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 aggregation and disaggregation and other topics identified during the pre-ballot phase of IFRS 18.

This paper was not discussed.

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

Background

This paper discussed the issues related to aggregation and disaggregation and other topics which the staff has identified during the pre-ballot process. The issues identified are:

• Presentation of cost of sales
• Hierarchy of characteristics for the statement of financial position
• Transitional relief for additional comparative information

The staff also identified other minor sweep issues that it has addressed in drafting.

Staff recommendation

The staff recommended that the IASB require an entity to present a line item for cost of sales separately from any other expenses classified by function if the entity classifies operating expenses by function that include cost of sales. (Recommendation 1).

In addition, the staff recommended that the IASB include a hierarchy for the characteristics for presentation in the statement of financial position by explaining in IFRS 18 that (Recommendation 2):

• Nature or function are characteristics used to aggregate assets and liabilities into separate line items in the statement of financial position—other characteristics, like duration, liquidity, measurement basis, type and tax effects, assist an entity to determine the nature or function of an item
• The duration and timing of recovery and settlement are characteristics that are used when classifying assets and liabilities as either current and non-current and liquidity is a characteristic that is used to classify assets and liabilities by order of liquidity

The staff also asked whether the IASB wants to (Question 1):

• Provide transitional relief that permits but does not require an entity to present additional comparative information and related disclosures applying IFRS 18 for earlier periods than the annual period immediately preceding the beginning of the annual reporting period for which IFRS 18 is applied for the first time
• Require an entity that applies the transitional relief to clearly identify the information that is not presented and disclosed in accordance with IFRS 18, and to disclose that the information has been prepared on a different basis, and explain that basis

IASB discussion

Some IASB members expressed concerns regarding Recommendation 1. In their view, the recommendation may be superfluous as the principles on aggregation and disaggregation should be sufficient to address any issues and including a specific requirement on cost of sales may be interpreted as a rule.

Most IASB members agreed with Recommendation 2. However, some IASB members said that measurement basis is a factor to consider in determining the nature or function of an item but is not a characteristic of the item. IASB members also asked the staff to clarify that the recommendation would be included in the application guidance rather than main body of IFRS 18. 

Many IASB members expressed concerns with regards to Question 1 because providing the transition relief would be inconsistent with what the IASB did in the past in relation to other standards. These IASB members thought that the basis for determining a requirement of the standard should not be driven by the requirements of some regulators.

However, other IASB members were in favour of providing some transitional relief because they considered it would be challenging for large companies to implement IFRS 18 in the given timeframe and regulators in some jurisdictions may require the presentation of more than one comparative period. Furthermore, these IASB members considered that if an entity is required to present more than one comparative period, the figures should be comparable because information presented for more than one comparative period under a different presentation basis is not helpful information. The staff clarified that the proposal is for an entity applying the requirements of IFRS 18 for the first time in 2027 to present 2026 in accordance with IFRS 18 as its comparative period and present 2025 in accordance with IAS 1. This includes a reconciliation in the notes of 2026 information presented in accordance with IFRS 18 to 2026 information presented in accordance with IAS 1.  

Some IASB members thought that the staff suggested that the disclosure of specified expenses by nature would extend beyond the requirement to disclose specified expenses by nature in the operating category and would require an entity to disclose specified expenses by nature for expenses presented in the investing or financing category. Other IASB members asked the staff to explain why in the drafting of IFRS 18, the staff have not included a reference to material classes as this is different to the proposals in the Exposure Draft (ED).

Overall, the IASB members suggested that the staff include a requirement for entities that present operating expenses by function to include information about totals of the specified expenses by nature (i.e. depreciation, amortisation, employee benefits, write-down of inventories and impairments) and explain any differences that arise from requirements of other Standards. This would result in all information of the specified expenses by nature being included in a single note, regardless of how it is classified in the Statement of Comprehensive Income.

IASB decision

All 13 IASB members present (one IASB member was absent) agreed with Recommendations 1 and 2.

Only 5 of the 13 IASB members present responded ‘yes’ to Question 1, and therefore no transitional relief will be provided.

12 of the 13 IASB members present decided to confirm that an entity that presents one or more function line items will be required to disclose in a single note the amounts for these expenses that are included in each line item in the operating category only.  In addition, the entity will be required to include in the same note two disclosures for each specified expense:

• The total for the specified expenses by nature, already required in IFRS Accounting Standards
• An explanation of which line items outside the operating category include any difference between the total of the amounts included in the line items in the operating category and the total described above. Such an explanation is already required by a previous tentative decision to provide a qualitative explanation of the line item in which disclosed items are included