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, until 7 March 2023.

At the March 2024 IASB meeting, the IASB continued its redeliberations of the proposals in the ED.

Proposed revised Section 23 Revenue from Contracts with Customers—Redeliberation topics (Agenda Paper 30A)

The purpose of this paper was for the IASB to consider feedback on six topics with regard to Section 23 where stakeholders requested changes or raised concerns about the proposals and to decide whether to change the proposed requirements.

Staff recommendation

The staff recommended that the IASB should:

• Require an SME to account for a warranty as a separate promise only if the customer has the option to purchase the warranty separately and remove the simplification proposed in the ED;
• Require an SME to determine whether it is a principal or agent based on the principle and indicators of control in IFRS 15 and remove the simplification proposed in the ED;
• Require an SME that is evaluating whether a customer obtains control of an asset to consider any agreement to repurchase the asset;
• Withdraw the proposed requirements on customers’ unexercised rights (breakage);
• Retain the proposed requirements on contract balances;
• Retain the proposed requirements and include the assumptions in IFRS 15:B4(a)-(b) (criteria for over time revenue recognition)

IASB discussion

IASB members were supportive of the staff recommendation given the feedback from fieldwork participants. One IASB member suggested to explain in the basis for conclusions why SMEs would account for a warranty as a separate promise only if a customer has the option to purchase the warranty separately.

IASB members agreed with the staff analysis that omitting two of the indicators from the revised Section 23 in the ED could make the requirements for principal versus agent more complex for SMEs to apply and recognise revenue that does not faithfully represent the amount of consideration to which the SME is entitled. Therefore, they agreed that an SME should determine whether it is a principal or agent based on the principles and indicators of control in IFRS 15.

Most IASB members raised concerns that only considering repurchase agreements when evaluating whether a customer obtains control of an asset is out enough. IASB members suggested to add a sentence in drafting the section to be clear that a customer may not obtain control of an asset if there is any agreement to repurchase the asset.

IASB members were supportive of removing the requirements for customers’ unexercised rights in the revised Section 23 after the feedback received.

IASB members were supportive of the staff recommendation to retain the proposed requirement for SMEs to present contract assets and receivable balances separately and expand the example in educational material that helps SMEs to identify circumstances in which a right to consideration is conditional and gives rise to a contract asset.

IASB members asked whether it is possible to move one of the ‘over time’ revenue criteria (“the entity’s work carried out to date would not need to be substantially reperformed if another entity were to fulfil the remainder of the promise to the customer”) to educational material as an indicator of how some of the criteria apply in practice to reduce the length of the standard.

IASB decision

All IASB members voted in favour of the staff recommendation.

Proposed revised Section 23 Revenue from Contracts with Customers—Additional and alternative simplifications (Agenda Paper 30B)

The purpose of this paper was to ask the IASB to consider feedback made by stakeholders to simplify the requirements in the ED and to decide whether to change the proposed requirements.

Staff recommendation

The staff recommended the IASB should:

• Not change the requirements proposed in the ED for the simplifications suggested by stakeholders discussed in this paper; and
• Use the term “collectability”, instead of “customer’s credit risk”, to express the requirement for an SME to estimate the recoverable amount of assets recognised from costs incurred to fulfil a contract.

IASB discussion

IASB members agreed with the staff recommendation to use the term ‘collectability’, instead of ‘customer’s credit risk’, to express the requirement in the revised Section 23 and make it clear that assessing customer credit risk is not the same as applying an ECL model.

IASB members were supportive of the staff recommendation of not adding any new accounting policies to the simplifications suggested by stakeholders.

IASB decision

All IASB members voted in favour of the staff recommendation.

Other issues raised by respondents to the ED (Agenda Paper 30C)

The purpose of this paper was to ask the IASB to consider feedback on other issues raised by respondents on the ED and decide whether to make changes to the proposals in the ED.

Staff recommendation

The staff recommended that the IASB should:

• Finalise the proposed paragraph 30.8A in the ED, which clarifies the requirements for transactions that include payment or receipt of advance consideration in a foreign currency, and also clarify in this paragraph:
  • that the entity generally recognises a non-monetary asset or non-monetary liability; and
  • if there are multiple payments or receipts in advance, that the entity shall determine a date of the transaction for each payment or receipt of advance consideration;
• Align the requirements for offsetting income tax assets and liabilities with IAS 12:71 and 74 but retain an undue cost or effort exemption;
• Clarify in paragraph 28.17 of the standard that the depth of the market for high quality corporate bonds should be assessed at a currency level; and
• Clarify the requirement the ED by explaining that the cumulative amount ultimately recognised for goods or services received as consideration for cash-settled share-based payments will be equal to the amount of cash paid.

IASB discussion

IASB members were supportive of the staff recommendation to clarify in paragraph 28.17 of the standard that the depth of the market for high quality corporate bonds should be assessed at a currency level and not a country/regional market level as a simplification.

IASB members agreed with the staff recommendation of not making any changes to the IFRS for SMEs standard for the issues in the appendix to the paper.

IASB decision

All IASB members voted in favour of the staff recommendation.

Proposed revised Section 2 Concepts and Pervasive Principles (Agenda Paper 30D)

The purpose of this paper was to ask the IASB to consider feedback on the proposals to reflect the principles of the Conceptual Framework for Financial Reporting in the ED and decide whether to amend proposals in Section 2 of the standard.

Staff recommendation

The staff recommended that the IASB proceed with the proposals in Section 2 of the ED and make changes to these proposals only to improve drafting.

IASB discussion

IASB members were supportive of retaining the undue cost or effort exemption which applies when specifically indicated in other sections of the standard. Some IASB members noted that the technical language is unavoidable in this section. This is because all technical terms need to be clear in Section 2 and therefore other sections in the standard can continue to use simple language because the underlying concepts and pervasive principles are clearly described in Section 2.

IASB members agreed with the staff that to remain a stand-alone standard, the standard needs to include a self-contained set of concepts and principles so that SMEs do not have to look outside the standard.

IASB decision

All IASB members voted in favour of the staff recommendation.

Updating the paragraph numbers of the IFRS for SMEs Accounting Standard (Agenda Paper 30E)

The purpose of this paper was to ask the IASB to consider feedback on the approach taken to retain or amend (renumber) the paragraph numbers in each section of the ED and to decide whether to retain or renumber the paragraph numbers in sections of the standard.

Staff recommendation

The staff recommended that the IASB should:

• Renumber paragraph numbers for sections that will be significantly rewritten; and
• Retain paragraph numbers for sections with only few amendments.

IASB discussion

IASB members were supportive of the staff recommendation to renumber Section 2, Section 19 and Section 23 in the third edition of the IFRS for SMEs standard due to the extent of the changes made. IASB members were also supportive of the staff approach on Section 11 of the standard that in drafting the final amendments the staff will use judgement in determining whether Section 11 has been significantly rewritten and should be renumbered or whether paragraph numbers should be retained.

IASB decision

All IASB members voted in favour of the staff recommendation.