Cover paper (Agenda Paper 30)

In September 2022, the IASB published Exposure Draft Third edition of the IFRS for SMEs Accounting Standard (ED). The ED was open for comment for 180 days, which ended on 7 March 2023.

At the November 2023 IASB meeting, the IASB continued its redeliberations of the proposals in the ED.

Proposed amendments to Section 15 Investments in Joint Ventures (renamed Joint Arrangements) (Agenda Paper 30A)

The purpose of this paper was for the IASB to consider feedback on the proposals in the ED to align Section 15 Investments in Joint Ventures (proposed to be renamed Joint Arrangements) of the IFRS for SMEs Accounting Standard with IFRS 11 Joint Arrangements and decide whether to proceed with the proposals in the ED to amend Section 15 of the Standard.

The staff recommended that the IASB confirms the amendments to Section 15 of the IFRS for SMEs Accounting Standard proposed in the ED to:

• Align the definition of joint control in Section 15 of the Standard with IFRS 11
• Retain the three classifications of joint arrangements in Section 15 of the Standard
• Align Section 15 of the Standard with IFRS 11:23

IASB discussion

Most of the IASB members were in support of retaining the three classifications of joint arrangements in Section 15 of the Standard rather than aligning with IFRS 11. They were of the view that retaining the classification requirements should avoid the difficulty and significant judgements involved in applying the classification requirements in IFRS 11. This is because the Section 15 classifications are based on the structure of the joint venture which is simpler for SMEs to apply. 

One IASB member was supportive of aligning the classifications in Section 15 of the Standard with IFRS 11 because the requirements in IFRS 11 provide a clearer principle in classifying joint arrangements.

IASB decision

• The 13 IASB members present (one absent) voted in favour of aligning the definition of joint control in Section 15 of the Standard with IFRS 11
• 12 of the 13 IASB members present voted in favour of retaining the three classifications of joint arrangements in Section 15 of the Standard
• The 13 IASB members present voted in favour of aligning Section 15 of the Standard with IFRS 11:23

Simplification in paragraph 28.19 (Agenda Paper 30B)

The purpose of this paper was to ask the IASB to consider feedback on the proposals in the ED to remove the simplification for measuring the obligation and the related cost of defined benefit plans in paragraph 28.19 of the IFRS for SMEs Accounting Standard and decide whether to retain the simplification in paragraph 28.19 in the Standard, clarifying its application.

The staff recommended that the IASB:

• Retains paragraph 28.19 of the Standard
• Clarifies that, when applying paragraph 28.19, an SME measures a defined benefit plan obligation at the current termination amount—so that an SME would assume that all its employees terminate their employment at the reporting date and, therefore, the entity would not be allowed to discount its obligations from defined benefit plans
• Requires an SME to disclose the basis for determining that termination amount

IASB discussion

IASB members agreed with the staff recommendation to retain the simplification. They acknowledged that most SMEs do not have defined benefits pension schemes and for SMEs who provide defined benefits pension schemes to their employees the simplification is useful and has a significant effect in some jurisdictions.

Some IASB members questioned whether the clarification proposed by the staff is a further simplification to paragraph 28.19 of the Standard. Some IASB members do not believe there is a link between not discounting and termination of employment given the payment of the terminated amount is possibly only due decades after the termination of employment.

The IASB members suggested that the staff consider whether the key terms and condition of the plan should be disclosed when applying the simplification, including when there is a significant delay between the termination of the employment and the payment.

IASB decision

• The 13 IASB members present voted in favour of retaining paragraph 28.19 of the Standard
• The 13 IASB members present voted in favour of not discounting the defined benefit pension scheme obligations and that the simplified methodology should be allowed
• 11 of the 13 IASB members present voted in favour of the disclosure requirements as drafted in the agenda paper