The objective of the amendments is to clarify one of the criteria in IAS 1 for classifying a liability as non-current - that is the requirement for an entity to have the right to defer settlement of the liability for at least 12 months after the reporting period. 

EFRAG recommends the endorsement of the Amendments. EFRAG’s initial assessment is that the Amendments meet the technical requirements of the Regulation (EC) No 1606/2002 of the European Parliament and of the Council on the application of international accounting standards.

Comments are required by 07 December 2020.

For more information, see the press release, draft endorsement advice letter,  and invitations to comment here and here on the EFRAG website. EFRAG has also updated its endorsement status report to the issuance of the positive draft endorsement advice.

The FRC continues to identify errors in cash flow statements. The objective of its thematic review was to explore in more detail issues related to the preparation of the cash flow statement identified in its routine work as well as to consider some of the themes from the FRC Lab’s project: Disclosures on the sources and uses of cash. The thematic review provides insights into how the quality of cash flow statements can be improved.

The thematic review looked at companies from a range of sectors and industries, including general retailers, retail property, and tourism and leisure. The review covered companies reporting both before and after the UK lockdown from March. In total 30 companies were reviewed.

Cash flow statement

Whilst majority of the companies presented their cash flow statements in line with the requirements of IAS 7, the FRC did identify areas where requirements did not appear to have been met. It will continue challenge companies where there are:

• Material inconsistencies between items in the cash flow statement and the notes.
• Missing or incorrectly classified cash flows.
• Inconsistencies between financing cash flows and the reconciliation of changes in liabilities arising from financing activities in the notes.

The FRC also notes that disclosures of accounting policies and judgements in relation to the cash flow statement could be improved by most companies.

Liquidity risk

The FRC’s review provides recent examples of good reporting and supplements the July thematic review of the financial reporting effects of COVID-19 and the Financial Reporting Lab’s reports on Going Concern, Risk and Viability’ and Resources, action, the future published in June.

The FRC found that whilst those companies that had published their accounts before the UK lockdown in March only provided boiler plate disclosures of liquidity risk and related issues, there was a significant improvement in going concern, viability and liquidity disclosures for those published since April; a finding consistent with the July thematic review. This was most notable for smaller listed companies. These companies provided key liquidity information such as availability of cash, undrawn borrowing facilities and compliance with covenants.

Whilst there was improvement in reporting, the FRC does indicate that better disclosures should be made of covenant testing and assumptions and judgements around going concern and viability.

A press release and the full thematic review are available on the FRC website.

Practice Note 14 (PN 14) The Audit of Housing Associations in the United Kingdom provides sector specific guidance on applying the FRC’s auditing standards to an audit of Housing Associations.

PN 14 was last revised in 2014 and since then there have been significant changes in the devolved regulatory regimes under which Housing Associations operate. In addition, changes in the operating environment for Housing Associations means that new business risks have arisen and those identified in the previous revision of PN14, while mostly still relevant, have changed in their relative significance.

These factors, along with a need to update material due to the issuing of revised ISAs (UK), and a need to ensure that FRC guidance remains current and fit for purpose, meant that revisions to PN14 were necessary.

Comments are requested by 5pm on Friday 29th January 2021.

A press release and the invitation to comment are available on the FRC website.

IASB meeting

Board work plan update: Last month the Board decided to begin the post-implementation review (PIR) of the IFRS 9 classification and measurement requirements and reconsider at a later date when to begin the PIRs of the IFRS 9 impairment and hedge accounting requirements and of IFRS 15. The Board will consider the start dates of those PIRs in the second half of 2021.

Post-implementation review of IFRS 10, IFRS 11 and IFRS 12: The Board confirmed the publication of the request for information (RFI), with a 150-day comment period (rather than the 180 days recommended by the staff). The RFI is expected to be published in December.

Maintenance and Consistent Application—Deferred Tax related to Assets and Liabilities arising from a Single Transaction: The Board is finalising amendments to IAS 12. The amendments are expected to be published in the second quarter of 2021 and will have an effective date of 1 January 2023.

Management Commentary: The staff raised some issues identified during drafting of the Exposure Draft (“sweep issues”). The Board decided that entities not applying IFRS Standards should be permitted to apply the Practice Statement. They also decided to use the term ‘accuracy’ rather than ‘freedom of error, emphasising that it applies to quantitative and qualitative information.

Disclosure Initiative, Subsidiaries that are SMEs: The IASB is developing a Standard setting out reduced disclosure requirements for subsidiaries apply IFRS Standards but meet the definition of an SME. The Board decided to have exceptions to the process for adapting disclosure requirements when preparing the analysis of adaptions to the disclosure requirements of the IFRS for SMEs Standard.  

For an analysis of how the IASB work plan has changed after this meeting, please see https://www.iasplus.com/en/news/2020/11/iasb-work-plan.

Joint IASB—FASB education meeting

The boards updated each other on individual projects that partially or entirely overlap with a project of the other board. The purpose of the meeting was to share information. As such, no decisions were made.

COVID-19: The boards explained the steps they have taken to respond to the COVID-19, such as implementation and educational guidance and adjustments to their work plans. Much of the discussion focused on the accounting for government grants.

Leases other than COVID-19: The IASB staff explained the recent application questions discussed by the IFRS Interpretations Committee and narrow-scope standard-setting that has been initiated with regard to sale and leaseback transactions. The FASB is monitoring the implementation of its equivalent Standard and in July 2020 added a project to its technical agenda to address issues on which the FASB can act because it already has sufficient information from stakeholders. Both boards highlighted that they should continue to strive for as much convergence as possible between the respective Standards.

Goodwill and Impairment: Both the FASB and the IASB have on their respective agendas projects covering accounting for goodwill. Those projects do not constitute a joint project. However, both boards previously decided to monitor each other’s work because of the largely converged accounting models for business combinations. The FASB’s project is in an active project phase while the IASB’s project is in a research phase.

The initial discussion focused on the IASB’s preliminary view that an entity should be required to disclose the metrics that management (the chief operating decision maker or ‘CODM’ as described in IFRS 8) will use to monitor whether the objectives of the acquisition are met. The boards also discussed the subsequent accounting for goodwill.

Supply chain financing: The IASB described the issues that have been submitted to the IFRS Interpretations Committee, and the tentative agenda decision it has published. The IASB also outlined a possible narrow-scope standard-setting project in early 2021. The Big 4 firms submitted an agenda request to the FASB in October 2019 for guidance on disclosure and cash flow statement presentation of supplier finance programmes involving trade payables. Having undertaken research and outreach, the FASB decided in October 2020 to add a project to its agenda to develop disclosure requirements related to supplier finance programmes involving trade payables (a narrow scope). The FASB noted that there is increased disclosure in the US as a consequence of SEC staff speeches and guidance that encourages qualitative and quantitative disclosures in MD&A.

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

The event will explore the following key topics from the IASB’s discussion paper:

• Improving disclosures about acquisitions.
• Accounting for goodwill.
• Presenting total equity less goodwill as a subtotal in the balance sheet.
• Accounting for intangibles in business combinations.

The IASB staff will present an overview of the proposals and there will be an opportunity to submit questions to a panel before and during the event.

Further details and how to register are available on the FRC website.

Below is an analysis of all changes made to the work plan since our last analysis on 31 October 2020.

Standard-setting projects

• Disclosure initiative — Subsidiaries that are SMEs — the decision of whether to issue a discussion paper or an exposure draft is now expected in January 2021 (previously December 2020)
• Management commentary — the issuance of an exposure draft is now expected in the second quarter of 2021 (previously first half of 2021)
• Rate-regulated activities — the issuance of an exposure draft is now expected in January 2021 (previously first quarter of 2021)

Maintenance projects

• Accounting policies and accounting estimates (Amendments to IAS 8) — the issuance of final amendments is now expected in the first quarter of 2021 (previously December 2020)
• Deferred tax related to assets and liabilities arising from a single transaction — the issuance of final amendments is now expected in the second quarter of 2021 (previously no date given)
• Disclosure initiative — Accounting policies — the issuance of final amendments is now expected in the first quarter of 2021 (previously December 2020)

Research projects

• Dynamic risk management — the feedback on the core model is expected to be discussed in the second quarter of 2021 (previously first half of 2021)
• Extractive activities — a decision on the project direction is now expected in the first quarter of 2021 (previously first half of 2021)
• Post-implementation review of IFRS 9 — newly added to the work plan; next stept in the project will be the issuance of a request for information (no date given)

Other projects

• IFRS Taxonomy Update — Amendments to IAS 1, IAS 8 and IFRS Practice Statement 2 — the issuance of a proposed IFRS Taxonomy Update is now expected in the first quarter of 2021 (previously December 2020)
• IFRS Taxonomy Update — Common practice (IAS 19) — the expected date for the issuance of a proposed IFRS Taxonomy Update has been dropped, however, the IASB announced in a press release that the proposed IFRS Taxonomy Update will be issued on 24 November 2020
• IFRS Taxonomy Update — Interest Rate Benchmark Reform — Phase 2 — the feedback on the proposed IFRS Taxonomy Update has been discussed and a final IFRS Taxonomy Update is now expected in December 2020

The above is a faithful comparison of the IASB work plan at 31 October 2020 and 20 November 2020. For access to the current IASB work plan at any time, please click here.

The publication mainly consists of a non-exhaustive list of examples illustrating when IFRS Standards may require companies to consider the effects of climate-related matters in applying the principles in a number of standards.

The examples in the list refer to the following standards:

• IAS 1 Presentation of Financial Statements
• IAS 2 Inventories
• IAS 12 Income Taxes
• IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets
• IAS 36 Impairment of Assets
• IAS 37 Provisions, Contingent Liabilities and Contingent Assets and IFRIC 21 Levies
• IFRS 7 Financial Instruments: Disclosures
• IFRS 9 Financial Instruments
• IFRS 13 Fair Value Measurement
• IFRS 17 Insurance Contracts

The publication also notes that in addition to the specific requirements outlined in the table, IAS 1 contains some overarching requirements that could be relevant when considering climate-related matters.

In an article published in November 2019, IASB Board member Nick Anderson had already explained how IFRS requirements can be used to report on climate and other emerging risks.

Please click to access Effects of climate-related matters on financial statements on the IASB website.

EFRAG issued its final endorsement advice on 26 October after an accelerated process and has now completed its full due process by issuing and publishing a feedback statement on its comment letter. EFRAG's draft comment letter to the IASB was published on 23 April 2020 and final comment letter was published on 26 May 2020.

The feedback statement summarises the comments received by EFRAG on its draft comment letter and explains how those comments were considered by EFRAG during its technical discussions leading to the publication of EFRAG's final comment letter.

A press release and the feedback statement are available on the EFRAG website.

The publication notes that companies can no longer afford to ignore what climate change means for their business as climate change is material and investors need visibility about the effects in company accounts. The group is therefore, not calling for sustainability disclosures or reports but for reflecting climate change effects in IFRS accounting. In an article published in November 2019, IASB Board member Nick Anderson had already explained how IFRS requirements can be used to report on climate and other emerging risks.

Investor Expectations for Paris-aligned Accounts sets out investor expectations in five clear steps companies can take in preparing ‘Paris aligned’ company accounts:

• An affirmation that climate risks are incorporated into the accounts;
• Adjustments to critical assumptions and estimates;
• Sensitivity analyses and their results linked to variations in judgements or estimates;
• Dividend resilience and implications for dividend paying capacity of Paris-alignment; and
• Confirmation of consistency between narrative reporting on climate risks and the accounting assumptions.

The publication also outlines specific investor expectations for auditors to call out where accounts are ignoring material climate risks; making it clear they should say when accounts are not ‘Paris-aligned’.

Where these expectations are not met, three courses of investor action are identified: engagement (engage with boards and audit committees to press for Paris-aligned accounting), vote (vote against reappointments where performance is inadequate) and divestment (sell shares in companies that fail to provide reliable 'Paris-aligned' accounts).

Please click to download Investor Expectations for Paris-aligned Accounts from the IIGCC website.

The two main topics for the meeting were:

• Practical implementation, including measurement, of core indicators for entity reporting on the contribution towards the attainment of the Sustainable Development Goals: Review of case studies
• Climate-related financial disclosures in mainstream entity reporting: good practices and key challenges

The keynote address on the second topic was given by Erkki Liikanen, Chair of the IFRS Foundation Trustees.

All presentations from the meeting (including the presentations from the workshop on "Assurance on sustainability reports: current practices and challenges“ on 30 October 2020) can now be accessed online and there are also recordings of all sessions.