Initial consideration:
IAS 37 Provisions, Contingent Liabilities and Contingent Assets—Climate-related Commitment: The IFRS IC received a submission asking its views on how IAS 37 applies to climate-related commitments to a fact pattern where an entity manufacturer of household products publicly states a net-zero transition commitment. The manufacturer published a detailed plan for the modification of the manufacturing method to achieve 60% reduction in emissions in nine years and to buy carbon credits to offset its remaining emissions after those nine years. The submitter asked i) whether the public statement of a net zero transition commitment creates a constructive obligation as defined in IAS 37; ii) whether a constructive obligation created by a net zero transition commitment meets the criteria in IAS 37 for recognising a provision; and iii) if a provision is recognised, whether the expenditure required to settle it is recognised as an asset or as an expense when the provision is recognised. The staff analysed that whether there is a constructive obligation depends on different facts and circumstances. The present obligation and probable outflow criteria are satisfied only after nine years and thereafter as the entity emits greenhouse gases. Most of the IFRS IC members agreed with the analysis in the paper and agreed to publish a tentative agenda decision.
IFRS 8 Operating Segments—Disclosure of Revenues and Expenses for Reportable Segments: The IFRS IC received a submission asking about the application of IFRS 8:23 which requires an entity to report a measure of profit or loss for each reportable segment and to disclose specified amounts for each reportable segment. The submitter said that it observes diversity in its jurisdiction in the application of two aspects of IFRS 8:23: (a) how to read the requirement for an entity to disclose the specified amounts applying IFRS 8:23(a)-(i) for each reportable segment; and (b) how to determine ‘material items’ applying IFRS 8:23(f). The staff analysed that the principles and requirements in IFRS Accounting Standards provide an adequate basis for an entity to determine the accounting treatment or disclosure requirements for the above submission. The staff recommended not to add a standard-setting project to the work plan and instead to publish tentative agenda decisions. The IFRS IC members had a lively discussion on IFRS 8:23(f) and expressed different views. 7 out of 13 IFRS IC members agreed with publishing the tentative agenda decision.
Finalisation of agenda decision:
IAS 27 Separate Financial Statements—Merger between a Parent and Its Subsidiary in the Separate Financial Statements: In its June 2023 meeting, the IFRS IC discussed a submission about how an entity applies IAS 27 to account for a merger with its subsidiary (which contains a business) in its separate financial statements and whether the merger should be accounted for as a business combination applying IFRS 3 or whether the parent entity should recognise the subsidiary’s assets and liabilities at their previous carrying amounts (carrying amount method). In the meeting, the IFRS IC members generally agreed with the staff’s analysis. The respondents to the agenda decision provided comments on different perspectives of the agenda decision. The staff recommended that the agenda decision be finalised, with some proposed changes. Most of the IFRS IC members agreed finalising the agenda decision.
IFRS IC input to IASB projects:
Climate-related and Other Uncertainties in the Financial Statements: In its September 2023 meeting, the IASB discussed potential actions it could take to help address concerns about reporting the effects of climate-related risks in financial statements. The IASB decided to consult the IFRS IC on how entities apply the requirements in IAS 36 in measuring value in use when an asset is subject to highly variable future cash flows over an extended time horizon. The IASB seeks input from the IFRS IC on the concerns identified in respect of lack of compliance due to misunderstanding of the requirements, limitations of the requirements and insufficiently clear requirements in IFRS Accounting Standards. The IFRS IC members gave input on the uncertainties of the impairment assessment brought by the climate-related matters in various aspects.
Provisions—Targeted Improvements: The IASB is conducting a project to make three targeted improvements to IAS 37. The IASB seeks IFRS IC input on one of the proposed improvements with respect to: i) initial suggestions for possible amendments to the requirements and illustrative examples supporting the ‘present obligation’ recognition criterion in IAS 37; and ii) whether to add to IAS 37 application requirements specifying when an entity has a present obligation for costs payable if a measure of its activity—for example, its revenue or carbon emissions—exceeds a specified threshold. The IFRS IC members were supportive of this project and made some comments on the proposed amendments and the amendments to/newly added illustrative examples.
Power Purchase Agreements: In July 2023, the IASB added a project to its work plan to research whether narrow-scope amendments to IFRS 9 could be made to better reflect how financial statements are affected by Power Purchase Agreements (PPAs). The project team has conducted further research on the prevalence of PPAs and how to restrict the scope of any potential standard-setting solution to limit the risk of unintended consequences for other contracts or transactions to purchase non-financial items. The IASB seeks IFRS IC members’ input into the additional research performed. The IFRS IC members gave their thoughts on whether standard-setting is needed and which standard-setting option they favoured.
More Information
Please click to access the detailed notes taken by Deloitte observers.