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IASB proposes addendum to the exposure draft of the third edition of the IFRS for SMEs

28 Mar, 2024

The International Accounting Standards Board (IASB) has published an exposure draft IASB/ED/2024/2 'Addendum to the Exposure Draft 'Third edition of the 'IFRS for SMEs' Accounting Standard''. Comments are requested by 31 July 2024.

 

Background

In September 2022, the International Accounting Standards Board (IASB) published the exposure draft of a third edition of the IFRS for SMEs accounting standard. For this exposure draft, the IASB had considered alignment with full IFRS Accounting Standards that are effective on or before 1 January 2020. Nevertheless, during the redeliberation of the proposals in the exposure draft, the IASB also looked at all amendments to full IFRSs with an effective date after 1 January 2020 to see whether any of these would warrant inclusion in the final amendments.

At its meeting in October 2023, the IASB decided to include the amendments to full IFRSs for supplier finance arrangements and lack of exchangeability. As these amendments had not been part of the original exposure draft and as the IASB wanted the public to be able to comment on these amendments before including them in the third edition of the IFRS for SMEs, the IASB decided to develop an addendum to the original exposure draft that would be exposed for public comment prior to finalising the amendments.

 

Suggested changes

The proposed amendments in exposure draft IASB/ED/2024/2 Addendum to the Exposure Draft 'Third edition of the IFRS for SMEs Accounting Standard' are:

Alignment with IAS 7 as amended by Supplier Finance Arrangements

The IASB proposes that an SME would disclose the following information about its supplier finance arrangements:

  • the terms and conditions - aggregated, but with separate disclosure of the terms and conditions of supplier finance arrangements that are dissimilar;
  • at the beginning and end of the reporting period for reportable supplier finance arrangements:
    • the carrying amounts of the financial liabilities and where they are included in the statement of financial position,
    • the carrying amounts of the financial liabilities for which suppliers have already received payment from the finance providers; and
    • the range of payment due dates of the financial liabilities compared to trade payables that are not part of a supplier finance arrangement; and
  • the type and effect of non-cash changes in the carrying amounts of the financial liabilities.

Alignment with with IAS 21 as amended by Lack of Exchangeability

The IASB proposes to amend the IFRS for SMEs:

  • to specify when a currency is exchangeable into another currency;
  • to set out the factors an SME would need to consider when assessing whether a currency is exchangeable and to specify how those factors affect the assessment;
  • to specify how an SME determines the spot exchange rate when a currency is not exchangeable into another currency; and
  • to require an SME to disclose information that would enable users of its financial statements to understand the effects of a lack of exchangeability.

    Comments on the proposed changes are requested by 31 July 2024.

     

    Effective date

    The IASB proposes that the amendments have the same effective date as the other amendments to the IFRS for SMEs. 

       

      Additional information

      Please click for:

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      2024 IFRS Accounting Taxonomy issued

      27 Mar, 2024

      The IFRS Foundation has issued its 2024 IFRS Accounting Taxonomy. The IFRS Taxonomy enables electronic reporting of financial information prepared in accordance with IFRS Accounting Standards.

      The 2024 IFRS Accounting Taxonomy is con­sis­tent with IFRSs as issued by the IASB at 1 January 2024, including those issued but not yet effective. The 2024 IFRS Taxonomy also in­cor­po­rates the changes made to the IFRS Taxonomy in 2023 re­flect­ing amended IFRSs and common reporting practice by companies that apply IFRS Accounting Standards as well as general taxonomy im­prove­ments.

      For more in­for­ma­tion, see the press release and the 2024 IFRS Accounting Taxonomy page on the IFRS Foun­da­tion website.

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      IASB publishes "Investor Perspectives" article on acquisitions reporting

      27 Mar, 2024

      The IASB has issued the latest issue of 'Investor Perspectives'. In this edition, IASB Board member Zach Gast discusses proposed enhancements to acquisitions reporting and the revisions in Exposure Draft (ED) ‘Business Combinations — Disclosures, Goodwill and Impairment’ that aim to equip investors with better tools for evaluating companies’ acquisitions.

      The IASB is presently soliciting feedback on proposed amendments to IFRS 3 Business Combinations. These amendments would necessitate companies to divulge the objective and associated performance targets of their most significant acquisitions, along with whether these targets are achieved in subsequent years. Further, companies would be mandated to furnish details regarding anticipated synergies for all substantial acquisitions. Nevertheless, the proposals ensure that companies need not disclose information that could jeopardize their acquisition objectives. Additionally, the IASB suggests complementary adjustments to IAS 36 Impairment of Assets to refine the impairment test. Interested parties have until 15 July 2024 to provide their comments on the ED.

      For more in­for­ma­tion, see the press release and Investor Per­spec­tives article on the IFRS Foun­da­tion’s website.

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      FRC publishes changes to FRS 102 as part of its second periodic review of the standard

      27 Mar, 2024

      The Financial Reporting Council (FRC) has published ‘Amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review 2024’ (“the Amendments”) which contains the changes to FRS 102 and other UK and Republic of Ireland financial reporting standards as a result of the second periodic review of the standard.

      The amendments are focused on updating UK GAAP accounting requirements to reflect changes in IFRS Accounting Standards, particularly with respect to revenue and leases, and making other incremental improvements and clarifications.

      The following principal amendments, which were consulted on within Financial Reporting Exposure Draft (FRED) 82 Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland and other FRSs – Periodic Review and FRED 84 Draft amendments to FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland – Supplier Finance arrangements, have been made:

      • New accounting requirements for revenue in FRS 102 and FRS 105 The Financial Reporting Standard applicable to the Micro-entities Regime based on the five-step model for revenue recognition from IFRS 15 Revenue from Contracts with Customers, with appropriate simplifications. The extent to which this will change an entity’s revenue recognition in practice will depend on the form of its contracts with customers.
      • New lease accounting requirements in FRS 102, based on the on-balance sheet model from IFRS 16 Leases, with appropriate simplifications, for example a higher threshold for recognition of low-value assets on balance sheet where that exemption is taken. This is expected to result in an impact on the financial statements of most entities that are lessees under one or more operating leases.  No equivalent change has been made to FRS 105.

      Other incremental improvements and clarifications to FRS 102 include:

      • Greater clarity for small entities in the UK applying Section 1A Small Entities regarding which disclosures need to be provided in order to give a true and fair view.
      • A revised Section 2 Concepts and Pervasive Principles, updated to reflect the IASB’s Conceptual Framework for Financial Reporting, issued in 2018.
      • A new Section 2A Fair Value Measurement, replacing the Appendix Fair Value Measurement to Section 2 and updated to reflect the principles of IFRS 13 Fair Value Measurement.
      • New disclosures requirements about supplier finance arrangements within Section 7 Statement of Cash Flows.
      • Additional guidance within Section 26 Share-based Payment to aid preparers in applying the principles in certain situations.
      • New guidance in Section 29 Income Tax on accounting for uncertain tax positions.
      • A number of improvements and clarifications to existing guidance in Section 34 Specialised Activities and consequential changes as a result of other amendments.
      • Removal of the option to newly adopt the recognition and measurement requirements of IAS 39 Financial Instruments: Recognition and Measurement under paragraphs 11.2(b) and 12.2(b) (unless needed to achieve consistency with group accounting policies), in preparation for the eventual removal of this option. Entities already applying the IAS 39 option are permitted to continue to apply it.

      When applicable, similar incremental improvements and clarifications are made to FRS 105.

      As part of the periodic review, the FRC has not made changes to introduce an expected credit loss model, consistent with IFRS 9 Financial Instruments, and no changes have been made to align the standards with IFRS 17 Insurance Contracts.  The FRC has said that any alignment with IFRS 17 or further alignment with IFRS 9 will be part of a future project and subject to consultation in due course.

      In developing the Amendments, the FRC considered major and minor changes to IFRS Accounting Standards, the International Accounting Standard Board’s (IASB's) proposed changes in developing the third edition of the IFRS for SMEs Accounting Standard, stakeholder feedback in response to the FRC’s 2021 request for views, and FREDs 82 and 84, and other developments in corporate reporting.

      The principal effective date of the amendments is accounting periods beginning on or after 1 January 2026, with early application permitted provided all amendments are applied at the same time.  Earlier effective dates apply to new disclosures about supplier finance arrangements in Section 7 of FRS 102 (periods beginning on or after 1 January 2025, with early application permitted) and a new requirement in Section 6 Transition to this FRS of FRS 103 Insurance Contracts (periods beginning on or after 1 January 2024). Transitional provisions are included. 

      The FRC will be holding a webinar on 15 May 2024 to provide an overview of the changes.  During 2024 the FRC will also publish new editions of the standards and updated staff factsheets with guidance on key aspects of the new requirements.

      A press release, including links to the Amendments, a three-page summary of the main changes, impact assessment and feedback statement is available on the FRC website. 

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      ESMA publishes report on the activities of corporate reporting enforcers and their findings within the EU in 2023

      27 Mar, 2024

      The report provides an overview of the activities of the European Securities and Markets Authority (ESMA) and the corporate reporting enforcers in the European Union (EU) when examining compliance of financial and non-financial information provided by issuers listed on regulated markets with the applicable financial reporting framework in 2023.

      European enforcers examined the financial statements of 703 issuers representing an average examination rate of 17% of all IFRS issuers with securities listed on regulated markets. These examinations resulted in 250 actions taken to address material departures from IFRS. As in the past, most infringements were identified in the areas of accounting for financial instruments, impairment of non-financial assets, presentation of financial statements and revenue recognition.

      Enforcers also assessed the non-financial information for 389 issuers, covering approximately 17% of the total estimated number of issuers required to publish a non-financial statement, resulting in 91 enforcement measures.

      The report also looks at ESEF reporting as for financial years beginning on or after 1 January 2021, issuers must prepare their annual financial reports according to XHTML requirements and mark-up those IFRS consolidated financial statements contained therein according to iXBRL requirements.

      Please click to access the full report on the ESMA website.

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      IASB issues podcast on latest Board developments (March 2024)

      27 Mar, 2024

      The IASB has released a podcast hosted by Executive Technical Director Nili Shah featuring IASB Chair Andreas Barckow and IASB Vice-Chair Linda Mezon-Hutter discussing the deliberations at the March 2024 IASB meeting.

      The podcast highlights some of the projects that were discussed during the meeting, including:

      • climate-related and other uncertainties in the financial statements;
      • management commentary; and
      • power purchase agreements.

          The podcast can be accessed here on the IFRS Foundation website.

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          March 2024 IASB meeting notes posted

          26 Mar, 2024

          The IASB met in London on 18-21 March 2024. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

          Board work plan update: The staff provided an overview of the work plan. In particular, the staff presented completed projects, new projects, expected consultation documents and expected project completions.

          Post-implementation review (PIR) of IFRS 9—Impairment: The IASB deliberated the feedback received in response to its request for information Post-implementation Review—IFRS 9 Financial Instruments—Impairment. The IASB decided not to take any further action on the matters raised by respondents regarding the use of forward-looking scenarios and post-model adjustments or management overlays in measuring expected credit losses.

          Power purchase agreements: The IASB decided to propose amendments to the own-use requirements and to the hedge accounting requirements in IFRS 9. The IASB also decided to propose a scope for the amendments, as well as disclosure and transition requirements. The IASB gave permission to the staff to begin the balloting process for the exposure draft, which will have a shortened comment period of 90 days.

          Second comprehensive review of the IFRS for SMEs standard: The IASB continued the redeliberations of its proposals in the exposure draft (ED) Third edition of the IFRS for SMEs Accounting Standard. In particular, the IASB decided to finalise the proposed amendments to Section 23 Revenue from Contracts with Customers and Section 2 Concepts and Pervasive Principles with some modifications. The IASB also made decisions with regard to other minor issues that were raised by respondents to the ED.

          Climate-related and other uncertainties in the financial statements: The staff explained the approach it has taken to develop examples illustrating how to apply requirements in IFRS Accounting Standards to report the effects of climate-related and other uncertainties in financial statements.

          Maintenance and consistent application: The IASB decided that some of the disclosure requirements in the forthcoming exposure draft (ED) Use of a Hyperinflationary Presentation Currency by a Non-hyperinflationary Entity should also apply to subsidiaries without public accountability. The IASB gave permission to ballot the ED.

          PIR of IFRS 15 Revenue from Contracts with Customers: The IASB decided that no further action should be taken with regard to determining the transaction price, determining when to recognise revenue and disclosure requirements of IFRS 15.

          Equity method: The IASB reconfirmed its tentative decisions regarding transitional requirements for the proposed amendments to IAS 28 and gave permission to start the balloting process for the exposure draft.

          Management commentary: The IASB discussed the direction of the management commentary project. The staff had identified the following four broad alternative directions that the IASB could take: finalise the project; retire the project; undertake a broader project; and keep the project on hold. IASB members had mixed views on the alternatives but were not asked to make a decision. The alternatives will be discussed at a future meeting.

          Catch-up exposure draft of the forthcoming IFRS 19 Subsidiaries without Public Accountability: Disclosures: The IASB decided which disclosure requirements from the forthcoming IFRS 18 Presentation and Disclosure in Financial Statements to propose in the “catch-up exposure draft” following the publication of IFRS 19.

          Rate-regulated activities: The IASB continued to redeliberate the proposals in the exposure draft Regulatory Assets and Regulatory Liabilities. In particular, the IASB made decisions on the discount rate and reduced disclosure requirements.

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

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          Updated IASB and ISSB work plan — Analysis (March 2024)

          26 Mar, 2024

          Following the IASB and ISSB meetings this month, we have analysed the work plan on the IFRS Foundation website to see what changes have resulted from the meetings and other developments since the work plan was last revised in February 2024. Changes are few, but the work plan reveals that three IASB publications are to be expected later this week.

          Below is an analysis of all changes made to the work plan since our last analysis on 29 February 2024.

          Standard-setting projects

          • Business combinations — Disclosures, goodwill and impairment — Following the publication of the exposure draft on 14 March 2024, the next expected project step is now the discussion of the feedback received expected to begin in H2 2024
          • Financial instruments with characteristics of equity — Discussion of the feedback received on the exposure draft is now expected to begin in May 2024 (previously Q2 2024)

          Maintenance projects

          • Addendum to the exposure draft 'Third edition of the IFRS for SMEs Accounting Standard' — The exposure draft is now expected in March 2024 (previously April 2024)
          • Amendments to the classification and measurement of financial instruments — Final amendments are now expected in May 2024 (previously Q2 2024)

            IASB publications expected in March (i.e. this week)

            • Addendum to the exposure draft 'Third edition of the IFRS for SMEs Accounting Standard' — see above
            • IFRS Accounting Taxonomy Update — Amendments to IAS 12, IAS 21, IAS 7 and IFRS 7 — as part of the IFRS Accounting Taxonomy 2024
            • IFRS Accounting Taxonomy Update — Common practice (Financial instruments) and general improvements — as part of the IFRS Accounting Taxonomy 2024

              The above is a faithful comparison of the IASB and ISSB work plan at 29 February 2024 and 26 March 2024. For access to the current work plan at any time, please click here.

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              Education workshop on IFRS 18

              25 Mar, 2024

              The International Accounting Standards Board (IASB) in conjunction with the European Accounting Association (EAA) will hold a virtual education workshop on IFRS 18 'Presentation and Disclosure in Financial Statements' on 22 April 2024.

              The purpose of the session is to inform academics involved in teaching financial reporting modules on the new requirements in IFRS 18 coming into effect on 1 January 2027. The session also aims to stimulate academic discussion and research that will be useful for the post-implementation review of IFRS 18.

              The workshop will be structured in three sections: 1) New defined subtotals in the statement of profit or loss; 2) Requirements for aggregation and disaggregation, and 3) Management-defined performance measures.

              Please click for more information and registration on the EAA website.

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              Agenda papers available for the UKEB Public Board Meeting on 28 March 2024

              22 Mar, 2024

              The meeting agenda and papers for the UK Endorsement Board (UKEB) public Board meeting on 28 March 2024 are available.

              The agenda items for dis­cus­sion are as follows:

              • UKEB Regulatory Strategy 2024/25
              • Financial Instruments with Characteristics of Equity – UKEB’s Final Comment Letter, Feedback Statement and [Draft] Due Process Compliance Statement
              • Rate-regulated Activities – UKEB Top-down approach
              • Business Combinations—Disclosures, Goodwill and Impairment – Project Initiation Plan
              • UKEB letter to IASB on connectivity matters
              • IASB General Update
              • Final Report – Accounting for Intangibles: A Quantitative Analysis
              • Final Report – Accounting for Intangibles: User Survey

              The meeting agenda and papers and details of how to re­gister are avail­able on the UKEB website.

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