October

IPSASB exposure draft on borrowing costs

22 Oct, 2020

The International Public Sector Accounting Standards Board (IPSASB) has released an exposure draft of non-authoritative guidance on borrowing costs.

Exposure Draft 74 IPSAS 5 'Borrowing Costs' – Non-Authoritative Guidance proposes the addition of non-authoritative guidance to IPSAS 5 Borrowing Costs that consists of implementation guidance and illustrative examples to clarify how the existing principles for when borrowing costs can be capitalised should be applied in various regularly encountered public sector contexts. The exposure draft does not propose amendments to the authoritative guidance in IPSAS 5.

Comments are requested by 1 March 2021.

Please click to access the following additional information on the IPSASB website:

ISAR 37

23 Oct, 2020

The thirty-seventh session of the United Nations Conference on Trade and Development (UNCTAD) Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) will be held in a hybrid format (allowing participation in Geneva in person as well as remotely) on 2 - 6 November 2020.

The two main topics for the meeting will be:

  • Practical implementation, including measurement, of core indicators for entity reporting on the contribution towards the attainment of the Sustainable Development Goals: Review of case studies
  • Climate-related financial disclosures in mainstream entity reporting: good practices and key challenges

The background papers for these two topics are available in Arabic, Chinese, English, French, Spanish, and Russian and can be accessed here. The programme for the event can be accessed here. The keynote address on the second topic will be given by Erkki Liikanen, Chair of the IFRS Foundation Trustees.

The workshop before the ISAR meeting this year (30 October 2020) will focus on "Assurance on sustainability reports: current practices and challenges“. Please click for more information here.

New TCFD status report, additional guidance, public consultation

29 Oct, 2020

The Task Force on Climate-related Financial Disclosures (TCFD) set up by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders has published a third status report providing an overview of the extent to which companies in their 2019 reports included information aligned with the core TCFD recommendations published in June 2017.

The TCFD surveyed disclosures of around 1,700 firms from diverse sectors with broad geographical representation (69 countries). It found that:

  • Nearly 60% of the world’s 100 largest public companies support the TCFD, report in line with the TCFD recommendations, or both.
  • Disclosure of climate-related financial information has increased since 2017, but continuing progress is needed.
  • Energy companies and materials and buildings companies lead on disclosure.
  • One in 15 companies reviewed disclosed information on the resilience of its strategy.
  • Asset manager and asset owner reporting to their clients and beneficiaries, respectively, is likely insufficient.

The report also notes that expert users find the impact of climate change on a company’s business and strategy as the “most useful” for decision-making, an insight which might provide a road map for preparers.

The TCFD also published guidance on climate-related scenario analysis for non-financial firms and on integrating climate-related risks into existing risk management processes. Additionally, the TCFD published a public consultation on forward-looking climate metrics for financial firms (with responses due by 27 January 2021).

Please click for the following additional information on the FSB website:

October 2020 IASB meeting agenda posted

16 Oct, 2020

The IASB has posted the agenda for its next meeting, which will be held via video conference on 27–29 October 2020. There are nine topics on the agenda.

The Board will discuss the following:

  • Board work plan update
  • Agenda consultation
  • Equity method of accounting
  • Taxonomy
  • Main­te­nance and con­sis­tent ap­pli­ca­tion
  • Dynamic risk management
  • Ex­trac­tive ac­tiv­i­ties
  • Disclosure initiative — subsidiaries that are SMEs
  • Management commentary

The full agenda for the meeting can be found here. We will post any updates to the agenda, our com­pre­hen­sive pre-meet­ing summaries, as well as observer notes from the meeting on this page as they become available.

Podcast on IFRS Interpretations Committee developments

05 Oct, 2020

The IASB has issued a podcast on the developments of the IFRS Interpretations Committee during the third quarter of 2020.

The podcast (16 minutes) is hosted by IFRS In­ter­pre­ta­tions Committee Chair and IASB  Vice-Chair Sue Lloyd and Technical Staff member Patrina Buchanan and focuses on sale and leaseback transactions, IBOR amendments, and recent changes to the Due Process Handbook.

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

Pre-meeting summaries for the October IASB meeting

23 Oct, 2020

The IASB will meet via video conference on 27–29 October 2020 for its regular meeting. We have posted our pre-meeting summaries for the meetings that allow you to follow the IASB’s decision making more closely. For each topic to be discussed, we summarise the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

Board work plan update: This is the first periodical update of the work plan, replacing the research update. The staff have been reviewing the timing of consultation documents and recommend some changes to the timing of consultations (such as delaying the management commentary ED until May 2021) and extending some comment periods (such as for the DP on BCUCC). The work plan on the IFRS Foundation website will be updated after the meeting.

2020 Agenda Consultation: The IASB is preparing to issue a Request for Information (RFI) in the first quarter of 2021, as part of the public consultation on its work plan that it is required to undertake every five years. The staff has completed its work and recommend that the RFI describe 27 potential projects identified from outreach undertaken.

Maintenance and Consistent Application—Deferred Tax related to Assets and Liabilities arising from a Single Transaction: In July 2019, the Board published an ED proposing amendments to IAS 12. The staff recommend that the Board confirm the proposal to narrow the scope of the recognition exemption so that it would not apply to transactions that give rise to equal amounts of taxable and deductible temporary differences. The papers include recommendations about the capping proposal, the extent of application guidance and illustrative examples and transition.

Management Commentary: This is the last decision-making meeting for the ED. The staff are asking for permission to begin the formal drafting and balloting processes. The staff papers include the working draft of their guidance on the provision of information about matters that could affect an entity’s long-term prospects, intangible resources and relationships, and ESG matters, but this is to elicit feedback rather than seeking any formal decisions. The ED is expected to be published in May 2021, if the IASB approves the revised work plan.

Extractive activities: The staff will present findings on the diversity of accounting policies applied to exploration and evaluation expenditure within the scope of IFRS 6. The staff’s research indicates that diversity is primarily due to the extent to which an entity recognises exploration and evaluation expenditure incurred during the reporting period as an asset and the unit of account that an entity decides to apply to its exploration and evaluation expenditure asset. Most of the entities in the sample use ‘area of interest’ accounting.  The ‘full cost’ and ‘successful efforts’ methods are the most common accounting policies for oil and gas companies not applying ‘area of interest’ accounting. The Board is not being asked to make any decisions.

Equity Method: Work on reviewing aspects of IAS 28 began in May. The staff recommend that the objective of this review be to assess whether application problems with the equity method for associates and joint ventures can be addressed by identifying and explaining the principles of IAS 28. They recommend that the Board not consider whether the equity method is a one-line consolidation method or a measurement method, whether it should be replaced by one of the measurement bases in the Conceptual Framework or whether significant influence should be the basis for when to apply the equity method.

Disclosure Initiative, Subsidiaries that are SMEs: The IASB is developing a Standard setting out reduced disclosure requirements for subsidiaries that apply IFRS Standards but meet the definition of an SME. At this meeting the IASB will discuss whether the compliance statement required by IAS 1 should differentiate the entities that have applied the reduced disclosure requirements and whether the disclosure requirements of IAS 8 should be applied by these entities.

Oral Updates: The staff will give oral updates on Dynamic Risk Management and the IFRS Taxonomy.

More information

Our pre-meeting summaries are available on our October meeting note page and will be supplemented with our popular meeting notes after the meeting.

Recent sustainability reporting developments

13 Oct, 2020

A summary of recent developments at CDSB, TNFD, GRI/SASB, GRI, PRI, in New Zealand and Hong Kong, at AccountAbility, IAASB and CAQ.

In addition to the recent major developments at the European Commission, CFA Institute, five ESG standard-setters, the World Economic Forum, and the IFRS Foundation Trustees, the following smaller developments occurred recently:

  • The Climate Disclosure Standards Board (CDSB) released CDSB Framework application guidance for climate-related disclosure. The release is the first in a series of guides on nature-related financial disclosure, with water guidance to follow early next year. Please click for more information on the CDSB website.
  • The CDSB also offers free consultation on climate-related reporting for EU businesses. See here for more information.
  • Efforts are underway to create a Task Force for Nature-related Financial Disclosures (TNFD). An Informal Working Group has been founded that will lead to the creation of the TNFD itself in 2021. Establishing a reporting framework for finance sector impacts and dependencies on nature is seen as critical for halting biodiversity and ecosystem loss. A TNFD website is already available.
  • Following the launch of a collaborative workplan between the Global reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB), the standard-setters are working together to develop materials that show how the two sets of reporting standards can be used together. As a next stage in the collaboration, a joint survey has been launched to help understand current experiences by organisations that use either or both sets of standards for their sustainability reporting. Please click for more information on the GRI website.
  • Also, a recent GRI public opinion poll on social and environmental corporate performance revealed rising trust in sustainability reporting around the world. Please see the GRI website for more information.
  • Principles for Responsible Investment (PRI) has published a call by investor groups on companies to reflect climate-related risks in financial reporting. They stress the investor view that climate-related risks are material factors that should be reflected appropriately in financial statements. More information is available on the PRI website.
  • New Zealand will implement mandatory climate risk reporting in line with the TCFD recommendations, becoming the first country to do so. Please see the press release of the New Zealand government for more information.
  • The Hong Kong Money Authority (HKMA) recently set out a supervisory approach designed to ensure banks build resilience to climate-related risk. In terms of disclosures and data, HKMA notes that supervised financial institutions should take the TCFD recommendations into account while developing an ‘appropriate’ approach to disclosing climate-related risk that enhances transparency. More information is available in the corresponding HKMA White Paper.
  • AccountAbility announces three developments:
    • German and simplified Chinese translations of the AA1000 AccountAbility Principles (press release)
    • Spanish, Portuguese, and Bahasa Indonesian translations of the AA1000 AccountAbility Principles (press release)
    • Latest guidance on sustainability assurance (press release)
  • The International Auditing and Assurance Standards Board (IAASB) has issued a Staff Audit Practice Alert The Consideration of Climate-Related Risks in an Audit of Financial Statement. The Staff Audit Practice Alert assists auditors in understanding what already exists in the International Standards on Auditing (ISA) today and how it relates to auditors’ considerations of climate-related risks in an audit of financial statements. Please click for more information on the IAASB website.
  • The Center for Audit Quality (CAQ) released a new report that finds external auditors can contribute to the reliability and comparability of non-GAAP financial measures and KPIs – information found outside of the audited financial statements. Please see the CAQ website for more more information.

Seventh IASB research forum — papers available

22 Oct, 2020

The International Accounting Standards Board (IASB) will host its seventh Research Forum on 2–3 November 2020 as a virtual conference. The papers to be presented and discussed are now available on the IASB website.

The forum will see the presentation of four academic papers, followed by a responses of an academic and of an IASB/NNS representative, and two panel discussions around research opportunities related to IFRS 9 and to IFRS 15. The audience will be invited to participate in the discussions. The papers are the following (all links to the IASB website):

Short video on the Trustee's sustainability reporting consultation

15 Oct, 2020

The IFRS Foundation has released a short video with the Chair of the Trustees Erkki Liikanen explaining why the Trustees are consulting on sustainability reporting and what questions they are asking.

The Trustee's published the consultation paper on 30 September 2020. Comments are requested by 31 December 2020.

Please click to access the video (just over three minutes long) on YouTube.

Standard setters discuss going concern assumption

01 Oct, 2020

At the current meeting of the International Forum of Accounting Standard Setters (IFASS), the standard setters of New Zealand and Australia presented on going concern disclosures and on the basis of preparation where an entity is no longer a going concern.

The presentation focused on two aspects around going concern assumptions.

The New Zealand External Reporting Board (XRB) has recently released new reporting requirements regarding going concern disclosures as the COVID-19 pandemic has shown again the diversity in practice over the information to be provided in circumstances when the financial statements are prepared on a going concern basis, but management are aware of events or conditions that may cast significant doubt on this judgement. The XRB came to the conclusion that it had to act fast in the context of COVID-19, in view of the fact that many New Zealand companies have a 31 March year-end, and as there was a perceived disconnect between the requirements in accounting and in auditing standards.

As New Zealand has adopted full IFRSs, the new requirements have to be followed in addition to the IFRS requirements. To the extent not already disclosed in accordance with IFRS requirements, where an entity prepares its financial statements on a going concern basis, and management is aware of events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern, it shall disclose information about the significant judgements and assumptions made as part of its assessment of whether the going concern assumption is appropriate. Furthermore, when management is aware, in making its assessment, of material uncertainties related to events or conditions that may cast significant doubt upon the entity’s ability to continue as a going concern, it shall disclose:

  • (a) that there are one or more material uncertainties related to events or conditions that may cast significant doubt on the entity’s ability to continue as a going concern;
  • (b) information about the principal events or conditions giving rise to those material uncertainties;
  • (c) information about management’s plans to mitigate the effect of those events or conditions; and
  • (d) that, as a result of those material uncertainties, it may be unable to realise its assets and discharge its liabilities in the normal course of business.

The XRB representative noted that while New Zealand felt the need to act quickly, they would prefer the IASB undertook a project on going concern. This wish was seconded by other IFASS participants, also by representatives from jurisdictions where local standard-setting had been considered but not undertaken.

Another case for international standard-setting was then brought forward by the Australian Accounting Standards Board (AASB). The AASB representative argued that the current requirements where an entity is no longer a going concern (disclose the fact, adjust the basis of preparation, disclose why the entity is not a going concern) do not specify how the basis of preparation should be adjusted or what the revised basis should be. He noted that clear guidance is needed as there is a lack of comparability between companies where the going concern assumption is no longer appropriate and as some entities that are no longer a going concern continue to lodge financial statements stating compliance with IFRSs. He noted that preparers would benefit from there being clear guidance, users would have access to more comparable information, and auditors would have a clear basis of accounting to provide an opinion against.

Again, the suggestion to have a fundamental review of the requirements related to the going concern basis of accounting where the going concern assumption is no longer appropriate and disclosures and to carry out research to evaluate the need for standard-setting activity was supported by IFASS members.

 

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