The agenda is sum­marised below:

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

This webcast discusses the Board’s approach to the second comprehensive review of the IFRS for SMEs Standard. A third webcast is expected at a later date and will discuss alignment of IFRS for SMEs Standards with IFRS Standards.

The IASB, in cooperation with the SME Implementation Group (SMEIG), has developed and issued a request for information seeking comments on strategic and general questions, specific sections of the IFRS for SMEs, as well as new topics and other matters related to the IFRS for SMEs.

For more in­for­ma­tion, see the press release on the IASB’s website.

In response to questions received around the applicability of the section 172 reporting requirements to medium-sized companies, the FRC identified a few areas where the appendices in the Guidance on the Strategic Report would benefit from clarification.  As a result it has issued editorial amendments which primarily relate to the scope of the new requirements which are effective for annual reporting periods beginning on or after 1 January 2019. The editorial amendments have been made to:

• Clarify the scope of the section 172(1) statement in the Strategic Report including a clarification that all public companies (including AIM companies) must include a section 172(1) statement in their Strategic Report, even if they meet the medium sized company size criteria.  For non-public companies, the clarifications indicate that the requirements only apply to large companies (as defined in s465 to 467 of the Act). 
• Clarify that when determining whether a company has to disclose matters regarding employee engagement under Schedule 7.11(1) of the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008, in the Directors' Report, consideration must be given to the number of UK based employees in both the current and preceding year, unless a company is in the first year of operation. 
• Remove Public Interest Entities from the scope of the requirement to disclose trends and factors in the Strategic Report.  The Companies, Partnerships and Groups (Accounts and Non-Financial Reporting) Regulations 2016, removed this requirement for Public Interest Entities (PIEs).  The requirement still remains in place for quoted companies with less than 500 employees.

A press release, including a summary of the amendments are available on the FRC website. 

Our related Need to know publications on the The Companies (Miscellaneous reporting) Regulations 2018 and the revised 2018 guidance on the strategic report are available on this website.  

The FRC previously issued guidance for companies in March 2020. The updated guidance still covers those areas included in that earlier guidance which include:

• Key areas of focus for boards in maintaining strong corporate governance and high-level guidance on some of the most pervasive issues that should be considered when preparing annual reports and other corporate reporting.
• Management information
• Risk management and internal controls systems
• Dividends and capital maintenance
• Corporate reporting
• Strategic Report and Viability Statement
• Financial statements – going concern and material uncertainties, significant judgements and estimation uncertainty and events after the reporting date.

For interim reports the guidance indicates that directors will need to exercise judgment about the nature and extent of the procedures that they apply to assess the going concern assumption at the half‐yearly date. The FRC indicates that this might include disclosure of:

• any material uncertainties to going concern;
• assumptions made about the future path of COVID-19 and the public health responses;
• the projected impact on business activities;
• use of government support measures; and
• access to bank and other financing.

The guidance provides a number of scenarios which may trigger a need to re‐examine the going concern assumption and going concern and liquidity risk disclosures including:

• a significant adverse variation in operating cash flows between prior budgets and forecasts and the outturn in the first half of the year;
• a significant reduction in projected revenues for the second half of the year based on plausible scenarios for the COVID-19 pandemic and public health responses, and taking into account government support measures;
• a failure to obtain renewal or extension of committed financing facilities; and
• a failure to sell capital assets for their expected amounts or within previously forecast time‐frames.

If going concern has become a significant issue since the previous annual financial statements, the guidance indicates that directors should undertake procedures similar to those that they would have carried out for annual financial statements to ensure that all relevant issues have been identified and considered.

The updated guidance for companies is available on the FRC website.

Background

The issue was initially raised with the IFRS Interpretations Committee that had originally intended to develop an interpretation of IAS 16 Property, Plant and Equipment to deal with it. However, during the course of discussions the Committee concluded that a narrow-scope amendment to IAS 16 would be a better solution. The IASB developed an exposure draft published in June 2017 and has now finalised the amendments.

Changes

Property, Plant and Equipment — Proceeds before Intended Use (Amendments to IAS 16) amends the standard to prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss.

Effective date and transition

The amendments published today are effective for annual periods beginning on or after 1 January 2022. Early application is permitted. An entity applies the amendments retrospectively only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Our UK Accounting Plus project page on IAS 16 — Proceeds before intended use
• Our Need to know newsletter

Annual Improvements to IFRS Standards 2018–2020 makes amendments to the following standards:

The amendments to IFRS 1, IFRS 9, and IAS 41 published today are all effective for annual periods beginning on or after 1 January 2022. Early application is permitted. The amendment to IFRS 16 only regards an illustrative example, so no effective date is stated.

Please click for the following additional information:

• IASB press release (link to IASB website)
• Our UK Accounting Plus project page on Annual improvements — 2019-2020 cycle
• Our Need to know newsletter

Background

In March 2018, the IASB issued the 2018 Conceptual Framework and most references to the Framework included in IFRSs were updated to the 2018 Framework at that time. However, paragraph 11 of IFRS 3 Business Combinations, which continued to refer to the 1989 Framework, was not updated as this could have caused conflicts for entities applying IFRS 3.

Potential conflicts occur as the definition of assets and liabilities in the 2018 Framework differ from those in the 1989 Framework potentially leading to day 2 gains or losses post-acquisition for some balances recognised.

In a May 2019 exposure draft, the IASB identified three possible amendments to IFRS 3 that would update IFRS 3 without significantly changing its requirements. These amendments have now been finalised.

Changes

The changes in Reference to the Conceptual Framework (Amendments to IFRS 3):

• update IFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework;
• add to IFRS 3 a requirement that, for transactions and other events within the scope of IAS 37 or IFRIC 21, an acquirer applies IAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination; and
• add to IFRS 3 an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination.

Effective date

The amendments published today are effective for annual periods beginning on or after 1 January 2022. Early application is permitted if an entity also applies all other updated references (published together with the updated Conceptual Framework) at the same time or earlier.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Our UK Accounting Plus project page on IFRS 3 — Updating a reference to the Conceptual Framework
• Our Need to know newsletter

Background

The IFRS Interpretations Committee received a request to clarify what costs an entity considers in assessing whether a contract is onerous. The Committee’s research revealed that, for some contracts, differing interpretations of the onerous contract requirements in IAS 37 Provisions, Contingent Liabilities and Contingent Assets could have a material effect on entities that enter into those contracts. Consequently, the Committee recommended that the Board clarifies the onerous contract requirements in IAS 37. The Board supported the Committee’s suggestion and published an exposure draft of proposed clarifications in December 2018, which were finalised today.

Changes

The changes in Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract).

Effective date and transition requirements

The amendments published today are effective for annual periods beginning on or after 1 January 2022. Early application is permitted.

Entities apply the amendments to contracts for which the entity has not yet fulfilled all its obligations at the beginning of the annual reporting period in which the entity first applies the amendments. Comparatives are not restated.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Our UK Accounting Plus project page on IAS 37 — Onerous contracts
• Our Need to Know newsletter

More in­for­ma­tion about the issues is set out below:

Click to access all our comment letters to the IASB, IFRS Foun­da­tion, and IFRS In­ter­pre­ta­tions Committee.

IASB Supplementary Meeting

The IASB is holding a supplementary meeting on 15 May 2020 to consider feedback on its proposal to amend IFRS 16 in response to COVID-19.  

The staff recommend that the Board finalise the proposed amendments, but allow the expedient to be applied to COVID-19-related rent concessions to payments originally due on or before 30 June 2021; require disclosure of the amount recognised in profit or loss to reflect changes in lease payments that arise from COVID-19-related rent concessions; and specify that in the reporting period in which a lessee first applies the amendment, it is not required to disclose the amount of the adjustment for each line item affected or its effect on earnings per share.

The staff recommend that the Board take no further action in response to requests to provide similar relief to lessors.  If the Board agrees with its recommendations, the staff expect issuing a final amendment on or around 28 May 2020.

IASB Meeting

The IASB is meeting on Wednesday 20 and Thursday 21 May 2020.

Amendments to IFRS 17 Insurance Contracts: The amendments to IFRS 17 are being finalised by the staff. During this process the staff identified five (sweep) issues for which the staff are recommending that that make additional changes to the Standard.

Maintenance and Consistent Application: Sale and leaseback with variable payments: At its April 2020 meeting, the Board decided to amend IFRS 16 for sale and leaseback transactions when the lease has variable payments. At this meeting the staff are recommending that the proposed amendment be applied retrospectively in accordance with IAS 8, except when hindsight is required, and that early application be permitted.

Disclosure Initiative—Accounting policies: The staff recommend that the Board finalise the proposal to require entities to disclose ‘material’ accounting policies instead of ‘significant’ accounting policies, with minor changes. The finalisation should not be delayed to align with any changes arising from the ED General Presentation and Disclosures. However, the staff will consider whether to align the effective date of this amendment with the amendments to IAS 8 under the Accounting Policies and Accounting Estimates project.

Management Commentary: The discussion will continue to focus on disclosure objectives and the type of information that would support those objectives. There are two areas this month: risk and the external evironment.

Research Programme update: The staff will update the Board on the research programme, including recent the changes to the timetable and priorities.

There will also be an oral update of IBOR Reform and the Effects on Financial Reporting.

More information

Our pre-meeting summaries are available on our May meeting notes and supplementary meeting notes pages and will be supplemented with our popular meeting notes after the meeting.