.
• Financial Instruments with Characteristics of Equity — An expected date for the exposure draft is no longer available (previously H2 2023).
• General Sustainability-related Disclosures — The IFRS Sustainability Disclosure Standard is expected in June 2023 (previously Q2 2023).
• Second Comprehensive Review of the IFRS for SMEs Accounting Standard — The feedback on the exposure draft is now expected in June 2023 (previously Q2 2023).

Maintenance projects

•  Amendments to the classification and measurement of financial instruments — Feedback on the exposure draft is now expected in Q3 2023 (previously H2 2023).
• Amendments to the IFRS for SMEs Accounting Standard — International Tax Reform — Pillar Two Model Rules — This project has been added to the work plan with an exposure draft expected in June 2023.
• Annual Improvements to IFRS Accounting Standards — Six projects have been added to the work plan with an exposure draft expected in Q3 2023:
  • Cost Method (Amendments to IAS 7)
  • Credit Risk Disclosures (Amendments to Illustrative Examples accompanying IFRS 7)
  • Determination of a ‘De Facto Agent’ (Amendments to IFRS 10)
  • Gain or Loss on Derecognition (Amendments to IFRS 7)
  • Hedge Accounting by a First-Time Adopter (Amendments to IFRS 1)
  • Transaction Price (Amendments to IFRS 9).
• International Tax Reform — Pillar Two Model Rules — The IASB considered the feedback received and will now publish a final amendment in May 2023.
• Lack of Exchangeability (Amendments to IAS 21) — The IFRS Accounting Standard amendment is now expected in July 2023 (previously Q3 2023).

Research projects

•  Extractive Activities — The decision on the project direction is expected in July 2023 (previously Q3 2023).
• Post-implementation Review of IFRS 15: Revenue from Contracts with Customers — The request for information is now expected in June 2023 (previously Q2 2023).

The above is a faithful comparison of the IASB and ISSB work plan at March 27, 2023 and May 2, 2023.

For access to the current work plan at any time, please click here.

The webcast offers insights into the project’s objective and approach, the IASB’s tentative decisions, and the project’s next steps.

Access the 12 minute webcast on the IFRS website.