Pre-meeting summaries for the July 2022 IASB meeting

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15 Jul, 2022

The IASB meets in London over four days, from Monday 18 to Thursday 21 July 2022. 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.

The following topics are on the agenda:

Primary Financial Statements

The IASB will discuss 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 staff are making recommendations on the first three topics but are continuing to assess unusual items.

Maintenance and consistent application

At this meeting, the IASB will discuss feedback received in response to ED/2021/10 Supplier Finance Arrangements. The staff will also seek clearance for the last due process steps to finalise the amendment to IAS 1 for Non-current Liabilities with Covenants (ED/2021/9). The staff recommend that the IASB require entities to apply the amendments for annual reporting periods beginning on or after 1 January 2024. The staff will ask if any IASB members object 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 is not being 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 will discuss 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 staff recommend the IASB adds 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 the meeting is 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 are seeking feedback on which aspects of the project the IASB should proceed with, and which aspects should stop.

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 will outline their preliminary analysis of the first two concepts.

Financial Instruments with Characteristics of Equity

At this meeting, the IASB continues 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 sets 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.

Rate-regulated Activities

The staff recommend the application guidance of the final Standard does not specify the components of total allowed compensation, but rather focuses 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 staff also recommend that the final Standard specifies that when a regulatory agreement entitles an entity to regulatory returns on an asset not yet available for use, these returns form part of the total allowed compensation for goods or services supplied during the period in which the entity incurs the capital outlay to construct the asset— that is, the construction period. The Standard should also include guidance on how the provisions of the regulatory agreement may affect the amount of regulatory returns on an asset not yet available for use to which an entity is entitled during the construction period. The staff are continuing to analyse whether an entity’s capitalised borrowing costs should affect the recommended treatment of regulatory returns on an asset not yet available for use described above.

Dynamic Risk Management

At this meeting, the IASB will continue its deliberations on Discussion Paper DP/2014/1 Accounting for Dynamic Risk Management: a Portfolio Revaluation Approach to Macro Hedging. The staff sets 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.

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.

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 is to provide the IASB with additional research and analysis in response to comments by IASB members in the April 2022 meeting. The IASB will not be asked to make any decisions during this session.

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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