The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are currently reexamining goodwill accounting, and, specifically, the measurement of goodwill post-acquisition. The IASB is pursuing improved disclosures while the FASB is considering reverting to amortisation.

The CFA Institute surveyed its members on their desired path forward. A majority of respondents (58%) supported retaining impairment as impairment is regarded as decision-useful and provides information content. Nevertheless, they also see room for improvement. Only 31% of the respondents supported the introduction of amortisation, which is viewed as the inferior model because it does not allow the discernment between good and bad acquisitions, distorts financial metrics and does not provide decision-useful information for investment analysis. Nevertheless, these respondents note that goodwill erodes over time, that impairment is subjective, and that amortisation is more predictable.

On convergence, the survey report notes:

Respondents were in raging agreement that the IASB and FASB should follow the same approach in the accounting for goodwill (90%) and in the subsequent measurement of goodwill (94%).

Investors also highlighted that the current accounting model needs to be updated to reflect the increasing importance of intangibles, that the move from a manufacturing to a service economy makes this more important and evident, and that a resolution is needed between the accounting for acquired versus internally generated intangibles.

Please click for the full report with detailed findings on the website of the CFA Institute.

The corrections relate to IFRS Practice Statement 2 'Making Materiality Judgements' published in September 2017, Reference to the Conceptual Framework (Amendments to IFRS 3) issued in May 2020, and Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) published in February 2021.

Editorial corrections do not change the meaning or application of pronouncements, but instead correct inadvertent errors. The editorial corrections can be viewed on the editorial corrections page of the IASB's website.

The FRC’s Supervision Corporate Reporting Review team will supplement its routine reviews of corporate reporting with six thematic reviews: 

• Task Force on Climate-related Financial Disclosure (TCFD) Reporting and Climate-related Reporting in Financial Statements - In collaboration with the Financial Conduct Authority (FCA), the FRC will perform a thematic review of TCFD disclosures provided by premium listed companies in response to the new Listing Rule, and of the extent to which the financial statements reflect the impact of climate change. 
• Business Combinations (IFRS 3) - Issues relating to compliance with this standard have featured in the FRC’s ‘top ten’ findings for several years.  The FRC will undertake a general thematic review of accounting issues under this standard and identify examples of better practice
• Earnings per Share (EPS) (IAS 33) - While identification of issues related to this standard have been less frequent than the issues identified in the FRC's top 10, miscalculations of EPS can result in material errors on the face of the income statement.  The FRC will focus on those areas where it has previously identified errors.
• Deferred Tax (IAS 12) - There will be a particular focus on disclosures around deferred tax assets and whether the evidence supporting the recognition of deferred tax assets for losses is sufficiently robust
• Discount Rates - The FRC's review will provide an overview of the requirements of IFRS Standards  in respect of discount rates and will highlight some of the difficulties companies encounter in determining appropriate discount rates to apply in the measurement of assets and liabilities.
• Judgements and Estimates - This has been an area of focus for the FRC in prior years. The FRC will specifically look at (i) disclosures around sensitivities and ranges of outcomes and (ii) disclosures involving judgements and assumptions made in estimating mineral reserves.

The FRC's Supervision programme of audit quality inspections will pay particular attention to the auditor’s work in the following areas:

• Climate-related risks
• Fraud risks
• Cash and cash flow statements
• Provisions and contingent liabilities
• Impairment of assets
• Revenue
• Group audits

In selecting corporate reports and audits for review, the FRC will give priority to travel, hospitality and leisure, retail, construction and materials and gas, water and multi-utilities. 

A press release is available on the FRC website.

The Board will discuss the following:

• Second com­pre­hen­sive review of the IFRS for SMEs Standard
• Rate-reg­u­lated ac­tiv­i­ties
• Primary financial state­ments
• Financial instruments with characteristics of equity
• Third agenda con­sul­ta­tion
• Maintenance and consistent application
• Business combinations under common control

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 Committee discussed the comment letter analysis for one tentative agenda decision and two new submissions. One topic was deferred to the next meeting.

Comment letter analysis

IFRS 16 Leases—Economic Benefits from Use of a Windfarm: In June 2021, the Committee published a tentative agenda decision in response to a submission about the definition of a lease. The submitter asked whether, applying IFRS 16:B9(a), an electricity retailer (customer) has the right to obtain substantially all the economic benefits from use of a windfarm throughout the term of an agreement with a windfarm generator (supplier). The Committee concluded that the principles and requirements in IFRS Standards provide an adequate basis to account for this matter. Many of the respondents to the tentative agenda decision agreed with the conclusion. Nonetheless, some of them raised some further matters for the Committee to consider. The staff presented an analysis of these matters and the Committee decided to finalise the agenda decision with the addition of two references to previous agenda decisions to address issues raised by respondents.

IFRS 9 Financial Instruments and IAS 20 Accounting for Government Grants and Disclosure of Government Assistance—TLTRO III Transactions: In its June 2021 meeting, the Committee discussed a submission asking how banks account for the European Central Bank (ECB)’s Targeted Longer-Term Refinancing Operations (TLTRO). Specifically, the submission asked whether the TLTRO III tranches are loans at a below-market interest rate which should be accounted for as a government grant. The staff have analysed the comment letters and recommended finalising the agenda decision with minor editorial changes.

This agenda item was not discussed due to lack of time and was deferred to the next meeting.

New submissions

IFRS 15 Revenue from Contracts with Customers—Principal versus Agent: Software Reseller: The Committee received a submission asking whether a reseller of software licences is a principal or agent in respect of the standard software licences provided to the customer. The staff found that the fact pattern is highly specific and even small or subtle differences in the specific facts and circumstances could change the conclusion when applying the requirements about principal versus agent considerations in IFRS 15. The staff were therefore of the view that it would be inappropriate for the Committee to conclude whether the reseller is a principal or agent in the fact pattern submitted. The Committee decided to publish a tentative agenda decision that only sets out the applicable requirements in IFRS 15 and explains how a reseller might apply those requirements.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets—Negative low or new energy vehicle credits: The Committee received a submission asking whether an entity with negative low emission vehicle credits has a present obligation that meets the definition of a liability in IAS 37. If the answer to this question is "no", the submitter asked whether the Committee’s views would be different if the entity had entered into a binding contract to purchase positive new energy credits before the end of the reporting period the entity, but that contract is settled after the end of the reporting period. The Committee decided to publish a tentative agenda decision outlining whether an entity with negative low emission vehicle credits has a present obligation that meets the definition of a liability in IAS 37.

Work in progress: The staff are in the process of analysing two matters:

• Rent Concessions: Lessors and Lessees (IFRS 16 and IFRS 9)
• Special Purpose Acquisition Companies (SPAC): Classification of Public Shares as Liabilities or Equity (IAS 32)

More In­for­ma­tion

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

The agenda items for discussion are as follows:

• Due Process Handbook – Update 
• IFRS 17 - Update on Consultation 
• Disclosure Requirements in IFRS Standards A Pilot Approach – Final comment letter and Feedback Statement
• Subsidiaries without Public Accountability: Disclosures - Draft Comment Letter 
• PIR: IFRS 9 – Classification & Measurement - Draft Comment Letter 
• Research on subsequent measurement of goodwill - Response to IASB and Feedback Statement 

The meeting agenda and papers and details of how to register are available on the UKEB website. 

The recording of this meeting is available on the UKEB website.

The Amendments clarify how companies account for deferred tax on transactions such as leases and decommissioning obligations. The Amendments are effective for annual periods beginning on or after 1 January 2023, with earlier application permitted.

EFRAG recommends the endorsement of the Amendments. EFRAG’s assessment is that the Amendments meet all the technical endorsement criteria of the IAS Regulation and are conducive to the European public good.

A press release and the endorsement advice letter to the European Commission are available on the EFRAG website. EFRAG has also updated its endorsement status report.

The report includes multiple examples of good practice and identifies areas where the FRC expects to see improvements next year.  The FRC has seen good reporting on governance, resourcing, and the integration of stewardship and ESG factors into investment decision-making. However, it highlights that there is room for improvement in explaining how stewardship-related conflicts of interest are managed, how managers review and assure their stewardship activities and how they monitor and hold to account service providers operating on their behalf.

The report outlines key areas of focus for applicants to report on in the future, including:

• reflections on the effectiveness of investor actions relating to how market-wide and systemic risks are being managed;
• stewardship in asset classes other than listed equity; and
• echoing the FRC’s recent review of corporate governance reporting, calling for a focus by reporters on outcomes for each Principle of the Code and including relevant evidence to back this up, for example case studies that can illustrate both process and impact.

Early in 2022 the FRC will publish a research report that looks at how stewardship governance, resourcing and engagement has evolved and the influence of the new Code.

A press release and the report is are available on the FRC website.

The update reports on the EFRAG Board webcast meetings on 2 and 18 November, the EFRAG TEG webcast meeting on 24-25 November and the EFRAG TEG and EFRAG Consultative Forum of Standard Setters webcast meeting on 24 November. The update also covers the activities of the European Reporting Lab as well as webinars and online outreaches.

The update also lists publications issued in November including:

• The European Union Commission Regulation endorsing IFRS 17 Insurance Contracts;
• EFRAG's Feedback Statement related to its Final Comment Letter on the IASB Exposure Draft ED/2021/04 Lack of Exchangeability;
• EFRAG's Feedback Statement related to its Final Comment Letter on the IASB Exposure Draft ED/2/2021/8 Initial Application of IFRS 17 and IFRS 9 - Comparative Information (Proposed amendment to IFRS 17);
• EFRAG's Feedback Statement related to its Final Comment Letter on the IASB Discussion Paper DP/2020/2 Business Combinations under Common Control; 
• EFRAG's Draft Comment Letter in response to the IASB request for information as a part of the Post-implementation Review of the classification and measurement requirements of IFRS 9 Financial Instruments.

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

The proposed changes aim to reflect developments in the technology that underlies or relates to the IFRS Taxonomy. They also consider variation in standards and practices and will support the usage of the IFRS Taxonomy or comparable taxonomies in different regulatory environments.

Details on the proposed changes are available in the press release on the IASB website and in proposed update itself. Comments are requested by 3 January 2022.