July 2021 IASB meeting notes posted

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28 Jul, 2021

The IASB met on Tuesday 20 and Wednesday 21 July 2021 and had a joint education session with the FASB on Friday 23 July, both by video conference. The IASB has a break during August, with no scheduled public meetings. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

This was the first meeting chaired by the new IASB Chair Andreas Barckow.

Post-implementation Review (PIR) of IFRS 9: The Board discussed the feedback from outreach and the staff analysis and recommendations on the matters to examine further in phase 2, i.e. which questions should be asked in the Request for Information (RFI). Most stakeholders said that generally the classification and measurement requirements are working well in practice. However, some users of financial statements and academics said that IFRS 9 is complex and thus difficult to understand.

The Board decided that the RFI would include questions about the business model assessment for financial assets, contractual cash flow characteristics assessment for financial assets, the option for equity instruments to present fair value changes in other comprehensive income, financial liabilities designated as fair value through profit or loss, modifications to contractual cash flows and transition to IFRS 9. The staff expect the RFI will be published around the end of September 2021.

PIR of IFRS 10-12: In December 2020, the Board published an RFI as part of its PIR of IFRS 10-12, which was open for comment until 10 May 2021. The Board considered the feedback received within the comment letters and from an updated academic literature review. Many stakeholders agreed with the use of control as the single basis for consolidation in IFRS 10 and the need to take a holistic and qualitative assessment of all legal, contractual and other facts and circumstances and stressed the importance of application guidance and illustrative examples. Some respondents noted difficulties in some situations applying the definition of an investment entity and expressed concerns about the loss of information when an investment entity measures at fair value a subsidiary that is itself an investment entity. Respondents highlighted the usefulness of the IFRIC agenda decisions in applying IFRS 11 and some asked for these to be incorporated into the Standard. Feedback from respondents noted that IFRS 12 had resulted in significant improvements to financial reporting, however there were some requests for additional information. The Board was not be asked to make any decisions during this meeting but several Board members were encouraged that the overall feedback received in relation to these three Standards was very positive on the whole and supported that the Standards were working effectively. The Board will present its findings in a feedback statement after completing its deliberations.

Taxonomy: The Board published the Proposed IFRS Taxonomy Update PTU/2021/1 Disclosure of Accounting Policies and Definition of Accounting Estimates on 21 April 2021. The Board received five comment letters. The staff plan to issue the final IFRS Taxonomy Update along with the final taxonomy files in Q4 of 2021. No Board comments or decisions were made.

Disclosure Initiative—Targeted Standards-level Review of Disclosures: The Board decided to extend the deadline for comments for the Exposure Draft Disclosure Requirements in IFRS Standards—A Pilot Approach from 21 October 2021 to 12 January 2022. The decision was not straightforward, because the Board did not want extensions to be viewed as being normal.

Goodwill and Impairment: The Board continued its discussion of feedback on particular aspects of the DP—focusing this month on the location of the information resulting from, and practical challenges related to, the Board’s preliminary views on improving disclosures; improving the effectiveness of the impairment test; and the subsequent accounting for goodwill, including whether to reintroduce amortisation of goodwill. The Board was not asked to make any decisions at the meeting. However, directionally, the Board appeared to be giving weight to improving disclosures and the application of the impairment model.

Primary Financial Statements: The Board continued to discuss the approach for classifying items of income and expenses in the financing category of the statement of profit or loss.

The Board decided that the income and expenses from hybrid contracts with host liabilities and embedded derivatives be classified: for separated host liabilities in the same way as for other liabilities; for separated embedded derivatives in the same way as for stand-alone derivatives; and for contracts that are not separated to be classified in the same way as income and expenses on other liabilities.

For gains or losses on financial instruments designated as hedging instruments the Board decided that they be classified in the category affected by the risk the entity manages, except when it would involve grossing up gains or losses in which case they would be classified as operating. The same requirements would apply to derivatives used for risk management even if they are not designated as hedging instruments. However, if this creates undue cost or effort the gains or losses would be classified as operating. 

Gains or loses on derivatives not used for risk management would be classified as operating. However, if the derivative relates to financing activities and is not used in the course of the entity’s main business activities it would be classified as financing. FX differences would be classified in the same way as the item that gave rise to the differences, unless there is undue cost or effort, in which case the FX differences would be classified as operating. 

Maintenance and Consistent Application:

Classification of Debt with Covenants as Current or Non-Current—Transition, Early Application and Due Process: At its meeting in June 2021, the Board tentatively decided to propose narrow-scope amendments to IAS 1 to modify the requirements introduced by Classification of Liabilities as Current or Non-current (the 2020 amendments) on how an entity classifies debt and other financial liabilities as current or non-current in particular circumstances. The proposed amendments would also defer the effective date of the 2020 amendments to no earlier than 1 January 2024. The Board decided to require entities to apply the proposed amendments retrospectively in accordance with IAS 8, not provide a transition exemption for first-time adopters, permit an entity to apply the amendments earlier than their effective date and set a comment period of no less than 120 days for the Exposure Draft. Two Board members indicated that they are considering offering an alternative view in relation to the disclosoures proposed.

Supplier Finance Arrangements—Transition, Early Application and Due Process: At its meeting in June 2021, the Board decided to add a narrow-scope, disclosure-only standard-setting project to its workplan related to supplier finance arrangements (for example, reverse factoring or similar arrangements). The project involves the Board proposing amendments to IAS 7 and IFRS 7. The Board decided to propose that entities be required to apply the proposed amendments retrospectively in accordance with IAS 8 and not provide an exemption for first-time adopters. Early application would be permitted and the proposals would have a comment period of no less than 120 days.

IFRS Interpretations Committee: The Board had no questions about the most recent meeting of the IFRS Interpretations Committee.

Education session with the FASB: The purpose of the meeting was for the boards to share views on projects related to largely converged Standards, common projects and their agenda consultations. The boards discussed their reviews of the accounting for goodwill and impairment. They also discussed the work undertaken to date, and recent tentative decisions made, on their respective projects on supplier finance. The joint meeting lasted four hours, with members of both boards asking questions about the other Board’s projects. No decisions were made.

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

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