The revisions reflect recent enforcement findings as well as ensuring that the standard reflects modern approaches to obtaining confirmations, with additional material on the use of digital platforms, enhanced requirements in relation to investigating exceptions and a prohibition on negative confirmations. 

Comments on the proposed revisions are requested by 1 September 2023.

Please click below from the FRC website for:

• Press release
• Proposed International Standard on Auditing (UK) 505 (Revised) - External Confirmations
• Proposed International Standard on Auditing (UK) 505 (Revised) Invitation to Comment and Impact Assessment

The declaration mentions the work and progress of the International Sustainability Standards Board (ISSB) and highlights the need of sustainability disclosures for mobilising private sector finance to support the transition to a sustainable economy. It notes:

We underline our commitment to consistent, comparable and reliable disclosure of information on sustainability including climate. We support the International Sustainability Standards Board (ISSB) finalizing the standards for general reporting on sustainability and for climate-related disclosures and working toward achieving globally interoperable sustainability disclosure frameworks. We also look forward to the ISSB’s future work on disclosure on biodiversity and human capital, in line with its work plan consultation.

Please click to access the full statement on the website of the Ministry of Foreign Affairs of Japan.

High­lights of the podcast include dis­cus­sions on:

• Sup­ple­men­tary meeting on proposed amendments to the IFRS for SMEs Accounting Standard on international tax reform.
• Decisions and de­vel­op­ments related to the projects on primary financial statements, disclosure initiative — subsidiaries without public accountability: disclosures, dynamic risk management, business combinations — disclosures, goodwill and impairment, and management commentary.

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

High­lights of the podcast include dis­cus­sions on:

• Supplementary meeting on international tax reform and the OECD pillar two model rules.
• Targeted improvements recognizing provisions and the existence of present obligations in IAS 37;
• Decisions and developments related to the rate-regulated activities, equity method, and the dynamic risk management projects;
• Decisions on proposed disclosure requirements in the draft Accounting Standard on Subsidiaries without Public Accountability: Disclosures project;
• Progress on the financial instruments with characteristics of equity project.

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

Background

In March 2022, the OECD released technical guidance on its 15% global minimum tax agreed as the second ‘pillar’ of a project to address the tax challenges arising from digitalisation of the economy. This guidance elaborates on the application and operation of the Global Anti-Base Erosion (GloBE) Rules agreed and released in December 2021 which lay out a co-ordinated system to ensure that multinational enterprises with revenues above €750 million pay tax of at least 15% on the income arising in each of the jurisdictions in which they operate.

The IASB decided to respond to stakeholders’ concerns about the potential implications of the imminent implementation of these rules on the accounting for income taxes by jurisdictions. In particular, the IASB noted that the situation is very complicated as:

• jurisdictions may change statutory tax rates to avoid being considered a low-tax environment;
• companies might decide to move their business to jurisdictions with higher statutory tax rates; and
• companies might engage in business that comes with tax incentives that might bring down their statutory tax rate to below 15% although the jurisdiction they are doing business in is not generally considered a low-tax environment.

All of these and further considerations would entail most complicated calculations of deferred tax in a situation that is highly volatile due to the fact that jurisdictions implement the OECD rules at different speed and different points of time. Due to the many unknown variables involved, the IASB has decided to develop a mandatory exemption until the global tax system has settled and reestablished itself and the IASB can thoroughly assess the situation and provide a reliable solution.

Changes

The amendments in International Tax Reform — Pillar Two Model Rules (Amendments to IAS 12) are:

• An exception to the requirements in IAS 12 that an entity does not recognise and does not disclose information about deferred tax assets and liabilities related to the OECD pillar two income taxes. An entity has to disclose that it has applied the exception.
• A disclosure requirement that an entity has to disclose separately its current tax expense (income) related to pillar two income taxes.
• A disclosure requirement that state that in periods in which pillar two legislation is enacted or substantively enacted, but not yet in effect, an entity discloses known or reasonably estimable information that helps users of financial statements understand the entity’s exposure to pillar two income taxes arising from that legislation.
• The requirement that an entity applies the exception and the requirement to disclose that it has applied the exception immediately upon issuance of the amendments and retrospectively in accordance with IAS 8. The remaining disclosure requirements are required for annual reporting periods beginning on or after 1 January 2023.

The IASB will continue to monitor developments related to the implementation of the pillar two model rules. It plans to undertake further work to determine whether to remove the temporary exception — or to make it permanent — after there is sufficient clarity about how jurisdictions implemented the rules and the related effects on entities.

The IASB has also decided that the pillar two model rules (and the amendments to IAS 12) are relevant to entities applying the IFRS for SMEs. The IASB has added to its work plan a narrow-scope standard-setting project to amend Section 29 Income Tax of the IFRS for SMEs. An exposure draft is expected in June 2023.

Dissenting opinion

The final amendments contain a dissenting opinion as one Board member is concerned that these amendments will result in an entity disclosing less useful information to help users of financial statements assess the entity’s future cash flows.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Our related Need to know publication
• Our UK Accounting Plus project page on IAS 12 — OECD pillar two model rules

Background

The IFRS Interpretations Committee received a submission about supply chain finance arrangements asking:

• How an entity presents liabilities to pay for goods or services received when the related invoices are part of a supply chain finance (or reverse factoring) arrangement; and
• what information about reverse factoring arrangements an entity is required to disclose in its financial statements.

In response to that submission, the Committee published an agenda decision in December 2020. However, feedback and input received — in particular from investors and analysts — suggested the information entities provide about supplier finance arrangements applying existing IFRS requirements does not meet all investor information needs.

In response to that feedback, the Board decided to amend IAS 7 Statement of Cash Flows and IFRS 7 Financial Instruments: Disclosures to add disclosure requirements, and ‘signposts’ within existing disclosure requirements, that ask entities to provide qualitative and quantitative information about supplier finance arrangements.

Key changes

The amendments in Supplier Finance Arrangements (Proposed amendments to IAS 7 and IFRS 7): 

• Do not define supplier finance arrangements. Instead, the amendments describe the characteristics of an arrangement for which an entity is required to provide the information. The amendments note that arrangements that are solely credit enhancements for the entity or instruments used by the entity to settle directly with a supplier the amounts owed are not supplier finance arrangements.
• Add two disclosure objectives. Entities will have to disclose in the notes information that enables users of financial statements
  • to assess how supplier finance arrangements affect an entity’s liabilities and cash flows and
  • to understand the effect of supplier finance arrangements on an entity’s exposure to liquidity risk and how the entity might be affected if the arrangements were no longer available to it.
• Complement current requirements in IFRSs by adding to IAS 7 additional disclosure requirements about:
  • the terms and conditions of the supplier finance arrangements;
  • for the arrangements, as at the beginning and end of the reporting period:
    • a) the carrying amounts of financial liabilities that are part of the arrangement and the associated line item presented;
    • b) the carrying amount of financial liabilities disclosed under a) for which suppliers have already received payment from the finance providers;
    • c) the range of payment due dates (for example, 30 to 40 days after the invoice date) of financial liabilities disclosed under a) and comparable trade payables that are not part of a supplier finance arrangement; and
  • the type and effect of non-cash changes in the carrying amounts of the financial liabilities that are part of the arrangement.
  The IASB decided that, in most cases, aggregated information about an entity’s supplier finance arrangements will satisfy the information needs of users of financial statements.
• Add supplier finance arrangements as an example within the liquidity risk disclosure requirements in IFRS 7.

Effective date and transition

An entity applies the amendments to IAS 7 for annual reporting periods beginning on or after 1 January 2024 (with earlier application permitted) and the amendments to IFRS 7 when it applies the amendments to IAS 7.

There is a certain amount of transition relief provided, including relief regarding comparative information and interim period information.

Additional information

The following additional information is available on the website of the IFRS Foundation and on IAS Plus:

• IASB press release (link to IFRS Foundation website)
• Webcast explaining the amendments (link to IFRS Foundation website)
• Investor Perspectives article (link to IFRS Foundation website)
• Our related Need to know newsletter
• Our UK Accounting Plus project page on Supplier finance arrangements

The IASB has decided that while reviewing IFRS 9 in its entirety, it will do so in three parts:

• In 2022, the IASB completed its review of the classification and measurement requirements, concluding that these requirements are working as intended.
• With the request for information published today, the IASB is seeking feedback on the impairment requirements.
• The IASB will seek feedback separately on the hedge accounting requirements.

The post-implementation review process for the impairment requirements in IFRS 9 was officially taken up in July 2022. From September 2022 – February 2023, the IASB conducted outreach to ask stakeholders what matters the IASB should examine within the context of the objectives of the post-implementation review (PIR).

After discussing feedback from outreach, the Board decided in February 2023 to examine further:

• the general approach to recognition of expected credit losses (ECL),
• significant increases in credit risk,
• the measurement of ECL,
• the prevalence of particular questions from entities on how to apply the ECL requirements to purchased or originated credit-impaired financial assets,
• the simplified approach to recognition of ECL for trade receivables, contract assets and lease receivables, 
• the accounting for loan commitments, collateral and other credit enhancements held, and issued financial guarantee contracts that are in scope of IFRS 9,
• the application of the ECL requirements alongside other requirements in IFRS 9 or in other IFRS Accounting Standards,
• the effects of transition reliefs provided by the IASB and the balance between reducing costs for preparers of financial statements and providing useful information to users of financial statements, and
• the disclosure requirements for credit risk in IFRS 7.

Accordingly, the RFI is structured into the following sections:

Comments on the RFI are requested by 27 September 2023. The request for information and a corresponding press release are available on the IASB website.  There is also a short video with IASB Board member Zach Gast explaining the RFI.  Our related Need to know publication is available here.

The press release on the IFRS Foundation website offers access to the files for the IFRS Taxonomy 2022, the IFRS Taxonomy Illustrated, and the IFRS Taxonomy versioning information for each language.

This compilation only includes one agenda decision, Definition of a Lease — Substitution Rights which relates to IFRS 16 Leases.

For more information, see the press release and compilation on the IASB website.

Ahead of a decision by the IPSASB on the potential development of a framework for public sector specific sustainability reporting guidance, the additional non-authoritative guidance included in Recommended Practice Guideline (RPG) 1 Reporting on the Long-Term Sustainability of an Entity’s Finances and RPG 3 Reporting Service Performance Information can be immediately applied by governments and public sector entities to report on sustainability programme information.

Please click for access to the guidance, an introductory video, and an At a Glance summary on the IPSASB website.