The proposed standard, International Standard on Auditing (ISA) 600 (Revised), Special Considerations—Audits of Group Financial Statements (Including the Work of Component Auditors) introduces an enhanced risk-based approach to planning and performing a group audit and highlights the importance of the group engagement team’s involvement in the component auditor’s work.

In addition, the proposed standard:

• Clarifies the scope and applicability of the standard.
• Emphasises the importance of exercising professional skepticism throughout the group audit.
• Clarifies and reinforces that all ISAs need to be applied in a group audit through establishing stronger linkages to the other ISAs, in particular to proposed ISA 220 (Revised), ISA 315 (Revised 2019) and ISA 330.
• Reinforces the need for robust communication and interactions between the group engagement team, group engagement partner and component auditors.
• Includes new guidance on testing common controls and controls related to centralised activities.
• Includes enhanced guidance on how to address restrictions on access to people and information.
• Enhances special considerations in other areas of a group audit, including materiality and documentation.

The exposure draft is open for public comment until 2 October 2020.

A press release and the exposure draft can be found on the IAASB website here. 

The CMAC/GPF meeting was originally scheduled for 18-19 June 2020. A new date has not yet been announced.

The ASAF meeting was to be held on 9-10 July. It has been cancelled completely and the next regularly meeting is currently scheduled for 1-2 October 2020. 

The only point for discussion will be the comment letter analysis and redeliberation of the proposed amendment to IFRS 16 in relation to COVID-19-related rent concessions. An agenda paper for the meeting is not yet available. The IASB expects to post the paper on 12 May.

On Wednesday 10 June 2020 at 11am (BST) the live webinar on the Board’s exposure draft General Presentation and Disclosures will be held and will explain the Board’s detailed proposals for subtotals and categories in the statement of profit and loss. The webinar will last approximately 45 minutes and will include a question-and-answer session. More information is available here.

On Friday 5 June 2020 at 11am (BST) the live webinar on the Board’s discussion paper Business Combinations — Disclosures, Goodwill and Impairment will be held and will provide an overview of the discussion paper. The webinar will last approximately 45 minutes and will include a question-and-answer session. More information is available here.

Annual Improvements to IFRS Standards 2018–2020 makes amendments to the following standards:

The amendments to IFRS 1, IFRS 9, and IAS 41 published today are all effective for annual periods beginning on or after 1 January 2022. Early application is permitted. The amendment to IFRS 16 only regards an illustrative example, so no effective date is stated.

Please click for the following additional information:

• IASB press release (link to IASB website)
• Our UK Accounting Plus project page on Annual improvements — 2019-2020 cycle
• Our Need to know newsletter

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)”.

On 24 April 2020, the Board published an exposure draft with a proposed amendment intended to provide practical relief to lessees in accounting for rent concessions arising as a result of the COVID-19 pandemic. Given the urgency of the matter, the exposure draft was published with a 14-day comment period. On 15 May 2020, the Board considered the feedback received and decided to finalise the amendment with some changes.

Changes

The changes in Covid-19-Related Rent Concessions (Amendment to IFRS 16) 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.

The main change from the proposal in the exposure draft is that the IASB had proposed that the practical expedient should only be available for lease payments originally due in 2020. However, after having considered the feedback to the exposure draft, the IASB decided to extend this period to June 2021 to also capture rent concessions granted now and lasting for 12 months.

The IASB considered but decided not to provide any additional relief for lessors as the current situation is not as equally challenging for them and the required accounting is not as complicated.

Effective date

The amendment is effective for annual reporting periods beginning on or after 1 June 2020. Earlier application is permitted, including in financial statements not yet authorised for issue at 28 May 2020. The amendment is also available for interim reports.

Proposed Taxonomy Update

The IASB has also published a proposed Taxonomy Update to reflect the amendment to IFRS 16. Comments on the proposed Taxonomy update are requested by 29 June 2020.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the final amendment (freely available on the IASB website as part of the COVID-19 response)
• Our UK Accounting Plus project page on IFRS 16 and COVID-19
• Our related Need to know publication
• Access to the proposed Taxonomy Update on the IASB website

Background

The IFRS Interpretations Committee received a request to clarify what costs an entity considers in assessing whether a contract is onerous. The Committee’s research revealed that, for some contracts, differing interpretations of the onerous contract requirements in IAS 37 Provisions, Contingent Liabilities and Contingent Assets could have a material effect on entities that enter into those contracts. Consequently, the Committee recommended that the Board clarifies the onerous contract requirements in IAS 37. The Board supported the Committee’s suggestion and published an exposure draft of proposed clarifications in December 2018, which were finalised today.

Changes

The changes in Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).

Effective date and transition requirements

The amendments published today are effective for annual periods beginning on or after 1 January 2022. Early application is permitted.

Entities apply the amendments to contracts for which the entity has not yet fulfilled all its obligations at the beginning of the annual reporting period in which the entity first applies the amendments. Comparatives are not restated.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Our UK Accounting Plus project page on IAS 37 — Onerous contracts
• Our Need to Know newsletter

Background

The issue was initially raised with the IFRS Interpretations Committee that had originally intended to develop an interpretation of IAS 16 Property, Plant and Equipment to deal with it. However, during the course of discussions the Committee concluded that a narrow-scope amendment to IAS 16 would be a better solution. The IASB developed an exposure draft published in June 2017 and has now finalised the amendments.

Changes

Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16) amends the standard to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.

Effective date and transition

The amendments published today are effective for annual periods beginning on or after 1 January 2022. Early application is permitted. An entity applies the amendments retrospectively only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Our UK Accounting Plus project page on IAS 16 — Proceeds before intended use
• Our Need to know newsletter

The podcast features discussions related to amendment to IFRS 16 Leases to help companies with covid-19-related rent concessions. The podcast also discusses:

• Amendments to IFRS 17 Insurance Contracts;
• IBOR reform and the effects on financial reporting — Phase 2;
• Management commentary;
• Disclosure initiative — Accounting policies; and
• 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 May IASB meeting as well as the Board's supplementary COVID-19 meeting.

This webcast discusses the Board’s approach to the second comprehensive review of the IFRS for SMEs Standard. A third webcast is expected at a later date and will discuss alignment of IFRS for SMEs Standards with IFRS Standards.

The IASB, in cooperation with the SME Implementation Group (SMEIG), has developed and issued a request for information seeking comments on strategic and general questions, specific sections of the IFRS for SMEs, as well as new topics and other matters related to the IFRS for SMEs.

For more in­for­ma­tion, see the press release on the IASB’s website.