July

IASB publishes editorial corrections

18 Jul, 2022

The IASB has published a second set of editorial corrections for 2022.

The corrections relate to the IFRS Foundation Constitution as reproduced in the Red Book and the annotated Red Book 2022.

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.

Podcast on IFRS Interpretations Committee developments

15 Jul, 2022

The IFRS Foundation has issued a podcast on the developments of the IFRS Interpretations Committee during the second quarter of 2022.

The podcast is hosted by IFRS In­ter­pre­ta­tions Committee Chair and IASB member Bruce Mackenzie and Technical Staff member Patrina Buchanan and focuses on:

  • Principal versus agent: software reseller.
  • Negative low emission vehicle credits.
  • Cash received via electronic transfer as settlement for a financial asset, transfer of insurance coverage under a group of annuity contracts.
  • SPACs: classification of public shares as financial liabilities.
  • Consolidation of a non-hyperinflationary subsidiary by a hyperinflationary parent.
  • Multi-currency groups of insurance contracts.

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

IFRS Foundation announces IFRS Interpretations Committee appointments

15 Jul, 2022

The Trustees of the IFRS Foundation have announced the appointment of Yanli Liu, who will replace Zheng Yang, and have reappointed Lisa Bomba, Jens Freiberg, Karsten Ganssauge and Brian O’Donovan to the IFRS Interpretations Committee.

All appointments are effective from July 2022 to June 2025. For more information, see the press release on the IFRS Foundation’s website.

Pre-meeting summaries for the July 2022 ISSB meeting

15 Jul, 2022

The ISSB meets in Frankfurt on Wednesday 20 and Thursday 21 July 2022. We have posted our pre-meeting summaries for the meeting that allow you to follow the ISSB’s decision making more closely. We summarised the agenda papers made available by the ISSB and pointed out the main issues and recommendations.

The following topics are on the agenda:

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 staff have developed a preliminary list to consider that includes general topics in alphabetical order: 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 be undertaken in coordination with the International Accounting Standards Board (IASB). The ISSB is not asked to make any decisions at this meeting.

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 will be provided and the ISSB will not be asked to make any decisions.

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

Pre-meeting summaries for the July 2022 IASB meeting

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.

Agenda papers available for the UK Endorsement Board Meeting on 18 July 2022

14 Jul, 2022

The meeting agenda and papers for the UK Endorsement Board (UKEB) meeting on 18 July 2022 are available.

The agenda items for discussion are as follows:

  • Draft Due Process Handbook – Review of Comments Received 
  • Ongoing Monitoring of IASB Projects: Other Topics
  • ISSB Exposure Drafts – Final Comment Letter
  • Research Project on Intangibles – Update 
  • Draft Report: Subsequent Measurement of Goodwill: A Hybrid Model

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

    A recording of the meeting was made available on the UKEB website on 27 July 2022.

    FRC issues a position paper on next steps to reform the UK's audit and corporate governance framework

    14 Jul, 2022

    The Financial Reporting Council (FRC) has issued a position paper setting out the next steps to reform the UK’s audit and corporate governance framework.

    The paper follows the Government Response to the Department for Business, Energy and Industrial Strategy (BEIS) White Paper ‘Restoring trust in audit and corporate governance’, published in May 2022, which summarises the feedback that BEIS received from stakeholders on the White Paper and sets out the measures it intends to progress with.

    The document focuses on those areas of the Government Response that fall within the FRC’s remit, providing a high level summary for stakeholders on how and when the work of reform will be delivered ahead of government legislation recognising that this will require some complex sequencing to ensure that revisions to Code, Standards and Guidance can be addressed in a single pass.

    The outline plan also provides an overview of activities proposed in relation to the actuarial profession and the local audit market.

    Revisions to the UK Corporate Governance Code ('the Code')

    The position paper states that there will be a consultation on changes to the Code and supporting material in Q1 2023 with a view to the new Code applying to periods commencing on or after 1 January 2024.

    The consultation will focus on:

    • provision of a stronger basis for reporting on and evidencing the effectiveness of internal control around the year end reporting process.
    • inclusion of wider responsibilities of the Board and Audit Committee for expanded Sustainability and Environmental, Social and Governance (ESG) reporting and, where commissioned by the company, assurance of that reporting.
    • consideration of how audit tendering undertaken by the company takes account of the need to expand market diversity.
    • strengthened reporting on malus and clawback remuneration arrangements.
    • areas of reporting already identified by the FRC as being weaker as set out in their most recent reviews of governance reporting.

    Minimum Standards for Audit Committees

    Initially for adoption on a voluntary basis, the FRC will develop a set of Minimum Standards for Audit Committees setting out expectations on how Audit Committees should work to address the issues raised by the CMA in its April 2019 report in relation to the appointment and oversight of auditors.

    These minimum standards will be developed through stakeholder roundtables to take place in the second half of 2022 with a view to the standards being available to Audit Committees for 2023 financial year ends. Subject to the appropriate legislation being introduced, regulatory supervision of the standards will commence in 2024.

    Corporate Reporting matters

    The Government Response set out plans for four new statutory reporting requirements applicable to all large Public Interest Entities (PIEs) (companies with 750 or more employees and at least £750m annual turnover), covering:

    • The Resilience Statement
    • Fraud Reporting by Directors
    • The Audit and Assurance Policy and related disclosure requirements
    • Capital Maintenance and Dividends, including distributable profits

    The FRC will be working in support of these reforms by developing a number of pieces of implementation guidance.

    On sustainability reporting, the FRC plans to actively engage with the International Sustainability Standards Board to raise the profile of its work and to make recommendations to further its proposals. In addition, the FRC will be working closely with BEIS to propose for consideration ways to reduce the current non-financial reporting burden on companies.

    In advance of the statutory powers required to extend the scope of the FRC’s Corporate Reporting Review (CRR) team, the FRC intends to commence formal inclusion of corporate governance disclosures in line with the intended implementation of the revised Code (periods commencing on or after 1 January 2024). In the meantime, they will continue to include corporate governance reporting in a sample of routine CRR reviews, initiate a pilot for remuneration reporting and seek to engage with companies on a voluntary basis.

    Audit matters

    The FRC plans to develop and consult on a policy paper setting out the approach in respect of the Government’s proposed market resilience/competition objective for the new regulator Audit, Reporting and Governance Authority (ARGA) and the work which will be undertaken to prepare ahead of legislation. This will include a framework for ARGA’s competition objective and how success measures for the effectiveness of market opening measures will be set.

    In addition, there will be a number of activities proposed in relation to the Ethical Standard for auditors. These include launching a consultation regarding whether it is desirable to exclude sustainability assurance work (carried out in accordance with a performance standard adopted by the FRC) from the UK aspect of the non-audit services fee cap and also whether to maintain the ‘Other Entity of Public Interest’ definition. The effective date for any resulting changes is proposed to be periods commencing on or after 15 December 2024 and this will follow a consultation on a revised Standard in Q1 2023.

    A press release and the position paper are available on the FRC website.

    IFRS Foundation announces two additional ISSB members

    14 Jul, 2022

    The Trustees of the IFRS Foundation have announced the appointment of Tae-Young Paik and Elizabeth Seeger as ISSB Board members. The press release notes that the appointment of the remaining Board members is at an 'advanced stage'.

    Dr Paik has worked as an academic and policy advisor on accounting and sustainability matters for over 30 years both in Korea and internationally. He currently serves as professor of accounting at Sungkyunkwan University in Seoul and chair of the Sustainability Evaluation and Disclosure Committee in the G7 Korea Impact Alliance. He recently completed a presidency of the Korea Accounting Association.

    Ms Seeger joins the ISSB from global investment firm KKR, where she has served as Managing Director, Sustainable Investing, responsible for helping oversee the firm's consideration of sustainability matters throughout KKR’s investment process. Since 2017 she has also served as a member of the SASB Standards Board.

    Both Dr Paik and Ms Seeger are appointed for a three-year term, effective July and November 2022, respectively.

    The press release announcing the appointments is available on the IFRS Foundation website.

    ESMA expresses strong support for the ISSB's work

    14 Jul, 2022

    The European Securities and Markets Authority (ESMA) has commented on the two ISSB exposure drafts ‘General Requirements for Disclosure of Sustainability-related Financial Information’ and ‘Climate-related Disclosures’. The comment letter contains a long introduction discussing the relationship between European sustainability standards and ISSB standards.

    The comment letter opens with an explanation of the European legislation in the area of sustainable finance mentioning among other developments the Corporate Sustainability Reporting Directive (CSRD) and the European Sustainability Reporting Standards (ESRS). The comment letter notes: 

    While ESMA fully supports and actively contributes to these EU efforts, we note the need to ensure the better flow of information across the sustainable investment chain including for SMEs, as recently highlighted by the G7, and to effectively support the shift towards a more sustainable economic and financial system not only within the EU, but also at global level. To this end, in ESMA’s view, it is necessary that regional standardisation, most notably in Europe, and international efforts go hand-in-hand. Both efforts should enable a target scenario where issuers can rely on high-quality reporting standards which are consistent, interoperable and as much as possible global and, where necessary, regional or jurisdiction-specific.

    ESMA welcomes the IFRS Foundation’s initiative to consolidate some of the existing standard-setting and framework initiatives and expresses strong support for the work of the ISSB to reach a common set of internationally accepted high-quality sustainability reporting standards which could serve as a global baseline. ESMA believes that the ISSB can play an important role in aggregating the relevant players and help building an internationally agreed baseline of sustainability reporting standards. ESMA stresses that a global solution to sustainability reporting is crucial:

    Lacking such a solution, we face the risk of a continued fragmentation of the sustainability reporting landscape with increasing costs and risks for the investment community as well as issuers operating internationally, and ultimately more difficulties to give effect to the much-needed sustainability transition.

    Please click to access the full comment letter on the ESMA website.

    FSB progress report on addressing climate-related financial risks

    14 Jul, 2022

    The Financial Stability Board (FSB) has submitted to the G20 Finance Ministers and Central Bank Governors its first annual progress report on the July 2021 roadmap to address climate-related financial risks.

    The report takes stock of progress by standard-setting bodies and other international organisations on the actions coordinated through the 2021 roadmap, outlines areas for further attention, and provides updates where needed to the detailed roadmap actions.

    The report notes that encouraging progress has been made across all four blocks of the roadmap. On firm-level disclosures it states:

    A milestone has been the publication by the newly established International Sustainability Standards Board (ISSB) of two Exposure Drafts, on climate and general sustainability-related disclosure standards. The timely issuance of a final global baseline climate reporting standard ready for market adoption is critical given the global market demand for consistent, comparable and decision-useful disclosures on climate-related risks and opportunities. Alongside a global baseline reporting standard on climate, there is also a growing recognition of the importance of global assurance standards to drive reliability of disclosures.

    The FSB stresses that the International Organization of Securities Commissions (IOSCO) is providing important support reviewing the ISSB standards, with the objective to consider endorsement for domestic and cross-border use by member market authorities across jurisdictions.

    The report also mentions other initiatives such as in the United States and in the European Union but notes that the FSB and other bodies are continuing to promote consistent approaches among national and regional climate disclosure initiatives.

    Regarding the future areas of attention, the FSB notes that early action on the possible adoption of the ISSB standards is required by jurisdiction:

    The work of the ISSB on the finalisation of its standards, IOSCO’s work on endorsement and jurisdictions’ work on implementation are important near-term priorities for disclosures. If IOSCO issues an endorsement of the ISSB standards, jurisdictions should take early action to consider the final global baseline reporting standards for use. IOSCO will seek to assist jurisdictions through a broad capacity building programme, working closely with the ISSB.

    Please click to access the full report on the FSB website.

    Correction list for hyphenation

    These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.