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Disclosure initiative

Date recorded:

Use of language considerations (Agenda Paper 11A)

Back­ground

In 2018, the Board developed draft Guidance for them to use when developing and drafting disclosure objectives and requirements in the future.

The draft Guidance requires the Board to consider the language used when drafting disclosure objectives and items of information for disclosure. In particular, the Board needs to consider the balance between language that is prescriptive enough to encourage comparability but not so prescriptive that it discourages the use of judgement. 

To achieve this, the Board tentatively decided to use:

  • (a) Prescriptive language—‘shall’—to require entities to comply with the disclosure objectives; and
  • (b) Less prescriptive language—for example, ‘shall consider’ or ‘will normally disclose’—when referring to specific items of information that could be used to meet those objectives. That is, the draft Guidance does not specify the exact language to use for the items of information.

Staff analysis

To analyse the items of information in Agenda Papers 11B and 11C, the staff have:

  • considered as a whole all items that, based on user feedback and other input, they understand would be effective in meeting each specific disclosure objective;
  • considered whether any specific items of information should use prescriptive ‘shall’ language instead of less prescriptive language;
  • provided additional analysis for specific items of information, where necessary, to help the Board make a decision; and
  • provided examples of what some disclosures might look like applying the specific disclosure objectives and staff recommendations on the items of information.

Staff recommendations

The staff recommend that the Board:

  • use prescriptive ‘shall’ language when a particular item of information is always essential to meet a particular disclosure objective; and
  • use the less prescriptive language ‘while not mandatory, the following may enable an entity to meet this objective’ to articulate the items of information.

Board discussion and voting

The staff introduced the paper and each of their recommendation before asking the Board to comment and vote thereon.

A Board member, while agreeing with the recommendation regarding the type of language, raised concerns about stakeholder feedback demonstrating that prescriptive language is a significant contributor to the behavioural issues contributing to the disclosure problem. Staff should aim to discuss with regulators and other stakeholders regarding the enforceability of the recommendation and whether there will be any associated outcomes.

One Board member asked how the overall materiality guidance ties in with the staff recommendation. Concerns were raised around the use of ‘always essential’ as this may clash with the materiality concept. It was suggested to include wording similar to ‘it is always essential if material’ in the recommendation as a caveat.  Board members also debated whether materiality should be discussed in each Standard or be included in an overarching discussion in one Standard, for instance IAS 1, in order to enhance consistency between Standards.

Furthermore, some Board members noted that they support the general direction of the recommendation, but raised concerns around the use of certain wording. In particular, they debated the use of the phrase ‘not mandatory’ and the fact that it may be open to different interpretations by different stakeholders. It was questioned whether a clearer distinction should be made between essential and other items of information and the use of prescriptive and less prescriptive language. However, other members and staff argued that ‘not mandatory’ helps for the intended message to come across effectively (especially in cases where the wording will be translated) and provides the required steer, particularly in this pilot phase. Moreover, the members discussed the use of the word ‘normal’, which in the staff’s view would conflict with the Board’s objective to encourage the use of judgement in deciding what to disclose. Some members argued that it would not be difficult to define the word, whilst others pointed out that ‘normal’ has a different definition for different stakeholders and might also be perceived as a move back towards the ‘checklist’ approach.

Finally, one Board member noted that the use of language such as ‘only rarely’ might be perceived as too radical. Other Board members, however, argued that the use of wording like ‘only rarely’ and ‘shall’ in the recommendation helps clarify the disclosure objective and its linkage with disclosure items in the Standard.

When asked to vote, 11:3 votes were in favour of the staff’s recommendation.

IAS 19 Items of information for disclosure (Agenda Paper 11B)

Back­ground

At its July 2018 meeting, the Board selected IAS 19 as one of two Standards on which to test the draft guidance on developing and drafting disclosure objectives and requirements in future.

At its May 2019 meeting, the Board tentatively decided to explore whether disclosure of new or different information about employee benefits would more effectively meet the needs of stakeholders than today’s disclosures. Specifically, the Board tentatively decided:

  • that the first step of the test should be to use feedback from stakeholders about employee benefit disclosures to develop and clearly articulate disclosure objectives; and
  • to subsequently proceed with:
  • developing proposals for items of information that could be used to effectively meet those objectives; and
  • refining those items of information by comparing them to existing IAS 19 disclosure requirements. The staff will bring analysis on this step to a future meeting.

Staff analysis

The staff analysis covers those specific disclosure objectives that the Board tentatively decided to include in IAS 19—that is, the specific disclosure objectives for

  • defined benefit plans; and
  • multi-employer plans and group plans

Staff recommendations

Amounts in the primary financial statements—items of information for disclosure

The staff recommend that the Board require an entity to disclose the following information to meet the specific disclosure objective for defined benefit plans:

  • Breakdown of the total income or expense included in profit or loss, identifying its components such as current service cost, past service cost, gain or loss on settlement and net interest on the net defined benefit liability.
  • Breakdown of the total income or expense included in other comprehensive income, identifying its components such as actuarial gains and losses and return on plan assets.
  • Breakdown of the asset or liability included in the statement of financial position, identifying its components such as plan assets, present value of the defined benefit obligation and any adjustments due to the effect of the asset ceiling.
  • The deferred tax asset or liability arising from the plan.
  • Breakdown of the amounts included in the statement of cash flows, identifying their components such as contributions by the employer into the plan during the period.

Nature and risks of the plans-items of information for disclosure

The staff recommend that the Board include in IAS 19 that, while not mandatory, the following items of information may enable an entity to meet the specific disclosure objective around the nature and risks of the plans:

  • Description of the nature of the benefits provided by the plan.
  • Status of the plans, such as whether the plans are open or closed to new members and whether the plan is unfunded, partly funded or unfunded.
  • Description of how the plan is governed and managed, including any regulatory framework that affects how the plan operates.
  • Description of plan-specific investment risks, including any significant concentrations of risks. For example, if plan assets are primarily invested in one class of investments, an explanation of the risks such concentration exposes the entity to.
  • Description of the policies and processes employed by the entity or plan trustees or managers to manage the risks in (d).
  • Description of the investment strategies for the plans.
  • Breakdown of the fair value of plan assets by classes of assets that distinguish the risks and characteristics of those assets.
  • Expected returns on the plan assets.

Expected future cash flows resulting from the defined benefit obligation-items of information for disclosure

The staff recommend that the Board include in IAS 19 that, while not mandatory, the following items of information may enable an entity to meet the specific disclosure objective around expected future cash flows resulting from the defined benefit obligation:

  • Description of any funding arrangements or policies that affect future contributions, including any agreements reached between plan trustees or managers and the entity.
  • Information about expected future contributions, for example:
  • expected future contributions the entity has committed to, forecasted, or otherwise expects to make to meet the defined benefit obligation at the end of the period; or
  • total expected future contributions the entity has committed to, forecasted, or otherwise expects to make to the plan, differentiating between those in (b)(i) and other expected future contributions.

Time period over which payments to closed plans will continue to be made-items of information for disclosure

In light of user feedback about effective ways to meet this objective, the staff recommend that the Board include in IAS 19 that, while not mandatory, the following items of information may enable an entity to meet the specific disclosure objective around the time period over which payments to closed plans will continue to be made:

  • Weighted average duration of the defined benefit obligation.
  • Number of years that the benefits payable by the plan are expected to be paid.

Significant actuarial assumptions-items of information for disclosure

In light of the above, the staff recommend that the Board include in IAS 19 that, while not mandatory, the following items of information may enable an entity to meet the specific disclosure objective around significant actuarial assumptions:

  • Demographic and financial assumptions used.
  • Approach adopted in determining the assumptions used, such as how the CPI inflation was assessed or the model to account for longevity assumptions.
  • Reasons why any actuarial assumptions significantly changed during the period.
  • Alternative actuarial assumptions reasonably possible at the reporting date that could have significantly changed the defined benefit obligation.
  • Description of the level of measurement uncertainty involved in measuring the defined benefit obligation.

Drivers of change in the net defined benefit liability or asset-items of information for disclosure

The staff recommend that the Board include in IAS 19 that, while not mandatory, the following items of information may enable an entity to meet the specific disclosure objective around the drivers of change in the net defined benefit liability or asset:

  • Narrative explanation of the drivers of change.
  • Tabular reconciliation of the drivers of change.

Items of information to meet specific disclosure objectives for multi-employer plans and group plans

The staff recommend that the Board include in IAS 19 that, while not mandatory, the following items of information in addition to those recommended around the nature and risks of plans may enable an entity to meet the objective for defined benefit multi-employer plans and group plans:

  • The level of participation of the entity in the plan compared to other participating entities.
  • Description of any stated policy to determine the contribution to be paid by the entity into the plan.
  • Description of the extent to which the entity can be liable to the plan for other entities’ obligations under the terms and conditions of the plan.

Board discussion and voting

Recommendation 1

Some Board members raised concerns about the phrase ‘components such as’ because they thought that disclosure of these components would always be essential. They asked why the deferred tax disclosure requirements are addressed here rather than in IAS 12. The staff responded that some items are taxed differently and at different rates to others. Including disclosures relating to these indicators would allow them to be more conspicuous, although duplication should be avoided.

A Board member asked whether the fact that these are essential requirements contradicts the guidance in Agenda Paper 11A and that it may not be easy for the Board to decide on which information is essential and which is not. Some additional medium may be needed to meet the objective in the near future. The staff said that this is an example where the Board could conclude that the information is necessary to satisfy disclosure requirements and they don’t consider these to be inconsistent with Paper 11A.

Another Board member said that the example in Appendix B1 gives detailed information for different jurisdictions and asked whether that is a requirement or entities are encouraged to disclose these items. The staff clarified that these information items fall under the requirements of the ‘high level catch-all disclosure’, with the Board member responding that in his view the example should be kept as simple as possible.

13:1 votes were in favour of the staff recommendation, subject to staff revisiting the ‘components such as’ wording.

Recommendation 2

A Board member asked whether the nature of benefits should also include some description of the vesting conditions, especially if these are unusual.

Another Board member noted that the recommendation mentions only investment risks and not other types of risks, e.g. demographic. The staff members responded that the users’ information needs in relation to other risks are addressed by the other detailed disclosure objectives in place. The Board member said there was no need to generate the information about expected returns for any other reason than this disclosure, making it potentially onerous. The staff argued that users would value this information highly and it would be useful for individuals managing the entity. Other Board members pointed out that the expected return would form part of the actuarial calculation anyway and would also be useful as it provides insight to the contributions element, which is partly a function of the expected earnings. Another Board member asked whether the staff considered details on a line-by-line asset or a higher level, to which staff responded they only require sufficient detail for the users to understand the nature and risks of the plan and not further granularity. 

It was also discussed that there is no clear link between the relevant disclosure objective and mandatory disclosure requirements in the staff recommendation. The staff noted that their goal was clearly to link the objectives with the disclosure requirements that will fulfil each objective and if Board members think that additional levels of granularity are required to achieve that, this can be done.

When asked to vote, 13:1 votes were received in favour of the staff’s recommendation.

Recommendation 3

It was noted that this recommendation aims to link the Conceptual Framework with investor needs, and it may not be conducive to the design of the new model and result in a lack of clarity. The staff responded that this is a fair challenge and they need to explain further the purpose of this disclosure.  

A Board member struggled to see the difference between the items in (b)(i) and (ii).  Staff noted that (b)(ii) refers to useful items of information that have a robust basis but are not subject to a formal contract. Another Board member asked whether (b)(i) refers to the generally present workforce, whereas (b)(ii) to expected future hires (which the staff confirmed).

Another Board member asked that the meaning of ‘forecasted’ be defined and suggested that more information about cash contributions and inputs be provided.  

Finally, a Board member pointed out that, in order to enhance stakeholders’ understanding, the language in this recommendation should tie more explicitly to recognised obligations and distinguish between these and unrecognised obligations. There is also a need to specify the employers’ future contribution requirements that will translate into cash flows, including any agreements reached and minimum annual contributions in relation to the obligation recognised at the reporting date. Further, in discussing how this obligation and thus funding requirements may grow, it should be made clear that these are in addition to amounts recognised at the reporting date and factors that might impact the entity’s contributions in the future should be discussed.

The staff acknowledged these points and agreed to redraft this recommendation and bring it back for discussion and voting at a subsequent meeting.

Recommendation 4

A Board member was concerned that this recommendation would only be relevant for closed plans and questioned the reason for this constraint (the information could be useful for closed and open plans). The staff said the duration information is essential for closed plans but may not be the case for an open plan.

13:1 votes were in favour of the staff’s recommendation.

Recommendation 5

The level of knowledge necessary by preparers necessary to explain why the relevant assumptions are the most significant for the entity, and the need for alternative assumptions, was questioned. 13:1 votes were in favour of the staff’s recommendation.

Recommendation 6

All Board members voted in favour of the staff’s recommendation.

Recommendation 7

A Board member noted that the requirement around the description of the extent to which the entity can be liable to the plan for other entities’ obligations could be a qualitative disclosure requirement (without actually stating what the potential liability is).

All Board members voted in favour of the staff’s recommendation.

IFRS 13 Items of information for disclosure (Agenda Paper 11C)

Back­ground

At its July 2018 meeting, the Board selected IFRS 13 as one of two Standards on which to test the draft guidance on developing and drafting disclosure objectives and requirements in future.

At its May 2019 meeting, the Board tentatively decided:

  • to initially use feedback from stakeholders about fair value measurement disclosures to develop and clearly articulate disclosure objectives. The Board made decisions about these objectives at its September 2019 meeting.
  • to subsequently proceed with linking the specific disclosure objectives to existing IFRS 13 disclosure requirements and refining the proposals by considering:
  • any disclosure information required by IFRS 13 that cannot be linked to a specific objective; and
  • any information identified by users as useful that is not currently required by IFRS 13.

Staff analysis

For each specific disclosure objective, the staff have analysed:

  • whether existing IFRS 13 disclosure requirements can be linked to the objective; and
  • in some cases, whether any additional items of information should be considered for inclusion based on stakeholder feedback.

Staff recommendations

For assets, liabilities and own equity instruments measured at fair value in the statement of financial position

1 .Based on their analysis, the staff recommend that the Board:

  • require an entity to disclose, for recurring and non-recurring fair value measurements, the fair value measurements at the end of the reporting period by level of the fair value hierarchy within which those measurements are categorised in their entirety.
  • include in IFRS 13 that, while not mandatory, the following items of information may enable an entity to meet the objective in IFRS 13:21 for recurring and non-recurring fair value measurements:
  • description of the nature, characteristics and risks of the assets, liabilities and own equity instruments in each level of the fair value hierarchy (or a cross reference to where that information is disclosed).
  • description of any inseparable third-party credit enhancement and whether such enhancement is reflected in the fair value measurement.

2. Further, the staff recommend that the Board include in IFRS 13 that, while not mandatory, the following items of information may enable an entity to meet the objective in IFRS 13:30 for recurring and non-recurring fair value measurements:

  • Description of the significant valuation techniques used in the fair value measurement.
  • If there has been a change in valuation technique, description of the change and the reason(s) for making it.
  • Description of the significant inputs used in the fair value measurement, for example, quantitative information or narrative information.
  • Description of the fact, and reason(s) why, that the highest and best use of a non-financial asset differs from its current use.
  • Description of the fact that an entity makes an accounting policy decision to use the valuation exception in IFRS 13:48 for financial assets and financial liabilities.

3. Moreover, the staff recommend that the Board include in IFRS 13 that, while not mandatory, the following items of information may enable an entity to meet the specific disclosure objective in IFRS 13:35 for recurring fair value measurements:

  • Information about significant drivers of change during the period, for example by:
  • narrative explanation; or
  • tabular reconciliation.
  • Reasons for any transfers during the period and the entity’s policy for determining when transfers are deemed to have occurred.
  • Disclosure of the fact when there have been no transfers during the period.

4. Finally, the staff recommend that the Board include in IFRS 13 that, while not mandatory, the following items of information may enable an entity to meet the specific disclosure objective in IFRS 13:45 for recurring fair value measurements:   

  • Description of the uncertainty from the use of significant inputs if those inputs could have reasonably been different at the reporting date and resulted in a significantly higher or lower fair value measurement.
  • The range of possible fair values reflecting the higher and lower fair value measurement using the reasonably possible alternative inputs at the reporting date.
  • Description of interrelationships between inputs used in fair value measurement and how they magnify or mitigate the effect of changes in inputs on fair value measurement.
  • Disclosure of how the effect of changes to reflect reasonably possible alternative inputs were calculated.

For assets, liabilities and own equity instruments not measured at fair value but for which fair value is disclosed

5. The staff recommend that the Board:

  • Require an entity to disclose the fair value measurements at the end of the reporting period by level of the fair value hierarchy within which those measurements are categorised in their entirety.
  • Include in IFRS 13 that, while not mandatory, a description of the nature, characteristics and risks of the assets, liabilities and own equity instruments (or a cross reference to where that information is disclosed) may enable an entity to meet the following specific disclosure objective: ‘An entity shall disclose information that enables users of financial statements to understand the amount, nature and other characteristics of the classes of assets and liabilities within each level of the fair value hierarchy’.

Factors to consider in providing fair value disclosures

6. The staff think that the specific disclosure objectives and the items of information are detailed enough to ensure entities provide the necessary information to meet user needs. Consequently, they recommend that the requirement in IFRS 13:92 should not be linked to any specific disclosure objective.

Valuation processes

7. The staff recommend that the Board should not retain the existing disclosure requirement in IFRS 13:93(g) because:

  • it does not relate to any of the specific disclosure objectives the Board has tentatively decided to include in IFRS 13. User feedback from the staff’s detailed outreach, as well as during the PIR of IFRS 13, is that the information is not useful for their analysis.
  • as part of its amendments to Topic 820, the FASB removed the same requirement to disclose valuation processes.

Determining appropriate classes of assets and liabilities and the policy for transfers between levels

8. The staff recommend that the information included in the existing requirements in IFRS 13:94 should be linked to the specific disclosure objectives about items within each level of the fair value hierarchy and drivers of change in the fair value measurement from one period to another.

Presentation format

9. The staff recommend that the Board should not retain the disclosure requirement in IFRS 13:99 (around presenting required quantitative disclosures in a tabular format).

Board discussion and voting

The staff noted that they took a different approach for IFRS 13. There are two overarching themes across the recommendations. The first is the recommendations avoid reference to levels of the fair value (FV) hierarchy in the disclosures (to encourage judgement to eliminate immaterial disclosures such as detailed disclosures about immaterial level 3 items and include information that may be material such as for level 2 items close to the level 3 boundary whose measurements contain significant judgement).

The second is that the staff recommend retaining the distinction between recurring and non-recurring FV measurements.  

Board members stressed the importance of explaining to stakeholders why a different approach has been taken for this Standard, particularly as a higher level of judgement will be required. One Board member asked staff to consider the level of disaggregation stakeholders should apply when making materiality judgements, particularly non-FI measures.  

Recommendation 1

A Board member was concerned about the closeness of mapping between the recommendations and the relevant subjectivity in the assessment described in item (a). The example in Appendix C did not seem to enhance stakeholders’ understanding of item (a) and grouping trade and equity securities together may send an odd message. The staff acknowledged the concerns and noted that the relevant example could be improved.

13:1 votes were in favour of the staff recommendation, subject to the relevant example being revised.

Recommendation 2

A concern was raised around the valuation exception disclosure described in item (e). It was argued that if the entity has elected to use it and it is material, it would be expected that information around it is disclosed. Hence, the use of the ‘not mandatory’ introductory language should be changed to ‘shall’.

The staff argued against that suggestion because ‘not mandatory’ in this case is for when the valuation exception does not exist. Members of the Board responded that if an entity has made the election to use the valuation exception, then the relevant disclosure note would not be acceptable if that fact was omitted. The staff acknowledged that and agreed to revise the language to ‘shall’ if the Board supports that direction.

12:2 Board members voted in favour of the staff’s recommendation, subject to that modification.

Recommendation 3

A Board member said that they would struggle with only a narrative explanation of the change in value, with no quantification.  

Another Board said the previous requirements provided information about where in the financial statements the effects of fair value changes were reflected. The proposed objectives do not seem focused on this (as is also the case in IAS 19) and this should be remedied. This comment received some support.

The benefits of the current specific information requirements around level 3 were used to demonstrate that it was easier for a stakeholder to determine the level of a safe dividend distribution/bonus payment by looking at the P&L of an entity and for a regulator to assess how strong the capital of a bank is. The staff said that this information requirement had not come through the feedback received from stakeholders so far, however acknowledged that they haven’t discussed with regulators yet.

A Board member supports the recommendation except for item (c). If a transfer is not included this is because it either did not take place or it is not material and there is no reason to disclose this fact.

Another Board member did not support the recommendation as it could only be achieved through a full reconciliation, particularly for banks. 

It was suggested that the Board vote separately on the three disclosure requirements within the recommendation, subject to the staff revising the objective in relation to the impact of fair value measurement on the financial statements. On this basis:

12:2 Board members voted in favour of the staff recommendation in item (a).

13:1 Board members voted in favour of the staff recommendation in item (b).

No Board members voted in favour of the staff recommendation in item (c).

Recommendation 4

A Board member asked for clarification around the term ‘reasonably possible’ and whether the range of fair values reflecting the higher and lower fair value mentioned in item (b) is an additional idea being introduced. The staff stated that the aim is to clarify that the range of reasonably possible fair values could be achieved in a number of ways and each of the items in paragraph 51 of the paper could contribute to this understanding.

Another Board member asked whether this recommendation is in relation to alternative inputs being used where there is unobservable data or in relation to the changes of one particular input having been selected. The staff responded that it relates to the measurement uncertainty at the reporting date, which would arise only if there were alternative inputs.

13:1 Board members voted in favour of the staff’s recommendation.

Recommendation 5

13:1 Board members voted in favour of the staff’s recommendation.

Recommendation 6

The staff were asked whether the recommendation implies that IFRS 13:92 requirements no longer apply or whether they are just not linked to a specific objective. The staff clarified that these will no longer be treated as separate disclosure requirements but the content of IFRS 13:92 will be included within IFRS 13:30 of this paper.

12:1 Board members voted in favour of the staff’s recommendation with one Board member absent.

Recommendation 7

A Board questioned what evidence existed to support the removal of this disclosure requirement. They noted that in the literature review performed as part of the PIR, the evidence suggested that understanding the valuation techniques used enhanced level 3 measurements and resulted in better valuations. The staff said that user feedback supported removing the objective, as it was not deemed to be part of fundamental objectives satisfying user needs. Other Board members raised concerns about the removal of this disclosure from a corporate governance perspective, with others suggesting that the Board members consult offline with staff on what has been removed.

11:3 Board members voted in favour of the staff’s recommendation.

Recommendation 8

13:1 Board members voted in favour of the staff’s recommendation.

Recommendation 9

A Board member asked what user feedback was in relation to tabular presentations as their usefulness had previously been emphasised. Staff responded that this had not come up in the context of this outreach. Another Board member commented that during the initial work performed for the inclusion of tabular presentation in IFRS 13 disclosure requirements, it was noted that, previously, disclosures had been very difficult to read given their narrative rather than tabular nature. They also pointed out that they are uncertain whether this disclosure requirement is specific enough to guide preparers.

Another Board member said if this disclosure requirement is retained, the wording may need to be changed to signal that tabular presentation may still be the most appropriate way of presentation in most cases. The staff agreed to revise.

No Board members voted in favour of the staff’s recommendation, regardless of whether it was revised.

Correction list for hyphenation

These words serve as exceptions. Once entered, they are only hyphenated at the specified hyphenation points. Each word should be on a separate line.