The new guidance includes a framework for making professional judgements followed by a series of illustrative examples showing how professional judgement might be applied in practice.  The FRC anticipates that the guidance will improve audit quality by enhancing the consistency and quality of professional judgement exercised by auditors.
 
The guidance will be of particular use for auditors and central technical teams but will also have wider interest for those interested in audit quality, such as audit committee members and investors.  It is non-authoritative and is intended to be persuasive rather than prescriptive, encapsulating good practice.  However, practitioners who chose not to use or consider this guidance will need to be prepared to explain how they have complied with the relevant engagement standards.

The full report, framework, illustrative examples and expectations paper are available on the FRC website.  A webinar on the guidance will be held on 26 July 2022.

The following topics were discussed:

Primary Financial Statements

The IASB decided to add a requirement that additional subtotals and line items that are presented in the statement(s) of financial performance in accordance with paragraph 42 of the ED fit into the structure of the proposed categories. The IASB also decided to withdraw the proposal to specifically prohibit columns when presenting MPMs in the statement(s) of financial performance.

Maintenance and consistent application

In November 2010, the IFRS Interpretations Committee asked the IASB to consider amending IAS 1 to clarify when a liability should be classified as current or non-current. That request led to exposure drafts (EDs) in 2012 and 2015 and an amendment in 2020. The effective date of the 2020 amendment was deferred pending further clarifications. In November 2021, the IASB published new amendments with the comment period ending in March 2022. At this meeting the IASB decided to finalise the latest amendments, although not the proposal to require an entity to present separately non-current liabilities with covenants. The IASB also decided to defer the 2020 amendments again, to align them with the effective date of these new, additional, amendments, which would be no earlier than annual reporting periods beginning on or after 1 January 2024.

Post-implementation Review of IFRS 9

The IASB continued to consider feedback from the Request for Information (RFI) Post-implementation Review—IFRS 9 Financial Instruments—Classification and Measurement. At this meeting, the IASB discussed feedback in relation to equity instruments and other comprehensive income. No decisions were made.

Second Comprehensive Review of the IFRS for SMEs Standard

This was the last public decision-making meeting for this project. The IASB granted permission for the staff to prepare the ED and are proposing a comment period of 180 days.

Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures

The IASB decided to proceed to finalise the draft Standard and not to publish a ‘catch-up’ ED that considers amendments to (and new) IFRS Accounting Standards issued after 28 February 2021 before finalising the Standard. The staff will develop a plan for deliberating the feedback on the ED.

Business Combinations under Common Control

The IASB discussed whether some or all BCUCCs are similar to or differ from IFRS 3 BCs. The staff recommended that assessing whether some or all BCUCCs are similar to or differ from IFRS 3 BCs and assessing the information needs of users will help the IASB tentatively decide whether conceptually the acquisition method or a book-value method should apply to some or all BCUCCs. The IASB was not asked to make any decisions.

Equity Method

At its April 2022 meeting, the IASB discussed possible approaches to the application question and asked the staff to develop its analysis further applying its preferred approach, being that after obtaining significant influence, an investor measures its additional interests in an associate as an accumulation of purchases. The IASB decided that in applying this approach, while retaining significant influence, an investor purchasing an additional interest that is a bargain recognises the bargain purchase gain separately in profit or loss. The IASB rejected the staff recommendation that an investor making a partial disposal determines the portion of the carrying amount of an investment in the associate to be derecognised by applying a specific identification method, if the investor can identify the specific portion of the investment being disposed of and its cost, or the last-in first-out (LIFO) method. The staff will consider whether a different method will be recommended to the IASB.

Contractual Cash Flow Characteristics of Financial Assets

In May 2022, the IASB decided to start a standard-setting project to clarify particular aspects of the IFRS 9 requirements for assessing a financial asset’s contractual cash flow characteristics (i.e. the ‘solely payments of principal and interest’ (SPPI) requirements). The staff set out the proposed objective, scope and an indicative timeline for the project. The proposed objective of this project would be to make clarifying amendments to the application guidance in IFRS 9 to enable the consistent application of the SPPI requirements and to consider whether additional disclosure requirements are needed. The staff plan is for the IASB to consider potential clarifications during the second half of 2022 and publish an ED in the first quarter of 2023. The staff confirmed that the project would not change the mechanics of the effective interest rate method (EIR) but would clarify how to apply the EIR to these instruments.

Financial Instruments with Characteristics of Equity

The IASB has been discussing feedback on the Discussion Paper (DP) published in June 2018, for which the comment period closed in January 2019. IAS 32 has no general requirements on reclassification between financial liabilities and equity instruments and there is diversity in practice when there are changes in the substance of the contractual terms without a modification to the contract such that reassessment would result in a different classification outcome from that initially assessed. The IASB decided to add general requirements on reclassification to IAS 32 to prohibit reclassification other than for changes in the substance of contractual terms arising from changes in circumstances outside the contract. The IASB did not support the staff recommendation to account for a reclassification at the beginning of the first reporting period after the change. The IASB instead decided that the change would be recognised in the period it occurs. It also decided that on reclassification from equity to financial liability, a financial liability would be measured at fair value at the date of reclassification and any difference between the carrying amount of the equity instrument and the fair value of the financial liability would be recognised in equity; and on reclassification of a financial liability to equity, an equity instrument is measured at the carrying value of the financial liability at the date of reclassification and no gain or loss is recognised. The IASB decided to add disclosure requirements for these circumstances.

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

Mr Barckow grouped his arguments into five major messages the IASB received from its stakeholders:

• Completing the IASB's current work plan. The IASB will prioritise completing projects currently on the agenda before beginning new ones. It expects to continue the deliberations on its current projects throughout 2022 and the majority (if not all) of 2023. Mr Barckow described the projects on primary financial statements, goodwill and impairment, and rate-regulated activities as being "in an intense stage of decision-making".
• Balancing the IASB's activities. Even though standard-setting is the core activity of the IASB, it also engages in supporting the consistent application of IFRSs, assisting the digital consumption of financial reports, and actively involving in stakeholder engagement around the world. The feedback received indicates that the balance of the IASB’s activities is about right, however, there were calls for increasing the efforts on digital reporting and on understandability and accessibility of the standards. Therefore, the IASB will provide for a modest increase in these two areas.
• Two new research pipeline projects. The IASB considered the suggestions made by stakeholders and weighed them against the criteria set for adding new projects to its agenda and the likely time needed to complete its current projects. The IASB has decided to add a comprehensive review of its standard on intangible assets, IAS 38, and a project devoted to the statement of cash flows and related matters.
• Climate-related risks as a maintenance pipeline project. As the IASB has already published educational guidance on how to consider climate-related risks in financial statements, this will not be a full-scale project in its own right. The IASB wants to investigate whether there are any shortcomings in today’s reporting in the financial statements by entities and, if so, whether these shortcomings are due to a deficiency in its literature. Interaction with the ISSB has also to be considered in this case. 
• A limited reserve list of two further projects. The IASB has decided to create a reserve list of projects and add operating segments and pollutant pricing mechanisms to it. They will only be added to the work plan if additional capacity becomes available unexpectedly. If they are not activated, they will be included for consideration in the next agenda consultation.

Mr Barckow concluded his remarks with short a short discussion of the connectivity between the IASB and the ISSB and where projects on the agenda of the two Boards may overlap. Please click to access the full transcript of his speech on the IFRS Foundation website.

Mr Hales, who has been appointed to a part-time role, has served as Chair of the SASB Standards Board since 2018 and is also a professor of accounting at the University of Texas in Austin, US. He has previously served as an academic research fellow at the Financial Accounting Standards Board (FASB) and as a member of its Financial Accounting Standards Advisory Council. His first term expires on 30 June 2027.

Mr Jantzi joins the ISSB from Morningstar, where he currently serves as Managing Director of ESG Strategy. He is the founder and former CEO of Sustainalytics, an ESG research and ratings firm that was subsequently acquired by Morningstar in 2020. He currently serves on the Board of Directors of the Value Reporting Foundation (VRF) and of the Principles for Responsible Investment. His first term expires on 30 September 2025.

The press release on the IFRS Foundation website notes that in the next several weeks, the Trustees will complete the ISSB’s full membership with further appointments in July and the goal to reach the full complement of 14 members during the third quarter of 2022.

These ideas are the outcome of a first meeting of technical representatives from both organisations where activities were discussed that could provide the necessary clarification and alignment. Among the initiatives discussed were:  

• An agreed schedule of meetings and roadmap to advance technical aspects of the collaboration;
• a mapping exercise to establish those requirements in the literature of both organisations that are equivalent;
• the development of a methodology to cross-reference between the respective guidance;
• an examination of future priorities; and
• the development of a full articulation of the ways in which the respective standards are complementary or diverge.

Please click to access a full outline of the planned collaboration on the IFRS Foundation website.

His speech was mainly devoted to drawing a parallel between establishing the International Accounting Standards Board (IASB) in 2001 and the International Sustainability Standards Board (ISSB) now.

He began by pointing out that when the IASB was established, there were significant challenges with financial accounting regarding transparency and comparability across borders. There were calls (not least by the G7) for internationally agreed accounting standards. There were also calls for the International Organization of Securities Commissions (IOSCO) to review the standards. IOSCO did so and also recommended that its members permitted the use of the international standards for companies listed on foreign stock exchanges. In the end, as Mr Liikanen pointed out, the international accounting standards proved to be a great success. He summarised:

And we have seen the benefits of this throughout the economic system. It benefits investors because it provides the information they need to make informed capital allocation decisions. It helps companies because they have clarity on which rules to follow in preparing their financial statements. And, it supports regulators in achieving their objectives of facilitating capital flows.

Mr Liikanen then turned to the creation of the ISSB. Again, he pointed out, the IFRS Foundation was responding to great demand — from investors, companies, IOSCO and jurisdictions. And again, IOSCO has agreed to review the standards to be issued by the ISSB. And the hope is that then IOSCO will once more encourage the adoption of the new IFRS Sustainability Disclosure Standards — to make them as much of a success as their accounting counterparts. Mr Liikanen concluded:

IOSCO brings together the world’s securities regulators. It plays an incredibly important role in promoting international standards. [...] Endorsement by IOSCO would be a real catalyst for the uptake of IFRS Sustainability Disclosure Standards around the world.

Please click to access the full text of the speech on the IFRS Foundation website.

The agenda for the DPOC meeting is sum­marised below.

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

The objective of the proposed CSRD is to improve sustainability reporting to better exploit the potential of the European single market and to contribute to the transition to a fully sustainable and inclusive economic and financial system in line with the European Green Deal and the UN Sustainable Development Goals.

While the detailed agreed text is not available yet, the following information has been communicated through the Council and Parliament press releases:

• The CSRD requirements will apply to large listed and non-listed EU companies (more than EUR 20 million balance sheet total / more than EUR 40 million net turnover / more than 250 employees) and listed SMEs (an opt-out would be available for SMEs during a transitional period until 2028); they would also apply to non-EU companies generating a net turnover of EUR 150 million in the EU and which have at least one subsidiary or branch in the EU.
• There will be a gradual approach to reporting under the CSRD:
  • 1 January 2024 for companies already subject to the non-financial reporting directive;
  • 1 January 2025 for companies that are not presently subject to the non-financial reporting directive; and
  • 1 January 2026 for listed SMEs, small and non-complex credit institutions and captive insurance undertakings.
• Reporting must be certified by an accredited independent auditor or certifier; the reporting of non-European companies must also be certified, either by a European auditor or by one established in a third country.

Parliament and Council still need to approve the provisional agreement.

For additional information, please see the press releases published by the two bodies on their websites:

• European Parliament
• European Council

The VRF was formed in June 2021 with the merger of the International Integrated Reporting Council (IIRC) and the Sustainability Accounting Standards Board (SASB). The consolidation with the IFRS Foundation will, ‘inform the work of the IFRS Foundation through the industry-based approach of the SASB Standards and the Integrated Reporting Framework’.

This marks the completion of a COP26 objective to consolidate leading investor-focused sustainability disclosure organisations with the IFRS Foundation. In February 2022, the CDSB completed its consolidation into the IFRS Foundation.

For more information, see the press release on the IFRS Foundation website.

The Guidance updates the version issued in June 2018 with the following:

• the changes introduced by The Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/31) and The Limited Liability Partnerships (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/46) which require certain entities to make climate-related financial disclosures in line with the Taskforce on Climate-related Financial Disclosures(TCFD) recommendations;
• amendments to The Large and Medium-Sized Companies and Groups (Accounts and Reports) Regulations 2008 (SI 2008/410) and The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (SI 2008/1911), which implement the government’s policy on Streamlined Energy and Carbon Reporting (SECR). The SECR amendments were made to the appendices that relate to the directors’ report disclosure requirements;
• amendments to The Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008 (SI 2008/1911) introduced by The Statutory Auditors Regulations 2017 (SI 2017/1164), which requires a traded Limited Liability Partnership (LLP) or banking LLP to prepare a strategic report;
• amendments to the definition of a public interest entity (PIE) to align it with the existing legislation; and
• some minor typographical or presentational corrections.

A press release and the 2022 Guidance on the Strategic Report are available on the FRC website.