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FRC webinar on its Ethical Standard consultation

27 Sep, 2023

The Financial Reporting Council (FRC) will be hosting a webinar on 4 October 2023, on its consultation to revise the Ethical Standard for auditors.

Further information and details of how to register are available on the FRC website.

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XRB introduces research on intangibles at IFASS meeting

27 Sep, 2023

The International Forum of Accounting Standard Setters (IFASS) is currently holding its fall meeting in London. During one presentation today, the New Zealand External Reporting Board (XRB) provided insights into research on the disclosure of recognised and unrecognised intangibles.

The research, which was conducted in response to an XRB call for research on intangibles, examines the reporting of and disclosures on intangible assets by listed companies and public benefit entities in New Zealand as a mid-sized market. 

Premise of the research was that accounting for intangibles has long been an area of contention and that there is no question that intangibles are not accurately reflected by financial reporting (the ‘missing information gap’). The research approach was then to look at (1) capitalised intangibles, (2) intangible expenses, and (3) unrecognised intangible disclosures:

  • The research showed that nearly 90% of companies listed on the New Zealand stock exchange report intangibles, with software costs being the most commonly capitalised intangible, followed by goodwill. Generally, it was observed that there is a large range in terminology in intangible assets reported. 
  • On intangible-related expenditures the research showed that donations are the most frequently reported expense followed by advertising, research and development, and IT expenses.
  • Looking into unrecognised intangibles, the researchers found in a random sample of 20 companies no instances of the disclosures recommended by EFRAG in 2021 and the AASB in 2022. The researchers then analysed the disclosures on certain intellectual capital activities to gain an understanding about specific unrecognised intangibles. Findings revealed that qualitative disclosures are more prevalent than quantitative.

Generally, the research showed that capitalised intangible assets are viewed as 'useful' by market participants and that companies with greater disclosures on unrecognised intangibles have a stronger association between capitalised intangibles and market value.

Regarding the intangibles disclosures by public benefit entities analysed with the help of a random sample of municipal councils and large charities, the research revealed that the frequency of capitalised intangibles is similar to that of the for-profit sector. However, there are differences in the intangibles capitalised, and they are of less relative economic importance.

The research concludes with some observations and suggestions based on the findings:

  • Regarding the large range of terminology in intangible asset reporting one solution could be the use of digital reporting such as Core & More reporting.
  • An expense disclosure approach would require mandating specified categories to ensure disclosure.
  • Capitalising currently expensed intangible-related activities would reduce but not offset the information gap.
  • Aligning intangible asset fair value criteria to IFRS 13 might be a relatively low-cost solution to reduce the information gap.
  • Disclosure of unrecognised intangibles would also provide a better understanding of capitalised intangible assets.

As a solution to the current unsatisfying reporting of intangibles two measures were suggested for intangibles with partial markets: Allowing the revaluation model as an accounting policy choice and allowing estimation of fair value under IFRS 13 along with appropriate disclosures of judgments and estimates. To achieve this, the IASB could amend IAS 38 to provide alternative criteria to “active market” such as “freely transferable” and “commonly traded”. The IASB could develop indicators to assist entities in determining whether the revaluation model policy choice was available. A longer term project could be to consider measurement for “unique” intangibles referred to in IAS 38.


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IASB issues podcast on latest Board developments (September 2023)

27 Sep, 2023

The IASB has released a podcast featuring IASB Vice-Chair Linda Mezon-Hutter and Executive Technical Director Nili Shah discussing deliberations at the September 2023 IASB meeting.

Highlights of the podcast include discussions on:

  • the project on climate-related risks in the financial statements that has been re-calibrated to also include "other uncertainties";
  • the conclusion of technical discussions in the project on goodwill and impairment;
  • the rate-regulated activities project;
  • key takeaways from the equity method project;
  • decisions made in the second comprehensive review of the IFRS for SMEs;
  • the direction of the project looking at business combinations under common control; and
  • decisions on the extractive activities project.

The podcast can be accessed here on the IFRS Foundation website.

An analysis of changes to the work plan resulting from the IASB discussions can be found here.

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Summary report on the EFRAG symposium on connectivity

27 Sep, 2023

On 26 May 2023, EFRAG offered a symposium on connectivity at the annual congress of the European Accounting Association (EAA).

The event saw a panel discussion with IASB Vice-Chair Linda Mezon-Hutter on connectivity where participants discussed:

  • Aspects of connectivity (What does it mean? What are users' needs? What are the roles of EFRAG and the IFRS Foundation?)
  • Mechanisms for connectivity and the roles of financial reporting versus sustainability reporting (How does connectivity operate in practice? What is the role of the time horizons? How can technology be used to navigate and process financial and sustainability information?)
  • Impact of having different types of users (What is the impact of having different types of users, particularly under a double materiality regime? Would the role of connectivity be different for different user groups?)
  • Visions for connectivity for 2030 and expectations from academics.

EFRAG has now published a report summarising the discussions on its website.

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Standard setters discuss climate-related risks in the financial statements

27 Sep, 2023

The International Forum of Accounting Standard Setters (IFASS) is currently holding its fall meeting in London. The first session of the meeting was devoted to research on climate-related risks in the financial statements and the related IASB project.

The session began with two presentations of recent research on climate-related risks in the financial statements that illustrated the backdrop against which the IASB is pursuing its project.

A representative of the Australian Accounting Standards Board (AASB) presented forthcoming research Climate-related risks disclosures in the notes to financial statements: Descriptive evidence from Australia that examines whether entities have considered the effects of climate-related risks on their financial statement items and developments by comparing 2018 and 2022 financial statements. Findings included an increase in disclosures, disclosures provided in a broader range of industries, more items in the financial statements considered, but also many generic disclosures and much room for improvement. Findings also showed that larger entities are more likely to make detailed disclosures about climate-related risks in their financial statements and some disclosures may be included to mitigate litigation risks. In addition, general AASB research on the topic revealed that users of financial statement bemoan a lack of transparency, consistency in disclosing the issues, disclosures of assumptions and effects, and quantification.

A representative of the UK Endorsement Board (UKEB) presented recent research on the topic, including the two recently published research reports on connectivity. The research revealed a significant increase in the frequency of climate reporting in annual reports, however also concerns with the lack of connectivity within annual reports. Estimates and judgements were identified as a critical area of poor connectivity. In discussing the research findings, the UKEB advisory and working groups did not consider that accounting standards were deficient but noted a disparity between investor expectations and preparer’s ability and willingness to disclose potential impacts of climate in the financial statements. Also, while users accepted that entities cannot determine the full potential impact of climate risks, they expect the next phase of reporting to connect material sustainability disclosures to the financial statements.

Meeting participants were then presented with an overview of the IASB project recently renamed "Climate-related and other uncertainties in the financial statements". The presentation focused especially on the IASB's September 2023 discussions and decisions on the project where Board members concluded that requirements in IFRS Accounting Standards are generally sufficient, that there are some challenges in application, that there is the desire for timely action, and that this is an evolving area particularly with reporting developments from the ISSB and others. The Board decided to explore the development of a package of practical examples, to explore possible targeted amendments to improve disclosures about estimates in the financial statements, to refer some issues to the IFRS Interpretations Committee and to consult with the IFRS IC on others, and to continue to monitor developments in this area.

Following these three presentations, participants were invited to discuss the research findings and whether the IASB decisions would help to address them. Comments included:

  • Some participants felt that the IASB's planned actions lacked ambition and called for "brave" decisions. They noted that the IASB should not duck away from more decisive action just because it would be difficult. Others, however, conceded that by exploring targeted improvements regarding estimates and judgements had indeed chosen the most difficult issue.
  • While research had revealed that some preparers agree that the requirements especially in IAS 1 are sufficient, some seemed to use that as an excuse to continue not to report in a meaningful manner about climate-related risks or other uncertainties.
  • It was noted that messaging was important so that the statement that IFRS accounting requirements are sufficient does not translate into the message that no change is needed. It might also help to clarify what financial statements are meant to achieve.
  • Participants agreed that the change needed is behaviour change. It was questioned whether this could be achieved without standard setting or other more decisive actions. It was noted repeatedly that the November 2019 article by Board member Nick Anderson about how existing requirements within IFRSs relate to climate change risks was brilliant and shared often, but had not lead to any discernible change in behaviour.
  • Participants supported the re-calibration of the project towards climate-related "and other uncertainties". It was noted that this reflected the IASB's principle-based approach to standard setting and also reflected practice where climate-related risks could not always be isolated from other uncertainties. However, it was also warned that the IASB should not lose sight of the most important issues by looking at too many uncertainties and should also not lose sight of short-term risks.
  • While there was general support for the IASB to take action, it was noted that the IASB should not stray into the ISSB's remit, that duplication should be avoided, but also that connectivity should always be kept in mind and that IASB and ISSB should work together to provide missing links. It was noted that language is a very important means of linking sustainability issues with financial reporting requirements.
  • On the question what national standard setters could contribute to the needed behaviour change suggestions included monitoring and reviewing developments, publishing results of research and reviews, communicating expectations, highlighting improvements and providing best practice examples, as well as working, where possible, with preparers in reporting lab environments.
  • Overall there seemed to be a view that the project might be more complex than the IASB thinks and more decisive action might be needed, but participants also encouraged the IASB to build on the established concepts people already use and not to "throw the baby out with the bathwater".


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IFR4NPO publishes second exposure draft

26 Sep, 2023

International Financial Reporting for Non-Profit Organisations (IFR4NPO), an initiative to develop the first internationally applicable financial reporting guidance for non-profit organisations, has released 'International Non-Profit Accounting Guidance, Part 2'.

The new guidance, International Non-Profit Accounting Guidance (INPAG), seeks to improve clarity and consistency of Non-Profit Organisation (NPO) financial reports, resulting in greater credibility and trust in the sector globally.

The exposure draft is the second of three parts, each followed by a 4-6-month consultation period. While ED1 addressed the framing for financial reporting of NPOs, ED2 is devoted to the accounting itself. It covers 12 sections:

  1. Section 11 — Financial instruments
  2. Section 13 — Inventories
  3. Section 21 — Provisions and contingencies
  4. Section 23 Part I — Revenue — Grants and donations
  5. Section 23 Part II — Revenue — Contracts with customers
  6. Section 24 Part I — Expenses — Grants and donations
  7. Section 25 — Borrowing costs
  8. Section 28 — Employee benefits
  9. Section 29 — Income tax
  10. Section 30 — Foreign currency translation
  11. Section 31 — Hyperinflation
  12. Section 32 — Events after the end of the reporting period

The remaining sections will be covered in ED3 expected in the first quarter of 2024. Final guidance will be published in mid-2025.

Please click for access to the ED and supporting material on the IFR4NPO website. Comments on the ED are requested by 15 March 2024.

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Updated IASB and ISSB work plan — Analysis (September 2023)

26 Sep, 2023

Following the IASB's and ISSB's September 2023 meetings, we have analysed the work plan on the IFRS Foundation website to see what changes have resulted from the meetings and other developments since the work plan was last revised in July 2023.

Below is an analysis of all changes made to the work plan since our last analysis on 28 July 2023.

Standard-setting projects

  • Disclosure Initiative — Subsidiaries without public accountability: Disclosures — A final standard is now expected in H1 2024 (previously 2024)
  • Financial instruments with characteristics of equity — An exposure draft is now expected in November 2023 (previously Q4 2023)
  • Management commentary — A decision on the project’s direction is now expected in H1 2024 (previously Q4 2023)
  • Second comprehensive review of the IFRS for SMEs — A final standard is now expected in 2024 (previously 2025)

Maintenance projects

  • Amendments to the classification and measurement of financial instruments — The next project step is now the publication of final amendments in H1 2024
  • Amendments to the IFRS for SMEs — International tax reform — The next project step is now the publication of final amendments in September 2023
  • Annual improvements to IFRS Accounting Standards — After the publication of the exposure draft in September 2023, feedback will discussed in Q1 2024; the following projects are included:
    • Cost Method (Amendments to IAS 7)
    • Credit Risk Disclosures (Amendments to Illustrative Examples accompanying IFRS 7)
    • Determination of a ‘De Facto Agent’ (Amendments to IFRS 10)
    • Disclosure of Deferred Difference Between Fair Value and Transaction Price (Amendments to Illustrative Guidance accompanying IFRS 7)
    • Gain or Loss on Derecognition (Amendments to IFRS 7)
    • Hedge Accounting by a First-time Adopter (Amendments to IFRS 1
    • Lessee Derecognition of Lease Liabilities (Amendments to IFRS 9)
    • Transaction Price (Amendments to IFRS 9)
  • Climate-related and other uncertainties in the financial statements — The project has been renamed; the next project step is now a decision on the project direction expected in H1 2024
  • Lack of exchangeability — The project has been removed from the work plan as final amendments were published in August 2023
  • Power purchase agreements — A project newly added to the work plan; a decision on the project direction is expected in H1 2024

Research projects

  • Business combinations under common control — A decision on the project direction is expect in November 2023 (previously September 2023)
  • Extractive activities — The next project step is now the publication of a project summary expected in Q4 2023
  • Post-implementation review of IFRS 15 — The feedback received will now be discussed in Q1 2024 (previously H1 2024)
  • Post-implementation review of IFRS 9 (Impairment) — The feedback received will now be discussed in November 2023 (previously Q4 2023)

Other projects

  • IFRS Accounting Taxonomy Update — Amendments to IAS 12, IAS 21, IAS 7 and IFRS 7 — The proposed IFRS Taxonomy update is expected in October 2023 (previously September 2023)
  • IFRS Accounting Taxonomy Update — Common practice (Financial instruments) and general improvements — The proposed IFRS Taxonomy update is expected in November 2023 (previously Q4 2023)

The above is a faithful comparison of the IASB and ISSB work plan at 28 July 2023 and 26 September 2023. For access to the current work plan at any time, please click here.

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New consolidated text of EU-IFRSs available

26 Sep, 2023

A new consolidated text of all International Financial Reporting Standards in force in the European Union (EU) has been published in the Official Journal.

The last consolidated text included international accounting standards and related interpretations issued or adopted by the International Accounting Standards Board (IASB) until 15 October 2008. The new consolidated text now includes the standards and the related interpretations issued or adopted by the IASB and adopted by the Commission until 8 September 2022.

Please click to access the new consolidated text in the Official Journal. Please note that this link offers access to the text in all languages of the European Union.

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Video celebrating 50 years of international standard setting

25 Sep, 2023

At the World Standard Setters (WSS) conference currently being held in London, the IASB celebrated 50 years of joint efforts with national standard setters to make international accounting standards the success they turned to be.

At the end of day one of the meeting, the IASB aired a short video that visualised the path travelled together with messages from past and present IASC and IASB Chairs and Members as well as representatives of national standard setters.

Please click to access the video (six minutes) on YouTube.

Earlier today the IASB Chair had already delivered the opening address at the WSS meeting also focusing on the successful cooperation with the national standard setters.

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Additional DPOC meeting this week

25 Sep, 2023

The Due Process Oversight Committee (DPOC) will hold an additional meeting via video conference call on 28 September 2023.

The only topic to be discussed is whether the due process applied to the development of educational material should apply to the development of material to support the interoperability of the ISSB’s standards. The agenda and the paper for the meeting are available on the IFRS Foundation's website.

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