Cover note and summary of feedback and redeliberations (Agenda Paper 21)

In July 2023, the IASB gave the staff the permission to start the balloting process for the publication of the new IFRS Accounting Standard, IFRS 18 Presentation and Disclosure in Financial Statements. This paper discussed the sweep issues related to subtotals and categories and aggregation and disaggregation and other topics.

Sweep issues related to subtotals and categories (Agenda Paper 21A)

Background

This paper discussed the sweep issues related to the classification of income and expenses in the investing category on which the staff would like the IASB’s input. The issues identified are the scope of income and expenses classified in the investing category and financial assets for which the income and expenses are classified in the investing category. The paper also discussed minor sweep issues related to subtotals and categories in the statement of profit or loss that the staff has addressed in drafting. Appendix A to the paper summarised the issues and the approaches taken to address them in drafting.

Staff recommendation

The staff recommended that the IASB clarifies in IFRS 18 the income and expenses from assets that an entity classifies in the investing category. The IASB previously confirmed the assets from which the income and expenses need to be classified in the investing category. The clarification is that the income and expenses from those specified assets comprise: [Recommendation 1]

• The income generated by the specified assets
• The income and expenses that arise from the initial and subsequent measurement of the specified assets
• The incremental expenses directly attributable to the acquisition and disposal of the specified assets, for example transaction costs and costs to sell.

In addition, the staff recommended that the IASB clarifies in IFRS 18 that the income and expenses from liabilities that arise from transactions that involve only the raising of finance comprise: [Recommendation 2]

• The income and expenses that arise from the initial and subsequent measurement of the liabilities
• The incremental expenses directly attributable to the issue and disposal of the liabilities, for example transaction costs

Lastly, the staff recommended that the IASB add application guidance that provides examples of assets that generate returns individually and largely independently of the other resources of the entity and those that do not, including loans and receivables recognised from providing goods and services to customers. This application guidance would replace the application guidance on classification of income and expenses from financial assets arising from providing financing to customers. [Recommendation 3]

The staff also asked whether the IASB has any comments on the minor sweep issues included in Appendix A.

IASB discussion

Most IASB members agreed with the Recommendation 1. However, some IASB members expressed concern that the list of specified assets included in the paper may be seen as a rule rather than exception. The staff replied that the list of specified assets will be carefully considered in the drafting of IFRS 18. All IASB members considered Recommendation 2 to be helpful. Some IASB members asked the staff to clarify in the drafting of IFRS 18 that an entity would only be required to identify whether or not its main business activity involves investing in assets or provide financing to customers and is not required to identify all of its main business activities. Other IASB members debated whether the IASB should prohibit an entity from allocating foreign exchange differences on each liability that arise from a transaction that involves not only the raising of finance. However, these IASB members ultimately agreed with the staff’s recommendation because the allocation of foreign exchange differences may require judgement and cause diversity in practice.

IASB decision

All 13 IASB members present (one IASB member was absent) agreed with the staff recommendations.

Sweep issues related to aggregation and disaggregation and other topics (Agenda Paper 21B)

Background

This paper discussed the issues on which the staff would like the IASB’s input related to the role of the primary financial statements to provide a ‘useful structured summary’ of the entity’s income, expenses, assets, liabilities, equity and cash flows. The paper also discussed other minor sweep issues that the staff has addressed in drafting. Appendix A to the paper summarises the issues and the approaches taken to address them in drafting.

Staff recommendation

The staff recommended that the IASB:

• Clarify that an entity does not need to assess whether the classification requirements that determine the structure of a primary financial statement will result in a useful structured summary because application of those requirements is presumed to always result in a useful structured summary [Recommendation 1]
• Clarify that an entity need not present separately a specific line item in a primary financial statement if doing so is not necessary for the statement to provide a useful structured summary (this is the case even if the IFRS Accounting Standards contain a list of specific required line items or describes the line items as minimum requirements) [Recommendation 2]
• Remove the application guidance stating that in general it is unlikely that the presentation of the list of items set out in IFRS 18 related to the statement of profit or loss, if classified in the operating category, would reduce how effective the statement is in providing a useful structured summary [Recommendation 3]
• Clarify instead that because of the importance of the operating category it is likely that for the statement of profit or loss to give a useful structured summary of its income and expenses, an entity will need to present more line items for operating expenses than it will for income and expenses classified in other categories [Recommendation 4]
• Make consequential clarifications to the examples in the application guidance on aggregation of operating expenses based on similar characteristics and disaggregation of operating expenses based on dissimilar characteristics [Recommendation 5]

The staff also asked whether the IASB have any comments on explaining in education materials how useful structured summary fits within the materiality process and whether the IASB have any comments on the minor sweep issues included in Appendix A.

IASB discussion

IASB members were supportive of Recommendation 1 because application of those requirements is presumed to always result in a useful structured summary. However, some IASB members expressed concern that the term ‘useful structured summary’ is not defined and asked the staff to clarify the distinction between useful structured summary and required disaggregation. The staff replied that ‘useful structured summary’ is just putting a label to the concept that already exists in Practice Statement 2 Making Materiality Judgements and this will be clarified in the drafting of IFRS 18. All IASB members disagreed with Recommendation 4 because this detracts from the principle of ‘useful structured summary’.

Some IASB members disagreed with the example illustrating how an entity provides further information on an aggregated line item that is considered to be immaterial, including an indication of the nature and amount of the largest item included in that aggregated line item. The staff clarified that this was just an example of how an entity can satisfy the requirement to provide information on judgements made on what constitutes material information. Some IASB members asked the staff to confirm whether an adjustment based on a hypothetical transaction made to a specified subtotal meets the definition of management-defined performance measure. However, other IASB members said it is unlikely that regulators would permit entities to include management-defined performance measures calculated using hypothetical transactions.

IASB decision

All 13 IASB members present (one IASB member was absent) agreed with Recommendation 1.

10 of 13 IASB members present (one IASB member was absent) agreed with Recommendation 2.

11 of 13 IASB members present (one IASB member was absent) agreed with Recommendation 3.

None of the IASB members present (one IASB member was absent) agreed with Recommendation 4.

12 of 13 IASB members present (one IASB member was absent) agreed with Recommendation 5.