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End date:
Location: London
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The IASB will meet via video conference on 27–29 October 2020. The full agenda, preview, and our pre-meeting summary notes will be made available in the left navigation panel as well as below. Agenda papers for this meeting are available on the IASB's website. |
Agenda for the October 2020 IASB meeting.
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Tuesday 27 October 2020 (10:00–14:45)
Wednesday 27 October 2020 (10:15-14:10)
Thursday 29 October 2020 (09:30-12:45)
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Agenda papers for this meeting are available on the IASB's website.
The IASB is meeting on Tuesday 27, Wednesday 28 and Thursday 29 October 2020, by video conference.
The IASB is meeting on Tuesday 27, Wednesday 28 and Thursday 29 October 2020, by video conference.
Board work plan update: This is the first periodical update of the work plan, replacing the research update. The staff have been reviewing the timing of consultation documents and recommend some changes to the timing of consultations (such as delaying the management commentary ED until May 2021) and extending some comment periods (such as for the DP on BCUCC). The work plan on the IFRS Foundation website will be updated after the meeting.
2020 Agenda Consultation: The IASB is preparing to issue a Request for Information (RFI) in the first quarter of 2021, as part of the public consultation on its work plan that it is required to undertake every five years. The staff has completed its work and recommend that the RFI describe 27 potential projects identified from outreach undertaken.
Maintenance and Consistent Application—Deferred Tax related to Assets and Liabilities arising from a Single Transaction: In July 2019, the Board published an ED proposing amendments to IAS 12. The staff recommend that the Board confirm the proposal to narrow the scope of the recognition exemption so that it would not apply to transactions that give rise to equal amounts of taxable and deductible temporary differences. The papers include recommendations about the capping proposal, the extent of application guidance and illustrative examples and transition.
Management Commentary: This is the last decision-making meeting for the ED. The staff are asking for permission to begin the formal drafting and balloting processes. The staff papers include the working draft of their guidance on the provision of information about matters that could affect an entity’s long-term prospects, intangible resources and relationships, and ESG matters, but this is to elicit feedback rather than seeking any formal decisions. The ED is expected to be published in May 2021, if the IASB approves the revised work plan.
Extractive activities: The staff will present findings on the diversity of accounting policies applied to exploration and evaluation expenditure within the scope of IFRS 6. The staff’s research indicates that diversity is primarily due to the extent to which an entity recognises exploration and evaluation expenditure incurred during the reporting period as an asset and the unit of account that an entity decides to apply to its exploration and evaluation expenditure asset. Most of the entities in the sample use ‘area of interest’ accounting. The ‘full cost’ and ‘successful efforts’ methods are the most common accounting policies for oil and gas companies not applying ‘area of interest’ accounting. The Board is not being asked to make any decisions.
Equity Method: Work on reviewing aspects of IAS 28 began in May. The staff recommend that the objective of this review be to assess whether application problems with the equity method for associates and joint ventures can be addressed by identifying and explaining the principles of IAS 28. They recommend that the Board not consider whether the equity method is a one-line consolidation method or a measurement method, whether it should be replaced by one of the measurement bases in the Conceptual Framework or whether significant influence should be the basis for when to apply the equity method.
Disclosure Initiative, Subsidiaries that are SMEs: The IASB is developing a Standard setting out reduced disclosure requirements for subsidiaries that apply IFRS Standards but meet the definition of an SME. At this meeting the IASB will discuss whether the compliance statement required by IAS 1 should differentiate the entities that have applied the reduced disclosure requirements and whether the disclosure requirements of IAS 8 should be applied by these entities.
Oral Updates: The staff will give oral updates on Dynamic Risk Management and the IFRS Taxonomy.
In this session, the Board discussed changes to the timing of consultations (such as delaying the management commentary ED until May 2021) and extending some comment periods (such as for the DP on BCUCC).
The periodical update in the agenda paper will replace the research update that was provided generally every three to four months.
The following projects have been completed since May 2020:
The Board removed the project Accounting Policy Changes (Amendments to IAS 8) from its work plan. Feedback on the project was mixed and raised doubts about the expected benefits of proceeding with the project. Developments since publishing the Exposure Draft (ED) had also reduced the need for the amendments.
The project on Equity Method has started since May 2020.
The following projects will see final amendments in December 2020:
The following consultation documents are currently open for comment:
The following consultation documents are expected in the next six months:
The challenges with regard to the ongoing COVID-19 pandemic persist, to varying degrees around the world. Although the situation in some places has improved, others are facing potential new restrictions, continued remote working, reduced government support and fewer resources from furloughs, illness and the mental and physical toll from the longevity of this crisis. As a result, stakeholder capacity to engage on consultation documents may understandably be limited at the moment.
The staff believe that their processes and staffing are such that they can achieve the current timetables. However, recent feedback, most notably at the October 2020 ASAF meeting, suggested that they should consider whether further adjustments are needed due to stakeholder capacity constraints. The agenda paper assesses this need, for both published and forthcoming major consultations expected in the next six months.
Based on the assessment, the staff recommended the following:
Many Board members agreed with the extension of the comment periods as stakeholders have signalled that they are overwhelmed with major consultations on top of the first year end under the COVID-19 pandemic. However, one Board member mentioned that the DP on BCUCC is only asking for a direction and not for comments on drafting, so it might not be necessary to extend. On the other hand, the Vice-Chair noted that the project has been ongoing for a very long time, so another 90 days would not mean a significant delay.
One Board member noted that publishing the ED on Management Commentary in May means it would be right before the summer period in Europe, which is not ideal. She suggested to bring it one month earlier to attract more comments. Another Board member said that stakeholders had asked whether the Management Commentary project would be stopped because of the IFRS Foundation (IFRSF) Consultation Paper on sustainability standard-setting. While this is not the case, postponing the publication of the ED and stating that waiting for feedback on the IFRSF Consultation Paper is one of the reasons might give the wrong signal.
One Board member highlighted that organisations have become adjusted to the pandemic and are now working more efficiently, which means that traditional comment periods are sufficient again. He suggested though to try and avoid too much overlap of big consultations, regardless of the pandemic.
The Board decided with 9 votes against 4 that the comment period for the BCUCC DP should be extended to 270 days. The other recommendations were not voted on as they will be decided in the deliberations of the individual projects.
The Due Process Handbook explains that a PIR normally begins after a new IFRS Standard has been applied internationally for two years, which is generally about 30−36 months after the effective date. IFRS 9 and IFRS 15 have been effective for 33 months (i.e. since 1 January 2018).
The staff analysed the considerations relevant to the timing of the PIR of those Standards and will ask the Board:
If the Board decides to begin the PIR of the IFRS 9 classification and measurement requirements now, should the Board delay reviewing the requirements for FVOCI equity instruments until insurers’ temporary exemption from applying IFRS 9 has expired (i.e. after 2023)?
On IFRS 15, some Board members found that the Transition Resource Group (TRG) addressed some of the most urgent application issues, so there is not an immediate need to start this PIR now. Others thought that, because 2020 will not be a year of refining their IFRS 15 accounting, practical issues might only emerge in the next few years. Many thought it was a good idea to ask about the timing of the PIR in the agenda consultation as stakeholders might hold different views and might have more information.
On IFRS 9, the Chairman supported to start the PIR as soon as possible for classification and measurement. The European Commission and insurers worldwide are pressing for the reintroduction of the ‘available for sale’ category for equity instruments. He is concerned that a potential carve out for annual cohorts in the endorsement process for IFRS 17 might be seen as an opportunity to do a carve-in for IFRS 9. If the PIR starts as soon as possible, evidence can be gathered with regard to the P&L volatility caused by equity instruments. This evidence can then be considered by proponents of the ‘available for sale’ category. There is currently enough feedback on classification and measurement from the banking sector to start the PIR. One Board member agreed with that but said that this issue could be researched independently of a PIR.
One Board member pointed out the dilemma of the deferred IFRS 9 effective date for insurers—if the Board waits for insurers to have applied IFRS 9 for a sufficient time, it would be too late for the PIR. However, starting as soon as possible would mean to start a PIR of a Standard that has not been applied by all preparers. The staff confirmed that while insurers are the biggest equity holders, there are some insurers that already apply IFRS 9 and evidence could be gathered from them as well as from big banking organisations that have a significant holding of equity instruments.
On the question of whether the PIR should be done in its entirety or be split up, some Board members warned that it should not be split up in too many partitions. The Vice-Chair saw merit though for a separation of classification and measurement as this part did not have a TRG (as opposed to the impairment part) and thus application issues have not been addressed since publication of the Standard. Also, there is not much overlap between classification and measurement and the rest of IFRS 9, so the PIRs can be done separately.
On IFRS 15, the Board decided with 8:5 votes to include the timing of the PIR in the agenda consultation.
On IFRS 9, the Board decided unanimously to separate the PIR of the IFRS 9 classification and measurement requirements (including FVOCI equity instruments) from the PIR of the rest of IFRS 9 and to start the PIR on classification and measurement as soon as possible.
On the question of whether the timing of the PIR for the rest of IFRS 9 should be included in the agenda consultation, only 2 of the 13 Board members voted in favour. The Board therefore concluded that they will decide the timing themselves, but agreed it would not be immediately.
One Board member commented on that decision and said that it looked odd asking for input on the timing of the PIR of IFRS 15, but not of that of IFRS 9.
In this session, the Board discussed the staff’s proposed approach to categorising and describing the Board’s activities in the Request for Information.
This paper presented the staff’s proposed approach to categorising and describing the Board’s activities in the Request for Information (RFI).
The staff proposed that the Board’s activities should be categories as activities to:
The staff further proposed that the Board’s activities should be categorised as cross-cutting activities on understandability and accessibility of the Standards and stakeholder engagement.
Lastly, the staff recommended that the RFI should include summarised information about the activity, an estimate of how much the Board’s current resources the activity consumes and potential additional activities if the Board increased its current level of focus on the activity.
A Board member suggested the focus of the Board’s activities should be on the maintenance and consistent application of IFRS Standards rather than developing new IFRS Standards and amendments to IFRS Standards. Another Board member expressed concerns that external stakeholders may not be able to understand what fostering understandability and accessibility of Standards actually entails without further clarification. A Board member suggested that the staff expand on the description of stakeholder engagement as the objective extends beyond promoting the global acceptance of IFRS Standards as the stakeholder engagements also support the maintenance and consistent application of IFRS Standards and development of new and major amendments of the IFRS Standards.
No decisions were made with regard to this paper.
This paper presented the staff’s proposed criteria for assessing projects to be added to the work plan to seek feedback on the RFI.
The staff suggested that the Board considers the following criteria when determining whether a potential project will address the user’s needs:
The staff further suggested considering additional criteria such as the interaction with other projects already on the work plan, the complexity and feasibility of the project and its solutions and the capacity of the Board and its stakeholders to progress the project on a timely basis.
Board members recommended prioritising the criteria similar to how the Conceptual Framework is set out. For example, the criteria could be largely categorised into the impact of a particular issue and the effort involved in resolving the issue. The staff clarified the criteria described are intended to look at present as well as future issues.
No decisions were made with regard to this paper.
This paper presenteds the staff’s proposed approach to seeking feedback on the priority of the Board’s current projects in the RFI.
In previous Board meetings, some Board members suggested that the RFI should ask stakeholders to re-prioritise some current work plan projects. However, the staff recommended not to ask stakeholders to re-prioritise the Board’s current work plan projects but rather to include a general question in the RFI asking stakeholders for comments on the Board’s current work plan as a whole. In the RFI, the staff recommended identifying IAS 29: High Inflation; Pollutant Pricing Mechanisms; Variable and Contingent Consideration; and Post-Implementation Review of IFRS 5 as research pipeline and other projects for stakeholders to comment on and re-prioritise, if necessary.
A Board member recommended giving the stakeholders the option to comment on whether they think a particular project should be prioritised over an existing project on the current work plan, along with reasons for their proposal.
All 13 Board members supported the staff’s recommendation.
This paper summarised the outreach undertaken to develop the list of potential projects to be included in the RFI.
The staff recommend the list of potential projects in the RFI and the list of projects which are not included in the RFI in an appendix. Furthermore, the staff propose to describe for each project the issues raised and an estimate of indicative size of the potential project.
A Board member suggested that feedback should be sought from stakeholders over what level of priority should be given to projects such as Disclosure Initiative—Targeted Standards-level Review of Disclosures. Furthermore, Board members suggested that feedback should be sought for an explicit list of projects as it will improve comparability of feedback received. A Board member suggested the staff provide reasons and explanation as to why some issues and projects have been included in the Appendix.
No decisions were made with regard to this paper.
In this session, the Board discussed application problems within IAS 28.
The Board has decided to undertake a limited-scope project to address the application problems within IAS 28.
The staff recommended that the Board confirms the objective of the research project as being:
“To assess whether application problems with the equity method as set out in IAS 28 Investments in Associates and Joint Ventures, can be addressed in consolidated and individual financial statements by identifying and explaining the principles of IAS 28.”
and the project approach to be:
The staff recommended that the project focus initially on application problems related to transactions between an investor and an associate or joint venture.
The Board was asked to decide on which application problems to address in the project at a future date. The staff believe that the application problems addressed should be based on whether they can be resolved efficiently and effectively without fundamentally rewriting IAS 28 or amending other IFRS Standards, whether they affect consistent application of IAS 28 and the importance of the matter.
The staff recommended resolving the application problems by amending IAS 28 or adding application guidance, based on principles underlying IAS 28, which improves the usefulness of financial information. However, IAS 28 has no clearly defined principles and therefore it will be necessary to identify and explain the principles.
The staff did not recommend that the project attempt to develop solutions for each application problem individually nor do they recommend a fundamental review of the equity method. This would require more time and resources and could result in substantive changes to the financial statements.
In 2015, the Board deferred work on the equity method project until it had assessed feedback from the Post-implementation Review of IFRS 11. This first phase of this review is now complete and one matter which the Board has decided to examine further is relevant to the application of the equity method: ‘how to account for certain transactions that result in changes in ownership interest that alter the relationship between an investor and an investee’. The staff suggest starting work on the equity method project now in order to combine work in relation to these two projects.
The staff asked the Board whether they agree with their recommendations.
Board members had qualified support for the staff’s proposals. Overall, there was agreement with the objective to resolve the application problems and that in order to resolve the application issues, the underlying principles of IAS 28 need to be articulated. Board members also agreed with the approach to focus on consolidated and individual financial statements first and the separate financial statements at a later date.
The two major concerns raised were in relation to identifying and explaining the principles in IAS 28 and the scope of the project.
Currently, there are no principles in IAS 28 and if principles are created to retrofit the Standard, this may cause wider issues then initially intended and preparers may have to consider accounting judgements previously made. A cost-benefit analysis would need to be performed to assess whether this is the best approach. One suggestion made was to develop the articulation of principles only for the open application issues.
In order to create the principles, it was suggested that it would be useful to speak to investors to understand what information they get from the equity method. This information would provide clarity around how to solve the application issues as the Board would understand what the equity method is trying to achieve. It would also be useful to understand what information investors feel they are not getting about joint ventures and associates in the disclosures. The post-implementation review of IFRS 10–12 would be a good opportunity to obtain information which will help with this project.
One Board member raised a concern raised by investors as part of the Primary Financial Statement (PFS) project where the requirement is currently to report in a single line the share of profit/loss from equity method accounted investments as a post-tax number but then aggregate it in the pre-tax number. It was concluded that this was outside the scope of the PFS project and therefore he requested for it to be included within this project. In addition, he recommended to the staff to read the comment letters from the PFS project which may provide useful information in relation to this project.
The other issue raised was around the application issues. It may be difficult to assess whether it is possible to solve the application issues without creating the principles and therefore it may be an iterative process rather than a sequential process. It may also cause application issues which have already been addressed to be reopened.
It was concluded that it would be important for the staff to perform the feasibility work to assess whether this project would be possible and this initial assessment would need to be done sooner than normal for this type of project. If it is concluded that it is feasible, then the scope of the work should be assessed to see if this is a narrow-scope project or a wider project.
A majority of 12 (out of 13) voted in favour of the project objective. A majority of 11 (out of 13) voted in favour of the project approach.
In this session, the Board was updated on the feedback received to the proposed taxonomy update (PTU/2019/1) 'Interest Rate Benchmark Reform—Amendments to IFRS 9, IAS 39 and IFRS 7'.
The staff provided the Board with an update on the feedback received to the proposed taxonomy update (PTU/2019/1) Interest Rate Benchmark Reform—Amendments to IFRS 9, IAS 39 and IFRS 7. One comment letter was received from the Institute of Chartered Accountants of Nigeria. They agreed with all the proposals. The members of the Board’s IFRS Taxonomy Consultative Group (ITCG) proposed adding elements for the disclosure of early application of new or amended IFRS Standards. The final Taxonomy Update is expected in December 2020.
The staff also informed the Board that PTU/2020/2 Amendments to IFRS 17, Extension of the Temporary Exemption from Applying IFRS 9 and Property, Plant and Equipment—Proceeds before Intended Use was published in July 2020. No comment letters were received for this PTU and hence no significant changes will be made in finalising the update.
The Vice Chair expressed her continued concern about the lack of response to the PTUs, given the time and effort that goes into them. She stressed that the taxonomy is important and Board members have tried to encourage stakeholders to respond. This issue has been highlighted to the Due Process Oversights Committee as the costs for the PTUs currently outweigh their benefits. The Chairman asked whether the Vice Chair suggests not to expose the taxonomy updates. She responded that they should be exposed, but it might not be the best way of getting feedback on them. She suggested to keep monitoring the situation. The staff shared the concern. One Board member said that the Board receives comments from the ITCG members, however, those comments are made in the meetings and not in comment letters from their respective organisations.
In this session, the Board discussed additional analysis and preliminary recommendations on how to address the matters raised in the feedback on the Exposure Draft to the IFRS Interpretations Committee.
In July 2019, the Board published the Exposure Draft Deferred Tax related to Assets and Liabilities arising from a Single Transaction, which proposed amendments to IAS 12. In September 2020, staff presented the initial analysis and preliminary recommendations on how to address the matters raised in the feedback on the Exposure Draft to the IFRS Interpretations Committee (the Committee).
The purpose of this meeting was to provide additional analysis and recommendations taking into account the comments from the Committee raised in its September meeting.
Almost all respondents to the ED agreed with the Board's decision to address the accounting for deferred tax related to leases and decommissioning obligations. However, many either disagreed with or expressed concerns with various aspects of the proposals, especially the capping proposal.
The respondents who opposed the capping proposal considered it complex and burdensome to apply because an entity would be required to assess the recoverability of each individual deferred tax asset on initial recognition for each applicable transaction. Also, it would be inconsistent with the principles in the IAS 12 requirements for recognising a deferred tax liability for all taxable temporary differences. The staff agreed that complexities and inconsistencies would arise when an entity is unable to recognise the deferred tax assets in full. In that case, the entity would need to apply the recognition exemption to the deferred tax liability not recognised and track temporary differences to which the exemption is applied separately from other temporary differences arising from the same assets and liabilities. The partial application of the recognition exemption to the deferred tax liability does not align with other circumstances in which the exemption applies because such circumstances are particular to the entity, depending on the recoverability of the deferred tax asset, but not to the tax characteristics of the transaction. Moreover, it might be unclear how an entity should allocate the taxable temporary difference against particular deductible temporary differences in assessing the recoverability of deferred tax assets and how to account for the reassessment of unrecognised deferred tax assets after initial recognition. In view of these, the staff recommends removing the capping proposal.
In relation to the attribution of tax deductions related to the lease asset or lease liability as required by IAS 12, the Board decided not to propose any further requirements or application guidance on how an entity makes this determination because the proposed amendments would result in entities recognising deferred tax assets and liabilities in relation to a lease, regardless of the tax deduction attributions. The staff acknowledge that there is a difference in recognition and disclosures depending on the tax deduction attribution, however, they considered the benefits of providing further requirements on this would not outweigh the potential costs and support the Board's decision not to provide further requirements as requested by some respondents.
Some respondents commented that the scope of the amendment is too broad and might thus capture transactions not considered by the Board. A few respondents suggested that limiting the scope to deferred tax arising from leases only. The staff disagreed with this because the purpose of the amendments is to capture any transaction that, on initial recognition, gives rise to equal and offsetting temporary differences but is not just limited to leases. Some considered that the specification that the capping proposal applies to transactions that lead to the initial recognition of "an asset and liability" may make it unclear whether some transactions, which involve multiple assets and liabilities, fall within its scope. The staff considered that if the capping proposal is removed, it will be clear that those transactions are in scope if they give rise to "equal amounts of taxable and deductible temporary differences", even if multiple assets and liabilities are involved. Overall, the staff supported the Board's current scoping of the amendments.
Regarding the transition requirements, some considered it is unclear how the amendments interact with some of the transition requirements in IFRS 16. For instance, the amendments refer to "equal amounts of taxable and deductible temporary differences" while on the date of initial application of IFRS 16, the carrying amount of the lease asset and liability could be different (if IFRS 16:C8(i) was applied). Accordingly, the staff recommended recognising all temporary differences related to leases and decommissioning obligations, without assessing whether those transactions result in equal and offsetting temporary differences restrospectively, at the beginning of the earliest comparative period presented, with the cumulative effect recognised as an adjustment to the retained earnings. Others were of the view that it is challenging to calculate deferred tax for the earliest comparative period presented. However, the staff supported the view of restating the comparative figure given the restatement provides useful information to users of financial statements. Furthermore, identifying transactions which might be in the scope of the amendments retrospectively could be costly and complex, thus the staff proposed allowing entities to apply the amendments prospectively to transactions other than leases.
The staff recommended is that the Board:
The majority of the Board supported the staff recommendations, in particular, removing the capping proposal was supported as it was stated that this would reduce unnecessary complexity.
One Board member expressed concern in relation to any mismatch of deferred tax assets and deferred tax liabilities that may arise on initial recognition being presented as an expense in profit or loss. Some Board members expressed support for this proposal as the mismatch represents an economic loss for the entity.
Some Board members expressed support for the illustrative example explaining deferred tax accounting for advance lease payments and initial direct cost. One Board member stated that their support was due to the potential tension between IFRS 16 which requires advanced payments to adjust the carrying value of a right of use asset and the amendment requiring the deferred tax relating to these balances to be treated separately.
One Board member was supportive of the proposals as they have been developed but expressed the view that they may not be that beneficial in practice.
In relation to transition requirements one Board member clarified that the requirement to recognise the cumulative effect of applying the amendment as an adjustment to retained earnings at the beginning of the earliest comparative period would not present issues for entities that report both locally with 1 comparative period and in the US with 2 comparative periods. The staff agreed that any issues would occur very rarely given that they would result from the entity entering into a partially deductible lease during the first of the two comparative periods. Given that leases of this nature are not commonly entered into, the risk of complications arising due to this issue were considered likely to be rare.
12 Board members voted in favour of staff recommendations (a) – (d) as set out above.
13 Board members voted in favour of staff recommendations (e) – (f) as set out above.
In this session, the Board was provided with an oral update update on the outreach activities with regard to dynamic risk management.
The staff provided the Board with an update on the outreach activities with regard to dynamic risk management (DRM). The staff is reaching out to 25 banks from different jurisdictions and backgrounds. They also have different balance sheet structures and are currently managing their interest rate risk in different ways. The outreach materials have been distributed to them along with the questions they should respond to. The staff is setting up meetings with these banks between now and the end of January 2021. The staff expect to present the feedback from this outreach to the Board in March or April 2021. The Board will then decide the project direction.
There was no discussion on this topic.
In this session, the Board discussed the staff's findings on the diversity of accounting policies applied to exploration and evaluation expenditure within the scope of IFRS 6.
The staff presented during the meeting the research findings on the diversity of accounting policies applied to exploration and evaluation expenditure within the scope of IFRS 6.
According to the agenda paper, the staff’s research indicates that the source of this diversity is primarily due to the extent to which an entity decides to recognise exploration and evaluation expenditure incurred during the reporting period as an asset and the unit of account that an entity decides to apply to its exploration and evaluation expenditure asset.
Most of the entities in the sample use 'area of interest' accounting. The ‘full cost’ and successful efforts methods are the most common accounting policies for oil and gas companies not applying ‘area of interest’ accounting.
The staff has observed numerous terms and units of account in practice.
The staff has also obtained feedback from stakeholders. The stakeholders do not identify the diversity in accounting policies of extractive companies as a primary concern. However, these users said the financial statements of entities with extractive activities lack information about climate change, environmental issues and obligations, the economic life of the mineral or oil and gas property and thorough information about its reserves and resources.
The Board was asked to make a decision about whether to commence a project to replace or amend IFRS 6 at a future meeting, based on the information that has been presented to the Board in past meetings.
Board members have commented on the diversity of accounting practices found within the extractive industry and the necessity of a more detailed disclosure of the accounting policy chosen by some samples analysed by the staff. Board members mentioned the difficulties in standardising the accounting policy options through amendments to IFRS 6 and commented on past challenges in a similar project for the insurance industry.
Board members also mentioned that a potential solution could be to amend the IFRS 6 by requiring further disclosures. A Board Member suggested that the staff have to increase engagement with financial statement users for a better understanding of the disclosures that they would consider relevant.
In this session, the Board discussed whether the compliance statement required by IAS 1 should differentiate the entities that have applied the reduced disclosure requirements and whether the disclosure requirements of IAS 8 should be applied by these entities.
In January 2020, the Board agreed to move the Subsidiaries that are SMEs project from the research programme to the standard-setting programme. In April 2020, the Board agreed to the proposed plan for the project for the remainder of 2020.
The objective of the project is to develop an IFRS Standard (reduced disclosure IFRS Standard) that will permit subsidiaries that meet the definition of an SME to apply IFRS Standards but with reduced disclosure requirements.
At this meeting, the Board were asked whether they agree with the staff’s proposed recommendations on the following points:
A concern was raised in relation to this requirement, specifically whether the disclosure may be construed as qualifying the statement of compliance. Despite the concern raised, the Board supported the staff recommendation. This support was due to the arguments raised in the paper; specifically, without these disclosures the users of the financial statement will not be able to clearly distinguish entities that applies full IFRS and entities that apply the reduced disclosure framework.
When asked to vote, 12 of the 13 Board members voted in favour of the staff’s recommendation.
Board members asked whether the contents of IAS 8 will appear within the text of the standard or as a cross-reference and whether the application of the standard will mean an accounting policy choice.
The staff made it clear that the intention of the standard is to make it simpler for IAS 8 to apply by clearly indicating which disclosure requirements will apply and list in the appendix those that does not apply for entities who will adopt the Standard.
When asked to vote, all 13 Board members voted in favour of the staff’s recommendation.
The staff highlighted that the recommendation arose from the fact that not all new Standards have disclosure requirements specific to transitional provisions. The objective of the recommendation is to require a subsidiary that is an SME and that first applies a new IFRS Standard or amended Standard to comply with the transitional provisions.
When asked to vote, all 13 Board members voted in favour of the staff’s recommendation.
Opposition was raised in relation to omitting the requirements of paragraph 9.30 as these have proved to be sensible and relevant disclosures required in producing combined financial statements. It was also suggested that instead of omitting these disclosures, the Board should consider whether amendments are to be made to other IFRS Standards to introduce these requirements from IFRS for SMEs Standards.
Despite the opposition, the Board supported the staff recommendation. This is mainly because when an entity produces combined financial statements they will need to prepare disclosures that will follow something similar to the Section 9 of the IFRS for SMEs Standard.
When asked to vote, 10 of the 13 Board members voted in favour of the staff’s recommendation.
In this session, the Board was provided with an overview of the project and discussed matters affecting long-term prospects, on intangible resources and relationships and on ESG matters, likely effects of the proposals, and due process steps.
In this paper, the staff provided a background and overview of the project to date, and summarise the content of the following papers to be discussed in October’s meeting.
The staff will begin to draft the Exposure Draft (ED) for the updated Practice Statement.
The staff assert that a short-term focus within general narrative reporting practice has led to a gap, with investors, creditors and other stakeholders increasingly requesting information about matters that could affect an entity’s long-term prospects, for instance, regarding intangible resources and relationships, or environmental, social and governance (‘ESG’) matters.
In response to these demands, there have been significant developments in the field of narrative reporting, including various initiatives at harmonisation of the multiple frameworks in this area, and research into how to report on this information.
To meet this growing demand for information on matters that may affect an entity’s long term prospects, promotion of information on these topics has been one focus area for the Management Commentary project.
Although trying to avoid a ’checklist’ exercise that will diminish the application of judgement, the Board wishes to promote the inclusion of information about intangible resources and relationships, and ESG matters within management commentary in order to meet the objective of management commentary.
It is expected that the proposals related to provision of this information will be included throughout the draft guidance rather than as separate guidance, due to the overlap between both the areas of the business these matters could affect, and overlap between the matters themselves.
The staff sought feedback from consultative groups who:
The staff papers included the working draft of their guidance on the provision of information about matters that could affect an entity’s long-term prospects, intangible resources and relationships, and ESG matters.
The staff asked for comments or questions on this overview of draft guidance, but no formal decisions were asked.
Board members were broadly supportive of the principles-based approach suggested by the staff. However, there were several items of feedback from Board members:
There was some concern that having the focus on a principles-based approach rather than providing specific guidelines may be a barrier to some entities as it may not be accessible to those who are not accustomed to applying a principles-based Practice Statement. There was also concern that without any illustrative guidance, the Practice Statement might be too abstract for preparers. The staff responded to these points, suggesting that an additional appendix or section could be incorporated in the Practice Statement which could provide a roadmap for preparers.
One Board Member suggested that it may be good keeping the structure of the Practice Statement as it had been suggested by the staff, as it has been subject to considerable thought, whilst at the same time documenting these additional considerations, including any interrelation with other Standards and areas, within a ‘Basis for Conclusions’ section.
There were also concerns about the use of language and terminology in the Practice Statement: phrases such as “forward-looking information” have specific meanings and responsibilities in certain jurisdictions, and the use of different terms to refer to singular concepts throughout the Practice Statement may be confusing for some preparers. The advice from Board members was that the Practice Statement should be tight and ‘boring’ in its use of terminology to avoid these issues.
It was also raised that, although the increased focus on long-term information is welcomed, there is a risk that year-on-year repetition of an entity’s long-term strategy will result in management commentary not being concise, and lead to users ‘blacklining’ sections of the reporting. It was suggested that long-term strategy could be documented externally from management commentary, and only changes or updates disclosed each year.
Similarly, it was suggested that, where an entity already produces a separate report, for example a report on ESG matters, it could be possible to integrate this information with the management commentary section of an annual report. However, another Board member highlighted that this may not be appropriate in situations where additional reports are released and authorised at a different time to the annual report.
One member of the Board questioned why additional prominence should be given specifically to intangible resources and relationships, rather than leaving the assessment of which information is important to management. The staff responded, clarifying that this was notable feedback from the various consultative groups with whom they had held discussions.
Finally, it was highlighted that this process, and any subsequent ED, would be a good opportunity to get feedback from real stakeholders about the information that they wish to see.
In accordance with the Due Process Handbook (the Handbook), the Board assess the likely effects of any proposed new Standard. Although the handbook does not explicitly require this for non-mandatory Practice Statements, it does state that the Board should follow the same procedures as for developing Standards.
The staff think that explaining the likely effects of the proposals could be helpful for:
The Handbook suggests assessing the effects:
The staff noted that due to limited adoption of the existing Practice Statement, it is difficult to assess the effects of the Board’s proposal through comparison, therefore the effects analysis focuses on assessing the effects of the proposals in the light of the Board’s objective of financial reporting transparency.
The staff identified the following as likely positive effects of the proposals:
The staff also argued that the improved enforceability of the Practice Statement and the improved ability to gain assurance over the management commentary will provide a better basis for, and encouragement of, local regulators to mandate the revised Practice Statement.
The staff considered the likely costs of implementing the proposals to both the preparers and the investors and creditors.
The costs of implementing these proposals for preparers is considered to be variable: some entities with pre-existing internal systems in place to identify relevant information for management commentary are unlikely to incur significant extra costs in producing information under a revised Practice Statement; however, the costs may be significant for entities that currently do not prepare any management commentary.
The staff expect that there would be a cost saving for investors and creditors as the proposals should make it easier for them to analyse the information in management commentary under a revised Practice Statement.
In summary, the staff anticipate that the likely benefits of implementing and adopting the revised Practice Statement would significantly outweigh the likely costs of implementing the proposals and ongoing application.
Board members were asked if they have any comments or questions on this overview of the likely effects of the proposals and were not asked to vote on these matters.
Board members highlighted that the documentation of the benefits of adopting the revised Practice Statement could be more neutral, and more cognisant of the consequences and requirements, especially to entities that have not before adopted the Practice Statement.
It was also noted that, because of the limited adoption of the existing Practice Statement, feedback on the ED from a broad range of stakeholders will be of heightened importance.
Board members agreed with, and reiterated, the benefits to electronic reporting and subject tagging provided by the taxonomy of the revised Practice Statement. It was also noted that this is in line with the broader aim to improve the IFRS taxonomy.
The staff briefly outlined the background to the project, and summarise the process for publishing an ED.
The staff also discussed the proposals for the effective date and transition of the revised Practice Statement, recommending that the Practice Statement becoming effective for periods beginning on or after the date the Practice Statement is published gives sufficient time (at least one year) for entities to transition to the revised Practice Statement (e.g. if published on 1 December 2022, it would be effective on or after that date and the first management commentary following the revised Practice Statement would be 1 December 2023 at the earliest).
The staff also recommended that early adoption of the revised Practice Statement should be permitted.
The Board were asked to vote on the staff recommendations.
The Board broadly agreed with the staff recommendations, though queried the appropriateness of using language such as “effective date” for a voluntary Practice Statement, instead recommending “is available from [date]”, reflecting the Practice Statement’s status as an opportunity, not an obligation.
When asked to vote, the Board unanimously voted in favour.
The staff outlined the steps taken so far in developing the proposals for the revised Practice Statement.
The staff discussed the appropriate length of any comment period. Though the staff do not think a period of comment shorter than the usual minimum is necessary, the staff will ask the Board for a decision on the length of any comment period at a later date.
The Board were invited to share any comments on the comment period.
The staff shared in an appendix confirmation that the required due process steps to date for the publication of the ED have been completed.
The Board were asked if they were satisfied that they had complied with all applicable due process steps and that it should begin the balloting process for the ED. They were also asked if any member intends to dissent to the ED.
Board members broadly agreed with the staff recommendations. There were no comments on the comment period. It was clarified that proceeding to the balloting process would not preclude the actioning of Board suggestions in response to Agenda Paper 15A.
When asked to vote, the Board voted unanimously in favour of starting the balloting process. When asked, no member of the Board announced an intention to dissent to the ED.
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