The discussion paper, published in May 2019, explored alternative accounting treatments for post-retirement employee benefits promising the higher of the return on an identified item or group of items and a minimum guaranteed return. The discussion paper considered three alternatives for accounting for pension plans in the scope of the project: capped asset return approach, fair-value based approach, and fulfilment value approach.

The feedback statement (link to EFRAG website) describes the main comments received from comment letters and presentation of the Discussion Paper at the July 2019 meeting of the Accounting Standards Advisory Forum (ASAF).

The purpose of the Insurance Technical Advisory Group will be to support initially the FRC and the Endorsement Board secretariat and, once it is established, the Endorsement Board in developing advice to the Secretary of State for Business, Energy and Industrial Strategy on the adoption of IFRS 17 for use in the UK.

The primary role of the Insurance TAG is to provide specialised knowledge and technical advice to assist the Endorsement Board and its secretariat or the FRC as the case may be in performing a technical assessment of IFRS 17 in accordance with the requirements set out in Statutory Instrument 2019/685. 
  
Members of the Insurance TAG should have good knowledge of IFRS 17 and financial reporting for insurance, and wide experience of the insurance sector whether as preparer, auditor, advisor, investor or other user of insurance sector financial reports. 
  
The closing date for the application is 27 April 2020.

Further details can be found on the FRC website here.

The Q&A is designed to provide companies with additional information to help them in planning activities over the coming months, focusing on the holding of AGMs and other general meetings and in the filing of company accounts.  In particular:

• in respect of AGMs and other general meetings, the FRC envisages companies holding 'closed' meetings with a minimum number of people by telephone or similar. Companies may also be granted the ability to over-ride their Articles for a short period and shareholders will have the ability to vote by proxy; and
• in respect of filing deadlines, the FRC is monitoring companies' abilities to meet deadlines and will take action if further aid appears necessary.

Please click here to access the Q&A on the FRC website.

On 14 May 2020, the government announced that legislation will be introduced to ensure those companies are required by law to hold AGMs will be able to do so safely to address the spread of coronavirus. A further Q&A has been jointly produced by BEIS and the FRC accordingly.

On 20 May 2020, the government introduced the Corporate Insolvency and Governance Bill in Parliament.  The overarching objective of the Bill is to provide businesses with the flexibility and breathing space they need to continue trading in a COVID-19 environment. The measures are designed to help UK companies and other similar entities by easing the burden on businesses and helping them avoid insolvency during this period of economic uncertainty.

In the article, In Brief: IFRS 17 Insurance Contracts — why annual cohorts?, Mr Hoogervorst states:

The Board is particularly concerned that financial reporting presents fairly the financial performance of businesses in each period and how profitability changes over time. As emphasised by the Board’s Conceptual Framework, IFRS Standards must result in useful information about financial performance as well as financial position. Much of existing insurance contract accounting is founded on prudential regulation that has a primary focus on solvency. We believe the dual focus of IFRS Standards on financial performance and financial position greatly enriches the information provided in financial statements. The statements of financial performance often serve as a canary in the coal mine. An erosion of profits may be a foreboding of problems to come.

Mr Hoogervorst goes on to discuss:

• most financial reporting is applied at the individual contract level;
• why accounting for individual insurance contracts is not appropriate;
• annual cohorts essential for prudent planning;
• objections to annual cohorts raised during the recent consultation, including:
  • Do annual cohorts fail to reflect intergenerational sharing of risk?
  • Do annual cohorts result in arbitrary allocations?
  • Are annual cohorts too costly for contracts with intergenerational sharing of risks?
• deliberations and redeliberations; and
• implementing the standard.

The article is available on the IASB's website. For more information on the IASB's decision on annual cohorts, see our meeting minutes from the IASB's February 2020 meeting.

On the Board's timelines in view of the COVID-19 pandemic, the staff recommended that the Board:

• (a) delay by one year the effective date of Classification of Liabilities as Current or Non-current (Amendments to IAS 1) to annual reporting periods beginning on or after 1 January 2023.
• (b) extend the consultation period by (approximately) three months for the following consultation documents:
  • the Exposure Draft General Presentation and Disclosures;
  • the Request for Information Comprehensive Review of the IFRS for SMEs Standard; and
  • the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment.

All Board members agreed with the staff recommendations and also agreed that the exposure draft on delaying the effective date of the IAS 1 amendments should have a comment period of 30 days. The Board gave the permission to begin the balloting process for the exposure draft and no Board member intends to dissent.

On accounting for COVID-19-related rent concessions, the staff recommended that the Board amend IFRS 16 to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. Entities applying the exemption would account for the changes as if they were not lease modifications. The exemption would have to be applied retrospectively but comparative figures would not be restated. A lessee would recognise any difference arising on initial application of the amendment in opening retained earnings (or other component of equity, as appropriate) in the annual reporting period that includes the date of initial application.

All Board members agreed with the staff recommendations and also agreed that the exemption would be effective immediately, when the final amendment is issued. The Board will ask the Trustees to approve a comment period of 14 days. The Board gave the permission to begin the balloting process for the exposure draft and no Board member intends to dissent. 

Note: The shortened comment periods for both exposure drafts were discussed in a DPOC call yesterday.

Please click to access the detailed notes taken by Deloitte observers for the entire meeting.

The podcast features discussions related to the effects of COVID-19 on stakeholders, specifically changes in the work plan timeline and proposed rent concession amendments to IFRS 16, Leases. The podcast also discusses:

• Amendments to IFRS 17, Insurance Contracts.
• Post-implementation reviews of IFRS 10, IFRS 11 and IFRS 12.
• Management commentary.
• Maintenance and consistent application.

The podcast can be accessed through the press release on the IASB website. More information on the topics discussed is available through our comprehensive notes taken by Deloitte observers at the April IASB meeting as well as the Board's supplementary COVID-19 meeting.

Similar to the guidance on IFRS 9 published in March, the new guidance on IFRS 16 Leases is intended to support the consistent application of requirements in IFRSs. Therefore, it highlights requirements within IFRS 16 and other IFRSs that are relevant for companies considering how to account for rent concessions granted as a result of the covid-19 pandemic; it does not change, remove nor add to, the requirements of IFRS 16. Please click to access the document on the IASB website. The IASB has also announced that the issue will be discussed by the IASB in a supplementary meeting on 17 April.

At the meeting, the IASB will also discuss:

• whether to propose a deferral by one year to 1 January 2023 of the effective date of the amendments to IAS 1 regarding the classification of liabilities;
• whether to extend the consultation period for three major ongoing consultations (the ED General Presentation and Disclosures, the RfI Comprehensive Review of the IFRS for SMEs Standard, and the DP Business Combinations — Disclosures, Goodwill and Impairment) by three months; and
• delaying the publication of forthcoming major consultation documents originally planned for 2020.

The Appendix A of agenda paper 32 for the meeting offers a tabular overview over the proposed changes to consultation document timelines.

Background

Interbank offered rates (IBORs) are interest reference rates, such as LIBOR, EURIBOR and TIBOR, that represent the cost of obtaining unsecured funding, in a particular combination of currency and maturity and in a particular interbank term lending market. Recent market developments have brought into question the long-term viability of those benchmarks.

The IASB addresses the issues in a project split into two phases: Phase 1 dealt with pre-replacement issues (issues affecting financial reporting in the period before the replacement of an existing interest rate benchmark). This part of the project was concluded on 26 September 2019 by publishing Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7).

Phase 2 of the project deals with replacement issues, therefore, the proposed amendments published today are intended to address issues that might affect financial reporting when an existing interest rate benchmark is actually replaced.

Suggested changes

The changes proposed in ED/2020/1 Interest Rate Benchmark Reform — Phase 2 (Proposed amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16) relate to the modification of financial assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and disclosure requirements applying IFRS 7 to accompany the Board’s proposals for classification and measurement and hedge accounting.

• Modification of financial assets, financial liabilities and lease liabilities. The IASB proposes a practical expedient for modifications required by the reform (modifications required as a direct consequence of the IBOR reform and made on an economically equivalent basis). These modifications are accounted for by updating the effective interest rate. All other modifications are accounted for using the current IFRS requirements. A similar practical expedient is proposed for lessee accounting applying IFRS 16. For qualifying modifications, there would be no specific gain or loss associated with the replacement of the IBOR rate.
• Specific hedge accounting requirements. Under the IASB's proposals, hedge accounting would not discontinued solely because of the IBOR reform. Hedging relationships (and related documentation) must be amended to reflect modifications to the hedged item, hedging instrument and hedged risk. Any valuation adjustments resulting from the amendments are recognised as part of ineffectiveness. Amended hedging relationship should meet all qualifying criteria to apply hedge accounting, including effectiveness requirements.
• Disclosures. In order to allow users to understand the nature and extent of risks arising from the IBOR reform to which the entity is exposed to and how the entity manages those risks as well as the entity’s progress in transitioning from IBORs to alternative benchmark rates, and how the entity is managing this transition, the exposure draft proposes that an entity would disclose information about
  • how the transition from interest rate benchmarks to alternative benchmark rates is managed and progress made at the reporting date,
  • the carrying amount of financial assets and financial liabilities that continue to reference benchmarks subject to the reform, disaggregated by significant interest rate benchmark,
  • for each significant alternative benchmark rate to which the entity is exposed, an explanation of how the entity determined which modifications qualified for the practical expedient, including a description of significant judgements the entity made to determine qualifying modifications, and
  • to the extent that the IBOR reform has resulted in changes to an entity’s risk management strategy, a description of these changes and how is the entity managing those risks.

The IASB also proposes to amend IFRS 4 to require insurers that apply the temporary exemption from IFRS 9 to apply the amendments in accounting for modifications directly required by IBOR reform.

The IASB also proposes that the application of all proposed amendments should be mandatory. The IASB has also come to the conclusion that the nature of the proposed amendments is such that they can only be applied to modifications of financial instruments and changes to hedging relationships that satisfy the relevant criteria and, as such, no specific end of application requirements need to be specified.

Comments on the proposed changes are requested by 25 May 2020.

Effective date

The exposure draft proposes that the amendments would be effective for annual periods beginning on or after 1 January 2021 and would be applied retrospectively. Early application would be permitted.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• Short Snapshot overview of the proposed amendments (link to IASB website)
• Our UK Accounting Plus project page on IBOR reform and the effects on financial reporting — Phase 2
• Our related Need to know publication

Background

The COVID-19 pandemic has led to some lessors providing relief to lessees by deferring or relieving them of amounts that would otherwise be payable.  In some cases this is through negotiation between the parties, but can be as a consequence of a government encouraging or requiring that the relief be provided. Such relief is taking place in many jurisdictions in which entities that apply IFRSs operate.

When there is a change in lease payments, the accounting consequences will depend on whether that change meets the definition of a lease modification, which IFRS 16 Leases defines as “a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term)”.

The proposed amendment published today are intended to provide practical relief to lessees in accounting for rent concessions arising as a result of the COVID-19 pandemic.

Suggested changes

The changes proposed in ED/2020/2 Covid-19-Related Rent Concessions (Proposed amendment to IFRS 16) would amend IFRS 16 to

1. provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification;
2. require lessees that apply the exemption to account for COVID-19-related rent concessions as if they were not lease modifications;
3. require lessees that apply the exemption to disclose that fact; and
4. require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require them to restate prior period figures (a lessee would recognise any difference arising on initial application of the amendment in opening retained earnings (or other component of equity, as appropriate) in the annual reporting period that includes the date of initial application).

The proposed amendment would not supersede the educational material recently published on the same topic, but rather the two complement each other.

The IASB is not proposing any additional relief for lessors as the current situation is not as equally challenging for lessors, as most have operating leases and even if they have lease modifications, the required accounting is not as complicated.

Comment period

The IFRS Foundation's Due Process Handbook sets out that 75% of the Trustees must approve comment periods shorter than 30 days. In a phone meeting on 17 April 2020, the Trustees approved a 14-day comment period. Therefore, comments on the proposed changes are requested by 8 May 2020.

Effective date

The Board expects to finalise the amendment to IFRS 16 by the end of May 2020 and proposes an effective date of 1 June 2020 for the final amendment (earlier application permitted, including in financial statements not yet authorised for issue at the date the amendment is issued).

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• Our related Need to know newsletter
• Deloitte's comment letter on ED/2020/2
• Our UK Accounting Plus project page on IFRS 16 and COVID-19

During the meeting, the IASB was given a short oral update on the progress as regards finalising the amendments.

The podcast can be accessed through the press release on the IASB website.