In August 2021, EFRAG published a discussion paper 'Better information on intangibles – which is the best way to go?'.

On 30 May 2022, EFRAG are hosting an outreach event during which speakers will give an overview of the input received so far, followed by discussion of the next steps for achieving better information on intangibles.

The event will take place at EFRAG in Brussels. The meeting will also be broadcasted.

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

The Draft amendments propose updates to the Application Guidance to FRS 100 to reflect changes to company law and decisions on equivalence further to the UK’s exit from the European Union.

Comments on FRED 80 are requested by 26 August 2022.

A press release with links to the amendments is available on the FRC website.

After performing the 2021/22 annual review of FRS 101, no amendments to FRS 101 have been made.

Click for (all links to FRC website):

• Press release
• Amendments to Basis for Conclusions FRS 101 Reduced Disclosure Framework – 2021/22 cycle
• Impact Assessment and Feedback Statement – Amendments to Basis for Conclusions FRS 101 Reduced Disclosure Framework – 2021/22 cycle 
• FRS 101 Reduced Disclosure Framework 

The following topics are on the agenda:

IASB Work Plan

Since January the IASB has removed from its work plan Availability of a Refund (amendments to IFRIC 14), Post-implementation Review (PIR) of IFRS 10, IFRS 11 and IFRS 12 and Pension Benefits that Depend on Asset Returns. New projects the IASB will consider are a high priority project to assess a financial asset’s contractual cash flow characteristics, a narrow-scope project on the interaction of IFRS 10 and IFRS 16 related to the sale of a subsidiary with a leaseback, a project to revise the Due Process Handbook’s objectives for PIR’s and research projects on intangible assets and the statement of cash flows and related matters. The IASB expects to finalise in 2022 amendments related to Lease Liability in a Sale and Leaseback and Non-current Liabilities with Covenants. The next consultation document will be an ED from the comprehensive review of the IFRS for SMEs Accounting Standard.

Primary Financial Statements

The staff recommend the IASB confirm the proposed requirements to disclose the income tax effect and the effect on NCI for each item disclosed in the reconciliation between an MPM and the most directly comparable subtotal or total specified by IFRS Accounting Standards, but remove the proposed requirement to disclose how the entity determined the income tax required by the ED. The staff recommend that the IASB develop an approach of establishing a broad definition for income and expenses to be included in a single note about limited recurrence and requiring the note that provides information about income and expenses that meet the definition to be divided, so income and expenses with different recurrence characteristics can be identified easily. They also recommend that the IASB continue to include in the definition income and expenses that are dissimilar to those expected to arise in the future because they are lower in amount and for such items of income and expenses, reconfirm the proposal to require disclosure of the amount recognised in the period and an explanation of why that amount has limited recurrence.

Dynamic Risk Management

In February the IASB discussed an approach in which the designated derivatives would continue to be recognised at fair value in the statement of financial position with the DRM adjustment recognised in the statement of financial position, as the lower of (in absolute amounts): (i) the cumulative gain or loss on the designated derivatives from the inception of the DRM model and (ii) the cumulative change in the fair value of the risk mitigation intention attributable to repricing also risk from inception of the DRM model. This would be calculated using the benchmark derivatives as a proxy. The difference between the changes in fair value of designated derivatives and DRM adjustment will be recognised in in the statement of profit or loss. The staff recommend changing the mechanics of the DRM model to this approach and moving this project to the standard-setting programme.

Maintenance and Consistent Application

At its April 2022 meeting, the IFRS Interpretations Committee decided to finalise an agenda decision in response to a submission about whether, in applying IFRS 15, a reseller of software licences is a principal or agent. IASB members will be asked whether they object to the finalisation of the agenda decision.

Post Implementation review of IFRS 9

Most respondents to the PIR Request for Information (RFI) agreed that generally these IFRS 9 requirements work as intended, indicating that there is not a need for fundamental changes to the requirements. However, feedback indicated that the IASB could help entities with consistent application by clarifying particular aspects of the SPPI requirements. This was indicated in particular by the many questions raised by respondents about how to apply the SPPI requirements to financial assets with ESG-linked features, and about the scope of the requirements for contractually-linked instruments (CLIs). The staff recommend the IASB starts a standard-setting project to clarify particular aspects of the requirements for assessing a financial asset’s contractual cash flow characteristics (paragraphs B4.1.7−B4.1.26 of IFRS 9).

Second Comprehensive Review of the IFRS for SMEs Standard

At its May 2021 meeting, the IASB started deliberating specific sections of the IFRS for SMEs Standard that could be aligned with new requirements in IFRS Accounting Standards in the scope of the review. At this meeting, the IASB will deliberate: feedback on the scope (including the definition of public accountability) and name of the IFRS for SMEs Accounting Standard; topics identified when developing the ED after considering the tentative decisions made by the IASB in deliberating this comprehensive review that are either potential inconsistencies or sweep issues; transition requirements for an entity applying the amendments to the IFRS for SMEs Accounting Standard for the first time; and the effective date of the amendments to be proposed. The staff make an extensive set of recommendations, which are set out in the more detailed summaries.

Goodwill and Impairment

As part of the IASB’s work, the staff have performed further analysis on specific aspects of respondents feedback on the subsequent accounting for goodwill. The purpose of this meeting is to provide the IASB with a summary of the staff research. The agenda paper also provides information about the project plan and how this research is relevant to that plan. The IASB will not be asked to make any decisions during this session. The IASB will discuss the feasibility of estimating the useful life of goodwill and the pattern in which it diminishes; the auditability of the useful life of goodwill; the usefulness of information associated with managements’ estimates of the useful life of goodwill and potential consequences of transitioning to an amortisation-based model (Agenda Paper 18B)

Rate-regulated Activities

The IASB will continue redeliberating the proposals in Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities. The staff recommend that the final Standard clarifies that for a regulatory asset or a regulatory liability to arise, it is necessary that differences in timing originate from, and reverse through, amounts included in the regulated rates that an entity accounts for as revenue applying IFRS 15. The also staff recommend that the final Standard not exclude from its scope regulatory assets or regulatory liabilities related to financial instruments within the scope of IFRS 9.

Disclosure Initiative — Targeted Standards-level Review of Disclosures

The purpose of this meeting is for the IASB to discuss the feedback from comment letters on Exposure Draft ED/2021/3 Disclosure Requirements in IFRS Standards—A Pilot Approach. The cover paper includes the background to the project as well as the following summary of the key messages in the comment letters. Almost all respondents agreed that the IASB should engage early with users of financial statements and other stakeholders when developing disclosure requirements in IFRS Accounting Standards, integrate development of disclosure requirements with the rest of the accounting model and consider implications for digital reporting. The IASB will not be asked to make any decisions in this session.

Disclosure Initiative — Subsidiaries without Public Accountability: Disclosures

The staff recommend that, if the IASB decides to proceed to finalise the draft Standard, it should finalise the draft Standard with the scope as proposed in the ED but commit to review the scope of the draft Standard as part of the post-implementation review of the standard. They recommend clarifying the proposals to assist in understanding the definition of public accountability and that an intermediate parent assesses its eligibility to use the draft standard in its separate financial statements on the basis of its own status without considering whether other group entities have, or the group as a whole has, public accountability.

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

In particular, the G7 communiqué comments on the establishment of the ISSB and its future work:

The G7 welcomes the inauguration of the International Sustainability Standards Board (ISSB) and its progress of work on the global baseline of sustainability reporting standards. We welcome the ISSB “path to global baseline” statement of 18 May 2022 and call on all relevant stakeholders to participate in the ongoing consultation on the proposed standards. We urge the ISSB and national and regional standard-setters as well as other reporting initiatives to actively cooperate in the process of elaborating the baseline with the aim of reaching standards that can be implemented globally. The baseline should be practical, flexible and proportionate and ultimately suitable for small- and medium-size enterprises and enable jurisdictions to implement the baseline and a more extensive approach to supplement the baseline. We encourage countries to prepare or continue to prepare the ground for usage of the baseline, aim to ensure interoperability of national and regional standards and the global baseline in order to minimise fragmentation of reporting requirements, reduce reporting burdens, and enable the availability of consistent sustainability information for users. We encourage the ISSB to continue its work on sustainability reporting standards beyond climate, such as nature and social issues.

For more information, see the communiqué on G7 Germany website.

The announcement highlights that the ISSB’s global baseline presents a unique opportunity to reduce the existing and further fragmentation of sustainability disclosure requirements and that widespread use of the baseline will reduce the costs for data preparers and improve information usability for data users. It also outlines the steps the ISSB has taken, and is taking, to have completed by the end of 2022 the necessary institutional and technical standard-setting work to establish the core elements of the global baseline. Nevertheless, the announcement also stresses that achieving this goal will require actions by others, in particular by jurisdictional authorities and market participants. It states:

Once in place, the future success of the global baseline will depend on combined action by public authorities to incorporate it into their jurisdictional reporting requirements, and market demand through investors and others encouraging use of the ISSB’s IFRS Sustainability Disclosure Standards. The ISSB reaffirmed its commitment to work collaboratively with jurisdictions and stakeholders in pursuit of this public interest objective and is poised to engage proactively as jurisdictions and other stakeholders begin their evaluation of the ISSB’s standards.

Please click to access the full announcement on the IFRS Foundation website.

The report notes that while discounted cash flows and discount rates are commonly used under IFRS Accounting Standards, determining an appropriate discount rate is a complex area of financial reporting and can be an area of significant estimation uncertainty and a source of errors in financial reporting. 
 
The FRC’s review found:

• Assumptions used for discount rates and cash flows should be internally consistent, and care should be taken to avoid double-counting risks. When nominal rates are used, the effects of inflation on the cash flows should not be overlooked; particularly in the current interest rate environment of low nominal interest rates and relatively high inflation.
• There is general scope for improvement in the usefulness of the disclosures provided by many companies, with high quality disclosures including both the discount rate used, and an explanation of how it was determined.
• Companies may need to consider whether specialist third party advice is required when valuing a material item, and where there is no internal expertise.

The review includes some case studies, based on issues the FRC finds in its routine monitoring of corporate reporting, to illustrate some of the challenges which companies may face in this area.
 
To encourage improvement in the general quality of company disclosures, the review also includes examples of good practice where companies have clearly described the factors they considered in determining the discount rate; for example, explaining whether  risk and inflation were included in the cash flows or the discount rate.
 
The full review is available on the FRC website.

The European national enforcers of financial information monitor and review financial statements published by issuers with securities traded on a regulated European market and who prepare their financial statements in accordance with International Financial Reporting Standards (IFRS) and consider whether they comply with IFRS and other applicable reporting requirements, including relevant national law.

ESMA has developed a confidential database of enforcement decisions taken by individual European enforcers as a source of information to foster appropriate application of IFRS.

The publication of enforcement decisions is designed to inform market participants about which accounting treatments European national enforcers may consider as complying with IFRS, i.e. whether the treatments are considered as being within the accepted range of those permitted by IFRS. ESMA considers the publication of the decisions, together with the rationale behind them, will contribute to a consistent application of IFRS in the European Union.

Topics covered in the latest batch of extracts, covering the period from March 2020 to November 2021, include:

Click for access to the full report (link to ESMA website).

The introduction to the consultation paper notes that natural resources are generally understood to be resources such as sunlight, air, water and land that exist without the actions of humankind. They account for a significant proportion of the economic resources in many jurisdictions. However, governments often lack sufficient information on the monetary value of natural resources, and as a result, grant rights to these resources without regard to financial and environmental sustainability, or intergenerational fairness.

Currently, there is no explicit International Public Sector Accounting Standard (IPSAS) guidance on accounting for natural resources in their original state. Therefore, the IPSASB is now working to address this gap. The first phase of its work focuses on the financial reporting of tangible, naturally occurring resources, including subsoil resources, water, and living resources, which are in their natural state. This consultation paper is the first project output, and considers whether natural resources can be recognised as assets in general purpose financial statements or should be disclosed in broader financial reports.

Comments on the consultation paper are requested by 17 October 2022.

Please see the IPSASB website for a press release as well as an access page for a video introduction, the consultation paper, and an At a Glance summary.

The adoption covers both IFRS 17 issued by the International Accounting Standards Board (IASB) in May 2017, and subsequent amendments in June 2020 and December 2021.

The UKEB secretariat's Endorsement Criteria Assessment concludes that:

• IFRS 17 meets the criteria of understandability, relevance, reliability and comparability required of the financial information needed for making economic decisions and assessing the stewardship of management, as required by SI 2019/685 (see Regulation 7(1)(c)); and 
• application of IFRS 17 is not contrary to the principle that an entity’s accounts/consolidated accounts must give a true and fair view as required by SI 2019/685 (see Regulation 7(1)(a)).

Additionally the UKEB concludes that IFRS 17 is likely to be conducive to the long-term public good in the UK.

The effective date of UK-adopted IFRS 17 is 1 January 2023 with early application permitted for entities that apply IFRS 9 Financial Instruments on or before the initial application of IFRS 17.

The UKEB will carry out a review of the impact of the adoption of the standard and a report setting out the conclusions of this review will be published by the UKEB by 1 January 2028.

For more information, including the Endorsement Criteria Assessment see the UKEB website here.  A link to an updated adoption status report is also available on the UKEB website.