The proposed amendment aims at clarifying how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 Leases to the lease liability that arises in a sale and leaseback transaction.

In its final comment letter the UK Endorsement Board secretariat :

• Supports the proposals in the ED as they provide guidance on an area not covered by the existing Standard which should reduce diversity of practice leading to consistency and comparability of financial statements.
• Observes an inconsistency in the definition of a variable lease payment between that used in IFRS 16 and that proposed in the exposure draft, which could lead to potential inconsistency in financial reporting. 
• Recommends that the IASB resolves this discrepency either during the finalisation of the ED or during the post implementation review of IFRS 16.  It proposes two potential solutions to the IASB. 

The final comment letter is available at UKEB website.

The proposed amendment aims at clarifying how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 Leases to the lease liability that arises in a sale and leaseback transaction.

EFRAG considers that the ED provides evidence of a broader conflict of principles in IFRS 16 regarding the accounting for sale and leaseback transactions and the definition of lease payments.  It encourages the IASB to consider the matter more broadly possibly as part of the future post-implementation review of IFRS 16 or the IASB's project on Variable and Contingent Consideration. 

EFRAG notes that there are complexities and operational challenges associated with the proposals in the ED, in particular regarding the level of judgement involved in estimating the future variable payments. 

As this area is not addressed in IFRS 16, EFRAG can accept a temporary solution prior to a more holistic review of the matter.  However, it encourages the IASB to consider a simplified solution by recognising the profit attributable to the retained interest in the right-of-use asset as a non-lease liability or deferred income rather than a lease liability.  EFRAG indicates that this would avoid introducing the use of two different definitions for lease payments depending on whether leases are entered into directly or via a leaseback. 

EFRAG suggests that a further simplification for sale and leaseback transactions with variable payments only could be considered by the IASB and suggests a possible approach for subsequent measurement that the IASB could additionally explore.  Finally EFRAG supports the proposed transition requirements and in particular the retrospective application of the proposed amendments, unless in circumstances where such retrospective application cannot be done without the use of hindsight. 

The publication follows a period of consultation and includes a separate Feedback Statement in response to the main feedback comments that were received.

The Strategy, Plan & Budget 2021/22 reflects the FRC’s continuing commitment to serving the public interest whilst also modernising and moving towards becoming the Audit, Reporting and Governance Authority (ARGA).  In 2021/22 the FRC expects its overall costs to increase by £6.1m, almost half of which funds the organisation’s development and maturity; the other half funds the establishment of the UK Endorsement Board (UKEB) following the UK’s exit from the EU.

The FRC’s key areas of focus include:

Regulatory Standards

• Developing and maintaining UK and Ireland accounting standards (GAAP) in a timely fashion.
• Ensuring the UK endorsement process for IFRS provides accountability and transparency by establishing due process oversight.
• Issuing a feedback statement and next steps following the FRC’s report on the Future of Corporate Reporting.
• Developing and maintaining UK auditing standards.
• Undertaking assessments of performance against the UK Corporate Governance Code, the UK Stewardship Code and the Wates Corporate Governance Code for Large Private Companies.
• Consulting on revisions to the UK Corporate Governance Code and associated guidance ahead of legislation, subject to the outcome of Government consultation.
• Delivering FRC Lab reports on stakeholder reporting and s172 of the Companies Act 2006, risk, uncertainties and scenarios, and performance metrics.
• Supporting the FRC’s transformation into ARGA through establishing a programme of work aimed at reviewing and revising standards, codes and guidance, where appropriate, in advance of legislation.

Supervision

• Taking a risk-based approach, maintaining the scope and number of Audit Quality Reviews and Corporate Reporting Reviews undertaken.
• Using thematic and cross-market reviews to promote improvements in corporate reporting, audit quality and audit market resilience.
• Building and deepening its forward-looking supervision of the major audit firms.
• Further developing and sharing views on what constitutes high quality audit, including in response to changing circumstances, such as the impact of COVID-19.

Enforcement

• Delivering robust, fair and transparent regulatory outcomes whilst continuing to monitor the impact of COVID-19, ensuring a proportionate and risk-based response in the public interest.
• Delivering investigations and enforcement action in a timely manner.
• Promoting improvements through communicating clear and impactful messages in its enforcement outcomes.
• Supporting the transformation into the ARGA by working collaboratively with internal and external stakeholders.

The plan and budget also sets out key areas of focus for the FRC’s Corporate services division including embedding new governance arrangements and setting its medium-term IT and information strategy.

The Strategy, Plan & Budget 2021/22 also covers operational structure, governance and resourcing. The FRC also sets out its budget for 2021/22 for expenditure and funding. Expenditure is being increased in a number of areas including audit firm supervision, audit market supervision, corporate reporting review, actuarial standards and stakeholder engagement.

The press release, Strategy and Plan & Budget 2021/22 and a Feedback Statement in response to the consultation are available from the FRC website.

The Committee will discuss the following:

• Administrative matters
• Comment letter analysis:
  • IAS 19 — Attributing benefit to periods of service
  • IAS 1 — Classification of debt with covenants as current or non-current
  • IFRS 9 — Hedging variability in cash flows due to real interest rates
• Work in progress

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.

The survey seeks to understand stakeholders’ views on the proposals in the DP as well as stakeholders’ experiences with BCUCC. It is open until 6 May 2021.

The survey is available here.

Since the IASB's deliberations in the project have already been completed, the shift in publication date must be attributed to an attempt to balance out comment letter periods on different consultations.

During the March 2021 IASB meeting, which discussed the comment letter period for the management commentary ED, the IASB noted the difficult balance and the constraints on respondents' capacities:

• The IASB has several consultation documents outstanding and plans to publish several more.
• The COVID-19 pandemic has placed constraints on stakeholder resources.
• Respondents to the ED may also develop responses to forthcoming proposals by the Trustees to change the Foundation’s Constitution to form an international sustainability reporting standards board within the existing governance structure of the IFRS Foundation and may find it difficult to respond to both documents at the same time.

Please click for the press release on the IASB website announcing the postponement.

The purpose of the workshop was to obtain feedback on the matters included in the request for information and to discuss relevant academic evidence.

A recording of the workshop as well as the slides used are now available on the EAA website.

European enforcers examined the financial statements of about 729 issuers representing an average examination rate of 17% of all IFRS issuers with securities listed on regulated markets. These examinations resulted in 265 actions taken to address material departures from IFRS.

Enforcers also assessed the non-financial information related to ESG for 737 issuers, covering approximately 37% of the total estimated number of issuers required to publish a non-financial statement, resulting in 39 enforcement measures.

In addition, 611 management reports were reviewed for evaluating compliance with ESMA’s guidelines on alternative performance measures, covering around 14% of all IFRS listed issuers in Europe against which were taken 93 corrective actions.

Please click to access the full report on the ESMA website.

A summary of the agenda is set out below:

Agenda papers for the meeting are available on the IASB website.

The update reports on the EFRAG Board webcast meetings on 15 March and 29 March,the EFRAG TEG webcast meetings on 3-4 March, 23 March, 26 March and 30 March and the EFRAG CFSS and TEG webcast on 3 March. The publication also covers the activities of the European Reporting Lab.

The update also lists EFRAG publications issued in March including:

• EFRAG's final endorsement advice relating to IFRS 17 Insurance Contracts, as amended in July 2020, for use in the European Union; and
• EFRAG's draft endorsement advices on disclosure of accounting policies and definition of accounting estimates

Please click to download the March EFRAG Update from the EFRAG website.