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Pre-meeting summaries for the July 2021 IASB meeting

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16 Jul 2021

The IASB meets on Tuesday 20 and Wednesday 21 July 2021 and has a joint education session with the FASB on Friday 23 July, all 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.

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

Post-implementation Review of IFRS 9: The Board will discuss 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 staff recommend the Board examine 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 publish around the end of September 2021.

Post-implementation Review of IFRS 10-12: In December 2020, the Board published an RFI as part of its post-implementation review (PIR) of IFRS 10-12 which was open for comment until 10 May 2021. The Board will consider the feedback received within the comment letters and from an updated academic literature review. Many stakeholders agree 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 will not be asked to make any decisions during this meeting and 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 decisions will be asked of the Board.

Disclosure Initiative—Targeted Standards-level Review of Disclosures: The staff recommend that the Board 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.

Goodwill and Impairment: The Board will continue 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 will not be asked to make any decisions at the meeting.

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

The staff recommend 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 staff recommend 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. They recommend the Board apply the same requirements 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, 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 staff recommend that the Board 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.

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 staff recommend that the Board require entities 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 will be given the opportunity to ask questions about the most recent meeting of the IFRS Interpretations Committee.

Education session with the FASB

The purpose of the meeting is for the boards to share views on projects related to largely converged Standards, common projects and their agenda consultations. The boards will discuss their reviews of the accounting for goodwill and impairment. They will also discuss the work undertaken to date, and recent tentative decisions made, on their respective projects on supplier finance. No decisions will be made.

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

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