Potential annual improvements to IFRS Accounting Standards

Date recorded:

The staff asked whether the Committee members agree with their preliminary views on the following six proposed amendments to IFRS Accounting Standards and whether to include them in the next annual improvements cycle. If not, they asked whether Committee members have any other suggestions on them.

IFRS 1 First-time Adoption of International Financial Reporting Standards terminology update: Initial consideration (Agenda Paper 3A)

The Committed has been informed about potential confusion arising from an inconsistency in wording between IFRS 1:B6 and requirements for hedge accounting in IFRS 9. The staff propose that the IASB amends IFRS 1:B6 to replace “conditions” with “qualifying criteria” and amend IFRS 1:B5-B6 to add cross references to requirements in IFRS 9.

IFRS IC discussion

Two Committee members suggested adding a reference to other paragraphs in section 6 of IFRS 9 to IFRS 1:B5 because they considered those paragraphs are more appropriate than the ones proposed. However, the staff explained that the IASB did not intend to change the requirements—or the two-step approach—in IFRS 1:B5 or B6. They only replaced the referenced paragraphs in IAS 39 with the relevant paragraphs in IFRS 9. Therefore, the staff suggested keeping the proposed referencing to IFRS 9:6.4.1(a)-(c) for “eligibility” and “qualifying criteria” in IFRS 1:B5 and B6 respectively. Most of the Committee members agreed with this.

'De facto agent’ assessment (IFRS 10 Consolidated Financial Statements): Initial consideration (Agenda Paper 3B)

The Committee has been informed about potential confusion arising from an inconsistency between IFRS 10:B73-B74 related to an investor determining whether another party is acting on its behalf. IFRS 10:B73 states the principle—that a de facto agent is a party that acts on the investor’s behalf—and that the determination of whether other parties are acting as de facto agents requires judgement. However, the second sentence of IFRS10:B74 includes more conclusive language. The staff propose that the IASB amends IFRS 10:B74 by deleting a portion of the second sentence of IFRS 10:B74 (i.e. “or those that direct the activities of the investor have”) and remove the opening words of the third sentence (i.e. “In these circumstances,”).

IFRS IC discussion

A number of Committee members acknowledged the issue about the relationship in the existing IFRS 10:B74 and agreed that this paragraph should be amended. However, they commented that the proposed amendments might go beyond an annual improvement project and may bring unintended consequences. Applying the existing IFRS 10:B74, entities exercise judgement to conclude whether sister entities control and consolidate an investee. In the scenario, the sister entities within a group have dispersed interests over the investee. The proposed amendments could be misinterpreted as suggesting that no judgement should be applied. This calls into question how entities applied judgement in such scenarios previously and whether this could have resulted in none of the sister entities consolidating the investee. One Committee member suggested that the staff should either consider different words to clarify that one group entity controls the investee or to perform more analysis and propose another, more extensive, project. The Chair acknowledged these comments and said that they will be raised with the IASB.

IFRS 9 Financial Instruments terminology update: Initial consideration (Agenda Paper 3C)

The Committe has been informed about potential confusion arising from a reference in Appendix A of IFRS 9 to the definition of ‘transaction price’ in IFRS 15. The potential for confusion arises because the term ‘transaction price’ is used in particular paragraphs of IFRS 9 with a meaning that is not necessarily consistent with the definition of that term in IFRS 15. The staff propose that the IASB deletes the reference to “transaction price” and the associated references to IFRS 15 from Appendix A of IFRS 9.

IFRS IC discussion

One Committee member commented that, in addition to the amendments proposed, the reference to IFRS 15 in IFRS 9:5.1.3 for “transaction price” should be deleted. He explained that Example 40 in the Illustrative Examples of IFRS 15 illustrates that the “transaction price” could lower the receivables amount, so that the “transaction price” in IFRS 9.5.1.13 does not necessarily equal the “actual transaction price” recognised as revenue applying IFRS 15. No Committee member objected to this suggestion.

IAS 7 Statement of Cash Flows terminology update: Initial consideration (Agenda Paper 3D)

The Committee has been informed about a potential lack of clarity in IAS 7:37 which arises from the continued use of a term that is no longer defined in IFRS Accounting Standards. The staff proposed that the IASB amend IAS 7:37 to replace the term “cost method” with “at cost”.

IFRS IC discussion

One Committee member questioned why only the options “equity method” and “at cost accounting” are stated in IAS 7:37 and not the option “according to IFRS 9” available in IAS 27:10. The Chair said this concern is valid and will be considered. Another Committee member doubted whether it should really be an annual improvement project or whether it is only an editorial change.

IFRS 7 Financial Instruments: Disclosures reference update: Initial consideration (Agenda Paper 3E)

The Committee has been informed about a potential lack of clarity in IFRS 7:B38 that arises because it refers to another paragraph in IFRS 7 that no longer exists. The staff propose that the IASB amends IFRS7:B38 to replace the reference to IFRS 7:27A with a reference to IFRS 13:72-73.

IFRS IC discussion

One Committee member commented that this does not look like an annual improvement project and more like an editorial change to the paragraph. The staff responded that it is not only an edit but a change of the reference to another Standard. It would therefore be better to consult whether the new reference is correct. No Committee member objected to the proposed amendment.

IFRS 7 Financial Instruments: Disclosures implementation guidance: Initial consideration (Agenda Paper 3F)

The Committee has been informed about a potential lack of clarity in IFRS 7:IG20C because that paragraph fails to state that the example does not illustrate all the requirements in IFRS 7:35M. The staff propose that the IASB amends IFRS 7:IG20C to add a statement that the example does not illustrate all the requirements in IFRS 7:35M.

IFRS IC discussion

One Committee member suggested deleting the sentence “this example does not illustrate….” in IFRS 7:20B instead of adding that sentence to IFRS 7:B20C. Also, it could be added in IFRS 7:IG1 that this paragraph does not include all examples. Another Committee member suggested using the word “some” before “information” would be simpler than adding the lengthy sentence of “this example does not illustrate all the requirements in paragraph 35M of IFRS 7” in IFRS 7:IG20C. One Committee member did also not support adding that sentence because there is no such phrase in other Standards. Even if this means that the example does not illustrate all requirements of the Standards. She therefore suggested removing the phrase in IFRS 7:B20B and instead add an introductory sentence in the IG of IFRS 7 saying “none of the examples in the IG are considered a complete checklist”. The Chair agreed with this. However, one Committee member raised concerns that it could be challenged why such introductory sentences do not appear in other Standards. The staff said that a similar sentence appears in newer standards like IFRS 16 and IFRS 17. No Committee member objected to the proposed amendment.

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