July

ISSB issues podcast on latest Board developments (July 2022)

29 Jul 2022

The IFRS Foundation has released the first podcast discussing highlights from the inaugural ISSB meeting. The podcast is hosted by ISSB Chair Emmanuel Faber and Vice-Chair Sue Lloyd.

High­lights of the podcast include dis­cus­sions on:

  • ISSB background information. 
  • Reaction and highlights from the discussion in the first ISSB meeting.
  • Impressions of initial feedback to the ISSB exposure drafts.
  • Forward-looking expectations and agenda setting.
  • Role of industry-based standard setting and SASB standards.

The podcast can be accessed through the press release on the IFRS Foundation’s website.

Please click to view the detailed notes taken by Deloitte observers for the ISSB meeting.

IASB concludes agenda consultation by releasing a feedback statement

29 Jul 2022

On 30 March 2021, the International Accounting Standards Board (IASB) launched its third public consultation to seek broad public input on the strategic direction and overall balance of its future work programme.

 

Background

In the request for views published in March 2021, the Board asked broad questions on the strategic direction and balance of the IASB’s activities; the criteria for assessing the priority of financial reporting issues that could be added to the IASB’s work plan; and financial reporting issues that could be added to the IASB’s work plan. The Board received 124 comment letters and 37 responses to its related online survey.

 

General messages

On the three major areas consulted on, the following general messages were received:

  • Strategic direction and balance of the IASB’s activities. Respondents generally supported the Board’s current strategic direction. They also indicated 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.
  • Criteria for assessing the priority of financial reporting issues that could be added to the IASB’s work plan. Almost all respondents agreed with the criteria proposed by the Board. Many noted that the criteria were well-balanced and adequate. Some suggested that the IASB rank the criteria or split them into essential and secondary criteria. 
  • Financial reporting issues that could be added to the IASB’s work plan. Most respondents rated potential projects on climate-related risks, cryptocurrencies and related transactions, and intangible assets as high priority. Also high on the list were going concern, pollutant pricing mechanisms, and the statement of cash flows and related. At the end of the list were potential projects on borrowing costs, commodity transactions, employee benefits, expenses — inventory and cost of sales, foreign currencies, government grants, negative interest rates and separate financial statements, inflation, and interim financial statements.

The IASB was also very pleased about the responses received through the survey as they included responses of stakeholders that do not normally respond to consultations. Providing the possibility to reply by way of a survey will also be considered for future consultations as it encouraged a broader stakeholder base to respond.

 

IASB decisions

The comment period on the request for views ended in September 2021. The IASB considered the feedback received from November 2021 to April 2022 and decided:

  • to add to its work plan a maintenance and consistent application project on climate-related risks;
  • to add to the research pipeline projects on:
    1. intangible assets; and
    2. the statement of cash flows and related matters;
  • to create a reserve list of projects that could be added to the work plan only if additional capacity becomes available, which would include projects on:
    1. operating segments; and
    2. pollutant-pricing mechanisms; and
  • not to add to its work plan projects on:
    1. cryptocurrencies and related transactions; or
    2. going concern disclosures.

 

Other feedback

Respondents also commented on:

  • Collaboration with the International Sustainability Standards Board (ISSB). The IASB and the ISSB expect to collaborate to support complementary standard-setting and reporting. The IASB thinks that coordination and resources will be needed to support collaboration with the ISSB alongside the IASB’s existing activities. This would relate to and be reflected in new accounting standards and major amendments to the accounting standards, digital financial reporting, the understandability and accessibility of accounting standards, and stakeholder engagement.
  • Enhancing partnerships with national standard-setters. The IASB's partnership with national standard-setters already supports all of the IASB’s main activities. However, the IASB concluded that the resources of national standard-setters would not enable the IASB to increase the number of projects it could add to its work plan for 2022 to 2026. In the longer term, national standard-setters’ support, particularly during the research phase of a project, could allow for faster completion of projects, however, and thus provide capacity for more projects to be added to the IASB’s work plan as part of future agenda consultations.
  • Priority of matters identified in post-implementation reviews. Respondents suggested, in managing stakeholders’ expectations, it would be helpful if the IASB clearly set out the objectives of a post-implementation review and explained better
    what the outcome of a post-implementation review can be. The IASB has discussed with the Trustees’ Due Process Oversight Committee (DPOC) how to communicate more clearly the objective, process and possible outcomes of a post-implementation review.

 

Additional information

Please click for the following documents on the IASB website:

FRC publishes its fourth Annual Enforcement Review

29 Jul 2022

The Financial Reporting Council (FRC) has published its fourth Annual Enforcement Review.

The review reveals that a record number of cases were resolved in the current year (13) with record financial sanctions being imposed for misconduct and breaches of standards (£46.5 million, up from £16.5 million in 2020/21). This increase reflects the seriousness and high number of cases concluded, along with the FRC’s growing capability to take on the large and complex cases.  The FRC’s En­force­ment Di­vi­sion headcount has grown by 23% in the last year to support this growth.

The review also highlights a continuing focus on non-financial sanctions which focus on tackling the underlying causes of failure in order to reduce the risk of recurrence. The vast majority of concluded cases featured a lack of sufficient audit evidence and a lack of professional scepticism.

The press release and Annual En­force­ment Review are avail­able from the FRC website. 

EFRAG publishes feedback statement on IASB's Third Agenda Consultation and EFRAG’s own proactive research agenda

29 Jul 2022

The European Financial Reporting Advisory Group (EFRAG) has published its feedback statement related to its final comment letter on the International Accounting Standard Board’s (IASB's) Third Agenda Consultation Request for Information and EFRAG's own Proactive Research Agenda.

EFRAG published its Final Comment Letter in October 2021.

On 1 June 2022, the EFRAG Financial Reporting Board decided on the projects to be added to EFRAG's Proactive Research Agenda.

The Feedback Statement summarises the feedback to the EFRAG Joint Consultation Document published on 20 May 2021, which consisted of the EFRAG Draft Comment Letter to the IASB RFI and proposals for EFRAG's own Proactive Research Agenda. It explains how constituents' comments were considered during the development of EFRAG's Final Comment Letter and in the decisions made on EFRAG's Proactive Research Agenda. 

A press release and the feedback statement are available on the EFRAG website.

IOSCO identifies key issues to focus on when evaluating the ISSB standards

28 Jul 2022

At its recent Board meeting, the International Organization of Securities Commissions (IOSCO) welcomed the strong stakeholder engagement on proposals for a comprehensive global baseline of sustainability disclosures for capital markets. Board members agreed the criteria which IOSCO will use to assess the ISSB standards and have also identified the key issues for IOSCO to focus on.

The Board specifically discussed three key practical issues of proportionality and implementation to be considered:

  • ensuring the proposed standards can truly serve as an effective global baseline under either a voluntary or mandatory regime, including by considering how to provide for the scaling and phasing-in of requirements to accommodate issuers with differing degrees of maturity in sustainability reporting;
  • how the ISSB can best assist implementation by clarifying definitions and providing additional guidance and examples where necessary;
  • how and when to incorporate the proposed industry-based disclosure data points, recognizing on the one hand that industry-specificity is highly valued by investors, while on the other that some data points may initially be challenging for some issuers.

The statement on the IOSCO website notes that the due process for potential endorsement will begin after the ISSB has issued its final standards. It also states that IOSCO has begun work in collaboration with the international standard setters for audit and assurance to promote a common global approach to independent and high-quality assurance of issuers’ sustainability disclosures.

Please click to access the full statement on the IOSCO website.

July 2022 ISSB meeting notes posted

27 Jul 2022

The ISSB met in Frankfurt on Wednesday 20 and Thursday 21 July 2022. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

In a welcome and opening remarks session at the beginning of the meeting, the Chair said that the remaining four ISSB positions would be taken by two Europeans, one Japanese and one “at large”. The ISSB then discussed the following technical topics:

Agenda priorities

The ISSB intends to publish a Request for Information (RFI) in the second half of 2022, to help it develop its work programme. The RFI will seek public views on (a) the strategic direction and balance of ISSB activities, (b) the suitability of proposed criteria for assessing the priority of sustainability-related matters and (c) a preliminary list of potential priority matters. The RFI will include a list of potential priority matters identified by the ISSB. The ISSB discussed a preliminary list to consider that includes general topics: biodiversity, ecosystems and nature loss; circular economy, materials sourcing and value chains; climate change; cybersecurity, data security and customer privacy; economic inequality; human capital; human rights; and water and marine resources. The list also includes the existing standards and portfolio of standard-setting and research projects of the Value Reporting Foundation’s (VRF) Sustainability Accounting Standards Board (SASB) as well as potential projects to undertaken in coordination with the International Accounting Standards Board (IASB). The ISSB was not asked to make any decisions at this meeting. It was clear that some ISSB members prefer to focus on industry-based standards whereas others are more focused on topical standards.

Overview of exposure drafts (S1 and S2) and feedback received as at 7 July 2022

On 31 March 2022, the ISSB published two exposure drafts (EDs): ED IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information and ED IFRS S2 Climate-related Disclosures The ISSB conducted outreach events including webinars, panel discussions, large group meetings and targeted meetings in order to educate stakeholders, drive engagement and obtain technical input. At this meeting, a summary of preliminary feedback gathered to date was provided and the ISSB was not be asked to make any decisions. ISSB members made their own observations about the drafts, and these comments are summarised in the more detailed summaries.

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

July 2022 IASB meeting notes posted

27 Jul 2022

The IASB met in London over four days, from Monday 18 to Thursday 21 July 2022. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The following topics were discussed:

Primary Financial Statements

The IASB discussed entities with specified main business activities—issues specific to the investing category; entities with specified main business activities—issues specific to the financing category; disclosure of operating expenses by nature in the notes; and unusual items. The IASB supported all of the staff recommendations. The IASB discussed the definition of unusual items, but it remains unclear as to the direction the IASB will take.

Maintenance and consistent application

At this meeting, the IASB discussed feedback received in response to ED/2021/10 Supplier Finance Arrangements. The IASB also approved the remaining due process steps to finalise the amendment to IAS 1 for Non-current Liabilities with Covenants. The IASB will require entities to apply the amendments for annual reporting periods beginning on or after 1 January 2024. No IASB members objected to the finalisation of three agenda decisions: Negative Low Emission Vehicle Credits (IAS 37); Classification of Public Shares as Financial Liabilities or Equity (IAS 32); and Transfer of Insurance Coverage (IFRS 17). Note that the agenda decision relating to the transfer of cash was not presented to the IASB at this meeting.

Post-implementation Review (PIR) of IFRS 9—Classification and Measurement

In September 2021, the IASB published Request for Information (RFI) Post-implementation Review—IFRS 9 Financial Instruments—Classification and Measurement. At this meeting, the IASB discussed the feedback on the accounting for modifications of financial assets and financial liabilities. The staff will also provide preliminary views in relation to the key application challenges identified. The IASB decided to add a project to its research pipeline to explore potential clarification of the requirements for assessing modification of financial assets and financial liabilities and the application of the effective interest method.

PIR of IFRS 9—Impairment

In November 2021, the IASB decided to begin the PIR of the IFRS 9 impairment requirements in the second half of 2022. The anticipated timeline is that between September 2022 and February 2023, IASB members and the staff will perform outreach with preparers, auditors, users of financial statements, regulators and standard-setters. In addition, the staff will review academic research and other materials relevant to this PIR. The publication of the RFI is targeted for the first half of 2023 with the comment period being 120 days.

Disclosure Initiative— Targeted Standards-level Review of Disclosures

The purpose of this meeting was to analyse the possible courses of action available to the IASB to respond to the feedback provided by the Accounting Standards Advisory Forum (ASAF) on Exposure Draft ED/2021/3 Disclosure Requirements in IFRS Standards—A Pilot Approach. The staff sought feedback on which aspects of the project the IASB should proceed with, and which aspects should stop. There seemed to be little to no support for finishing the project but more support for a “middle ground” approach to drafting disclosure requirements with the aim of providing a better framework for entities to use judgement to identify and disclose useful information to users of financial statements. There were also reservations around IAS 19 and IFRS 13 that would need to be considered.

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). In June, the IASB agreed that specific SPPI requirements should not be developed for ESG-linked features, but clarification should be provided as application guidance on the concept of a basic lending arrangement; whether and how the nature of a contingent event (i.e. the trigger for a change in the timing or amount of contractual cash flows) is relevant to determining whether the cash flows are SPPI ; and examples in paragraphs B4.1.13 and B4.1.14 of IFRS 9 of applying the SPPI requirements to specific fact patterns (including adding additional examples for financial assets with ESG-linked features). At this meeting, the staff outlined their preliminary analysis of the first two concepts. IASB members were very positive about the preliminary analysis and supported the direction of the project.

Financial Instruments with Characteristics of Equity

At this meeting, the IASB continued its discussions on the feedback received in response to DP/2018/1 Financial Instruments with Characteristics of Equity. Paragraph 23 of IAS 32 requires a contract that contains an obligation for an entity to purchase its own equity instruments for cash or another financial asset to be recognised as a financial liability. The financial liability is recognised initially at the present value of the redemption amount and is reclassified from equity. There is evidence of accounting diversity in practice in the application of the requirements in paragraph 23 of IAS 32. At this meeting the staff set out the current requirements in IAS 32, a brief history of the requirements for contracts containing an obligation to redeem own equity instruments, summary of past IASB and IFRS Interpretations Committee discussions and feedback on the proposals in the 2018 DP. IASB members were generally supportive of the project direction. The staff will continue to work on specific proposals.

Rate-regulated Activities

The IASB decided that the application guidance in the final Standard should not specify the components of total allowed compensation, but rather should focus on helping entities identify differences in timing. The application guidance will focus on the most common differences in timing that may arise from different types of regulatory schemes. The IASB asked the staff to give further thought as to how to word this section and to bring the topic back at a later date. The IASB also decided that when an entity has an enforceable present right to regulatory returns on an asset not yet available for use, those returns form part of the total allowed compensation for goods or services supplied during the period in which the entity provides the capital to construct the asset (the construction period).

Dynamic Risk Management

At this meeting, the IASB continued its deliberations on Discussion Paper DP/2014/1 Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging. The staff set out the areas and topics that need to be further considered in order to complete the development of the DRM model together with a proposed order of future discussions for the next stage of the project. IASB members were generally supportive of the direction being taken.

Management Commentary

In April 2022, the IASB completed its discussion of feedback on ED/2021/6 Management Commentary. The next milestone in the project is for the IASB to determine the project direction. In determining how to progress the project, the IASB will need to consider the evolving reporting landscape as well as stakeholders’ calls for the IASB to collaborate with the ISSB in developing the final requirements. The IASB will also need to consider the possible implications of the commitment to consider opportunities to address similarities and differences between the <IR> Framework and the proposals developed in the Management Commentary project. To facilitate the discussion about possible ways forward on the Management Commentary project in the light of the feedback received on ED/2021/6 and the evolution in the reporting landscape, the staff plan to develop alternatives and present them to the IASB at a future meeting. IASB members acknowledged that the landscape has changed significantly since the ED was published and also noted that the feedback received, although only 8 months old, could be significantly outdated. IASB members agreed that this was an area where the IASB and the ISSB would have to work together and that the IASB would have to make a series of decisions, including whether to finalise parts of the proposals that relate to financial statements only and what the status of the Practice Statement will be.

Goodwill and Impairment

As part of the IASB’s work, the staff have performed further research on disclosures about business combinations. The purpose of this meeting was to provide the IASB with additional research and analysis in response to comments by IASB members in the April 2022 meeting. The IASB was not asked to make any decisions during this session. Most IASB members felt that sufficient research had been done for a tentative proposal to brought to the September meeting that IASB members could decide on, observing that there is unlikely to be additional information that would lead to people changing their general views.

An analysis of how the IASB’s work plan has changed as a result of the meeting is available here.

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

IFRS Foundation Trustees seek to fill Advisory Council vacancies

27 Jul 2022

The Trustees of the IFRS Foundation are calling for candidates to fill vacancies occurring at the end of 2022 for membership to the IFRS Advisory Council. In addition, the Trustees have agreed to a temporary expansion of the Advisory Council to reflect the recent creation of the ISSB that has led to an expanded remit of the Advisory Council.

In addition to the four new appointments, 15 members of the IFRS Advisory Council are up for reappointments. As reappointments are not guaranteed, and given the broadened remit of the Advisory Council following the establishment of the ISSB, member organisations whose individual representative is eligible to serve a second term will be considered alongside any new applications and/or nominations received.

Please click for more information in the press release on the IFRS Foundation website.

FRC publishes thematic review on judgements and estimates

26 Jul 2022

The Financial Reporting Council (FRC) has published its latest thematic review on judgements and estimates. The review identifies areas of good practice, opportunities for improvement and outlines the FRC's expectations for future reporting.

The FRC performed limited-scope desktop reviews on 20 Main Market and AIM-listed companies with half of the selection comprising companies from the natural resource sector (with the review focusing on mineral reserve estimates and how well they were integrated with the discussions of the relevant financial statement components) and the remaining ten companies being selected from a variety of different industries (with the review focusing on the extent to which information about sensitivities to changes in assumptions or ranges of outcomes had been provided and how practice had developed since its November 2017 review).  For all 20 companies the review also considered the extent to which the impact of climate change was incorporated into estimate disclosures in the financial statements. 

The thematic identified many good examples of detailed, granular disclosure explaining management’s judgements and the nature of the uncertainties relating to significant estimates.  The FRC did not find many instances of boilerplate narrative and in most instances companies had provided disclosures that were tailored to the company’s circumstances.  Significant estimates were supported by quantification and almost all of the non-natural resource sector companies selected had provided some degree of sensitivity disclosure.  The FRC also found many instances of effective linkage and cross referencing which enabled better integration of the estimate disclosures within the rest of the annual report.

The FRC found that many companies mentioned climate change within their estimate disclosures with several explaining that the impact was factored into significant estimates.  Better disclosures clearly articulated the expected timing of any impact and provided specific clarification as to whether climate change had a risk of material adjustment to the carrying values of assets and liabilities in the next year or did not but could have medium or longer-term impacts.  Where longer-term sensitivities are disclosed, the FRC indicates that it is important to make a clear distinction between these sensitivities and those shorter-term sensitivities required by IAS 1.129.   

Whilst improvements have been made, the review highlights that there is still room for improvement.  It includes a number of expectations that companies should consider when preparing their annual reports.

For significant estimates the FRC expects companies to:

  • Clearly specify which estimates have a significant risk of material adjustment to the carrying amount of assets and liabilities in the next financial year.
  • Quantify the specific amount at risk of material adjustment.
  • Provide sufficient granularity in the descriptions of assumptions and/or uncertainties to enable users to understand management’s most difficult, subjective or complex judgements.
  • Clearly distinguish the disclosure of other estimates, and associated sensitivities, from significant estimates and explain their relevance.
  • Provide meaningful sensitivities and/or ranges of reasonably possible outcomes for significant estimates; these should not be limited to those required by other IFRS Accounting standards.
  • Quantify the assumptions underlying significant estimates when investors need this information to fully understand their effect; for example, commodity prices.
  • Explain any changes to past assumptions if the uncertainty remains unresolved.

For significant judgements the FRC expects companies to:

  • Separately identify the judgements that do not relate to a source of estimation uncertainty and those that do.
  • Give detailed descriptions of the specific, material judgements made by the directors in applying their accounting policies

For climate change the FRC expects companies to:

  • Assess whether disclosure of climate-related significant judgements or assumptions and sources of estimation uncertainty are required by paragraphs 122 of 125 of IAS 1 Presentation of Financial Statements and consider whether information about assumptions with a longer-term effect is required.

To encourage improvement in the general quality of company disclosures, the review includes examples of good practice, including: quantified assumptions and amounts at risk of material adjustment; detailed explanations of management’s judgements and the nature of the uncertainties relating to significant estimates; and discussion of the effects of climate change on estimates.

A press release and the full report are available from the FRC website.

FRC publishes its 2021/22 annual report and accounts

25 Jul 2022

The Financial Reporting Council (FRC) has published its 2021/22 annual report (“the annual report”) reflecting 'another period of continued progress of transformation for the FRC'.

The annual report outlines the progress made over 2021/22 and the work towards transitioning to the Audit, Reporting and Governance Authority (ARGA).  It highlights a number of achievements during the year including: 

The annual report also sets out the FRC's Strategic Priorities for 2022/23.

The press release and the full annual report are available on the FRC website.

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