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Pre-meeting summaries for the May 2021 IASB meeting

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21 May 2021

The IASB is meeting on Monday 24, Wednesday 26 and Thursday 27 May 2021, by video conference. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. We summarised 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.

Accounting for derecognised financial assets when insurers first apply IFRS 17: The Board will discuss an accounting mismatch between financial assets and insurance contract liabilities that could arise at the beginning of the comparative period on transition to IFRS 17 when financial assets have been derecognised during the comparative period. The staff recommend proposing a narrow-scope amendment to IFRS 17. The amendment would permit an entity, on initial application of IFRS 17, for the purpose of presenting comparative information, to elect to measure at fair value through profit or loss financial assets derecognised between the transition date and the date of initial application of IFRS 17. There would be some restrictions on when the election can be made.

Goodwill and Impairment: The Board will continue its discussion of feedback on particular aspects of the DP—feedback from users of financial statements and feedback on disclosing information about business combinations, the effectiveness of the impairment test and whether to reintroduce amortisation of goodwill. The staff propose that the Board reconsider the objective and scope of the project first to determine whether all of the topics covered in the DP should remain as one project. They recommend that the Board prioritise the redeliberations around reintroduction of amortisation of goodwill as this may impact other decisions.

Financial Instruments with Characteristics of Equity: The staff recommend that entities be required to categorise their claims that are financial instruments in a way that reflects differences in their nature and priority, and at a minimum, distinguish between secured and unsecured financial instruments; contractually subordinated and unsubordinated financial instruments; and those issued/owed by the parent and those issued/owed by subsidiaries. Furthermore, to provide information about the risks and returns of particular instruments in the event the entity is liquidated.

Primary Financial Statements: The staff recommend that the Board retain the proposal to introduce separate investing and financing categories in the statement of profit or loss. The staff recommend that all income and expenses from liabilities that arise from transactions that involve only the raising of finance and interest income and expenses from other liabilities to be classified in the financing category of profit or loss. They also recommended that the Board not proceed with either the proposed addition to the definition of financing activities in IAS 7 or the proposed definition of liabilities (in the new Standard).

Dynamic Risk Management: The staff will give the Board an overview of the challenges identified during the outreach and discussed during the April 2021 meeting that are key to the viability and operability of the Dynamic Risk Management (DRM) model, a proposal of the next steps and the indicative timeline to address each of the identified challenges. It is proposed that the Board will decide on the project direction in H1 2022. The staff is not looking for any decisions based on this paper. Instead they are asking only for comments in respect of the proposed next steps and indicative timeline.

Maintenance and Consistent Application:

IFRS Interpretations Committee Agenda Decisions

The Board will be asked if any members object to the publication of two agenda decisions:  Attributing Benefit to Periods of Service (IAS 19) and Hedging Variability in Cash Flows due to Real Interest Rates (IFRS 9).

Lease Liability in a Sale and Leaseback

The Board will consider the feedback received on Exposure Draft ED/2020/4 Lease Liability in a Sale and Leaseback, which proposes to amend IFRS 16. The Board received 87 comment letters. While a few respondents agreed with the proposed amendment, most respondents disagreed with, or expressed concerns about, aspects of the proposals. Nevertheless, most respondents agreed that there is a need to amend IFRS 16 and enhance the measurement requirements for sale and leaseback transactions. Many respondents suggested possible ways forward, including alternative solutions to account for sale and leaseback transactions. The staff plan to submit a paper to a future Board meeting analysing the feedback and providing recommendations on the project direction. No decisions will be required on this month’s papers.

IFRIC Update April 2021

The staff will present the April 2021 IFRIC Update to the Board and will ask whether Board members have any questions or comments.

Disclosure Initiative—Subsidiaries that are SMEs: The staff are drafting the proposal and recommend that it refer to material rather than significant accounting policies. They also propose that a description of resulting changes to the entity’s risk management strategy be included.

Second Comprehensive Review of the IFRS for SMEs Standard: The staff recommend that the status of Section 2 of the IFRS for SMEs Standard will remain unchanged but that it be aligned with the 2018 Conceptual Framework. The Board will assess if there are potential inconsistencies between a revised Section 2 and any other section of the IFRS for SMEs Standard. The staff also recommend the retention of the concept of ‘undue cost or effort’. In relation to IFRS 9, the staff recommend the Board propose an amendment to the IFRS for SMEs Standard to supplement the list of examples in Section 11 with a principle for classifying financial assets based on their contractual cash flow characteristics.

Our pre-meeting summaries is available on our May meeting notes page and will be supplemented with our popular meeting notes after the meeting.

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