While the approaches of IASB and FASB on goodwill accounting had been reasonably converged for some time, the Boards seemed to be going separate ways recently.

In July 2019, the FASB issued an invitation to comment Identifiable Intangible Assets and Subsequent Accounting for Goodwill, which noted that the FASB was considering whether to change the subsequent accounting for goodwill for cost-benefit reasons. In December 2020, during the deliberation of the responses, the FASB tentatively decided to reintroduce amortisation of goodwill (please see the decision summary on the FASB website). In fact, the agenda paper prepared for Wednesday's meeting (link to FASB website) notes among the major tentative decisions to date:

• Amortize goodwill on a straight-line basis over a 10-year default period or over an estimated period (using an open list of factors to consider), limited to a 25-year cap.
• Reassessing the amortization period would be prohibited.

The IASB has also been discussing restoring amortisation of goodwill. In December 2017, the Board decided tentatively not to reintroduce amortisation and to focus on improving the impairment model instead. Consequently, the discussion paper DP/2020/1 Business Combinations — Disclosures, Goodwill and Impairment published in March 2020 notes: "The Board reached a preliminary view that it should retain an impairment-only approach." The IASB continues to move forward with its project and the most recent agenda paper in the project (May 2022, link to IASB website) notes that in Q4 2022, the staff plans to ask the IASB whether to move the project from the research phase to the standard-setting phase. (The agenda paper was written before the FASB's decision on Wednesday.)

While views are split on whether amortisation of goodwill should be reintroduced, calls for convergence between the FASB and IASB approaches remain strong. A survey released by the CFA Institute in December 2021 revealed that a majority its members (58%) supported retaining an impairment approach (with improvements) and only 31% of the respondents supported the introduction of amortisation. At the same time, the survey noted:

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%).

An IOSCO statement released in February 2021 also noted:

We observe that when the requirements under U.S. GAAP are as aligned as possible with those under IFRS on accounting for goodwill, there is greater comparability in financial statements prepared under IFRS and U.S. GAAP. [...] We believe that maintaining and enhancing convergence in this area should continue to be an important consideration for the IASB and FASB.

Most recently, SEC Acting Chief Accountant Paul Munter cautioned in a February 2022 statement (link to SEC website) that FASB decisions need to consider the significant diversity in views expressed by investors and other stakeholders regarding the FASB’s goodwill project, particularly regarding whether goodwill should be amortised. He wrote:

We emphasize the importance of a robust process and analysis to make the case for any changes in the accounting for goodwill, which would include, among other things, the extent to which international convergence in this area is necessary or appropriate in the public interest.

The FASB has published a short (one-sentence) statement on its decision in its summary of tentative Board decisions (link to FASB website). However, a recording of the session (approx. 30 minutes) is available on YouTube.

The following topics are on the agenda:

Primary Financial Statements

The staff recommend the IASB 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 staff also recommend withdrawing 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 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 staff recommend that the IASB finalise the latest amendments, although not the proposal to require an entity to present separately non-current liabilities with covenants. The staff also recommend that the IASB 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 will continue to consider feedback from the Request for Information (RFI) Post-implementation Review—IFRS 9 Financial Instruments—Classification and Measurement. At this meeting, the IASB will discuss feedback in relation to equity instruments and other comprehensive income.

Second Comprehensive Review of the IFRS for SMEs Standard

This is the last public decision-making meeting for this project. The staff are seeking permission to prepare the ED and are proposing a comment period of 150 days.

Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures

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

Business Combinations under Common Control

In this meeting, the IASB will discuss whether some or all BCUCCs are similar to or differ from IFRS 3 business combinations (BCs). The staff recommend 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 will not be 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 staff recommend 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 and 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.

Contractual Cash Flow Characteristics

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 will 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.

Financial Instruments with Characteristics of Equity

The IASB has been discussing feedback on the Discussion Paper (DP) published in June 2018, for which comments 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 staff recommend that the IASB 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 staff recommend accounting for a reclassification at the beginning of the first reporting period after the change in the substance of the contractual terms without a modification to the contract—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; 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 staff also recommend additional disclosure requirements for these circumstances.

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

​The meeting will be open for registered observers from 14:15 to 16:00 hrs CET, though some sessions may be closed sessions at any point during the debates.

A summary of the agenda is set out below:

Items for initial consideration

IAS 21 The Effects of Changes in Foreign Exchange Rates and IAS 29 Financial Reporting in Hyperinflationary Economies—Consolidation of a Non-hyperinflationary Subsidiary by a Hyperinflationary Parent: The Committee received a submission about the accounting applied by a parent, whose functional currency is the currency of a hyperinflationary economy, when it consolidates a subsidiary whose functional currency is the currency of a non-hyperinflationary economy. The submission asked whether, in preparing its consolidated financial statements, the parent applies IAS 29 to restate the current year and comparative amounts presented for its non-hyperinflationary subsidiary in terms of the measuring unit current at the reporting date. The staff concluded that, an entity could reasonably read the applicable requirements in IAS 21 and IAS 29 to either not restate or restate the subsidiary’s results and financial position and recommend they conduct further research and outreach to obtain further information to decide whether to add a standard-setting project to the work plan.

IFRS 17 Insurance Contracts and IAS 21 The Effects of Changes in Foreign Exchange Rates—Multi-currency Groups of Insurance Contracts: The Committee received a submission about the application of IFRS 17 and IAS 21 to a group of insurance contracts with foreign currency cash flows. The submission asked (a) whether an entity considers currency exchange rate risk when applying IFRS 17 to identify portfolios of insurance contracts; and (b) how an entity applies IAS 21 in conjunction with IFRS 17 in measuring a multi-currency group of insurance contracts. The staff concluded that currency risk is considered when identifying portfolios of insurance contracts and an entity uses its judgement in developing and applying an accounting policy for measuring a multi-currency group of insurance contracts. The staff recommend not adding a standard-setting project to the work plan but to publish a tentative agenda decision.

Comment letters on tentative agenda decision

IFRS 9 Financial Instruments—Cash Received via Electronic Transfer as Settlement for a Financial Asset: In its September 2021 meeting, the Committee discussed a submission asking the timing of recognition of cash received via Bacs, a formal automated settlement process, as settlement for a financial asset. The submitter asked whether it is acceptable for the entity to derecognise the trade receivable and recognise the cash on the transfer initiation date, rather than the transfer settlement date. The Committee published a tentative agenda decision concluding that the trade receivable is generally derecognised on the settlement date, the date when the contractual right to the cash flows from the trade receivable expires. Also, cash should be recognised on the transfer settlement date because the entity has a right to obtain cash from the bank only when cash is deposited in its bank account. Almost all respondents agreed with the Committee's analysis and conclusions in the tentative agenda decision.

IAS 37 Provisions, Contingent Liabilities and Contingent Assets—Negative low or new energy vehicle credits: In its November 2021 meeting, the Committee discussed 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. The Committee published a tentative agenda decisions concluding that an entity that has generated negative credits has an obligation that meets the definition of a liability in IAS 37. Most respondents agreed (or did not disagree) with the Committee’s conclusions and the tentative agenda decision but commented on various aspects of the analysis.

IAS 32 Financial Instruments: Presentation—Special Purpose Acquisition Companies (SPAC): Classification of Public Shares as Financial Liabilities or Equity: In its March 2022 meeting, the Committee discussed a submission asking whether a SPAC classifies public shares it issues as financial liabilities or equity instruments applying IAS 32. The Committee published a tentative agenda decision concluding that the matter is too narrow for the Committee to consider in isolation and is better suited to be addressed as part of the IASB’s Financial Instruments with Characteristics of Equity (FICE) project. All respondents agreed with the tentative agenda decision.

IFRS 17 Insurance Contracts—Quantity of the Benefits Provided under a Group of Annuity Contracts: In its March 2022 meeting, the Committee discussed a submission about how to identify, applying IFRS 17:B119(a), the quantity of benefits provided under a group of immediate annuity contracts. The Committee published a tentative agenda decision concluding that in determining the quantity of benefits provided in each period an entity applies the constant annual benefit approach. Under that approach, the benefits are determined using the claim amount payable for the period. While some respondents supported the technical analysis and conclusion, many respondents disagreed with aspects of the Committee’s technical analysis and conclusions in the tentative agenda decision.

Work in progress: There are no new matters that have not been presented to the Committee.

The full agenda for the meeting and our com­pre­hen­sive pre-meet­ing summaries can be found here.

The Board will discuss the following:

• Financial instruments with characteristics of equity
• Maintenance and consistent application
• Primary financial statements
• Post implementation review of IFRS 9
• Contractual cash flow characteristics
• Business combinations under common control
• Equity method
• Second com­pre­hen­sive review of the IFRS for SMEs
• Dis­clo­sure ini­tia­tive — Sub­sidiaries without public ac­count­abil­ity: Dis­clo­sures

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 full agenda for the meeting is summarised below:

Agenda papers for this meeting are available on the IASB website.

Mr Barker is currently deputy dean and professor of accounting at Saïd Business School, University of Oxford where he leads Oxford Saïd’s sustainable business initiatives. He chairs the expert panel of Accounting for Sustainability (A4S) and has previously served as a member of several committees and bodies focused on corporate reporting in the UK and Europe.

Ms Chegar has 20 years of experience in sustainable investment and stewardship, portfolio management and investment research with both asset owner and asset manager perspectives. She is also currently serving as Co-Vice Chair of the SASB Standards Board, where she has been overseeing the development and maintenance of SASB’s industry-based standards since 2017.

Mr Leng is currently a Director in the Accounting Regulatory Department of the Chinese Ministry of Finance, where he oversees sustainability reporting initiatives, and also serves as a member of the IASB IFRS Taxonomy Consultative Group.

Ms Nnoli-Edozien has worked across multinational and indigenous companies, public institutions and civil society organisations, in Africa and Europe, to initiate sustainable development initiatives. In her last role, she served as the inaugural Group Chief Sustainability and Governance Officer of Dangote Industries Limited — one of Africa’s largest manufacturing businesses.

The press release on the IFRS Foundation's website also notes that appointments to bring the ISSB to quorum (eight members) will be announced shortly, with the aim of completing the inaugural appointments to the Board during the third quarter of 2022.

The White Paper set out the Government's proposals to respond to over 150 recommendations arising from independent reviews carried out by Sir John Kingman ('Independent Review of the Financial Reporting Council'), the Competition and Markets Authority (CMA) ('Statutory audit market services study') and Sir Donald Brydon ('The quality and effectiveness of audit: Independent review') (all links to BEIS website).  The proposed reforms in the paper set out how the Government planned to address the findings of each review and included a number of new measures in relation to directors, auditors and audit firms, the audit regulator and shareholders.

The government's response summarises the feedback that BEIS received from stakeholders on the White Paper and sets out the measures it intends to progress with.  

The response covers proposals which impact a number of different market participants most notably, company directors, auditors and professional bodies. It does not set out a precise timetable, but rather outlines the actions to be taken, including what the Government intends to ask of the regulator and other stakeholders. The reforms will be delivered by a variety of mechanisms over a period of several years with a focus on targeted and proportional benefits, noting that the overall cost of implementation has been reduced from the previous White Paper. The Government has also signalled its intention to explore potential deregulatory measures. The mechanisms to be used include:

• Market developments, for example in the demand for assurance services beyond audit, from PIEs and other significant companies;
• Work by professional bodies, for example to enhance members’ training and development;
• Changes by the regulator: to the UK Corporate Governance Code that currently applies to premium listed companies, and ongoing improvements to audit standards;
• A Ministerial Direction that lays the foundation for the introduction of Public Interest Entity (PIE) auditor registration by the Financial Reporting Council (FRC) in the near future;
• Secondary legislation (statutory instruments), which could be used to establish new reporting requirements for PIEs (for example, a Resilience Statement and reporting on distributable profits); and
• Primary legislation (a Bill in Parliament), which the Government is preparing initially to publish in draft, for subsequent introduction when Parliamentary time allows, to establish a new regulator and set its powers, objectives and duties.

One key element of the reform package is the proposed extension of the definition of the Public Interest Entity. This proposal will be taken forward through primary legislation but the scope of the definition has been amended from the White Paper proposals so that companies with 750 or more employees and at least £750m annual turnover will be classified PIEs.  The Government has decided to implement a tiered approach for the proposals with some proposals applicable to all PIES and others dependent upon size.

The response makes clear that the timescale for implementation of some measures is expected to stretch over several years, noting that the granting of powers to the Audit Reporting and Governance Authority (ARGA) will require primary legislation, and that changes to secondary legislation or the UK Corporate Governance Code will necessitate further consultation. The detail will depend not only on Parliament but also on Ministers’ assessment of the economic circumstances at the time. The Government has committed to give careful consideration to the appropriate minimum lead times to apply, so that market participants can be assured that the pace of change will be measured and manageable.

As a key strand of these reforms, the Government’s intention is to create ARGA and equip it with its powers at the earliest possible juncture, since many of these factors represent work that ARGA will need to do. The timescale for this and other legislative measures will depend on the availability of Parliamentary time and on Parliament’s agreement to the Government’s proposals.

The FRC has indicated that, ahead of Government legislation, it will shortly be outlining an extensive work plan to advance reforms which can be developed through existing powers or on a voluntary basis.

The most significant proposals covered in the government's response are:

• Proposals in relation to the responsibilities of, and reporting by directors
  • Capital maintenance
  • Definition of public interest entity
  • Directors’ obligations in relation to fraud
  • Exploring options for attestations on internal controls
  • New regulatory regime for directors
  • Options for assurance on areas such as climate, Alternative Performance Measures (APMs) and Key Performance Indicators (KPIs)
  • Payment practices
  • Publication of principal risks & audit plan for engagement with shareholders
  • Supervision of corporate reporting
  • The Resilience Statement

• Proposals impacting the work of audit committees
  
  • Regulatory framework for audit committees
  • The Audit & Assurance Policy 

• Proposals on the future of audit 
  • A new professional body for corporate auditors
  • Enhanced reporting by auditors
  • Managed shared audits
  • Operational separation
  • Principles of Corporate Auditing
  • Publication of AQR reports
• Proposals for the future of the Financial Reporting Council (FRC)

Please click on the links above to be taken to our resource pages summarising the key features of the proposals.  

A press release and the full government response and other supporting material is available on the BEIS website.

High­lights of the podcast include dis­cus­sions on:

• Technical staff’s research on Goodwill and Impairment.
• Analysis of the feedback received on Targeted Standards-level Review of Disclosures.
• Deliberation on the Primary Financial Statements, Dynamic Risk Management model, and Rate-regulated Activities projects.
• Decisions made on the Post-implementation Review of IFRS 9 — Classification and Measurement project.
• Tentative proposed amendments to the IFRS for SMEs Accounting Standard.
• Scope of the Disclosure Initiative — Subsidiaries without Public Accountability: Disclosures project.

The podcast can be accessed through the press release on the IASB website.

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