The update reports on the EFRAG Board webcast meeting on 7 September, the EFRAG TEG webcast meetings on 7 September, 15-16 September and 28 September and the EFRAG TEG and EFRAG CFSS webcast meeting on 15 September. The update also covers the activities of the European Reporting Lab as well as webinars and online outreaches.

The update also lists EFRAG publications issued in September including:

• EFRAG's final comment letter and feedback statement on the IASB's Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities.
• EFRAG's final comment letter on the IASB’s Exposure Draft ED/2021/4 Lack of Exchangeability.
• EFRAG's draft comment letter on the IASB's Exposure Draft ED/2021/7 Subsidiaries without Public Accountability: Disclosures.

Please click to download the September EFRAG Update from the EFRAG website.

Investors and other stakeholders are increasingly interested in disclosures on the environmental and social impact of companies’ activities and their governance arrangements. This project will look at the production, distribution and consumption of ESG data. The first phase of the project will focus on the production of ESG data.

The scope of this first project phase will be determined in conjunction with participants but is expected to cover:

• what ESG data companies collect;
• what methodologies companies use to measure ESG data;
• what systems they use to collect and produce the data;
• how they get comfort on the accuracy of the data; and
• how they transform the data into useful external disclosure.

Interested parties are invited to communicate their interest by 15 November 2021.

Further information including the press release and the Call for Participants is available on the FRC website.

The May 2020 Amendments comprise three Annual Improvement amendments (from the IASB’s Annual Improvements to IFRS Standards 2018–2020) and three Narrow-Scope amendments.

The Annual Improvement amendments covered in the draft endorsement assessment criteria assessment are:

• Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards—Subsidiary as a First-time Adopter.
• Amendments to IFRS 9 Financial Instruments—Fees in the ‘10 per cent’ Test for Derecognition of Financial Liabilities.
• Amendments to IAS 41 Agriculture—Taxation in Fair Value Measurements.

The Narrow-Scope Amendments covered in the draft endorsement assessment criteria are:

• Amendments to IAS 16 Property, Plant and Equipment—Proceeds before Intended Use
• Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets—Onerous Contracts—Cost of Fulfilling a Contract.
• Amendments to IFRS 3 Business Combinations—Reference to the Conceptual Framework.

The UKEB secretariat's initial assessment concludes that:

• the May 2020 Amendments meet the criteria of relevance, reliability, comparability and understandability 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 the May 2020 Amendments 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 secretariat initially concludes that the May Amendments will improve the quality of financial reporting and that the benefits of the May 2020 Amendments are likely to outweigh the costs.

Comments on the draft UK Endorsement Criteria Assessment are requested by 30 November 2021.

The draft UK Endorsement Criteria Assessment and the Invitation to Comment can be accessed on the UKEB website.

The meeting saw presentations on the following topics:

• Q&A on sustainability reporting
• Welcome address by the new IASB Chair
• How has the pandemic changed engagement with the IFRS Foundation?
• The future of the IASB work plan — Agenda consultation: what’s next?
• Q&A on IASB and IFRS IC activities
• Towards a revised Management commentary Practice Statement

In addition, WSS participants received pre-conference video updates on certain topics that can also be watched now.

The recordings can be accessed through the conference site on the IASB website. You will need to sign in, however, the free-of-charge basic registration suffices to watch the recordings.

These Regulations, which were consulted on in February 2021, have been introduced to improve the quality of governance and reporting with respect to climate change risks and opportunities for Occupational pension schemes. 

The Climate Change Governance and Reporting Regulations will require, from 1 October 2021, the trustees of schemes in scope to:

• implement climate change governance measures and produce a Task Force on Climate-related Financial Disclosures (TCFD) report containing associated disclosures; and
• publish their TCFD report on a publicly available website, accessible free of charge.

Changes made by the Miscellaneous Provisions Regulations will require trustees who must produce a TCFD report to, among other things:

• include a link to the TCFD report in the Annual Report
• tell members that the TCFD report has been published and where they can locate it, by including this information in the Annual Benefit Statement and, for defined benefit (DB) schemes, the Annual Funding Statement.

The Department for Work and Pension's (DWP's) has published statutory guidance which Trustees of occupational pension schemes must have regard to when meeting requirements under the new regulations.  The guidance is split into four parts covering:

• Background
• An overview of climate change governance requirements
• Climate change governance and production of a TCFD report
• Publication of a TCFD report

Additionally trustees should refer to the non-statutory guidance issued by the Pensions Climate Risk Industry Group (PCRIG). This is non-mandatory guidance but might be helpful for trustees to consider in addition to the statutory guidance which must be followed.

Click for:

• The Occupational Pension Schemes (Climate Change Governance and Reporting) Regulations 2021 (link to regs).
• The Occupational Pension Schemes (Climate Change Governance and Reporting) (Miscellaneous Provisions and Amendments) Regulations 2021 (link to regs).
• DWP statutory guidance (link to DWP website)
• Non-statutory PCRIG guidance (link to DWP website)

In the draft comment letter, EFRAG "cautiously" supports the proposals of the exposure draft, but raises some concerns and provides some suggestions. EFRAG:

• suggests that the key principles proposed by the IASB should encompass cost-benefit considerations;
• highlights the risks of not considering the existing disclosure requirements in full IFRSs when there are no recognition and measurement differences between the IFRS for SMEs and full IFRSs;
• suggests that the reasoning for the exceptions is improved;
• suggests considering the interaction between the disclosure requirements of this exposure draft and the disclosure requirements of the exposure draft Disclosure Requirements in IFRS Standards – A Pilot Approach;
• considers that the application of a full set of disclosure requirements for IFRS 17 Insurance Contracts can be burdensome and costly for eligible subsidiaries; and
• suggests a number of additional disclosures that it considers relevant for users of financial statements.

Comments on EFRAG's draft comment letter are requested by 26 January 2022. For more information, see the press release and the draft comment letter on the EFRAG website.

High­lights of the podcast include dis­cus­sions on:

• Decisions on the extractive activities project; 
• Updates on the financial instruments with characteristics of equity, dynamic risk management, and primary financial statements projects;
• Re­de­lib­er­a­tions in the goodwill and im­pair­ment project;
• Chair Andreas Barckow keynote speech at the World Standard-setters conferences;
• Vice Chair Lloyd thoughts related to the Technical Readiness Working Group.

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.

As IASB Chair Andreas Barckow pointed out in his inaugural speech at the WSS meeting on Monday, IAS 38 Intangible Assets is more than 20 years old and has never been revisited other than for consequential changes resulting from other projects. He also indicated that he would like the IASB to look into the accounting for intangibles. Reactions to the IASB's agenda consultation showed that constituents would also be interested in “intangibles” as a potential IASB project (while there seem to be diverse views regarding the scope and objective of that potential project). Other developments such as the IVSC perspectives paper Time to get Tangible about Intangible Assets show that there is a great appetite for addressing the issue.

The IFASS session on intangibles started off with the European Financial Reporting Advisory Group (EFRAG) introducing its discussion paper Better information on intangibles – which is the best way to go?. The discussion paper notes that that the value relevance of financial statements is decreasing, which could be due to financial statements not reflecting information about intangibles, which has become more important for more entities than previously. It considers three approaches for better information on intangibles:

• Recognition and measurement in the primary financial statements;
• Information on specific intangibles in the notes to the financial statements or in the management report;
• Information on future-oriented expenses and risk/opportunity factors that may affect future performance in the notes to the financial statements or in the management report.

The scope of EFRAG’s discussions goes beyond the existing definition of assets in financial reporting and also covers sources of possible economic benefits that would not be controlled by an entity.

Following the EFRAG presentation, the Australian Accounting Standards Board (AASB) presented its research on intangible assets. The research is an work in progress, so the staff presented first insights into the research paper that is expected to be published in Q4 2021 or Q1 2022. The research is working from the premise that IAS 38 is very old and leaves gaps in the information reported. To fill the existing information gap quickly, it would seem that following the third of the three possible approaches identified (do nothing, improve recognition and measurement, improve disclosures) would be the best way to follow. Outreach undertaken revealed great support for the approach while suggested additional information provided on unrecognised internally generated intangible assets varied (financial, non-financial, fair value). The forthcoming AASB paper will include a recommended principle, a recommended disclosure objective and (examples of) recommended implementation guidance.

The AASB research is still ongoing. More information on the project and access to a corresponding survey is available on the AASB website.

Following the presentations, participants discussed the findings, investor needs and aspects the IASB should consider in a potential project. Questions, comments and observations included:

• IAS 38 is no longer fit for purpose, especially digital assets need to be considered (there are currently some software providers whose most significant asset is not on their balance sheet).
• The uneven playing field between internally generated and acquired intangible assets needs to be reconsidered.
• There is no need to reconsider the the definition of intangible assets, it is a definition of the word intangible that is needed.
• IAS 38 does currently not reflect the economic value of an entity.
• User needs should be the most important aspect considered.
• There are challenges as regards the valuation of some intangible assets, maybe a hybrid approach of only recognising those that can be measured reliably should be considered.
• Most intangibles assets are unique, however, bringing them onto the balance sheet might provide the market with the means of pricing them.
• If intangible assets are recognised, will there also be corresponding liabilities?
• There is a strong link between intangible assets and sustainability - which Board should take them on?
• Are crypto assets and crypto currency intangibles?
• Where would the information be located?
• Would it be audited?

The IASB Chair noted that the IASB is currently behind some of the standard setters as regards intangibles. It will consider the research and results once it has "digested" the feedback from the agenda consultation. He also acknowledged the wide variety of views on the scope of a potential IASB project on intangibles - as well as the fact that there was general agreement that the wider the scope of the project, the smaller the chances of a timely solution. A general feeling was also that the IASB should approach the problem in stages, beginning with disclosures.

The following topics were discussed:

Board work plan update: In this session, the staff provided an overview of the Board’s technical projects to support decisions about whether to add or remove projects and assessments of overall progress on the work plan, including project prioritisation and timing. No decisions have been made.

Goodwill and Impairment: At the July meeting, the Board said they would like additional information about the disclosures about business combinations to be proposed, and further analysis of the feedback received on the subsequent accounting for goodwill, to help them make their decisions. In response to this, the staff updated the project plan to provide this information to the Board and have now presented the updated project plan for comments from Board members. The Board supported the revised project plan.

Post-implementation review of IFRS 9: In this session, the Board approved the publication of the Request for Information (RFI), which will be published on 30 September 2021. The Board agreed a 120-day comment period for the RFI.

Primary Financial Statements: At this meeting, the Board continued its deliberations of the comments received on ED/2019/7, particularly on management performance measures (MPMs) and principles of aggregation and disaggregation.

The Board decided to amend the definition of MPMs to remove the reference to complementing totals or subtotals specified by IFRS Standards and to state that totals and subtotals specified by IFRS Standards are not MPMs.

In addition, the Board decided to set out the relationship between the general presentation and disclosure requirements and the principles of aggregation and disaggregation.

The Board also decided to require an entity to explain how a disclosed class of items is included in line items in the primary financial statements.

Furthermore, the Board decided to include application guidance summarising characteristics that if shared, might form the basis for aggregating items that comprise a class that enhances the understandability of information provided in the financial statements and if not shared, might form the basis for disaggregating a single class of items into separate classes that provide material information.

Dynamic Risk Management: In this session, the staff presented its preliminary views on potential refinements to the DRM model which aim to closer align the DRM model to entities’ risk management practices by incorporating the concept of risk limits into the target profile. The Board was not asked to make a decision. Instead, the staff sought feedback from the Board on the potential refinements, which will be taken back to draft the refinements and present them to the Board at a future meeting.

Extractive Activities: The Board continued its discussions on extractive activities. The staff presented their further analysis on matters relating to exploration and evaluation (E&E) expenditure and activities, matters primarily relating to development and production activities, and reserve and resource (R&R) information. The Board decided that the future focus of the Extractive Activities project should be the development of requirements or guidance to improve the disclosure objectives and requirements in IFRS 6 about an entity’s E&E expenditures and activities. Furthermore, the Board decided to amend the Basis for Conclusions of IFRS 6 to remove the temporary status of the Standard.

Financial Instruments with Characteristics of Equity: In this session, the Board discussed the accounting for financial instruments that contain contingent settlement provisions and the effects of laws on contractual terms. The Board was not asked to make any decisions. Instead, the Board gave its views on these two practice issues and indicated that it would like to develop potential clarifications. The staff will take back the Board’s feedback to develop proposals for the clarified principles and bring back further analysis at a future meeting.

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

The post-implementation review process for IFRS 9 was officially taken up in October 2020. While the IASB intends to conduct a post-implemtation review (PIR) of all parts of IFRS 9, the IASB decided to separate the PIR of the IFRS 9 classification and measurement requirements (including FVOCI equity instruments) from the PIR of the rest of IFRS 9 in order to start the PIR on classification and measurement as soon as possible. The Board intends to take up the PIR of the other sections (impairment and hedge accounting requirements) when more information is available about how the requirements in those sections work in practice.

After discussing feedback from outreach, the Board decided in July 2021 to examine further certain aspects of the following matters:

• Business model assessment for financial assets
• Contractual cash flow characteristics assessment for financial assets
• Option for equity instruments to present fair value changes in other comprehensive income
• Financial liabilities designated as fair value through profit or loss
• Modifications to contractual cash flows
• Transition to IFRS 9

In addition, the IFRS Interpretations Committee received a question on amortised cost and the effective interest method that the Committee suggested to include in the PIR as the question is relevant in a wider context.

Accordingly, the RFI is structured into nine sections:

Comments on the RFI are requested by 28 January 2022. The request for information and a corresponding press release are available on the IASB website. Deloitte has published a Need to know newsletter explaining the RFI in more detail.