Cover Paper (Agenda Paper 30)

The Board is undertaking its 2019 comprehensive review of the IFRS for SMEs Standard. At this meeting the Board was asked to decide whether the Request for Information (RFI), which will be issued as part of the 2019 review, should seek views on whether and how the requirements of the IFRS for SMEs Standard should be aligned with Standards that have been issued or amended since the IFRS for SMEs Standard was issued.

The discussions focused on the scope of the IFRS for SMEs Standard, IAS 19, IAS 23, IFRS 11, accounting for cryptocurrencies and accounting for financial guarantee contracts of the IFRS for SMEs Standard.

Scope of the IFRS for SMEs Standard (Agenda Paper 30A)

Background

At its meeting in February 2019 the Board tentatively decided to include the scope of the IFRS for SMEs Standard as part of the 2019 Review.

Following the feedback to the 2012 Review that some publicly accountable entities should be permitted to apply the IFRS for SMEs Standard, the staff sought advice on retaining the definition of public accountability but permitting exceptions to the definition to allow (for example) certain publicly accountable entities to apply the IFRS for SMEs Standard.

The staff analysed the issue and observed that permitting some publicly accountable entities to apply the IFRS for SMEs Standard could result in increased complexity and increased costs of maintaining the IFRS for SMEs Standard because the Standard would need to be updated to cater for publicly accountable entities.

Staff recommendations

The staff recommended that the RFI on the scope of the IFRS for SMEs Standard seeks views on the Board’s intention not to amend the scope of the Standard

Board Discussion

Board members noted that there are complexities in changing the scope and noted the Board should not touch the scope as there were some strong arguments in the 2012 review and the Board has not heard anything implying that the scope needs to be changed.

Board members recommended that the RFI on the scope for IFRS for SMEs should be moved to a separate section to avoid confusion and make it clear that other alignments in the RFI are based on the current scope of IFRS for SMEs.

Some Board members did not see the point of changing the scope and feel there is no need to open this question every time when considering changes to the Standard. However, some Board members disagreed and believed it is an important question to ask. There are some demands from a regulators perspective, e.g. for regulated alternative markets, to use IFRS for SMEs. There are some particular interests among EU and emerging jurisdictions as well as some demands from small banks and insurance companies, so it is a valid question to ask.

Some Board members believe there is a gap for the over-the-counter markets and the Board should not assume it has all the information necessary to make the decision.

The Board agreed to seek views in the RFI on the Board’s preliminary view not to amend the scope of the IFRS for SMEs Standard (supported by all Board members).

New IFRS Standards—IAS 19 Employee Benefits (Agenda Paper 30B)

Staff recommendations

The staff recommended that the Board seeks views in the RFI on its intention to align Section 28 of the IFRS for SMEs Standard with IAS 19 with regard to:

• Presenting remeasurements of defined benefit plans in other comprehensive income (OCI)
• Defining remeasurements in line with IAS 19
• Aligning the recognition requirements for termination benefits with those in IAS 19

The staff also recommended to consult in the RFI on:

• Practice issues in applying the simplifications for measuring defined benefit obligations using the ‘undue cost or effort’ exemption permitted in paragraph 28.19 of the IFRS for SMEs Standard
• The Board’s intention not to align any other requirements in Section 28

Board Discussion

In terms of eliminating the presentation option for remeasurements, Board members noted that the option is linked to the cultural background of different jurisdictions. For SMEs, there is less tension with regard to comparability across borders. There should be options available that can be used depending on the preference in the SME’s jurisdiction. One Board member did not see any issues with regard to an accounting mismatch.

Board members noted that the Conceptual Framework project revealed the Board’s reluctance to increase the use of OCI. Also for SMEs, OCI is used less in comparison to full IFRS. Board members were reluctant to force SMEs to use OCI if they are currently not required to use it. It might be easier for an entity to present all changes in P&L. However, some Board members thought it may be useful to align the terminology of actuarial gains and losses, remeasurements, etc. with full IFRS. However, staff said it would be difficult to align the definition of remeasurements without aligning the presentation for those.

Board members noted the accounting of a defined benefit scheme will not be a big issue for SMEs as it is expected that a lot of SMEs have an externally funded scheme. Consequently, the Board should not add complexity to the Standard.

The Board voted against proposing to present remeasurements of defined benefit plans in OCI (only 6/13 Board members supported, one absent), but supported seeking views on the issue in the RFI (12/13 Board members supported, one absent).

The Board also voted to seek views in the RFI on:

• not defining remeasurements in line with IAS 19 (supported by 12/13 Board members with one Board member absent)
• aligning the recognition requirements for termination benefits with those in IAS 19 (supported by 8/13 Board members with one Board member absent)
• practice issues in applying the simplifications for measuring defined benefit obligations using the ‘undue cost or effort’ exemption permitted in paragraph 28.19 of the IFRS for SMEs Standard (supported by 13/13 Board members with one Board member absent)
• the Board’s intention not to align any other requirements in Section 28 (supported by 13/13 Board members with one Board member absent)

Questions and answers developed by the SME Implementation Group (SMEIG Q&A) (Agenda Paper 30C)

Staff recommendations

The Board should ask in the RFI whether it should:

• Add the IFRS 9 definition of financial guarantee contracts to the IFRS for SMEs Standard
• Align the requirements for issued financial guarantee contracts with those in IFRS 9

Board Discussion

Board members asked whether the second staff recommendation was to align the measurement requirement, as in that case, the word ‘measurement’ would need to be added to the recommendation. Board members noted that Section 21 of the IFRS for SMEs Standard has a stricter requirement than IFRS 9 on financial guarantee contracts and by aligning the requirements with IFRS 9, SMEs would receive the relief they are looking for.

Some Board members noted that the Board is seeking views on adopting the expected credit loss model (ECL) in IFRS 9 for the IFRS for SMEs Standard. The measurement requirement in IFRS 9 relies on the ECL model being applied, so the proposed alignment may not be applied easily in practice for SMEs, depending on the Board’s ultimate decision to adopt the ECL model for SMEs.

11/13 Board members (one absent) agreed to address the SMEIG Q&A and to integrate it into the IFRS for SMEs Standard.

It was also noted that it would be reasonable to use FVTPL to measure financial guarantee contracts. However, the Board should not require this as the only option.

Previous Board decisions—IAS 23 Borrowing Costs (Agenda Paper 30D)

Staff recommendations

One of the differences between IFRS Standards and the IFRS for SMEs Standard is the capitalisation of borrowing costs. The staff recommended that the Board seeks views in the RFI on whether and how section 25 of the IFRS for SMEs Standard could be aligned with IAS 23. The Board should ask in the RFI whether it should:

• Require entities to capitalise borrowing costs that are directly attributable to the acquisition
• Introduce an accounting policy election to either capitalise or expense borrowing costs
• Maintain the current requirements of the IFRS for SMEs Standard

Board Discussion

Board members agreed to raise this issue, but would not want to change the existing IFRS for SMEs Standard. Board members did not see this is a big issue for SMEs as they are more focused on their cash flows.

The Board voted with 11 out of 13 Board members (one absent) to seek views in the RFI to maintain the current requirement of the IFRS for SMEs Standard on borrowing costs.

Cryptocurrency (Agenda Paper 30E)

Staff recommendations

The staff recommended the Board seek views in the RFI on:

• Whether the holdings and issuing of cryptoassets are widespread and material among entities applying the IFRS for SMEs Standard and/or SME entities
• The following alternatives for addressing the accounting for holdings of cryptocurrencies in the IFRS for SMEs Standard:
  • Alternative 1: no action
  • Alternative 2: introduce a revaluation model for intangible assets
  • Alternative 3: introduce a separate section on cryptocurrency
• Whether the IFRS for SMEs Standard should address cryptocurrency mining and staking

Board Discussion

Board members would not want to introduce alternatives to the accounting for intangible assets for SMEs. There could be a section devoted to this topic if the feedback received for the first question noted that cryptoasset issues are widespread.

9 out of 13 Board members (one absent) supported to ask the question of whether the holdings and issuing of cryptoassets are widespread and material.

Some Board members were reluctant to seek views on solutions recommended by the staff. They would rather not seek views on how to address the accounting of cryptocurrencies until knowing if this is an issue for SMEs.

Board members also noted it would be difficult to manage expectations given there is no actual Standard in full IFRS that addresses cryptocurrency mining and staking. Thus, they would not seek views in the RFI on recommendation 3.

The Board voted on an additional item on whether to introduce a revaluation model for cryptocurrencies with only 1 out of 13 Board members (one absent) supporting this.

The Board rephrased question 3 and voted on whether the Board should gather information on whether cryptocurrency mining and staking is widespread and material among entities applying the IFRS for SMEs Standard and/or SME entities. (only 4/13 Board members (one absent) supported this)

Previous Board decisions—IFRS 11 Joint Arrangements (Agenda Paper 30F)

Background

At its July 2019 meeting, the Board tentatively decided to seek views in the RFI not to align Section 15 Investments in Joint Ventures of the IFRS for SMEs Standard with IFRS 11 Joint Arrangements.

Since that meeting, the staff realised that, consistent with the principles supporting the concept of control in both IFRS 10 and IFRS 11, the definition of ‘joint control’ in Section 15 relies on the concept of control as defined in Section 9. It follows that if Section 9 is aligned with IFRS 10 whilst Section 15 is not aligned with IFRS 11, the definition of control of an investee and the definition of joint control would not be based on consistent principles.

Staff recommendations

The staff recommended that the Board reconsider its tentative decision made at its July 2019 meeting and seek views in the RFI on aligning Section 15 of the IFRS for SMEs Standard with IFRS 11.

Board Discussion

Board members requested some clarifications of the staff recommendations on this agenda item, in particular, whether it was possible to only align the definition of joint control with IFRS 11 without the need to consider other differences between IFRS 11 and Section 15 of IFRS for SMEs Standard.

As mentioned in the July meeting, one Board member noted that aligning the definition of joint control for SMEs could be difficult in practice.

Board members would like to understand the consequences of modifying the joint control definition to align with IFRS 11. Also, they would like to understand the consequence of any misalignment of the definition with the concept of control in IFRS 10.

The staff will bring back a paper on this. No decisions were made.