The full agenda for the meeting is summarised below:

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

The FRC re­viewed 20 audits across six out of the seven largest audit firms cov­er­ing both the fin­an­cial state­ment opinion and the Value for Money ar­range­ments con­clu­sion work. The report focuses on the key areas requiring action across the firms, in relation to major local audits, to safeguard and enhance audit quality.

The FRC in­dic­ated that the results of its in­spec­tions were improved from the prior year inspection result with 30% (down from 60% in the prior year where those audits required either improvements or significant improvements) of the audits re­quir­ed im­prove­ment. The key areas identified by the inspection requiring action by some of the audit firms include:

• strengthening the audit testing of expenditure;
• improving the evaluation and challenge of assumptions used in concluding over investment property valuations;
• improving the evaluation of assumptions used in property, plant and equipment valuations; and
• providing improved rationale supporting a modified audit opinion.

With regards to Value for Money (VfM) arrangement con­clu­sions, all 15 reviews were as­sessed as requiring no more than limited improvements.

A press release and the full report is avail­able on the FRC website.

The following topics were discussed:

Goodwill and Impairment: The IASB began making decisions related to the package of disclosures about business combinations. The IASB decided to confirm that the information about the benefits an entity’s management expect from a business combination can be required in the financial statements. The Board also considered, but made no decisions about, the practical concerns raised by respondents with regard to the proposed package of additional disclosures about business combinations in financial statements, particularly commercial sensitivity of the information, the potentially forward-looking nature of the information, the auditability of the information, and the integration of the information.

Second Comprehensive Review of the IFRS for SMEs Standard: The Board continued to deliberate specific sections of the IFRS for SMEs Standard that could be aligned with IFRS requirements. The IASB decided to: remove the option to apply the recognition and measurement requirements in full IFRS Standards for financial instruments; retain the existing hedge accounting requirements unchanged (i.e. not align with IFRS 9); align the definition of, and guidance on, fair value with IFRS 13; not align with IFRS 14 but revisit this topic once it has completed its project on rate-regulated activities; and align the requirements with IFRS 15.

Post-implementation Review of IFRS 10-12: The IASB considered feedback gathered from its Post-Implementation Review, which the staff conclude, and the IASB agrees, supports the conclusion that IFRS 10, 11 and 12 are working as intended. The IASB decided to consider some topics for further action when developing its work plan for 2022–2026: (high priority) investment entities and collaborative arrangements outside the scope of IFRS 11; (medium priority) definition of an investment entity and corporate wrappers; and (low priority) transactions that change the relationship between an investor and an investee.  The staff are also looking at the disclosure of interests in other entities and assisting the application of IFRS 10 and IFRS 11, which they will bring back to a future meeting. The staff will then prepare a “Report and Feedback Statement” on the PIR.

Equity Method: The staff have updated the IASB on questions identified applying the equity method. The staff have had difficulties identifying underlying principles when the application questions involve the application of IAS 28 paragraph 26 (i.e. the interaction of the principles in IAS 28 with other IFRS Standards, such as IFRS 3 and IFRS 10). The staff plan to undertake more research, and the IASB agreed.

Maintenance and consistent application:

• Two Agenda Decisions from the IFRS Interpretations Committee were finalised by virtue of no IASB members objecting to their publication: Non-refundable Value Added Tax on Lease Payments (IFRS 16) and Accounting for Warrants that are Classified as Financial Liabilities on Initial Recognition (IAS 32)
• The staff have been preparing the ED Supplier Finance Arrangements, which proposes to amend IAS 7 and IFRS 7. During drafting, the staff identified one issue that they want the IASB to consider. The IASB decided to add a requirement for an entity to disclose, as at the beginning and end of the reporting period, the line item(s) in the statement of financial position in which the entity presents the carrying amount of financial liabilities that are part of a supplier finance arrangement.
• IASB members had no comments or questions on the September 2021 IFRIC Update.

Pensions Benefits that Depend on Asset Returns: Following the 2015 Agenda Consultation, the Board has been considering whether to propose amendments to IAS 19 for pension benefits that depend on the return on a specified pool of assets (reference assets). The pension benefits to be paid to employees reflect the variability inherent in the reference assets, yet IAS 19 requires a discount rate that reflects high-quality corporate bonds. Applying the IAS 19 discount rate can overstate the pension liability, producing information that is not relevant to users of financial statements. The staff recommended the Board propose that an entity estimate the ultimate cost of providing pension benefits that vary with asset returns applying the IAS 19 discount rate, but only when the IAS 19 discount rate is lower than the expected rate of return on the reference assets. Only 5 IASB members voted to continue the project and therefore the project will be stopped. All Board members supported the staff recommendation to consider any further work as part of the Third Agenda Consultation.

IFRS Taxonomy due process: The IASB decided to shorten the comment period for the Proposed IFRS Taxonomy Update for the amendment Initial Application of IFRS 17 and IFRS 9—Comparative Information to 30 days.

Primary Financial Statements: The IASB discussed two papers carried over from the September meeting, relating to associates and joint ventures and the analysis of operating expenses. The IASB decided to proceed with the proposal to present income and expenses from equity-accounted associates and joint ventures outside of operating profit, but not to require income and expenses from integral associates and joint ventures to be identified and presented separately from non-integral associates and joint ventures. They also decided to provide application guidance that builds on the description of the function of expense method in the ED to set out the relationship with expenses of the same nature; the attributes of functions; and the interaction with the role of the primary financial statements and the principles of aggregation and disaggregation.

Additionally, the IASB decided:

• Not to develop a definition of ‘cost of sales’
• To explore an approach to analysing and presenting operating expenses in the statement of profit or loss that would:
  • Retain the proposal to require operating expenses to be analysed and presented based on their nature or function
  • Not retain the proposed prohibition on a mixed presentation in the statement of profit or loss and instead provide application guidance and disclosure requirements to improve comparability
  • Retain the proposal to provide application guidance on how to determine which presentation method should be used to provide the most useful information to users of the financial statements
• Undertake more research on providing a partial cost relief from the proposed requirement for an entity that presents an analysis of operating expenses by function in the statement of profit or loss to also disclose an analysis of its total operating expenses by nature
• Amend the definition of the specified subtotal ‘operating profit or loss before depreciation and amortisation’ to also exclude impairments of assets within the scope of IAS 36 and label that subtotal ‘operating profit or loss before depreciation, amortisation, and specified impairments’

Amendments to IFRS 17 Insurance Contracts: The Board's Exposure Draft (ED) Initial Application of IFRS 17 and IFRS 9—Comparative Information (Proposed amendment to IFRS 17) was published in July 2021. The proposed amendment allows an entity to apply a classification overlay when first applying IFRS 17 and IFRS 9 at the same time for the purpose of presenting comparative information about a financial asset, if the comparative information for that financial asset has not been restated for IFRS 9.

The ED proposed that an entity would not be permitted to apply the classification overlay to financial assets held in respect of an activity that is unconnected with contracts within the scope of IFRS 17. Most respondents suggested the IASB remove this scope restriction, and the staff agree. The ED also proposed that an entity that first applies IFRS 17 and IFRS 9 at the same time it is permitted to apply the classification overlay. The proposed classification overlay would not apply to entities that have already applied IFRS 9 before initial application of IFRS 17, however the staff considered that the scope of the classification overlay should be expanded to apply in such cases. The staff recommended no substantive changes be made to the classification overlay proposed in the ED relating to impairment of financial assets or disclosures. The Board supported all of the staff recommendations with the addition to add a disclosure requirement for the impairment method used for the asset overlay and expect to issue the amendments to IFRS 17 before the end of 2021.

Rate-regulated Activities: In January 2021, the Board published Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities. The proposals in the ED have generally been well-received by respondents, agreeing  with: the proposed definitions for regulatory assets and regulatory liabilities; the existence threshold of ‘more likely than not’ for recognising regulatory assets and regulatory liabilities; using a cash-flow-based measurement technique to measure regulatory assets and regulatory liabilities; and using the regulatory interest rate for a regulatory asset or regulatory liability as the discount rate for that regulatory asset or regulatory liability. However, concerns were expressed about the scope; returns on assets not yet available for use; regulatory assets and regulatory liabilities arising from differences between assets’ regulatory recovery pace and their useful lives; recognition, measurement and discount rate; minimum interest rate; and the interaction with IFRIC 12. The IASB discussed the feedback but made no decisions. The IASB will continue its discussions of the feedback in November, but no decisions are expected to be made at that meeting.

Please click to access the detailed notes taken by Deloitte observers for the entire meeting.

Following the Government’s invitation under the Climate Change Act 2008 to publish Climate Change Adaptation Reports, their reports set out how climate change affects the UK financial regulators' respective responsibilities and the actions they, and the financial sector, are taking in response to it.

The focus of the UK financial regulators is on ensuring that the risks from climate change and the opportunities from the transition to a net-zero economy are being identified and proactively managed across the financial sector. 

The FCA's report sets out the steps that the industry has taken to mitigate the risks climate change presents and areas where more needs to be done are identified, such as retail investments and mortgages. Additionally, the report examines how the industry is making commitments to reach net-zero. 

The PRA's report sets out the risks from climate change to its objectives and the PRA's response to them.  This includes how climate-related financial risks affect the firms the PRA regulates, its work to support and drive improvements in firms’ capabilities to manage climate-related risks effectively, and its consideration of what further policy action may be necessary.  The report also examines the relationship between climate change and the banking and insurance regulatory capital regimes, whether there are gaps that should be addressed and the PRA’s planned future work in this space. 

The Pension Regulator's report sets out the risks from climate change that are most relevant to occupational pensions schemes and the approaches TPR are taking to tackle them both as a regulator and an organisation.

Click to access the following documents:

• Joint FCA, PRA, TPR and FRC statement;
• FCA's report;
• PRA's report; and
• TPR's report. 

For accounting periods beginning on or after 1 January 2021, UK premium listed companies will be required to report against the TCFD recommendations on a comply or explain basis in their annual reports, with other companies following in the future.  In advance of these requirements, the Lab has carried out a review of current reporting practice to provide practical guidance to companies on how to provide better TCFD disclosures to meet the demands of investors and to highlight areas where improvements are needed.  

The Lab flags some key issues raised by investors and the TCFD pillars that those align to most closely, and expects that high quality reporting under TCFD should address all of these challenges.  The Lab indicates that answering these questions will help companies prepare disclosures that are consistent with the TCFD framework.  When preparing TCFD disclosures, the Lab also highlights that companies should be considering existing related requirements in particular those set out in the Guidance on the Strategic Report, the Corporate Governance Code and the Streamlined Energy and Carbon Reporting Rules.  Companies also need to consider the impact of climate-risk in the financial statements.

The key areas of improvement raised in the report and flagged by investors are: 

• There is a lack of sufficient detail and specificity on the impact of climate on business model and strategy which would be useful to investors.
• Disclosures of risks and opportunities arising from climate change impacts on the business model are of mixed quality, with a lack of substance on how strategy will be adapted, or much more emphasis on opportunities than on risks.
• Reporting on scenarios remains a key area of investor interest, and an area of weaker disclosure. Some companies disclose climate change scenarios that may affect viability, but detail is scarce.
• Pledges and indicators related to Net Zero are often ill-defined and difficult to understand and compare, and have the potential to be misleading.
• There is a lack of explanation of performance against set targets and a disproportionate focus on ‘good news stories’ related to a small part of the business. Outcomes for the business as a whole should be reported.
• Scope and basis of calculation of metrics is often unclear.

The Lab also highlights key questions for companies to consider for each of the four TCFD disclosure pillars.

Alongside the report, the Lab has also published a snapshot of the status of current reporting against the TCFD framework in the UK, which highlights the increased uptake in the last year.

Additionally, the Financial Reporting Council (FRC) has published research by the Alliance Manchester Business School which investigates climate-related scenario analysis in more detail. The research highlights the various approaches companies have adopted, instances of good practice, typical challenges faced, and the common steps taken to conduct the analysis. 

The press release, FRC Lab report, FRC Lab snapshot and FRC research are available on the FRC website. 

Below is an analysis of all changes made to the work plan since our last analysis on 27 September 2021.

Standard-setting projects

• Management commentary — Feedback on the exposure draft will now be discussed in Q1 2022 (previously H1 2022)
• Rate-regulated activities — The discussion of feedback to the exposure draft will continue in November 2021

Maintenance projects

• Initial application of IFRS 17 and IFRS 9 — Comparative Information — After discussion of the feedback received at the October 2021 meeting, final amendments are expected in December 2021
• IAS 21 — Lack of exchangeability — The discussion of feedback is now expected in January 2021 (previously Q1 2022)
• Lease liability in a sale and leaseback — a decision on the project direction is now expected in December 2021 (previously Q4 2021)

Research projects

• Business combinations under common control — Feedback received on the discussion paper will now be discussed in December 2021 (previously Q4 2021)
• Goodwill and impairment — A decision on the project direction is now expected in Q1 2022 (previously H1 2022)
• Pension benefits that depend on asset returns — The IASB decided at the October 2021 meeting to discontinue this project; the publication of a project summary will be the final project step (no date given)
• Post-implementation review of IFRS 10-12 — A feedback statement is now expected in H1 2022 (previously Q1 2022)
• Post-implementation review of IFRS 9 — A request for information was published on 30 September 2021, the discussion of the feedback received is expected in H1 2022

Other projects

• IFRS Taxonomy Update — 2021 General improvements and common practice — newly added to the work plan; a proposed update is expected in December 2021
• IFRS Taxonomy Update — Amendments to IAS 1, IAS 8 and IFRS Practice Statement 2 — a final update is now expected in December 2021 (previously November 2021)
• IFRS Taxonomy Update — Initial Application of IFRS 17 and IFRS 9 ― Comparative Information — newly added to the work plan; a proposed update is expected in December 2021
• Sustainability-related reporting — While the work plan still says that the discussion of the feedback on the exposure draft is expected to occur in October 2021, the publicly expected next step is a formal announcement of the current state of developments at COP26

The above is a faithful comparison of the IASB work plan at 27 September 2021 and 1 November 2021. For access to the current IASB work plan at any time, please click here.

Generally, the declaration stresses that sustainable finance is crucial for promoting orderly and just transitions towards green and more sustainable economies and inclusive societies, in line with the 2030 Agenda for Sustainable Development and the Paris Agreement. On the setting of sustainable disclosure standards, the declaration notes:

We also welcome the work programme of the International Financial Reporting Standards Foundation to develop a baseline global reporting standard under robust governance and public oversight, building upon the FSB’s Task Force on Climate-Related Financial Disclosures framework and the work of sustainability standard-setters.

Please click to access the full G20 Leaders' Declaration.

In general, we consider that the UK financial reporting regime is working well and is achieving the intended objectives. We have developed our response in the context of the Financial Reporting Council's (FRC's) aim to achieve consistency with global accounting standards through the application of an IFRS-based solution unless an alternative solution is clearly better. With this in mind, we support the implementation of the principles of IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases into FRS 102, with appropriate simplifications, clarifications and transitional provisions to achieve a proportionate solution.

However, we are not in favour of introducing the impairment model of IFRS 9 Financial Instruments for all FRS 102 reporters and instead recommend that a sub-set of FRS 102 preparers with fiduciary responsibilities should, instead, be required to apply IFRS 9 rather than Sections 11 and 12 of FRS 102 (together with the disclosure requirements set out in IFRS 7).

In progressing the periodic review, we strongly urge the FRC to work with the UK government and specifically the Department for Business, Energy and Industrial Strategy (BEIS) to achieve broader reform of the UK corporate reporting regime. Of particular relevance to the periodic review is the opportunity to revisit the current regimes for small companies and micro-entities and question whether they are functioning as desired.

Furthermore, more widely, difficulty continues to exist in reconciling the requirements set out in the Accounting Regulations (SI 2008/409 and SI 2008/410) with those in accounting standards. We therefore call upon the FRC and BEIS to collaborate on a project to remove (or at least, significantly reduce) the accounting requirements contained in the Accounting Regulations and to place the remit for developing accounts presentation and disclosure squarely with the FRC (or its successor).

Given the substantial issues which need to be considered as part of this periodic review, we consider the timeframe for publication of an exposure draft and the proposed effective date of the revised standards to be rather optimistic. We would prefer that the FRC take the time to gather appropriate input and feedback and to consider carefully how to implement new requirements such as those in IFRS 15 and 16 in a proportionate manner while preserving the core principles of those standards.

Please click to access the full comment letter. 

The common enforcement priorities related to 2021 IFRS financial statements include:

• careful assessment and transparency in accounting for longer-term impacts of the COVID-19 pandemic and the recovery phase;
• consistency between the information disclosed within the IFRS financial statements and the non-financial information concerning climate-related matters, consideration of climate risks, disclosure of any significant judgements and estimation of uncertainty regarding climate risks while clearly assessing materiality; and
• enhanced transparency regarding the measurement of Expected Credit Loss (ECL), particularly in relation to management overlays, significant changes in credit risk, forward-looking information, changes in loss allowances, credit risk exposures and collateral, and the effect of climate-related risk on ECL measurement.

ESMA also reminds issuers that starting from the financial year 2021, all annual financial reports shall be prepared in compliance with the European Single Electronic Format, or ESEF (xHTML or inline XBRL).

ESMA and European national enforcers will monitor and supervise the application of the IFRS requirements outlined in the priorities, with national authorities incorporating them into their reviews and taking corrective actions where appropriate. ESMA will collect data on how European listed entities have applied the priorities and will publish its findings in a separate report.

Please click for the following documents on the ESMA website:

• Press release
• Public statement on enforcement priorities, providing more background on each of the focus areas

The full agenda for the meeting is sum­marised below:

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