Update (Agenda Paper 8)

The periodical update in the agenda paper will replace the research update that was provided generally every three to four months.

The following projects have been completed since May 2020:

• Amendments to IFRS 17 and Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4)
• Classification of Liabilities as Current or Non-Current—Deferral of Effective Date (Amendments to IAS 1)
• Interest Rate Benchmark Reform—Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16)

The Board removed the project Accounting Policy Changes (Amendments to IAS 8) from its work plan. Feedback on the project was mixed and raised doubts about the expected benefits of proceeding with the project. Developments since publishing the Exposure Draft (ED) had also reduced the need for the amendments.

The project on Equity Method has started since May 2020.

The following projects will see final amendments in December 2020:

• Disclosure Initiative—Accounting Policies
• Accounting Policies and Accounting Estimates (Amendments to IAS 8)

The following consultation documents are currently open for comment:

• Request for Information (RFI) on the Comprehensive Review of the IFRS for SMEs Standard
• Discussion Paper (DP) on Business Combinations—Disclosures, Goodwill and Impairment

The following consultation documents are expected in the next six months:

• ED on Lease Liability in a Sale and Leaseback
• DP on Business Combinations under Common Control (BCUCC)
• RFI on the post-implementation review (PIR) of IFRS 10, 11 and 12
• ED on Rate-Regulated Activities
• ED on Management Commentary
• ED on the Disclosure Initiative—Targeted-Standards-level Review of Disclosures
• RFI on the Agenda Consultation

COVID-19 implications (Agenda Paper 8A)

The challenges with regard to the ongoing COVID-19 pandemic persist, to varying degrees around the world. Although the situation in some places has improved, others are facing potential new restrictions, continued remote working, reduced government support and fewer resources from furloughs, illness and the mental and physical toll from the longevity of this crisis. As a result, stakeholder capacity to engage on consultation documents may understandably be limited at the moment.

The staff believe that their processes and staffing are such that they can achieve the current timetables. However, recent feedback, most notably at the October 2020 ASAF meeting, suggested that they should consider whether further adjustments are needed due to stakeholder capacity constraints. The agenda paper assesses this need, for both published and forthcoming major consultations expected in the next six months.

Based on the assessment, the staff recommended the following:

• DP on Business Combinations—Disclosures, Goodwill and Impairment: do not extend the comment period
• DP on BCUCC: extend the comment period to 270 days
• RFI on the PIR of IFRS 10, 11 and 12: consider extended comment period
• ED on Management Commentary: defer publication to May 2021
• ED on Rate-regulated Activities: no changes to the 150-day comment period already decided
• ED on the Disclosure Initiative—Targeted-Standards-level Review of Disclosures: do not defer publication
• RFI on the Agenda Consultation—do not defer publication

Board discussion

Many Board members agreed with the extension of the comment periods as stakeholders have signalled that they are overwhelmed with major consultations on top of the first year end under the COVID-19 pandemic. However, one Board member mentioned that the DP on BCUCC is only asking for a direction and not for comments on drafting, so it might not be necessary to extend. On the other hand, the Vice-Chair noted that the project has been ongoing for a very long time, so another 90 days would not mean a significant delay.

One Board member noted that publishing the ED on Management Commentary in May means it would be right before the summer period in Europe, which is not ideal. She suggested to bring it one month earlier to attract more comments. Another Board member said that stakeholders had asked whether the Management Commentary project would be stopped because of the IFRS Foundation (IFRSF) Consultation Paper on sustainability standard-setting. While this is not the case, postponing the publication of the ED and stating that waiting for feedback on the IFRSF Consultation Paper is one of the reasons might give the wrong signal.

One Board member highlighted that organisations have become adjusted to the pandemic and are now working more efficiently, which means that traditional comment periods are sufficient again. He suggested though to try and avoid too much overlap of big consultations, regardless of the pandemic. 

Board decision

The Board decided with 9 votes against 4 that the comment period for the BCUCC DP should be extended to 270 days. The other recommendations were not voted on as they will be decided in the deliberations of the individual projects.

Timing of post-implementation reviews of IFRS 9 and IFRS 15 (Agenda Paper 8B)

The Due Process Handbook explains that a PIR normally begins after a new IFRS Standard has been applied internationally for two years, which is generally about 30−36 months after the effective date. IFRS 9 and IFRS 15 have been effective for 33 months (i.e. since 1 January 2018).

The staff analysed the considerations relevant to the timing of the PIR of those Standards and will ask the Board:

• whether they should consider when to begin the PIR of IFRS 15 as part of its agenda consultation?
• For IFRS 9:
  • whether it should consider when to begin the PIR of the Standard in its entirety as part of its agenda consultation; or
  • begin the PIR of the classification and measurement requirements now, and consider when to begin the PIR of the other IFRS 9 requirements (i.e. impairment and hedge accounting) as part of its agenda consultation.

If the Board decides to begin the PIR of the IFRS 9 classification and measurement requirements now, should the Board delay reviewing the requirements for FVOCI equity instruments until insurers’ temporary exemption from applying IFRS 9 has expired (i.e. after 2023)?

Board discussion

On IFRS 15, some Board members found that the Transition Resource Group (TRG) addressed some of the most urgent application issues, so there is not an immediate need to start this PIR now. Others thought that, because 2020 will not be a year of refining their IFRS 15 accounting, practical issues might only emerge in the next few years. Many thought it was a good idea to ask about the timing of the PIR in the agenda consultation as stakeholders might hold different views and might have more information.

On IFRS 9, the Chairman supported to start the PIR as soon as possible for classification and measurement. The European Commission and insurers worldwide are pressing for the reintroduction of the ‘available for sale’ category for equity instruments. He is concerned that a potential carve out for annual cohorts in the endorsement process for IFRS 17 might be seen as an opportunity to do a carve-in for IFRS 9. If the PIR starts as soon as possible, evidence can be gathered with regard to the P&L volatility caused by equity instruments. This evidence can then be considered by proponents of the ‘available for sale’ category. There is currently enough feedback on classification and measurement from the banking sector to start the PIR. One Board member agreed with that but said that this issue could be researched independently of a PIR.

One Board member pointed out the dilemma of the deferred IFRS 9 effective date for insurers—if the Board waits for insurers to have applied IFRS 9 for a sufficient time, it would be too late for the PIR. However, starting as soon as possible would mean to start a PIR of a Standard that has not been applied by all preparers. The staff confirmed that while insurers are the biggest equity holders, there are some insurers that already apply IFRS 9 and evidence could be gathered from them as well as from big banking organisations that have a significant holding of equity instruments.

On the question of whether the PIR should be done in its entirety or be split up, some Board members warned that it should not be split up in too many partitions. The Vice-Chair saw merit though for a separation of classification and measurement as this part did not have a TRG (as opposed to the impairment part) and thus application issues have not been addressed since publication of the Standard. Also, there is not much overlap between classification and measurement and the rest of IFRS 9, so the PIRs can be done separately.

Board decision

On IFRS 15, the Board decided with 8:5 votes to include the timing of the PIR in the agenda consultation.

On IFRS 9, the Board decided unanimously to separate the PIR of the IFRS 9 classification and measurement requirements (including FVOCI equity instruments) from the PIR of the rest of IFRS 9 and to start the PIR on classification and measurement as soon as possible.

On the question of whether the timing of the PIR for the rest of IFRS 9 should be included in the agenda consultation, only 2 of the 13 Board members voted in favour. The Board therefore concluded that they will decide the timing themselves, but agreed it would not be immediately.

One Board member commented on that decision and said that it looked odd asking for input on the timing of the PIR of IFRS 15, but not of that of IFRS 9.