Agenda for the meeting

Agenda papers for this meeting are available on the IASB's website.

Amendments to IFRS 17 Insurance Contracts The Board continued its discussion of topics and decided:

• Contractual service margin attributable to investment services (to finalise the amendments proposed, with some changes)
• Level of aggregation—annual cohorts for insurance contracts with intergenerational sharing of risks between policyholders (to retaining the requirement in IFRS 17).
• Applicability of the risk mitigation option—non-derivative financial instruments at fair value through profit or loss (that the risk mitigation option be extended for insurance contracts with direct participation features in IFRS 17:B115)
• Minor editorial and consequential amendments (to finalise them with minor changes).
• Additional specific transition modifications and reliefs (to extend, amend and add modifications to the modified retrospective approach).
• For other topics raised by respondents to the Exposure Draft Amendments to IFRS 17 the Board decided to amend the proposal only to resolve an inconsistency between that paragraphs and IFRS 17:B65(m) and IFRS 17:B66(f) and not for any of the other matters raised.

IBOR Reform and the Effects on Financial Reporting The Board completed its discussions of proposed amendments that respond to IBOR reform and decided to:

• Limit the scope of the amendment and clarify that a change in the basis on which the contractual cash flows are determined that alters what was originally anticipated constitutes a modification of a financial instrument in accordance with IFRS 9;
• Propose temporary relief for hedging relationships that are amended to reflect modifications directly required by the reform;
• Set out how the amendments are apply when transition to an alternative benchmark rate occurs for classification and measurement of financial instruments; hedge accounting; lease accounting; and disclosures. The separately identifiable requirement for risk components will cease applying 24 (rather than 12 months) after the date that the alternative benchmark rate was designated as a risk component for hedge accounting purposes. These amendments should be mandatory and not voluntary.
• Have an effective date of annual periods beginning on or after 1 January 2021 with earlier application permitted, and be applied retrospectively.

The ED is expected to be published in April, with a comment period of 45 days.

Disclosure Initiative—Targeted Standards-Level Review of Disclosures The Board continued its discussions of potential revisions to the disclosure requirements in IFRS 13 and decided that the disclosure requirements in IFRS 13 be amended to:

• refer to significant drivers of change in the objective;
• require an entity to disclose a reconciliation from opening to closing balances of recurring fair value measurements categorised within Level 3 of the fair value hierarchy;
• state that an explanation by an entity of significant drivers of change in fair value measurements other than those classified in Level 3 of the fair value hierarchy might be necessary for it to meet the disclosure objective.

Disclosure Initiative—Accounting Policies The staff presented a summary of the feedback received on the proposal to amend IAS 1 (or its proposed replacement, see https://www.iasplus.com/en/projects/major/pfs) to require the disclosure of ‘material’ rather than ‘significant’ accounting policies and to add guidance on how to whether an accounting policy is material. No decisions were made.

Business Combinations under Common Control The Board approved all of the disclosures requirements recommended by the staff to accompany the acquisition and predecessor approaches for a BCUCC. The Board will publish the proposals in a DP, which the staff will prepare.

The staff gave an updates on recent activities of the IFRS Interpretations Committee. The Board decided not to finalise the proposed amendments to IFRIC 14 related to Availability of a Refund. 

The Board will consider as part of the 2020 Agenda Consultation whether to include the subject as a potential project.

Cover note (Agenda Paper 2)

At this meeting, the Board continued its discussions on finalising ED/2019/4 Amendments to IFRS 17. The Board has now discussed all but two topics for which it decided to consider further feedback from respondents to the ED.

The staff expect to present papers on the remaining topics—the effective date of IFRS 17 and the extension of the IFRS 9 temporary exemption in IFRS 4—at the March 2020 meeting. At the same meeting, the staff expect to request the Board’s permission to start the balloting process for finalising the amendments to IFRS 17.

The staff expect that the amendments will be finalised in mid-2020.

Contractual service margin attributable to investment services (Agenda Paper 2A)

In the ED, the IASB proposed to:

• a) clarify that the definition of the coverage units and coverage period for insurance contracts with direct participation features (direct participating contracts) includes the quantities of benefits and expected periods in which an entity provides investment-related services; and
• b) require an entity to allocate the CSM for insurance contracts without direct participation features based on coverage units determined considering the quantities of benefits and expected period of both insurance coverage and any investment-return service.

The IASB also proposed extended disclosure requirements on this topic.

Almost all respondents agreed that an entity should identify coverage units considering the quantity of benefits and expected period of investment-return service, if any, in addition to insurance coverage. Of those respondents, almost half did not provide any comments about the proposed specified criteria for when insurance contracts without direct participation features may provide an investment-return service.

However, some respondents expressed concerns about:

• a) the specified criteria for when an insurance contract may provide an investment-return service; and
• b) the operational complexity introduced by the proposals.

Staff recommendation

After analysing the comments from respondents, the staff recommended the Board:

• a) finalise the proposed amendment to IFRS 17 that would require an entity to identify coverage units for insurance contracts without direct participation features considering the quantity of benefits and expected period of investment-return service, if any, in addition to insurance coverage.
• b) confirm the specified criteria for when those contracts may provide an investment-return service in the ED, but replace references to ‘positive investment return’ with ‘investment return’ in these criteria.
• c) require an entity to include, as cash flows within the boundary of an insurance contract, costs related to investment activities to the extent the entity performs such activities to enhance benefits from insurance coverage for the policyholder, even if the entity has concluded that the contract does not provide an investment-return service.
• d) finalise the proposed amendments to IFRS 17 that would require an entity to disclose:
  • i) quantitative information about when the entity expects to recognise in profit or loss the contractual service margin (CSM) remaining at the end of a reporting period; and
  • ii) the approach used to determine the relative weighting of the benefits provided by insurance coverage and investment-return service or investment-related service.
• e) confirm the addition of the definition of ‘insurance contract services’ to Appendix A of IFRS 17, but not change other terminology used in the Standard (i.e. not replace ‘coverage’ with ‘service’ in the terms ‘coverage units’, ‘coverage period’ and ‘liability for remaining coverage’).

Board discussion

On recommendation (e) above, Board members noted that changing the terminology would have helped, but agreed with the concern that some preparers would read too much into the changes. This might lead to unintended consequences. Also, the existing educational material, including summaries of the TRG meetings, refer to the existing IFRS 17 language and it might be difficult for preparers to read the guidance when the terminology is outdated.

Board decision

12 Board members voted in favour of the staff recommendation. 2 Board members were absent.

Level of aggregation—annual cohorts for insurance contracts with intergenerational sharing of risks between policyholders (Agenda Paper 2B)

In the discussions leading up to the ED, the Board discussed feedback received on the level of aggregation, in particular the annual cohort requirement (see our summary from March 2019). Back then, the Board voted unanimously to leave the level of aggregation requirements of IFRS 17 unchanged.

Although the Board did not ask a question on the annual cohort requirement in the ED, some respondents commented on the Board’s decision to retain the requirements unchanged. Some of these respondents agreed with the Board’s decision, however, others suggested the Board propose an exemption to the annual cohort requirement for insurance contracts with intergenerational sharing of risks between policyholders.

Of those proposing an exemption, some suggested the exemption apply specifically to insurance contracts accounted for applying the variable fee approach, while others suggested it apply also to insurance contracts accounted for applying the general model.

Some suggested the exemption apply to contracts to which IFRS 17:B67 and B68 apply (i.e. contracts that share risk with policyholders of other contracts), with some respondents suggesting that the risk sharing should be substantial, or for substantially all risks.

After analysing the issue, the staff conclude that:

• a) the reason for providing an exemption would be that the costs of the annual cohort requirement could exceed the benefits of the resulting information for some contracts. Those costs include the need to apply considerable judgement in some circumstances to determine the assumptions and allocations that result in information that faithfully represents the contracts.
• b) because of the pressure that would fall on any such exemption and the danger of losing information about the effect of financial guarantees in the current economic environment, the exemption would need to be robust and well-defined.
• c) however, there is no way to specify such an exemption without the use of ‘bright lines’ which would be arbitrary and difficult to justify, and without developing a particularly complex set of criteria.
• d) the resulting complexity would disrupt implementation of the Standard and reduce the benefits of its ongoing application.

Staff recommendation

The staff recommended that the Board retain, unchanged, the annual cohort requirement in IFRS 17.

Board discussion

Several Board members highlighted that the staff had undertaken every effort, but did not succeed in developing an amendment that was robust enough to address the issue. The staff struggled with the fact that the annual cohort requirement is a principle, and an exception to a principle could not be worded as another principle. Instead, the staff would have had to draft a very clear and specific rules-based exception, similar to the investment entity exception in IFRS 10 or the temporary exemption to apply IFRS 9 in IFRS 4. This was unsuccessful as any rule the staff had tried to draft was perceived as arbitrary. Furthermore, it would have only addressed issues within a subgroup of the population that was supposed to be captured by the amendment. Board members stated that they would be able to accept retaining the existing annual cohort requirement, especially given that many of the concerns raised were with regard to fully mutualised contracts, which are less common. Also, loss making contracts would be identified and communicated earlier applying the existing annual cohort requirement. Users support that and stated that the cost would be too high while implementation of the existing requirement is already well underway. This would conflict with the Board’s stated objective of not disrupting implementation processes at this stage.

The Chairman stated that the insurance industry is currently under a tremendous amount of stress given the low interest rate environment, which will likely persist for quite some time. Experience with other Standards has shown that in these periods of stress, accounting requirements have to be robust. The income statement should provide early warning. Introducing arbitrary bright lines would give entities the opportunity for structuring, especially in stress situations. The fact that applying a requirement means additional cost is in itself not a reason not to have it. For example, the variable fee approach resulted in a higher cost for preparers, while the information produced by it is extremely useful.

One Board member reminded the Board that the annual cohort requirement was introduced as a simplification itself. Respondents to the consultation documents that led up to IFRS 17 had struggled with the previously proposed concept of similar profitability. The annual cohort requirement was seen as an appropriate solution to address these concerns, because the most important decisions with regard to an insurance contract are made at its initiation (risk level, pricing, etc.).

On a clarifying note, it was highlighted that the worked example in Appendix A to the paper is only one way of applying the annual cohort requirement for insurance contracts with intergenerational sharing of risks between policyholders. There may be other ways to apply the Standard.

Board members also acknowledged that most comments to this issue came from Europe, but explained that this does not mean the issue is unique to that jurisdiction.

Board decision

12 Board members voted in favour of the staff recommendation. 2 Board members were absent.

Applicability of the risk mitigation option—non-derivative financial instruments at fair value through profit or loss (Agenda Paper 2C)

For insurance contracts with direct participating features only and in specified circumstances, IFRS 17 includes an option for an entity to recognise the effect of some changes in financial risk on the entity’s share of the underlying items in profit or loss, instead of adjusting the CSM (so-called ‘risk mitigation option’). In the ED, the IASB proposed to amend IFRS 17 to permit an entity to apply the risk mitigation option for insurance contracts with direct participation features when the entity uses reinsurance contracts held to mitigate financial risks. The Board tentatively decided to finalise that amendment at its December 2019 meeting.

When developing the ED, the Board considered a suggestion from stakeholders that the risk mitigation option should also apply when an entity uses financial instruments other than derivatives, for example, bonds, to mitigate financial risk. The Board disagreed with this suggestion because the risk mitigation option was designed to address a specific accounting mismatch between insurance contracts with direct participation features and derivatives. Respondents to the ED suggested the Board revisit this decision, as it would further reduce accounting mismatches.

Some respondents explained that:

• a) entities often use a combination of derivatives and non-derivative financial instruments, for example, fixed income securities, to mitigate financial risk on insurance contracts with direct participation features.
• b) an entity may mitigate some financial risk using either derivatives or non-derivative financial instruments. Those respondents explained that often using non-derivative financial instruments can be less costly than using derivatives.
• c) an entity may mitigate some financial risk using non-derivative financial instruments when the availability of derivatives is limited.

Staff recommendation

After analysing the issue, the staff recommended the Board amend IFRS 17 to extend the risk mitigation option for insurance contracts with direct participation features in IFRS 17:B115. The extension would permit an entity to apply the option when the entity mitigates the effect of financial risk on the fulfilment cash flows set out in IFRS 17:B113(b) using non-derivative financial instruments measured at fair value through profit or loss (FVTPL). An entity would apply the option if, and only if, the conditions in IFRS 17:B116 are met.

Board discussion

One Board member asked why only FVTPL instruments should be eligible under the amendment, while, in practice, some entities use fair value through OCI (FVTOCI) instruments to mitigate their risks. The staff replied that the risk mitigation in IFRS 17 was always meant to be similar to IFRS 9, which only allows FVTPL instruments for hedge accounting. Also, and more importantly, in most cases the accounting effect would not be achieved with FVTOCI instruments even when the entity applies the OCI option in IFRS 17. It would only be achieved if the instrument and the insurance contract started and ended at the same time. To fix this issue, the OCI option would have to be amended, which is not within the scope of these amendments.

Board decision

12 Board members voted in favour of the staff recommendation. 2 Board members were absent.

Minor amendments (Agenda Paper 2D)

The ED:

• a) proposed minor amendments to the requirements in IFRS 17—as well as some minor consequential amendments to other IFRS Standards—to address a number of cases in which the drafting did not achieve the Board’s intended outcome; and
• b) included a number of editorial corrections to IFRS 17 that the Board had identified after IFRS 17 was issued.

Overall, respondents expressed support for the proposed minor amendments. However, some respondents expressed concerns or asked for clarifications about some of the proposed minor amendments.

Staff recommendations

The staff analysed those issues and recommended the Board finalise the minor amendments proposed in the ED with minor changes. For the detail of the changes, please refer to the agenda paper.

Board discussion

With regard to item 9 in the agenda paper (editorial correction to IFRS 17:B107), Board members said that the change is too important not to make it as it might affect how preparers read the eligibility criteria for the variable fee approach. IFRS 17:B102 is clear and the inconsistency could lead to disruption in the longer term. It was suggested that the staff draft educational material based on their analysis of the issue.

With regard to item 2 in the agenda paper (proposed amendment to IFRS 17:28), one Board member said it was an important change as it clarified which cohort contracts should be added to.

Board decision

12 Board members voted in favour of the staff recommendation. 2 Board members were absent.

Additional specific transition modifications and reliefs (Agenda Paper 2E)

The ED proposed adding three specific modifications and reliefs to the transition requirements in IFRS 17 in response to some challenges stakeholders raised relating to applying specific aspects of the transition requirements At its December 2019 meeting, the Board tentatively decided to finalise those modifications and reliefs.

In addition to providing feedback on the three specific modifications and reliefs, some respondents commented on the transition requirements in IFRS 17.

Some respondents continued to express concerns that the modified retrospective approach is too restrictive. Those respondents continued to suggest the Board permit an entity more optionality and flexibility generally when applying the modified retrospective approach, rather than providing specified modifications. Some also suggested the Board provide additional specific transition modifications and reliefs for entities applying the modified retrospective approach (for example, reliefs from the retrospective application of the annual cohort requirement and the requirement for interim financial statements), as well as transition reliefs within the full retrospective approach.

Staff recommendation

After analysing the issues raised in the feedback to the ED, the staff recommended the Board amend the transition requirements in IFRS 17 to:

• a) extend the modification in the modified retrospective approach and relief in the fair value approach relating to assessments that would have been made at inception or initial recognition to include the assessment of whether an investment contract meets the definition of an investment contract with discretionary participation features.
• b) amend the proposed modification in the modified retrospective approach for reinsurance contracts held when underlying insurance contracts are onerous.
• c) add a modification to the modified retrospective approach for entities that make an accounting policy choice not to change the treatment of accounting estimates made in previous interim financial statements.

For more detail on the staff’s recommendations please refer to the agenda paper.

Board decision

There was no discussion on this paper. The 12 Board members present supported the staff recommendations (a) and (b) with 12:0 and (c) with 11:1.

Other topics raised by respondents to the Exposure Draft Amendments to IFRS 17 (Agenda Paper 2F)

Many respondents to the ED commented on areas of IFRS 17 that the Board did not consider when developing the ED.

Staff recommendation

The staff analysed those issues and recommended the Board:

• a) amend IFRS 17:B66(f) to resolve an inconsistency between that paragraph and IFRS 17:B65(m). After that amendment, an entity would apply IFRS 17:B65(m) to include in the fulfilment cash flows the income tax payments and receipts that are specifically chargeable to the policyholder under the terms of an insurance contract.
• b) retain, unchanged, the requirements in IFRS 17:B113(b). That paragraph requires an entity to adjust the CSM of insurance contracts with direct participation features for the changes in the effect of the time value of money and financial risks not arising from the underlying items.
• c) not add any new requirements to IFRS 17 or publish any educational material relating to the accounting for insurance contracts that change their nature over time.
• d) retain, unchanged, the requirements in IFRS 17 relating to any other topics raised by respondents.

Board decision

There was no significant discussion on this paper. The Board voted in favour of the staff recommendations with 12:0 votes (2 absent).

Cover note (Agenda Paper 2)

At this meeting, the Board continued its discussions on finalising ED/2019/4 Amendments to IFRS 17. The Board has now discussed all but two topics for which it decided to consider further feedback from respondents to the ED.

The staff expect to present papers on the remaining topics—the effective date of IFRS 17 and the extension of the IFRS 9 temporary exemption in IFRS 4—at the March 2020 meeting. At the same meeting, the staff expect to request the Board’s permission to start the balloting process for finalising the amendments to IFRS 17.

The staff expect that the amendments will be finalised in mid-2020.

Contractual service margin attributable to investment services (Agenda Paper 2A)

In the ED, the IASB proposed to:

• a) clarify that the definition of the coverage units and coverage period for insurance contracts with direct participation features (direct participating contracts) includes the quantities of benefits and expected periods in which an entity provides investment-related services; and
• b) require an entity to allocate the CSM for insurance contracts without direct participation features based on coverage units determined considering the quantities of benefits and expected period of both insurance coverage and any investment-return service.

The IASB also proposed extended disclosure requirements on this topic.

Almost all respondents agreed that an entity should identify coverage units considering the quantity of benefits and expected period of investment-return service, if any, in addition to insurance coverage. Of those respondents, almost half did not provide any comments about the proposed specified criteria for when insurance contracts without direct participation features may provide an investment-return service.

However, some respondents expressed concerns about:

• a) the specified criteria for when an insurance contract may provide an investment-return service; and
• b) the operational complexity introduced by the proposals.

Staff recommendation

After analysing the comments from respondents, the staff recommended the Board:

• a) finalise the proposed amendment to IFRS 17 that would require an entity to identify coverage units for insurance contracts without direct participation features considering the quantity of benefits and expected period of investment-return service, if any, in addition to insurance coverage.
• b) confirm the specified criteria for when those contracts may provide an investment-return service in the ED, but replace references to ‘positive investment return’ with ‘investment return’ in these criteria.
• c) require an entity to include, as cash flows within the boundary of an insurance contract, costs related to investment activities to the extent the entity performs such activities to enhance benefits from insurance coverage for the policyholder, even if the entity has concluded that the contract does not provide an investment-return service.
• d) finalise the proposed amendments to IFRS 17 that would require an entity to disclose:
  • i) quantitative information about when the entity expects to recognise in profit or loss the contractual service margin (CSM) remaining at the end of a reporting period; and
  • ii) the approach used to determine the relative weighting of the benefits provided by insurance coverage and investment-return service or investment-related service.
• e) confirm the addition of the definition of ‘insurance contract services’ to Appendix A of IFRS 17, but not change other terminology used in the Standard (i.e. not replace ‘coverage’ with ‘service’ in the terms ‘coverage units’, ‘coverage period’ and ‘liability for remaining coverage’).

Board discussion

On recommendation (e) above, Board members noted that changing the terminology would have helped, but agreed with the concern that some preparers would read too much into the changes. This might lead to unintended consequences. Also, the existing educational material, including summaries of the TRG meetings, refer to the existing IFRS 17 language and it might be difficult for preparers to read the guidance when the terminology is outdated.

Board decision

12 Board members voted in favour of the staff recommendation. 2 Board members were absent.

Level of aggregation—annual cohorts for insurance contracts with intergenerational sharing of risks between policyholders (Agenda Paper 2B)

In the discussions leading up to the ED, the Board discussed feedback received on the level of aggregation, in particular the annual cohort requirement (see our summary from March 2019). Back then, the Board voted unanimously to leave the level of aggregation requirements of IFRS 17 unchanged.

Although the Board did not ask a question on the annual cohort requirement in the ED, some respondents commented on the Board’s decision to retain the requirements unchanged. Some of these respondents agreed with the Board’s decision, however, others suggested the Board propose an exemption to the annual cohort requirement for insurance contracts with intergenerational sharing of risks between policyholders.

Of those proposing an exemption, some suggested the exemption apply specifically to insurance contracts accounted for applying the variable fee approach, while others suggested it apply also to insurance contracts accounted for applying the general model.

Some suggested the exemption apply to contracts to which IFRS 17:B67 and B68 apply (i.e. contracts that share risk with policyholders of other contracts), with some respondents suggesting that the risk sharing should be substantial, or for substantially all risks.

After analysing the issue, the staff conclude that:

• a) the reason for providing an exemption would be that the costs of the annual cohort requirement could exceed the benefits of the resulting information for some contracts. Those costs include the need to apply considerable judgement in some circumstances to determine the assumptions and allocations that result in information that faithfully represents the contracts.
• b) because of the pressure that would fall on any such exemption and the danger of losing information about the effect of financial guarantees in the current economic environment, the exemption would need to be robust and well-defined.
• c) however, there is no way to specify such an exemption without the use of ‘bright lines’ which would be arbitrary and difficult to justify, and without developing a particularly complex set of criteria.
• d) the resulting complexity would disrupt implementation of the Standard and reduce the benefits of its ongoing application.

Staff recommendation

The staff recommended that the Board retain, unchanged, the annual cohort requirement in IFRS 17.

Board discussion

Several Board members highlighted that the staff had undertaken every effort, but did not succeed in developing an amendment that was robust enough to address the issue. The staff struggled with the fact that the annual cohort requirement is a principle, and an exception to a principle could not be worded as another principle. Instead, the staff would have had to draft a very clear and specific rules-based exception, similar to the investment entity exception in IFRS 10 or the temporary exemption to apply IFRS 9 in IFRS 4. This was unsuccessful as any rule the staff had tried to draft was perceived as arbitrary. Furthermore, it would have only addressed issues within a subgroup of the population that was supposed to be captured by the amendment. Board members stated that they would be able to accept retaining the existing annual cohort requirement, especially given that many of the concerns raised were with regard to fully mutualised contracts, which are less common. Also, loss making contracts would be identified and communicated earlier applying the existing annual cohort requirement. Users support that and stated that the cost would be too high while implementation of the existing requirement is already well underway. This would conflict with the Board’s stated objective of not disrupting implementation processes at this stage.

The Chairman stated that the insurance industry is currently under a tremendous amount of stress given the low interest rate environment, which will likely persist for quite some time. Experience with other Standards has shown that in these periods of stress, accounting requirements have to be robust. The income statement should provide early warning. Introducing arbitrary bright lines would give entities the opportunity for structuring, especially in stress situations. The fact that applying a requirement means additional cost is in itself not a reason not to have it. For example, the variable fee approach resulted in a higher cost for preparers, while the information produced by it is extremely useful.

One Board member reminded the Board that the annual cohort requirement was introduced as a simplification itself. Respondents to the consultation documents that led up to IFRS 17 had struggled with the previously proposed concept of similar profitability. The annual cohort requirement was seen as an appropriate solution to address these concerns, because the most important decisions with regard to an insurance contract are made at its initiation (risk level, pricing, etc.).

On a clarifying note, it was highlighted that the worked example in Appendix A to the paper is only one way of applying the annual cohort requirement for insurance contracts with intergenerational sharing of risks between policyholders. There may be other ways to apply the Standard.

Board members also acknowledged that most comments to this issue came from Europe, but explained that this does not mean the issue is unique to that jurisdiction.

Board decision

12 Board members voted in favour of the staff recommendation. 2 Board members were absent.

Applicability of the risk mitigation option—non-derivative financial instruments at fair value through profit or loss (Agenda Paper 2C)

For insurance contracts with direct participating features only and in specified circumstances, IFRS 17 includes an option for an entity to recognise the effect of some changes in financial risk on the entity’s share of the underlying items in profit or loss, instead of adjusting the CSM (so-called ‘risk mitigation option’). In the ED, the IASB proposed to amend IFRS 17 to permit an entity to apply the risk mitigation option for insurance contracts with direct participation features when the entity uses reinsurance contracts held to mitigate financial risks. The Board tentatively decided to finalise that amendment at its December 2019 meeting.

When developing the ED, the Board considered a suggestion from stakeholders that the risk mitigation option should also apply when an entity uses financial instruments other than derivatives, for example, bonds, to mitigate financial risk. The Board disagreed with this suggestion because the risk mitigation option was designed to address a specific accounting mismatch between insurance contracts with direct participation features and derivatives. Respondents to the ED suggested the Board revisit this decision, as it would further reduce accounting mismatches.

Some respondents explained that:

• a) entities often use a combination of derivatives and non-derivative financial instruments, for example, fixed income securities, to mitigate financial risk on insurance contracts with direct participation features.
• b) an entity may mitigate some financial risk using either derivatives or non-derivative financial instruments. Those respondents explained that often using non-derivative financial instruments can be less costly than using derivatives.
• c) an entity may mitigate some financial risk using non-derivative financial instruments when the availability of derivatives is limited.

Staff recommendation

After analysing the issue, the staff recommended the Board amend IFRS 17 to extend the risk mitigation option for insurance contracts with direct participation features in IFRS 17:B115. The extension would permit an entity to apply the option when the entity mitigates the effect of financial risk on the fulfilment cash flows set out in IFRS 17:B113(b) using non-derivative financial instruments measured at fair value through profit or loss (FVTPL). An entity would apply the option if, and only if, the conditions in IFRS 17:B116 are met.

Board discussion

One Board member asked why only FVTPL instruments should be eligible under the amendment, while, in practice, some entities use fair value through OCI (FVTOCI) instruments to mitigate their risks. The staff replied that the risk mitigation in IFRS 17 was always meant to be similar to IFRS 9, which only allows FVTPL instruments for hedge accounting. Also, and more importantly, in most cases the accounting effect would not be achieved with FVTOCI instruments even when the entity applies the OCI option in IFRS 17. It would only be achieved if the instrument and the insurance contract started and ended at the same time. To fix this issue, the OCI option would have to be amended, which is not within the scope of these amendments.

Board decision

12 Board members voted in favour of the staff recommendation. 2 Board members were absent.

Minor amendments (Agenda Paper 2D)

The ED:

• a) proposed minor amendments to the requirements in IFRS 17—as well as some minor consequential amendments to other IFRS Standards—to address a number of cases in which the drafting did not achieve the Board’s intended outcome; and
• b) included a number of editorial corrections to IFRS 17 that the Board had identified after IFRS 17 was issued.

Overall, respondents expressed support for the proposed minor amendments. However, some respondents expressed concerns or asked for clarifications about some of the proposed minor amendments.

Staff recommendations

The staff analysed those issues and recommended the Board finalise the minor amendments proposed in the ED with minor changes. For the detail of the changes, please refer to the agenda paper.

Board discussion

With regard to item 9 in the agenda paper (editorial correction to IFRS 17:B107), Board members said that the change is too important not to make it as it might affect how preparers read the eligibility criteria for the variable fee approach. IFRS 17:B102 is clear and the inconsistency could lead to disruption in the longer term. It was suggested that the staff draft educational material based on their analysis of the issue.

With regard to item 2 in the agenda paper (proposed amendment to IFRS 17:28), one Board member said it was an important change as it clarified which cohort contracts should be added to.

Board decision

12 Board members voted in favour of the staff recommendation. 2 Board members were absent.

Additional specific transition modifications and reliefs (Agenda Paper 2E)

The ED proposed adding three specific modifications and reliefs to the transition requirements in IFRS 17 in response to some challenges stakeholders raised relating to applying specific aspects of the transition requirements At its December 2019 meeting, the Board tentatively decided to finalise those modifications and reliefs.

In addition to providing feedback on the three specific modifications and reliefs, some respondents commented on the transition requirements in IFRS 17.

Some respondents continued to express concerns that the modified retrospective approach is too restrictive. Those respondents continued to suggest the Board permit an entity more optionality and flexibility generally when applying the modified retrospective approach, rather than providing specified modifications. Some also suggested the Board provide additional specific transition modifications and reliefs for entities applying the modified retrospective approach (for example, reliefs from the retrospective application of the annual cohort requirement and the requirement for interim financial statements), as well as transition reliefs within the full retrospective approach.

Staff recommendation

After analysing the issues raised in the feedback to the ED, the staff recommended the Board amend the transition requirements in IFRS 17 to:

• a) extend the modification in the modified retrospective approach and relief in the fair value approach relating to assessments that would have been made at inception or initial recognition to include the assessment of whether an investment contract meets the definition of an investment contract with discretionary participation features.
• b) amend the proposed modification in the modified retrospective approach for reinsurance contracts held when underlying insurance contracts are onerous.
• c) add a modification to the modified retrospective approach for entities that make an accounting policy choice not to change the treatment of accounting estimates made in previous interim financial statements.

For more detail on the staff’s recommendations please refer to the agenda paper.

Board decision

There was no discussion on this paper. The 12 Board members present supported the staff recommendations (a) and (b) with 12:0 and (c) with 11:1.

Other topics raised by respondents to the Exposure Draft Amendments to IFRS 17 (Agenda Paper 2F)

Many respondents to the ED commented on areas of IFRS 17 that the Board did not consider when developing the ED.

Staff recommendation

The staff analysed those issues and recommended the Board:

• a) amend IFRS 17:B66(f) to resolve an inconsistency between that paragraph and IFRS 17:B65(m). After that amendment, an entity would apply IFRS 17:B65(m) to include in the fulfilment cash flows the income tax payments and receipts that are specifically chargeable to the policyholder under the terms of an insurance contract.
• b) retain, unchanged, the requirements in IFRS 17:B113(b). That paragraph requires an entity to adjust the CSM of insurance contracts with direct participation features for the changes in the effect of the time value of money and financial risks not arising from the underlying items.
• c) not add any new requirements to IFRS 17 or publish any educational material relating to the accounting for insurance contracts that change their nature over time.
• d) retain, unchanged, the requirements in IFRS 17 relating to any other topics raised by respondents.

Board decision

There was no significant discussion on this paper. The Board voted in favour of the staff recommendations with 12:0 votes (2 absent).

Cover paper and summary of tentative decisions to date (Agenda Paper 14)

This paper summarised the objective, plan, current stage and high-level timeline of the project and the Board’s tentative decisions to date.

The objectives of this project are to provide useful information about the effects of the transition to alternative benchmark rates on an entity’s financial statements and to support preparers in applying the requirements of the IFRS Standards during IBOR reform.

The Board has discussed and tentatively decided to make amendments to:

• IFRS 9, for classification and measurement of financial instruments
• IFRS 9 and IAS 39, for hedge accounting
• IFRS 16
• IFRS 4
• IFRS 7

The staff recommend publishing an Exposure Draft (ED) in April 2020 with a 45-day comment period.

Sweep issue—Modification of financial instrument (Agenda Paper 14A)

In the October 2019 meeting, the Board tentatively decided to amend IFRS 9 to clarify that, even in the absence of an amendment to the contractual terms of a financial instrument, a change in the basis on which the contractual cash flows are determined that alters what was originally anticipated, constitutes a modification of a financial instrument in accordance with IFRS 9.

It was decided that this proposed amendment would be a permanent change to IFRS 9 and not limited to modifications made in the context of IBOR reform.

In this meeting, the staff asked the Board if they could limit the scope only to changes made in the context of IBOR reform and incorporate the amendment into the permanent requirements of IFRS 9 at a later date. This is more in line with the objective of the project and will provide staff with more time to ensure unintended consequences are avoided.

Board discussions and voting

All Board members (note 1 absent) voted in favour of the staff’s recommendations.

The Vice-Chair confirmed that the Board are not backing away from including this as a permanent requirement in IFRS 9, however believe it is going to require precise wording to ensure it is clear what a change in basis is, which will take longer to draft.

In the context of IBOR reform, however, she believes it is critical this is added in the Phase 2 amendments on a timely basis, especially in relation to EONIA and due to the possibility of a synthetic IBOR being introduced.

Hedges of risk components—separately identifiable criteria (Agenda Paper 14B)

In Phase 1 of the project, a requirement was added to IFRS 9/IAS 39 for hedging relationships affected by IBOR reform. The amendment states that the 'separately identifiable' requirement for hedges of the benchmark component of an interest rate risk be applied only at the inception of the hedge. No 'end-of-application' requirement was given in respect of this relief. In Phase 2, the Board tentatively agreed that amending a hedging relationship to reflect modifications directly required by the reform may not trigger discontinuation of hedge accounting.

In the context of the Phase 2 proposed changes the staff are proposing that the relief provided in Phase 1 would cease to apply at the earlier of:

• a) when changes to the hedging relationship are made for the hedged risk to reflect modification directly required by the reform; and
• b) when the hedging relationship is discontinued.

In the early stages of transition to alternative benchmark rates, there may be issues around whether the alternative benchmark rate meets the requirements that a risk component must be separately identifiable and reliably measureable. This is because in the early stages of IBOR reform, the particular market of the alternative benchmark rate may not yet have sufficiently developed.

In this meeting, the staff are asking the Board for temporary relief for hedging relationships that are amended to reflect modifications directly required by the reform so that a component is considered to satisfy the separately identifiable requirement if, and only if:

• a) the entity reasonably expects that the alternative benchmark rate will satisfy the requirement in IFRS 9 or IAS 39 to be a separately identifiable component within the particular market structure within 12 months from the date it is designated as a risk component for hedge accounting purposes; and
• b) the component can be measured reliably from the date it is designated as the risk component.

Board discussion and voting

The Vice-Chair supported the staff recommendation, but mentioned that she had discussions with preparers and they are not fully in agreement for two reasons: (i) it is inconsistent with Phase 1 and (ii) 12 months may not be a sufficient time period.

In response to these comments, the Vice-Chair noted that the population of hedges that qualify for this relief is different to Phase 1. For Phase 1, the relief was to allow current hedges (which previously met the separately identifiable criterion, but could fail to meet it now due to IBOR reform) to continue hedge accounting. The Phase 2 relief is for new hedges, over and above the Phase 1 relief. She also mentioned that, given the amount of uncertainty in the market, she would support an increase in the period of time to 24 months.

A Board member asked whether at the end of the 12-month period, if the risk was still not separately identifiable, hedge accounting would be discontinued from that point or from the point the entity entered into the hedge. The staff confirmed that the entity would discontinue from the end of the 12-month period.

Another Board member asked whether at the point at which an entity no longer expects the alternative benchmark rate to be a separately identifiable component within the particular market structure, if an entity discontinues hedge accounting from that point onward or waits for the 12-month period to end. The staff confirmed that the entity would discontinue at the point it no longer reasonably expects the alternative benchmark rate to be separately identifiable. There were concerns from Board members that this would create the risk that hedges may be de-designated earlier than they should be (i.e. voluntarily discontinue hedges).

The Vice-Chair suggested that the staff could consider amending the wording of the amendment such that an entity cannot de-designate during the 12-month period and the entity only reassesses the separately identifiable criterion at the end of that period. Another Board member suggested including a high hurdle to discontinue, i.e. adding to the amendment that the entity has to be reasonable certain that it will fail to meet the separately identifiable test.

One Board member did not agree with this relief as she believes this is a market structure issue and that this relief is taking away the accounting cost of moving to a new rate. The role of financial reporting is to show what happened in the period and a move in a reference rate to a less liquid market should be presented in the accounts. The challenge to this point by another Board member was that the requirement to be ‘reliably measurable’ has not been amended and any ineffectiveness due to this change will be reported in the income statement.

A Board member asked how management is expected to show that they ‘reasonably expect’ that the separately identifiable criterion will be met. The staff confirmed this is a judgement, however potential indicators would be looking at the liquidity in the market and the projected liquidity of the market, understanding how variable rate loans are being priced and how many issuances in this market have taken place. They confirmed it will be different in each jurisdiction.

The voting was split in two parts:

Option 1—support the staff recommendation, including the requirement that the entity has to be reasonable certain it is going to fail in order to de-designate the hedge during the 12 month period.

Option 2—support the staff recommendation with the period amended to 24 months, including that the entity has to be reasonable certain it is going to fail in order to de-designate the hedge during the 24 month period.

Option 1: 4 Board members in favour.

Option 2: 10 Board members in favour.

Note: 1 Board member was absent and 1 Board member voted for both options.  

End of Phase 2 amendments and voluntary versus mandatory application (Agenda Paper 14C)

The Phase 2 amendments are associated with the point at which transition to an alternative benchmark rate occurs, hence the entity applies the amendments once to an item (i.e. upon transition).

The staff therefore proposed that for:

1. Classification and measurement of financial instruments: the proposed amendment can only be applied once to a financial instrument (i.e. the contractual cash flows can change only once as a direct consequence of IBOR reform)
2. Hedge accounting: changes in the hedge documentation may take place over a period of time (i.e. the hedged item may change at a different date to the hedging instrument), however the proposed amendments are only applied once to each element in the hedging relationship.
3. Lease accounting: the amendment is applied once (at the date the lease payments are modified as a direct consequence of IBOR reform).
4. Disclosures: information should continue to be provided in a reporting period in which the entity is exposed to risks arising from the reform and the transition to alternative benchmark rates for financial instruments and hedging relationship is not complete.
5. Separately identifiable requirement for risk components: this will cease applying 12 months after the date that the alternative benchmark rate was designated as a risk component for hedge accounting purposes.

The staff recommend that the proposed amendments should apply mandatorily.

Board discussion and voting

The Vice-Chair suggested that rather than having a strict rule to be able to apply it only once (especially in relation to the separately identifiable requirement) that any change should be as a direct consequence of reform. For example, for those moving from EONIA, they will initially move to €STR+8.5 basis points and then later there will be another amendment to the rate.

She suggested that rather than having a termination date, it should be scoped clearly that only a certain and clear population of hedges will be impacted by these amendments.

All Board members (1 absent) that the nature of the proposed amendments is such that they can only be applied to modifications of financial instruments and changes to hedging relationships that satisfy the relevant criteria and, as such, no specific end of application requirements need to be specified.

All Board members (1 absent) agreed that the amendments should apply mandatorily.

Effective date and transition requirements (Agenda Paper 14D)

The staff recommended in this meeting:

• i) an effective date for annual periods beginning on or after 1 January 2021 with earlier application permitted.
• ii) that the proposed amendments should apply retrospectively for items that existed at the beginning of the reporting period in which the entity first applies the proposed amendments and includes the reinstating hedging relationship that was discontinued solely due to the reform and would not have been discontinued if the proposed amendments were available.

Board discussion and voting

All Board members (1 absent) agreed with the effective date.

Board members discussed the staff recommendation of reinstating hedges that have discontinued. It was agreed that it would be amended to state that an entity is required to reinstate hedges that previously failed due to IBOR reform in order to limit cherry picking. All Board members (1 absent) agreed with recommendation (ii) above including making the reinstating hedges a requirement.

All Board members (1 absent) agreed that in the reporting period in which an entity first applies the proposed amendments an entity is not required to present the disclosures required by IAS 8:28(f).

Due process steps (Agenda Paper 14E)

This paper proposed a comment period of 45 days for the ED asked whether any Board member intends to dissent from the proposed amendments, asked the Board to confirm that it is satisfied that it has complied with the application of the due process requirements and seeks the Board’s permission for the staff to begin the process for balloting the ED.

Voting

All Board members (1 absent) agreed with the comment period of 45 days for the ED of the proposed amendments. No Board member intends to dissent from the publication of the ED and all Board members (1 absent) gave permission to begin the balloting process.

Cover Paper (Agenda Paper 11)

The purpose of this meeting was for the Board to make decisions about whether to amend its previous tentative decisions relating to information about drivers of change in fair value measurements and consider lessons learned to date from the process of testing the draft Guidance for the Board when developing and drafting disclosure sections of IFRS Standards in future.

Drivers of change in fair value measurements (Agenda Paper 11A)

This paper provided the background of the project and summarised the staff’s analysis and recommendations relating to whether the Board should amend its previous tentative decisions relating to information about drivers of change in fair value measurements.

Staff analysis

The staff’s analysis highlights the benefits of retaining a reconciliation requirement in IFRS 13 and the reasons of why avoiding reference to particular levels of the fair value hierarchy will be helpful for entities. The staff do, however, stress that the Board should clarify that the objective does not capture all drivers of change in all fair value measurements, but rather the material ones whose measurement is subject to judgement or uncertainty.

The staff also analyse the use of the term ‘significant’ in their recommendation in comparison to the use of the term in IAS 1 (particularly in light of the current project on accounting policies to replace the use of ‘significant’ with ‘material’) and other IFRS Standards and noted that it is reasonable for the Board to use this term in relation to a group of items.

Furthermore, the staff have provided in the paper the indicative disclosure objective and items of information to meet that objective, if the Board agrees with the staff recommendation.

Staff recommendations

The staff recommend that the Board:

• (a) Make reference to significant drivers of change in the objective that requires an entity to disclose information that enables users to understand drivers of change in fair value measurements over the reporting period;
• (b) In order to meet this objective, require an entity to disclose a reconciliation from opening to closing balances of recurring fair value measurements categorised within Level 3 of the fair value hierarchy.
• (c) Identify an additional item of information that, while not mandatory, may enable an entity to meet the disclosure objective in (a). This item is an explanation of significant drivers of change, if any, in fair value measurements other than those classified in Level 3 of the fair value hierarchy.

Board discussion and voting

A Board member noted that the word ‘significant’ is used to describe drivers of change currently, whilst in the IAS 19 January meeting the word ‘main’ was used and pointed out that the wording should be consistent, with their preference being for ‘main’ to be used. They also noted that it should be made clear that the proposal around disclosing not mandatory but encouraged additional information refers to items in the grey area between Level 2 and Level 3, rather than Level 1 items.

Another Board member pointed out that it would not be possible to segregate the movements in fair value relating to foreign exchange rate differences, particularly for companies without foreign operations. The Vice-Chair noted that the intention is not to require this segregation, but rather it is an example of an explanation that might be useful to meet the disclosure objective. The staff clarified that disclosure of these items is required if they are material. The Board member also asked for clarification around which items are considered drivers of change, with the staff responding that these are drivers of movement from the beginning to the end of the financial period.

Another Board member noted that they are unclear around what the disclosure requirement around drivers of change is. The Vice-Chair pointed out that investors are interested in understanding whether the change relates to new items classified as Level 3 or the value of existing Level 3 items fluctuating during the period. They also noted that clarification around this point is needed in order to avoid different interpretations, with the staff noting that this will be actioned.

13 Board members voted in favour of the staff’s recommendation (subject to drafting suggestions and consistent wording used to describe drivers of change), with 1 Board member absent.

Lessons learned  from testing the draft Guidance to date (Agenda Paper 11B)

In this paper, the staff summarised the background of the project and the lessons learned to date from testing the draft Guidance for the Board. They also consider whether and how to update the draft Guidance in light of those lessons.

Staff analysis

The staff’s analysis covers lessons learned from testing each section of the draft Guidance:

• (a) Using disclosure objectives
• (b) Developing the content of disclosure sections of IFRS Standards, which includes:
  • i. working with the IFRS Taxonomy team
  • ii. implementing a tailored outreach programme with primary users of financial statements
  • iii. performing outreach with other stakeholders
• (c) Drafting disclosure sections of IFRS Standards, which includes:
  • i. the use of language
  • ii. leveraging requirements and guidance across IFRS Standards and other IFRS publications
  • iii. further consideration around what the draft Guidance requires about the placement and presentation of high-level, catch-all disclosure objectives

The staff also note that the next stage of the project will be to issue an Exposure Draft for stakeholders to comment on.

Staff recommendation

In light of lessons learned from the testing to date, the staff recommended that the Board update its draft Guidance, such that:

• a) The prescriptive ‘shall’ language is used to articulate a particular piece of information that is always essential to satisfy a specific disclosure objective. Otherwise, the less prescriptive language ‘while not mandatory, the following may enable an entity to meet this objective …’ is used.
• b) High-level, catch-all disclosure objectives are presented at the beginning of the relevant disclosure section in an IFRS Standard.

Board discussion and voting

A Board member pointed out that the key parameters to consider during the field work are the clarity, auditability and enforceability of the requirements.

Another Board member noted that a big improvement in this project has been the drifting away from requirements in the form of a generic objective supplemented by a list of detailed requirements, but cautioned that the placement of the catch-all objective at the beginning of the disclosure section may lead to misunderstanding of its role and requirements. 

A Board member pointed out that further testing may need to be done with broader stakeholders, including regulators, auditors and some companies (e.g. big financial institutions) before the staff and Board can conclude on lessons learned. The staff pointed out that, whilst this is a fair point, they believe the right timing to discuss with other stakeholder groups is when an actual set of draft amendments is in place, in order to receive meaningful rather than hypothetical feedback.

Another Board member added that a clear expectation of what an entity should consider when the phrase ‘while not mandatory’ is used should be included and feedback from auditors and regulators around the auditability and enforceability of using this language in practice should be considered.

A different Board member noted that the draft guidance should be published and made available to people who would like to access it.

Another Board member raised a concern around some refinement required with regards to how the requirements are articulated, as they could not envision no objectives at all in place going forward.. They also agreed with the other Board member regarding a drafting guide being published and visible. They also stressed that there should be a constant reminder that the disclosures are subject to materiality. Regarding the catch-all objective, they were flexible with regards to where it should be presented, however noted that it should be clearly articulated that the focus of it is on material, unique anomalies rather than general items. They also pointed out that the expectation in the market was that there would be less disclosures as a result of this project, which they didn’t think would be achieved, hence expectations may need to be managed.

The Vice-Chair raised a concern around putting the draft guidance in the public sphere and noted the need to be very careful with messaging and consequences of how that might be used. With regards to next steps, they pointed out that, whilst they believe the right approach is being followed, caution should be exercised to ensure that they are not overcorrecting, by dramatically changing the way the requirements are drafted.  They also stressed that the staff and Board should ensure that the proposed approach will enable preparers to think about the information users want and result in the information actually being provided in practice. As this is harder to do with an Exposure Draft, all the tools available should be used above and beyond the normal processes, including reviewing recent Standards and discussing with preparers, auditors and regulators any outcomes that did not meet their needs, in order to use as a lesson for the current drafting.

A Board member pointed out that these procedures will require time and suggested speaking to other bodies about the best way to approach this and handle expectations. Another Board member noted that for credibility and effectiveness reasons, the Board should proceed with the Exposure Draft and fieldwork and, if the outcome is not satisfactory, a decision will need to be made regarding the next steps in the project then.

Another Board member requested clarification around what the Exposure Draft would look like. The staff responded that it would look like a set of amendments to IFRS 13 and IAS 19. The Basis for Conclusions would include the guidance and all the explanations demonstrating how the Board got to the amendments and why it developed the guidance in this way. The Board member raised their concern around comingling the two Standards and processes in one document, as it might make it more difficult for people to respond, and suggested either a segregated document or two associated documents.

The Board member also questioned whether research has been used in the project. The Vice-Chair ensured that relevant research will be taken into account, with another Board member adding that they have requested the academic community to look at IFRS 9 & IFRS 15 as they include disclosure objectives. No response has been received as of yet, however the research forum in Oxford has tentatively scheduled programme sessions on the 2 Standards. Some Board members will consider how these sessions can be used to extract information around the disclosure objectives and report back to the Board.

A different Board member noted that the fieldwork should not only focus on the disclosure contents, but on whether the project is actually leading to behavioural changes. They also highlighted that users should be re-engaged during the field work to ensure the disclosures meet their demands and that they understand them.

11 Board members voted in favour of updating the guidance to reflect current work, with 1 Board member absent.

Comment letter feedback — Exposure draft: Disclosure of Accounting Policies (Agenda Paper 20)

The ED proposed amendments to IAS 1 and IFRS Practice Statement 2 Making Materiality Judgements. The proposed amendments are intended to make disclosures more useful by requiring disclosure of ‘material’ rather than ‘significant’ accounting policies and adding guidance on how entities apply the concept of materiality in making decisions about accounting policies.

Almost all respondents supported the proposal to include ‘material’ rather than ‘significant’ accounting policies. Furthermore, they supported the idea that accounting policies relating to material transactions, other events or conditions are not necessarily material themselves. Respondents were largely in favour of the inclusion of examples to the standard and practice statement. However, despite their support of the above, respondents suggested some amendments to the wording of the proposals and examples and some terminology clarifications.

Concerns were raised regarding the reliance of the proposals on users’ understanding of IFRS – some respondents stated that their experience shows that primary users are not necessarily accounting experts and that the proposals may affect the understandability of the financial statements for such users.

The Board were not be asked for any decisions at the meeting but their thoughts on the feedback was sought to aid future staff activities.

Discussion

The discussion centered on prohibiting immaterial disclosures, the concern raised around the level of accounting knowledge of users (and how this may affect disclosure relating to accounting policies) and the appropriateness of the examples suggested.

The general view seemed to be that, given jurisdictional-specific requirements, it may be impossible to prohibit the disclosure of immaterial accounting policies. Furthermore, explaining IFRS requirements in these policies, although this may be seen to obscure material aspects of the policies and be seen as ‘boilerplate repetition’ of IFRS, may assist users who are not accounting experts to understand these requirements. Therefore, disclosure of and emphasis on material policies should be promoted but the inclusion of immaterial aspects in the annual report is, to an extent, understandable. However, some Board members thought that alternative methods of disclosing these could be explored.

The proposed examples were considered to be useful, but the specific drafting of certain of these could be revisited to address any concerns raised by respondents.

Availability of a refund (Amendments to IFRIC 14)—Update and next steps (Agenda Paper 12A)

In 2015, the IASB published ED/2015/5 Remeasurement on a Plan Amendment, Curtailment or Settlement/Availability of a Refund from a Defined Benefit Plan (Proposed amendments to IAS 19 and IFRIC 14).

In 2018, the IASB published final amendments to IAS 19 on the part of the ED that clarified the calculation of current service cost and net interest for the remainder of an annual period when a plan amendment or curtailment occurs.

Amendments regarding whether a trustee's power to augment benefits or to wind up a plan affects the employer's unconditional right to a refund and thus, in accordance with IFRIC 14, restricts recognition of an asset have not been finalised.

At a previous meeting, the Board decided to perform further work before proceeding to finalise the proposed amendments. That is because the staff’s work on the availability of a refund has identified that existing requirements in IFRIC 14 create a rather arbitrary line between substantively different measurements of an entity’s right to a refund or a surplus. The Board wanted a more principles-based approach.

The staff performed further work and, as a result, see little benefit in finalising the proposed amendment. If finalised, it would lead to consistent outcomes for defined benefit plans with the same terms and conditions, however, non-substantive changes to those would change the outcome. The staff also sees little benefit in finalising the other aspects of the proposed amendments, if the availability of a refund amendment is not finalised.

A wider-scope project might be able to develop a more principles-based approach to address the measurement of a right to refund of a surplus. However, this would require considerable time and effort. The 2020 Agenda Consultation will provide constituents with an opportunity to inform the Board whether it should undertake a wider-scope project on IFRIC 14.

Staff recommendation

The staff recommended that the Board not finalise the proposed amendments to IFRIC 14. The Board could consider referring to a project on IFRIC 14 as a potential project in the Request for Information to its 2020 Agenda Consultation.

Discussion and voting

Board members agreed with the staff’s recommendation not to finalise the proposed amendments to IFRIC 14.

However, the idea of adding the issue, in its current form, to the Agenda Consultation led to much discussion. A number of Board members feel that the issue should not be discussed further and should be removed from future Board activities given its narrow scope and the minimal population it affects.

Others members feel it should be added to the Agenda Consultation paper along with other currently incomplete projects.

It was questioned whether the issue as formulated was properly described and whether further analysis or clarification of the issue itself and the scope in which it is to be considered was required before further decisions are made.

The Board was asked to vote on the following:

• Whether they agree with the staff recommendation not to finalise the proposed amendments to IFRIC 14. 13 members voted in favour with one absent
• Whether the project should ‘end at this meeting’ with no further action taken. Six members voted in favour, seven against with one absent.
• Given the previous vote, whether the issue should be added to the Agenda Consultation paper. Five voted in favour, eight against with one absent.

Given that voting did not lead to a final decision, it was proposed to await the Agenda Consultation paper being presented to the Board (excluding this matter). Thereafter, analysis of whether this issue, in some form, should be included therein can take place.

Disclosure (Agenda Paper 23A)

At previous meetings, the Board tentatively decided that:

• a) a current value approach would be applied to BCUCC that affect non-controlling shareholders of the receiving entity subject to an exception and an exemption for privately held entities. The current value approach would be the acquisition method set out in IFRS 3. To address a feature not present for transactions within the scope of IFRS 3, that method would be complemented by a requirement to recognise any excess identifiable net assets acquired as an increase in the receiving entity’s equity (contribution), not as a gain on a bargain purchase in the statement of profit or loss.
• b) a predecessor approach would be applied to all other transactions within the scope of the project, including transactions that affect lenders and other creditors of the receiving entity and potential equity investors.

This paper discusses what information about BCUCC should be disclosed. This topic completes the Board’s discussion of reporting BCUCC if the Board decides to publish a Discussion Paper for this project – refer to Agenda Paper 23B below. The staff asked the Board for decisions regarding their recommendations which are to be included in the applicable consultation document for the project.

Staff recommendation

The staff recommend that:

• a) when the current value approach (acquisition method) is used:
  • i. the Board applies all the disclosure requirements in IFRS 3 and all the proposals on disclosure in the Goodwill and Impairment project;
  • ii. the Board does not require any additional disclosures about the transaction price on top of those required by IFRS Standards and proposed in the Goodwill and Impairment project;
• b) when the predecessor approach is used:
  • i. the Board applies particular disclosure requirements in IFRS 3 and particular proposals on disclosure in the Goodwill and Impairment project;
  • ii. the Board requires entities to disclose the amount of the difference recognised in equity between the consideration paid and the carrying amounts of assets and liabilities received, and also the component of equity in which that difference is recognised; and
  • iii. the Board does not require any additional disclosures related to pre-combination information or the transaction price on top of those required by IFRS Standards as modified by the Board’s preliminary view in the Goodwill and Impairment project.

Current Value Approach (Acquisition Method)

The majority of Board members agreed with the staff proposals in relation to requiring the IFRS 3 disclosures for BCUCC transactions as the same information would be useful for non-controlling users as would be for users in third party acquisitions. One Board member noted that the disclosures on synergies should be retained, because tax synergies, in particular, may be relevant information in a BCUCC transaction.

The majority of Board members agreed with the staff proposal to not require any additional disclosure in relation to the transaction price.

Some Board members expressed a view that additional disclosure on the governance of a transaction, such as any approval procedures or reviews, as included in paragraph 40(c) of the staff paper should be included for a BCUCC transaction. In addition, a question was raised around whether any disclosures of a related party nature should be included within IAS 24 rather than IFRS 3 or a new BCUCC standard.

Predecessor Approach

Some Board members expressed the view that the needs of creditors, as opposed to equity holders, are focused on cash flows more than the transfer of value to ensure there is sufficient cash to meet the liabilities of the company. As such, the full list of disclosures recommended by the staff was too long and not proportionate to the needs of the users. It was suggested that the disclosures on the fair value of non-cash assets, goodwill that is non-deductible for tax purposes and pro forma profit or loss were not necessary in the instances in which the predecessor approach is to be used.

One Board member suggested that they consider whether any disclosures should be included within a set of consolidated accounts for a group that has had a BCUCC transaction.

Another Board member noted that the financial statements of the receiving entity must be able to stand alone and have sufficient information for users to understand the impact of the transaction even if those users are not equity holders.

Board Decisions

The Chairman was absent from the meeting so each vote was comprised of 13 Board members.

11 Board members voted in favour of the staff recommendation to apply all the disclosure requirements in IFRS 3 and all the proposals on disclosure in the Goodwill and Impairment project for the current value method.

13 Board members voted in favour of the staff recommendation to not require any additional information to be disclosed for the current value method, subject to the qualification that specific disclosures, as outlined in paragraph 40(c) of the paper on approvals for the transaction, are considered.

9 Board members voted in favour of the staff recommendations in relation to the disclosures for the predecessor approach subject to the removal of certain suggested disclosures in paragraph 46(e), (g) and (l) of the paper.

10 Board members voted in favour of the staff recommendation to disclose the amount of the difference recognised in equity between the consideration paid and the carrying amounts of assets and liabilities received.

11 Board members voted in favour of the staff recommendation to not require any additional disclosures related to pre-combination information or the transaction price on top of those required by IFRS Standards.

Due Process (Agenda Paper 23B)

The purpose of the paper was to discuss what type of consultation document to publish for the project, what comment period the Board wishes to set for that document and whether the Board gives the staff permission to begin the balloting process for that document.

Staff recommendation

The staff recommended that the next consultation document should be a Discussion Paper. They asked whether the Board is satisfied with the due process steps set out in the paper and whether the staff have the Board’s permission to begin the balloting process for the Discussion Paper.

Board Decisions

The Chairman was absent from the meeting so each vote was comprised of 13 Board members.

13 Board members voted in favour of the next consultation document being a Discussion Paper.

13 Board members voted in favour of being satisfied that the due process steps had been properly taken.

13 Board members voted in favour of giving permission to ballot.

The comment period was not voted on—this will be confirmed nearer to the time for releasing the Discussion Paper.