The exposure draft intends to update the 2010 IFRS Practice Statement 1 Management Commentary. In its draft comment letter, EFRAG supports the “proposed objective-based approach including the six content elements and considers that developing specific, rule-based requirements for the management commentary is primarily the responsibility of legislators, security regulators and/or national standard-setters.  However, EFRAG suggests to address the subject of 'Governance' across the six proposed content elements, to give more emphasis​ to the discussion on 'Opportunities' and to consider an additional content element on 'Off-balance sheet commitments'.​”

Comments on EFRAG's draft comment letter are requested by 15 November 2021. For more in­for­ma­tion, see the press release and the draft comment letter on the EFRAG website.

This was the first meeting chaired by the new IASB Chair Andreas Barckow.

Post-implementation Review (PIR) of IFRS 9: The Board discussed the feedback from outreach and the staff analysis and recommendations on the matters to examine further in phase 2, i.e. which questions should be asked in the Request for Information (RFI). Most stakeholders said that generally the classification and measurement requirements are working well in practice. However, some users of financial statements and academics said that IFRS 9 is complex and thus difficult to understand.

The Board decided that the RFI would include questions about the business model assessment for financial assets, contractual cash flow characteristics assessment for financial assets, the 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 and transition to IFRS 9. The staff expect the RFI will be published around the end of September 2021.

PIR of IFRS 10-12: In December 2020, the Board published an RFI as part of its PIR of IFRS 10-12, which was open for comment until 10 May 2021. The Board considered the feedback received within the comment letters and from an updated academic literature review. Many stakeholders agreed with the use of control as the single basis for consolidation in IFRS 10 and the need to take a holistic and qualitative assessment of all legal, contractual and other facts and circumstances and stressed the importance of application guidance and illustrative examples. Some respondents noted difficulties in some situations applying the definition of an investment entity and expressed concerns about the loss of information when an investment entity measures at fair value a subsidiary that is itself an investment entity. Respondents highlighted the usefulness of the IFRIC agenda decisions in applying IFRS 11 and some asked for these to be incorporated into the Standard. Feedback from respondents noted that IFRS 12 had resulted in significant improvements to financial reporting, however there were some requests for additional information. The Board was not be asked to make any decisions during this meeting but several Board members were encouraged that the overall feedback received in relation to these three Standards was very positive on the whole and supported that the Standards were working effectively. The Board will present its findings in a feedback statement after completing its deliberations.

Taxonomy: The Board published the Proposed IFRS Taxonomy Update PTU/2021/1 Disclosure of Accounting Policies and Definition of Accounting Estimates on 21 April 2021. The Board received five comment letters. The staff plan to issue the final IFRS Taxonomy Update along with the final taxonomy files in Q4 of 2021. No Board comments or decisions were made.

Disclosure Initiative—Targeted Standards-level Review of Disclosures: The Board decided to extend the deadline for comments for the Exposure Draft Disclosure Requirements in IFRS Standards—A Pilot Approach from 21 October 2021 to 12 January 2022. The decision was not straightforward, because the Board did not want extensions to be viewed as being normal.

Goodwill and Impairment: The Board continued its discussion of feedback on particular aspects of the DP—focusing this month on the location of the information resulting from, and practical challenges related to, the Board’s preliminary views on improving disclosures; improving the effectiveness of the impairment test; and the subsequent accounting for goodwill, including whether to reintroduce amortisation of goodwill. The Board was not asked to make any decisions at the meeting. However, directionally, the Board appeared to be giving weight to improving disclosures and the application of the impairment model.

Primary Financial Statements: The Board continued to discuss the approach for classifying items of income and expenses in the financing category of the statement of profit or loss.

The Board decided that the income and expenses from hybrid contracts with host liabilities and embedded derivatives be classified: for separated host liabilities in the same way as for other liabilities; for separated embedded derivatives in the same way as for stand-alone derivatives; and for contracts that are not separated to be classified in the same way as income and expenses on other liabilities.

For gains or losses on financial instruments designated as hedging instruments the Board decided that they be classified in the category affected by the risk the entity manages, except when it would involve grossing up gains or losses in which case they would be classified as operating. The same requirements would apply to derivatives used for risk management even if they are not designated as hedging instruments. However, if this creates undue cost or effort the gains or losses would be classified as operating. 

Gains or loses on derivatives not used for risk management would be classified as operating. However, if the derivative relates to financing activities and is not used in the course of the entity’s main business activities it would be classified as financing. FX differences would be classified in the same way as the item that gave rise to the differences, unless there is undue cost or effort, in which case the FX differences would be classified as operating. 

Maintenance and Consistent Application:

Classification of Debt with Covenants as Current or Non-Current—Transition, Early Application and Due Process: At its meeting in June 2021, the Board tentatively decided to propose narrow-scope amendments to IAS 1 to modify the requirements introduced by Classification of Liabilities as Current or Non-current (the 2020 amendments) on how an entity classifies debt and other financial liabilities as current or non-current in particular circumstances. The proposed amendments would also defer the effective date of the 2020 amendments to no earlier than 1 January 2024. The Board decided to require entities to apply the proposed amendments retrospectively in accordance with IAS 8, not provide a transition exemption for first-time adopters, permit an entity to apply the amendments earlier than their effective date and set a comment period of no less than 120 days for the Exposure Draft. Two Board members indicated that they are considering offering an alternative view in relation to the disclosoures proposed.

Supplier Finance Arrangements—Transition, Early Application and Due Process: At its meeting in June 2021, the Board decided to add a narrow-scope, disclosure-only standard-setting project to its workplan related to supplier finance arrangements (for example, reverse factoring or similar arrangements). The project involves the Board proposing amendments to IAS 7 and IFRS 7. The Board decided to propose that entities be required to apply the proposed amendments retrospectively in accordance with IAS 8 and not provide an exemption for first-time adopters. Early application would be permitted and the proposals would have a comment period of no less than 120 days.

IFRS Interpretations Committee: The Board had no questions about the most recent meeting of the IFRS Interpretations Committee.

Education session with the FASB: The purpose of the meeting was for the boards to share views on projects related to largely converged Standards, common projects and their agenda consultations. The boards discussed their reviews of the accounting for goodwill and impairment. They also discussed the work undertaken to date, and recent tentative decisions made, on their respective projects on supplier finance. The joint meeting lasted four hours, with members of both boards asking questions about the other Board’s projects. No decisions were made.

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

Background

Many insurance companies have not yet applied IFRS 9 Financial Instruments and will first apply it at the same time they apply IFRS 17 Insurance Contracts. However, the two standards have different requirements for the comparative information that will be presented on initial application. IFRS 17 requires companies to present one restated comparative period. IFRS 9 permits but does not require restatement of comparative periods, and prohibits companies from applying IFRS 9 to financial assets derecognised in the comparative period.

Some insurers have since raised concerns about the usefulness of the information that would be presented for financial assets in the comparative period on initial application of IFRS 17. They are of the view that such information would be misleading because it would include accounting mismatches that would essentially arise from the continued application of IAS 39 (i.e. would not represent economic mismatches), which would be very difficult to explain. These insurers asked the Board to allow them to present significantly improved information about financial instruments that would result from applying the classification requirements of IFRS 9 at the transition date of IFRS 17.

Key proposal

The main proposal in ED/2021/8 Initial Application of IFRS 17 and IFRS 9 — Comparative Information (Proposed amendment to IFRS 17) is a proposed narrow-scope amendment to the transition requirements of IFRS 17 for entities that first apply IFRS 17 and IFRS 9 at the same time. The amendment regards financial assets for which comparative information is presented on initial application of IFRS 17 and IFRS 9, but where this information has not been restated for IFRS 9. Under the proposed amendment, an entity would be permitted to present comparative information about a financial asset as if the classification and measurement requirements of IFRS 9 had been applied to that financial asset before. There are no proposed changes to the transition requirements in IFRS 9.

The deadline for submitting comments on these proposals is 27 September 2021.

Effective date

The exposure draft proposes that an entity that elects to apply the amendment shall apply it when it applies IFRS 17.

Additional information

The following additional information is available on the IASB website and on IAS Plus:

• IASB press release
  
• Deloitte's Need to know publication
• Access to the exposure draft (includes basis for conclusions)
• Our UK Accounting Plus Project page on Initial application of IFRS 17 and IFRS 9 ― Comparative information

The results highlight that 29% of 103 audits reviewed required “improvements” or “significant improvements”. 71% of audits were assessed to be of a “good standard” or requiring only “limited improvement”.

The FRC acknowledged that quality across the individual firms was more mixed than in 2019/20 and has published measures that individual firms will be required to implement in response to individual inspection findings.

The FRC also flagged recurring findings in relation to the audit of revenue, impairment of assets and group audit oversight. There were mixed findings in relation to the effective challenge of management of audited entities, with same examples of good practice but not on a consistent basis.

The press release and links to individual reports are available on the FRC website.

The annual report outlines the FRC’s financial position and highlights achievements and challenges in 2020/21, including those related to COVID-19. It also sets out progress made over the year and the next steps in delivering a programme of transformation towards becoming a robust, independent and resilient regulator.  In the report the FRC explains how it supported stakeholders by providing COVID-19 guidance for companies and auditors. It also contributed in developing international standards, including climate and ESG reporting.  

The FRC's Plan and Budget sets out its priorities for the coming year.  Next year's growth will be used to:

• build teams and procedures for activities such as PIE auditor registration and operational separation; and
• prepare supervisory regimes in areas where the FRC has some early understanding of the Government’s policy intentions but where it should not yet assume that additional supervisory responsibilities will fall on it in 2022 or beyond.

During the transition to ARGA the FRC will also be developing and implementing a new funding model for ARGA and will be engaging with stakeholders on the principles and the details of ARGA’s funding.

The press release, the full annual report and a summary are available on the FRC website.

Seven of the sixteen members of EFRAG TEG will reach the end of their current term of appointment on 31 March 2022 and one of the country liaison members will reach the end of the current term on 31 October 2021. Not all of the members are eligible for reappointment.

EFRAG welcomes all applications but in particular seeks candidates with a banking specialist or user background.

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

Background

As part of the feedback on the 2015 Agenda consultation, some respondents had noted that subsidiaries that are SMEs report to their parent, for consolidation purposes, numbers that apply the recognition and measurement requirements of IFRSs. Using the IFRS for SMEs is not attractive to them as it would mean that they would have to maintain two sets of accounting information. Instead, they would welcome less onerous disclosure requirements as that would reduce costs without removing information needed by the users of their financial statements. They, therefore, suggested that the Board consider developing a reduced disclosure IFRS.

The Board acknowledged these concerns and decided to pursue a project that would analyse adaptations required to the disclosure requirements of the IFRS for SMEs and possibly develop a reduced disclosure IFRS that would allow eligible subsidiaries to apply, in principle, the recognition and measurement requirements of full IFRSs and the disclosure requirements of the IFRS for SMEs with minimal tailoring of those disclosure requirements. A draft of this possible new standard has been published today.

Key proposals

The proposals in ED/2021/7 Subsidiaries without Public Accountability: Disclosures aim at entities that

• (a) do not have public accountability; and
• (b) are subsidiaries of an ultimate or intermediate parent that produces consolidated financial statements available for public use that comply with IFRSs.

The application of the new proposed IFRS would be optional for subsidiaries that are eligible to apply it (i.e., those that fulfil the preceding two conditions).

Proposed new disclosure requirements

The proposed new standard contains about 200 paragraphs of disclosure requirements listed by standard. For developing these, the Board started with the disclosure requirements in the IFRS for SMEs and tailored those where they differed from those in full IFRSs by adding disclosure requirements for topics or accounting policy options that are addressed in full IFRSs but omitted from the IFRS for SMEs and by deleting disclosure requirements relating to accounting policies available in the IFRS for SMEs but not in full IFRSs.

There are exception to this approach explained in the Basis for in Conclusions of the new standard. They especially relate to:

• disclosure objectives;
• investment entities;
• changes in liabilities from financing activities,
• exploration for and evaluation of mineral resources; and
• defined benefit obligations.

An appendix to the proposed new standard lists the disclosure requirements in full IFRSs that would be replaced by the disclosure requirements in the exposure draft.

The proposed new standard does not contain reduced disclosure requirements for IFRS 17 Insurance Contracts. The Board argues that while it found that some entities applying IFRS 17 would be entitled to apply the new standard, IFRS 17 introduces a model for accounting for insurance contracts that is supported by its disclosure requirements. If there were possible reductions, these would be limited in extent. Also, in the early years of applying IFRS 17, the interests of users of the financial statements may be best served by full IFRS 17 disclosures. Hence, a subsidiary that applies the proposed new standard and applies IFRS 17 is required to apply the full disclosure requirements of IFRS 17.

The exposure draft does include reduced disclosure requirements that apply to a subsidiary that is preparing its first IFRS financial statements and has elected to apply the new proposed standard. The exposure draft expressly asks respondents whether they agree with including reduced disclosure requirements for IFRS 1 First-time Adoption of International Financial Reporting Standards in the draft standard rather than leaving the disclosure requirements in IFRS 1 untouched.

The deadline for submitting comments on these proposals is 31 January 2022.

Effective date

The exposure draft proposes that an entity may elect to apply the new standard for reporting periods beginning on or after a certain date (approximately 18–24 months after publication) with earlier application permitted. An entity would apply the new standard in the current period but not in the immediately preceding period, however, the entity would provide comparative information for the preceding period for all amounts reported in the current period’s financial statements.

Additional information

The following additional information is available on the IASB website and on IAS Plus:

• IASB press release
  
• Access to the exposure draft
• Access to the basis for conclusions
• IASB Snapshot document summarising the proposals
• Our UK Accounting Plus Project page on Disclosure initiative — Subsidiaries that are SMEs
• Our related Need to know publication
• IASB video

Below is an analysis of all changes made to the work plan since our last analysis on 28 June 2021.

Standard-setting projects

• Disclosure Initiative — Subsidiaries that are SMEs — An exposure draft is now expected on 26 July 2021 (previously July 2021)
• The comment letter period on Disclosure requirements in IFRS Standards — A Pilot Approach has been extended to 12 January 2022 (previously 21 October 2021)

Maintenance projects

• Initial Aapplication of IFRS 17 and IFRS 9 — Comparative Information (Amendments to IFRS 17) — An exposure draft is still expected in July 2021, which would mean "next week"
• IAS 21 — Lack of exchangeability — An exposure draft is now expected Q4 2021 (previously H2 2021)

Research projects

• Business Ccombinations under common control — Discussion paper feedback will now be discussed in Q4 2021 (previously H2 2021)
• Extractive activities — A decision on the project direction is now expected in September 2021 (previously July 2021)
• Goodwill and impairment — A decision on the project direction is now expected in September 2021 (previously Q3 2021)
• Post-implementation review of IFRS 10-12 — A feedback statement in H2 2022 is the new expected project milestone (previously discussion of request for information feedback to be discussed in July 2021)
• Post-implementation review of IFRS 9 — A request for information is now expected in September 2021 (previously Q3 2021)

Other projects

• After the comment period on IFRS Taxonomy 2021 Proposed Update 1 — Disclosure of Accounting Policies and Definition of Accounting Estimates has ended, the IASB will now discuss the feedback received in Q4 2021
• Feedback on the proposed amendments to the IFRS Foundation Constitution regarding setting up a potential ISSB — The discussion of feedback is now expected in October 2021 (previously H2 2021)
• Agenda consultation 2020 — The discussion of feedback is now expected in Q4 2021 (previously H2 2021)

The above is a faithful comparison of the IASB work plan at 28 June 2021 and 24 July 2021. For access to the current IASB work plan at any time, please click here.

In the draft comment letter, the UKEB supports the proposals in the IASB's Exposure Draft as they provide guidance on an area not covered by the existing standard.  The UKEB therefore believes that the proposals should reduce diversity in practice, leading to consistency and comparability of financial statements.  In its draft comment letter the UKEB also proposes some minor changes to the wording of the amendments. 

Comments on the UKEB's draft comment letter are requested by 20 August 2021.  The draft comment letter and separate invitation to comment are available on the UKEB website.

The report highlights that there has been a 'step change' in the diversity of boards of FTSE companies primarily driven by the Hampton Alexander review and more recently the Parker review.  The report seeks to address three questions:

• How have board effectiveness and dynamics been impacted by the increased gender and ethnic diversity of board membership?
• What attributes, skills and experience do today’s board members expect to be needed in the diverse boardrooms of the future?
• How can nomination committees be helped to take a more objective
  and diversity-friendly approach to board recruitment?

Data was assembled from multiple, publicly available sources to create a large data set looking at gender and ethnic diversity and its effects over the medium and long term – between 2001 and 2019 – on EBITDA margins, stock returns and shareholder dissent.  In the second phase of the research, a representative sample of 25 boards was asked to complete an assessment of the culture and dynamics in their board, as well as respond to a series of open-ended questions.

The research highlights that it is the responsibility of the board to drive inclusion.  It also highlights that in order to maximise the benefits of diversity, the board should recognise that change takes time and that diversity without inclusion is unlikely to encourage new talent to the board.  Additionally the research identifies that diversity, over time, improves the performance of boards and the businesses they lead.

The research found that:

• higher levels of gender diversity of FTSE350 boards positively correlate with better future financial performance (as measured by EDITDA margin).
• FTSE350 boards with well-managed gender diversity contribute to higher stock returns and are less likely to experience shareholder dissent.
• Diversity affects boardroom dynamics and that the percentage of women is highly correlated with an emphasis on boardroom relationships and collaboration.  The research found that the hallmarks of boards with more women included:
  • significantly greater decentralisation in how they operate where committees have strong delegated powers;
  • increased likelihood of reaching consensus before important decisions are taken, rather than undertaking decisions that a substantial part of the board opposes (e.g. by voting);
  • stronger belief and action on ensuring fair outside search when recruiting directors because standards should apply to everyone equally; and
  • reduced overconfidence about the board’s problem-solving skills.
• the skills needed in the diverse boardrooms of the future included adaptability and resilience, strategic thinking, stakeholder engagement, interpersonal skills and embracing diversity.
• there are a number of actions that the Nomination Committees can take to encourage diversity.  These include ensuring that the Nomination Committee is itself diverse and has a clear mandate to work with search firms that access talent from wide and diverse pools

The report concludes that whilst many board members are committed to diversity and many have made effort to change, there is still a 'very long way to go to fully access the takent and reflect the population of the UK'. 

The press release and the research report are available from the FRC website.