Start date:
End date:
Location: London
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The IASB held a virtual meeting on 14–16 December 2021. The full agenda, overview, and our meeting summaries are available in the left navigation panel as well as below. Agenda papers for this meeting are available on the IASB website. |
Agenda for the IASB's December meeting.
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Tuesday 14 December 2021 (10:30-15:45)
Wednesday 15 December 2021 (09:00-16:45)
Thursday 16 December 2021 (09:30-14:15)
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Agenda papers for this meeting are available on the IASB's website.
Overview of the IASB's December 2021 meeting.
The Board met in London for three days, starting on Tuesday 14 December 2021.
Financial Instruments with Characteristics of Equity
The staff are proposing amendments to IAS 32. The Board decided to (a) clarify that some financial instruments with contingent settlement provisions can be compound instruments and clarify the measurement requirements for the liability component of such instruments; (b) specify that the term ‘liquidation’ in paragraph 25(b) of IAS 32, refers to when an entity has started the process to permanently cease to trade; (c) specify that the assessment of whether a contractual term is ‘not genuine’ in paragraph 25(a) of IAS 32, is not purely a probability-based assessment; and (d) amend IAS 32 to specify how an entity must consider the effects of applicable laws when classifying financial instruments as financial liabilities or equity.
The staff plan to bring recommendations on the classification of financial instruments that are subject to shareholders’ discretion and whether additional disclosures would be beneficial at a future meeting.
Maintenance and Consistent Application
Lease Liability in a Sale and Leaseback: The Board decided to proceed with ED/2020/4 Lease Liability in a Sale and Leaseback (Proposed amendments to IFRS 16). The Board decided to retain the following proposals: clarify that the leaseback liability is a liability to which IFRS 16 applies; not change the initial measurement requirements in paragraph 100(a) of IFRS 16 for the right-of-use asset and the gain or loss arising from the sale and leaseback; clarify that a seller-lessee subsequently measures the right-of-use asset arising from the leaseback applying paragraphs 29-35 of IFRS 16; and include an illustrative example of a sale and leaseback transaction with variable payments. However, the Board decided to change the following aspects of the proposals: no longer prescribe how a seller-lessee determines the proportion of the previous carrying amount of the asset that relates to the right of use the seller-lessee retains; require the seller-lessee to subsequently measure the leaseback liability applying paragraphs 36-46 of IFRS 16; and specify that the term ‘lease payments’ may not be as defined in Appendix A to IFRS 16. Instead, the seller-lessee would apply the term ‘lease payments’ or ‘revised lease payments’ in such a manner that it does not recognise any amount of the gain or loss that relates to the right of use retained to the extent that the right of use is retained.
Economic Benefits from Use of a Windfarm (IFRS 16)—Finalisation of Agenda Decision: No Board members objected to the finalisation of the agenda decision.
Business Combinations under Common Control
The Board published its Discussion Paper (DP) Business Combinations under Common Control (BCUCC) in November 2020, with a comment letter deadline of 1 September 2021. The purpose of this meeting was to provide the Board with an overview of feedback on the DP and detailed summaries of feedback on selected topics from the DP. The Board was not be asked to make decisions in this session.
Almost all respondents agreed that the project should cover the receiving entity’s reporting for all transfers of businesses under common control. Most respondents agreed with the preliminary view that neither the acquisition method nor a book-value method should be applied to all BCUCCs. Some respondents (including most respondents from China) disagreed and said a book-value method should be applied to all BCUCCs. A few respondents reported mixed views within their organisation/jurisdiction or did not express a clear view.
Third Agenda Consultation
The Board decided to proceed with the criteria as proposed in the Request for Information for evaluating potential projects: its importance to investors; whether there is any deficiency how the matter is reported; the type of entities it is likely to affect or whether it is more prevalent in some jurisdictions than others; how pervasive or acute the matter is likely to be; interaction with other projects; the complexity and feasibility of the potential project and its solutions; and whether the Board and its stakeholders have capacity and could make timely progress.
Primary Financial Statements
The Board decided to proceed with a definition for unusual items, removing the reference to ‘limited predictive value’, developing application guidance which clarifies that the definition captures income or expenses that are dissimilar in type or amount from income or expenses expected in the future and explain that in considering whether income or expenses are similar, an entity would consider characteristics of the income and expenses, including the underlying event or transaction.
The Board decided to retain the proposal to classify in the investing category: income and expenses from assets that generate returns individually and largely independently of other resources; adding further application guidance; and income and expenses from associates and joint ventures. The Board also decided retaining the label ‘investing category’ and not continuing with the proposal to define ‘income and expense from investments’.
Second Comprehensive Review of the IFRS for SMEs Standard
The Board decided that the IFRS for SMEs be amended to make it more closely aligned with IFRS 3, IFRS 10 (but not investment entities) and IFRS 11 (but retain the IFRS for SME classifications of joint arrangements and the accounting requirements for jointly controlled entities). The Board discussed whether and how to align the IFRS for SMEs Standard with the impairment requirements in IFRS 9 and asked the staff for more analysis. The Board decided adding the definition of a financial guarantee contract from IFRS 9. The summaries contains the full list of amendments the Board decided to incorporate or not to incorporate into IFRS for SMEs, as well as other narrower amendments the Board should make.
Rate-regulated Activities
The staff has developed a plan for redeliberating ED/2021/1 Regulatory Assets and Regulatory Liabilities. The Board decided to prioritise total allowed compensation (returns on assets not yet available for use and regulatory assets and regulatory liabilities arising from differences between assets’ regulatory recovery pace and their useful lives) and scope (including interaction of the proposals with IFRIC 12). These are topics about which respondents raised significant concerns.
In this session, the Board continued to deliberate specific sections of the IFRS for SMEs Standard that could be aligned with IFRS Standards, amendments to IFRS Standards and IFRIC Interpretations in the scope of the second comprehensive review of the IFRS for SMEs Standard.
In March 2021, the Board tentatively decided to develop an Exposure Draft (ED) for amendments to the IFRS for SMEs Standard using the alignment approach.
At its May 2021 meeting, the Board started deliberating specific sections of the IFRS for SMEs Standard that could be aligned with new requirements in IFRS Standards in the scope of the review.
At this meeting the Board continued to deliberate specific sections of the IFRS for SMEs Standard that could be aligned with IFRS Standards, amendments to IFRS Standards and IFRIC Interpretations in the scope of the second comprehensive review of the IFRS for SMEs Standard.
This paper discussed whether and how to propose amending Section 19 Business Combinations and Goodwill of the IFRS for SMEs Standard to align with IFRS 3.
Staff recommendations
The staff recommended that the Board:
The staff also asked the Board, for the purpose of measuring the non-controlling interests whether to retain the current requirements under Section 19 or to propose amendments to Section 19 (to align with IFRS 3).
Align the definition of a business
Most Board members supported aligning the definition of a business. Most Board members also supported bringing some of the IFRS 3 guidance into the IFRS for SMEs. However, three Board members raised concerns about whether any further simplification can be provided to SMEs when applying the definition of a business other than those proposed in the agenda paper.
11 Board members agreed with the staff recommendation and the Board requested the staff to revisit this point to see any further simplications.
Align with the requirements for acquisition-related costs and contingent consideration
Most Board members agreed to align the requirements for acquisition-related costs. One Board member raised the concern that the IFRS for SMEs requirements for business combinations are still to apply the old cost allocation model and not the IFRS 3 fair value model. The Board member asked whether it is appropriate to align some IFRS 3 fair value requirements but leave the IFRS for SMEs business combinations requirements characterised as a cost allocation model. Alternatively, the Board could change the objective of the IFRS for SMEs business combinations requirements as a first step before making the alignment.
For the alignment of the contingent consideration requirements, most Board members agreed to fair value the contingent consideration and provide a simplication on measurement. One Board member questioned whether the subsequent changes should go to profit or loss. The Board member would feel more comfortable if the subsequent change goes to OCI. Another Board member noted that SMEs have less capacity and are less able to make a subsequent adjustment on contingent consideration thus not supporting the alignment. Two Board members raised concerns on the best estimate simplifications proposed by the staff. Best estimate could mean either most likely or weighted average. If the staff means most likely outcome it should be clearer and the IFRS for SMEs should refer to this. Most Board members did not agree with the subsequent changes going to OCI as this would create complexity for SMEs.
10 Board members agreed to align the IFRS for SMEs with the requirements for acquisition-related costs.
8 Board members agreed with the staff’s recommendation to align the IFRS for SMEs with the requirements for contingent consideration in IFRS 3.
Introduce requirements for the accounting for step acquisitions as set out in IFRS 3
12 Board members agreed with the staff’s recommendation.
Introduce guidance (in the new appendix to Section 19) for a new entity formed in a business combination as set out in paragraph B18 of IFRS 3 and, consequently, introduce the application guidance relevant to SMEs as set out in paragraphs B13-B17 of IFRS 3
12 Board members agreed with the staff’s recommendation.
The staff also asked the Board, for the purpose of measuring the non-controlling interests whether to retain the current requirements under Section 19 or to propose amendments to Section 19 (to align with IFRS 3).
Some Board members perferred to retain the current requirements and noted that allowing an accounting policy choice per transaction level will add complexity and go against the simplicity principle. They also noted that the option to measure NCI at fair value does not provide any meaningful additional information for the users.
One Board member noted that under IFRS 3, the business combinations requirements are a 100% model so applying fair value to NCI is consistent with the 100% model and the fair value model which should bring simplification instead of complexity.
7 Board members agreed to retain the requirement under section 19 of the IFRS for SMEs.
This paper discussed whether and how to propose amending Section 9 Consolidated and Separate Financial Statements of the IFRS for SMEs Standard to align with IFRS 10.
Staff recommendations
The staff recommended that the Board:
Board members agreed with the staff recommendation to align the control definition and acknowledged the benefits for this as it provides better information for users. Board members agreed to bring application guidance and illustrative examples from full IFRS standards but warned against overloading the material for IFRS for SMEs. Board members agreed that the rebuttable presumption would ease the application of the new control definition for many SMEs but noted that when bringing illustrative examples to the IFRS for SMEs it would be better to bring the same example.
For investment entities, Board members did not think that it was an inappropriate time to bring those in when there is an open PIR for the standard. Investment entities are also less common in SMEs. Therefore, Board members supported not to introduce the requirement to measure an investment entity’s investments in subsidiaries at fair value through profit or loss.
12 Board members agreed with all staff recommendations in this paper.
This paper discussed whether and how to propose amending Section 15 Investments in Joint Ventures of the IFRS for SMEs Standard to align with IFRS 11.
Staff recommendations
The staff recommended that the Board:
Most Board members agreed to align the joint control definition. One Board member asked why the staff recommended to align the joint control definition while retaining the classification and accounting requirements. This seems inconsistent. The staff explained that in previous Board discussions it was suggested that when the Board aligns the control definition, it should also align the joint control definition to ensure it is consistent within the IFRS for SMEs. However, given the cost and complexity involved, Board members supported not aligning the classification and measurement requirements.
12 Board members agreed to align the definition of joint control with IFRS 11.
11 Board members agreed to retain the classifications of joint arrangements.
12 Board members agreed to retain the accounting requirements of Section 15, including the accounting policy election for jointly controlled entities in Section 15.
The Board asked the staff to add an explanation in the ED as to why the Board decided to align the definition of joint control but not the accounting model.
This paper discussed whether and how to align Section 11 Basic Financial Instruments of the IFRS for SMEs Standard with the impairment requirements in IFRS 9.
Staff questions
The staff asked the Board whether to propose amendments to the IFRS for SMEs Standard replacing the incurred loss model in Section 11 with either Alternative 1 or Alternative 2:
For equity instruments, leave unchanged the requirements (including the requirements on measuring impairment) in the IFRS for SMEs Standard under both alternatives.
Board discussion
Board members agreed not to change the requirements for equity instruments as IFRS 9 does not have a model for this type of instruments either. Some Board members supported aligning the ECL model. However, they did not support either of the alternatives proposed by the staff. One Board member noted that IFRS 9 already contains simplifications, for example allowing past due information if unable to obtain forward information. The Board member much preferred to use the existing IFRS 9 features rather to switch to the best estimate model.
Some Board members noted it is not clear what ‘best estimate’ means. If implementing this approach is supposed to be similar to an incurred loss model, it is not appropriate to call it an ECL model. Some Board members noted that Alternative 2 will add complexity so they would rather retain the existing incurred loss model.
Some Board members preferred to align to the existing ECL model under IFRS 9 with simplifications for SMEs. However, the staff may need to explore more to be able to develop this ‘new model’ and asses how this may work. The Board member did not like Alternative 2 as it adds implementation complexity and feels like over engineering the IFRS for SMEs.
Some Board members noted that SMEs normally have simple financial instruments, and that the ECL or incurred loss model is just jargon for them. The Board member did not see whether using ECL or incurred loss model make any differences to the SMEs and did therefore not support the alignment. The Board member also spoke against creating a third model, which gives the label of ECL but works differently from an IFRS 9 ECL model. Therefore, the Board member would rather retain the existing requirement in Section 11.
3 Board members agreed with Alternative 1.
1 Board member agreed with Alternative 2.
3 Board members agreed to retain the incurred loss model currently contained in Section 11 of the IFRS for SMEs.
10 Board members agreed to ask the staff to develop an approach that is in line with the ECL model but with some implementation simplifications.
5 Board members agreed that if the staff could not develop an appropriate solution, the Board would ask the staff to retain the existing incurred loss model contained in Section 11.
This paper discusssed whether and how to align Section 12 Other Financial Instrument Issues of the IFRS for SMEs Standard with IFRS 9 Financial Instruments.
Staff recommendations
The staff recommend that the Board:
12 Board members agreed to align the IFRS for SMEs with the definition of a financial guarantee contract in IFRS 9.
The Board deferred the decision on initial and subsequent measurements of a financial guarantee contract given the impairment decision was undetermined.
This paper gives an overview of whether and how to align the IFRS for SMEs Standard with amendments to IFRS Standards and IFRIC Interpretations set out in Agenda Papers 30G-30J.
This paper discusssed whether and how to align section 34 Specialised Activities of the IFRS for SMEs Standard with Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41), which the Board issued in June 2014.
Staff recommendations
The staff recommended that the Board provide an exemption on initial recognition for separation of the bearer plants from the produce growing on bearer plants:
Most Board members agreed that useful information would be provided when separating the bearer plant and the produce growing on the plant. Board members noted that many SMEs are in the agriculture industry. It would therefore be beneficial to account for produce separately at its fair value. However, it was noted that the staff need to revise the drafting to avoid confusion that the requirement is only applicable on transition.
One Board member noted that given the nature of SMEs, most SMEs will apply the undue cost or effort exemption and account the entire plant at cost. Therefore, it seems meaningless to require accounting for the produce growing on a bearer plant separately.
10 Board members agreed with the staff’s recommendations.
This paper discusssed whether and how to align Section 3 Financial Statement Presentation of the IFRS for SMEs Standard with the amendments to IAS 1 Presentation of Financial Statements resulting from different disclosure initiative projects.
Staff recommendations
The staff recommended that the Board align the IFRS for SMEs Standard with the following amendments to IFRS Standards:
All 12 Board members agreed to align the definitions as it will bring clarification without significantly changing the existing requirements in the IFRS for SMEs.
This paper discusssed whether and how to align the IFRS for SMEs Standard with some amendments to IFRS Standards and some IFRIC Interpretations.
Staff recommendations
The staff recommended that the Board align the IFRS for SMEs Standard with the following amendments to IFRS Standards:
Most Board members were supportive of the staff’s recommendations. Some Board members commented on the alignment with the IAS 7 amendment and noted that there were mixed results from full IFRS reporters on whether it would be more appropriate to align this once there is more practice experience. However, they acknowledged the simplification and useful information provided by the amendments. For IFRIC 23, some Board members did not support a cost relief as it would compromise the level of information the alignment provides.
12 Board members agreed the staff’s recommendations.
This paper discusssed amendments to IFRS Standards and IFRIC Interpretations for which the staff does not recommend that the Board propose amendments to the IFRS for SMEs Standard to align with these new requirements.
Staff recommendations
The staff recommended that the Board not align the IFRS for SMEs Standard with the following amendments to IFRS Standards and Interpretations:
12 Board members agreed with the staff recommendations. Board members also suggested that the staff revise the rationale as to why IFRIC 21 should not be aligned and clarify why the staff did not propose to align the Recoverable Amount Disclosure for Non-Financial Assets (amendments to IAS 36).
This paper discussed topics raised in questions N4 and N5 of the Request for Information Comprehensive review of the IFRS for SMEs Standard for which the staff recommend the Board propose amendments to the IFRS for SMEs Standard.
Staff recommendations
The staff recommended that the Board:
Some Board members noted that the Board does not normally comment on jurisdictional issues and strongly disagreed to add comments on jurisdictional issues in the ED. However, some Board members supported including the discussion in supporting material.
Some Board members raised concerns on removing paragraph 22.7(a) of the IFRS for SMEs as removing this requirement would be different from never having it in the beginning. They noted that confusion will arise by the deletion.
Most Board members also raised concerns on the default treatment for share-based payment where there is a settlement option. The default treatment does not faithfully represent the definition of equity or cash-settled share-based payments and do not provide transparent information to the users.
5 Board members agreed with removing paragraph 22.7(a) of the IFRS for SMEs.
4 Board members agreed with adding in supporting material (but not in the ED) an explanation for the inconsistencies between the IFRS for SMEs Standard and the European Accounting Directive.
12 Board members agreed with amending Section 26 Share-based Payment of the IFRS for SMEs Standard to include the scope exclusions similar to those in paragraph 5 of IFRS 2.
No Board members agreed with amending Section 26 of the IFRS for SMEs Standard on share-based payment with settlement options to require equity-settled as the default treatment rather than cash-settled.
In this session, the Board discussed the staff’s plan for redeliberations of the Board’s Exposure Draft ED/2021/1 'Regulatory Assets and Regulatory Liabilities'.
In this session, the Board discussed the staff’s plan for redeliberations of the Board’s Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities.
In planning the redeliberations, the staff have identified the following work streams:
The staff recommended prioritising the workstream on total allowed compensation and scope.
These topics, together with discount rate and disclosure are proposed to be discussed with the Consultative Group for Rate Regulation.
Questions for the Board
The staff asked the Board whether it agrees with the proposed plan for redeliberations. Specifically, they asked whether the Board has any comments or suggestions on:
Board members expressed support for the proposed work plan, saying it seems to be the right selection of topics. It was noted that the workstreams could be worked on simultaneously.
One Board member said that construction work in progress seems to be a pervasive issue across all topics. She suggested that the staff move all issues related to construction work in progress into a separate work stream that should be discussed first so that the remaining issues for each topic would be easier to solve. Another Board member picked up on that and said that he would like to understand the difference in depreciation for the construction work and whether it would be slower or faster than the regulatory depreciation. One Board member suggested to perform outreach on this outside the consultative group. The staff confirmed that such outreach meetings with regulators and users have already been scheduled for January and February 2022.
On minimum interest rate, one Board member said that she did not understand why this has been raised by so many stakeholders given that it is not mandatory to use the minimum interest rate if an adequate rate is available. The staff may want to gather more evidence on why this topic is so controversial.
One Board member said that it should be explained to preparers that some of their IFRIC 12 contracts may fall within the scope of the proposed new Standard as they may not be aware and continue IFRIC 12 accounting.
All Board members supported the staff’s plan for redeliberation of the proposals in the ED.
In this session, the Board discussed the staff's recommendations on the definition of unusual income and expenses.
This paper initiated the Board’s redeliberations on the proposal set out in the ED relating to unusual income and expense. This paper sets out the staff analysis and recommendations on the definition of unusual income and expenses.
The staff recommended the Board explores how to proceed with a definition for unusual items. In particular, the staff recommended the Board remove the reference to ‘limited predictive value’ from the definition of unusual items, whilst retaining an explanation of how that idea supports the definition in the Basis for Conclusions (BC). In addition, the staff recommended the Board develop application guidance which clarifies that the definition captures income or expenses that are dissimilar in type or amount from income or expenses expected in the future and helps entities to assess whether similar income or expenses will arise in the future, to be developed based on guidance on the assessment of future transactions and other events in other Standards. Lastly, the staff recommended the Board explains that in considering whether income or expenses are similar, an entity would consider characteristics of the income and expenses, including the underlying event or transaction that gives rise to income or expenses.
Most Board members were supportive of the staff’s recommendation to explore how to proceed with a definition of unusual items because this received strong support from feedback conducted during the outreach and the term ‘unusual’ is widely used in practice. The Board members believe by having a definition for unusual items, this would prevent preparers from using unusual to describe negative results. Some Board members suggested that at a minimum, there should be certain items which are disclosed as unusual. However, other Board members were concerned that this would result in an entity disclosing many of its expenses as unusual when it does not meet that definition. The Board asked the staff to be precise on the direction of the project and whether its objective is to ensure that entities identify all items that are unusual (i.e. completeness) or whether it is to ensure that entities do not describe expenses as unusual when they do not meet that definition. The Board members also asked the staff to confirm whether the definition of unusual is considered by reference to consistency within the entity’s financial reporting or by reference to the industry. The Board members believed that limited predictive value is one, but not the only, factor to consider when deciding whether an item is unusual. This is because all unusual items have limited predictive value but not all items with limited predictive value are an unusual item. Some Board members expressed concerns that the definition of unusual items should not be limited to types or amounts that are expected in the future but also should include items which have occurred in the past because trends are informative. The staff clarified the requirement for items to occur in the future will not be the sole test on whether this item meets the definition of unusual and that guidance will be drafted using the assessment of future transactions and other events in other Standards. Board members also asked the staff to consider what the unit of account would be when considering whether an expense is recurring (i.e. would an entity consider the nature of the expense).
All Board members agreed to explore how to proceed with a definition for unusual items. 11 of the 12 Board members agreed with the staff recommendation to remove the reference to ‘limited predictive value’ from the definition of unusual items, whilst retaining an explanation of how that idea supports the definition in the BC. 11 Board members also agreed to develop application guidance which clarifies that the definition captures income or expenses that are dissimilar in type or amount from income or expenses expected in the future and helps entities to assess whether similar income or expenses will arise in the future, to be developed based on guidance on the assessment of future transactions and other events in other Standards. 11 Board members agreed to explain that in considering whether income or expenses are similar, an entity would consider characteristics of the income and expenses, including the underlying event or transaction that gives rise to income or expenses.
This paper redeliberated the Board’s proposals in the ED relating to income and expenses classified in the investing category. This paper discusses the proposals for entities other than those with specified main business activities of investing and provision of financing to customers.
The staff recommended the Board retain the proposal to classify in the investing category income and expenses from assets that generate returns individually and largely independently of other resources held by an entity and add further application guidance to help entities determine when income and expenses arise from assets that generate returns individually and largely independently. In particular, the staff recommended to add further application guidance stating that:
In addition, the staff recommended classifying income and expenses from associates and joint ventures in the investing category and to revise the objective of the investing category to be to communicate information about returns on investment which the users of financial statement generally analyse separately from operating profit and remove the discussion of the objective from the requirements of the Standard and instead, including this in the BC. Lastly, the staff recommended the Board retain the label ‘investing category’ and do not continue with the proposal to define ‘income and expense from investments’.
Board discussion
The Board asked the staff to clarify why income and expenses from assets would need to generate returns individual and largely independent of other resources. The staff clarified that some assets can give rise to individual returns but not largely independent from other resources and therefore it would be important to meet both criteria. Most Board members agreed that the focus of the proposal of income and expenses from assets that generate a return individually and largely independently of other resources is the nature of assets and how those assets are used in the business. The focus is not on the type of income or expenses the assets are generating. Many Board members expressed concerns that there is lack of definition and overall objective of investing category. The staff clarified that the purpose is to affirm the approach to investing categories rather than providing a definition.
Most Board members expressed concerns that income and expense on individual assets classified as held for sale would be considered to be generating returns individually and largely independent of other resources held by the entity but income and expense from disposal groups classified as held for sale would not. The Board members believed this to be a complicated approach that would introduce inconsistencies with the principles of IFRS 5 as there is no difference in accounting treatment for individual assets or disposal groups classified as held for sale. Therefore, there should not be a different accounting treatment for income and expenses generated from individual assets and or disposal groups classified as held for sale. In addition, Board members raised concerns that the proposal is a rule-based approach and that there is no clear principle on when income and expense from individual assets or disposal groups classified as held for sale would move into investing category. Other Board members also indicated that many entities would continue to use or rent out individual assets which have been classified as held for sale of which the returns on these would be more akin to income generated from operations rather than income from investing activities. Most of the Board members agreed with the staff’s recommendation to provide application guidance stating that income and expenses arising from business combinations would not be generated individually and largely independently of other resources held by an entity. This is because income and expenses arising from business combinations relate to the transaction itself and not to the operations of the entity.
Some Board members objected to the staff’s recommendation to classify income and expenses from associates and joint ventures in the same category as income and expenses from assets that generate returns individually and largely independent of other resources in the investing category. Proponents of this view believe that income and expenses from associates and joint ventures is sufficiently unique that it should have its own category. Furthermore, these Board members did not believe that associates and joint ventures generate returns individually and for some investment companies, income and expenses from associates and joint ventures comprise a large proportion of its operations and therefore would be more appropriate to classify this in operating category. The staff acknowledge that income and expenses from associates and joint ventures do not fit neatly into any category and confirmed that the purpose is to simplify the classification. In addition, the staff clarified that the categories are used as a construct used to assist with the explanations during drafting and the financial statements would not include labels of the various categories. Some Board members agreed with the staff’s recommendation because the fundamental issue is that income and expenses from associates and joint ventures should not be classified in operating activities based on the feedback received from outreach. In addition, these Board members believe that having a separate category for income and expenses from associates and joint ventures would require the category to be defined and the Board would need to mandate where the category is presented which should be a management decision.
Most Board members believed that the objective of the investing category is to communicate information about returns from investments that are generated individually and largely independently of other resources held by the entity and income and expenses arising from associates and joint ventures. Therefore, these Board members would prefer to remove this as an objective but rather provide an explanation of why certain items are included in the investing category in the BC. The Board highlighted that the definition of investing category could be circular if it is defined with reference to operating categories. This is because the operating category is a residual category by definition.
11 Board members agreed to retain the proposal to classify in the investing category income and expenses from assets that generate returns individually and largely independently of other resources held by an entity.
None of the Board members agreed with the staff’s recommendation to provide further application guidance stating that income and expenses on individual assets classified as held for sale would be generated individually and largely independently of other resources held by an entity, and income and expenses from disposal groups classified as held for sale would not. Instead, 10 Board members (1 absent) agreed to be explicit in stating that income and expenses on individual assets classified as held for sale and income and expenses from disposal groups classified as held for sale would not be in the investing category. 8 Board members (1 absent) agreed with the staff’s recommendation to provide application guidance which state that income and expenses arising from business combinations would not be generated individually and largely independently of other resources held by an entity. In addition, 11 Board members (1 absent) agreed to provide application guidance which states that negative returns, such as those arising from unfavourable exchange rates or negative interest rates are classified in the same category as positive returns arising from the asset or liability.
9 Board members agreed with the staff’s recommendation to classify income and expenses from associates and joint ventures in the same category as income and expenses from assets that generate returns individually and largely independently of other resources held by an entity.
10 Board members agreed not to define the objective of the investing category but to explain it to be a category which communicates information about returns on investment which the users of financial statement generally analyse separately from operating profit. 8 Board members agreed with the staff’s recommendation to retain the label ‘investing category’ and 10 Board members agreed not to continue with the proposal to define ‘income and expense from investments’.
In this session, the Board discussed proposed amendments to IAS 32.
The staff presented three agenda papers to the Board which sets out proposed amendments to IAS 32 and asks for tentative decisions from the Board.
The staff plan to bring their analysis and recommendations on the classification of financial instruments that are subject to shareholders’ discretion to a future meeting.
The staff recommended that the Board proposes the following amendments to IAS 32 for financial instruments with contingent settlement provisions as described by paragraph 25 of IAS 32:
The staff asked the Board if they agree with their recommendations.
Board members agreed with the analysis in the staff’s paper and found that it was logical to follow and helpful. Many Board members said they are keen to see the presentation and disclosures in a future meeting.
12 Board members voted in favour of the staff’s recommendation.
The staff recommended that the Board proposes that the following amendments to IAS 32:
Liquidation:
Specify that the term ‘liquidation’ in paragraph 25(b) of IAS 32, refers to when an entity has started the process to permanently cease to trade. This clarification would be consistent with the Conceptual Framework and IAS 1. Clarifying the term ‘liquidation’ would improve the consistency in classification of financial instruments that contain obligations that arise on events that may seem similar to, but are not, liquidation. Doing so would help reduce diversity in practice. Classifying those financial instruments as financial liabilities would provide users of the financial statements with useful information about the entity’s exposure to liquidity risk and its potential cash outflows in liquidation.
The staff asked the Board if they agree with the potential clarification.
Non-genuine:
Specify that the assessment of whether a contractual term is ‘not genuine’ in paragraph 25(a) of IAS 32, is not purely a probability-based assessment. This would clarify that entities are required to apply judgement based on the specific facts and circumstances and the specific terms and conditions of the financial instrument. The staff do not recommend providing further clarification on how to do the assessment or expand or narrow the definition of ‘non-genuine’ to address the various circumstances that could arise in practice.
The staff asked the Board if they agree with the potential clarification.
Overall, Board members agreed with the staff recommendation but provided feedback on the wording used in the amendment to ensure it is interpreted correctly.
For liquidation, the words ‘an entity has started the process’ might be too specific in relation to the point in time the process starts, rather than focusing on payments that will only be required as part of the liquidation process, once you have irrevocably committed to the wind up.
The Board also mentioned that ‘cease to trade’ might be misinterpreted and it might be better to say ‘cease trading and operations’.
For the non-genuine description, Board members highlighted that in practice judgement needs to be applied however it is generally applied sensibly. The wording could be adjusted slightly to say ‘the probability based assessment is not determinative’ rather than ‘is not purely a probability assessment’. Board members highlighted that non-genuine is less about the likelihood of an event occurring but more about the nature of the event, i.e. the event is highly abnormal or unimaginable. A small number of Board members pointed out that on translation the current wording might be misunderstood and requested that some examples are added to provide guidance on the interpretation. The staff said that they are cautious to add an example, as in general this concept is applied sensibly in practice.
12 Board members voted in favour of the staff’s recommendation.
This paper considered the question as to whether and if so, to what extent, an entity would be required to consider the effect of applicable laws in classifying financial instruments as financial liabilities or equity instruments.
The staff recommended that the Board proposes amendments to IAS 32 to require an entity to consider the following effects of applicable laws when classifying financial instruments as financial liabilities or equity:
The staff recommended the Board require an entity not to separate a single obligation into two liabilities i.e. a financial and a non-financial liability when applying the above recommendation.
The staff highlighted that legal rights and obligations that an entity does not take into account for classification purposes would still need to be accounted for. Other accounting standards (other than IAS 32) may be applicable.
Based on feedback from stakeholders the staff do not expect that applying the principles discussed in this paper would result in significant changes in how financial instruments are classified.
The staff plan to analyse the need for any additional disclosures once the Board completes its deliberations on the classification topics. Potential disclosures in this area could include for example, disclosures of legal requirements that could affect the timing and amount of future cash flows of financial instruments issued by an entity even if they do not affect their classification. The staff plan to analyse further whether additional disclosures would be beneficial and present this analysis at a future meeting.
The staff asked if the Board if they agree with their recommendations.
Overall, Board members agreed with the staff’s recommendation but made suggestions in relation to the wording and suggestions of key clarification points to include in the amendments.
For example, for the following staff recommendation ‘not to separate a single obligation into two liabilities’, Board members suggested that the wording should be ‘not to separate a term into two components’.
In addition, in the sentence ‘The effects of applicable laws that prohibit the enforceability of a contractual right or a contractual obligation’ the Board suggested to use the word ‘prevent’ rather the ‘prohibit’.
12 Board members voted in favour of the staff’s recommendation.
In this session, the Board was provided with the summary of feedback from comment letters, the online survey and outreach on Question 4 of the Request for Information (RFI), which asked respondents for any other comments on the Board’s activities and work plan and finalise the criteria for assessing the priority of financial reporting issues that could be added to the Board’s work plan.
The purpose of this meeting is to provide the summary of feedback from comment letters, the online survey and outreach on Question 4 of the Request for Information (RFI), which asked respondents for any other comments on the IASB’s activities and work plan and finalise the criteria for assessing the priority of financial reporting issues that could be added to the IASB’s work plan.
Many respondents commented on projects on the current work plan. Some also made general comments about the work plan and expressed mixed views. Some said the Board should firstly finalise the projects currently on its work plan, as these projects were identified as priorities by stakeholders in the 2015 Agenda Consultation, and continue working on post-implementation reviews, as required by the Due Process Handbook. Some said the Board should reassess the priority and necessity of projects on its current work plan and determine whether any of those projects should be put on hold or even stopped to free up resources for new, more important projects. Some respondents wanted to pause or discontinue some projects on the current work plan because:
Some respondents also made a range of other comments about the Board’s activities and work plan.
The Board was asked for comments or questions on the feedback discussed in the paper.
Board members noted that much of the feedback on the workplan is consistent with what the Board is already doing. The Vice Chair noted that even for those projects where constituents said that the Board needs to do more, the Board already held meetings on some of them and the feedback was therefore out of date (e.g. Dynamic Risk Management).
One Board member said that it may be worthwhile for the staff to do an assessment of projects that have been dormant for a long time to determine whether they should be continued or stopped. A fellow Board member supported this, saying that given he joined the Board only recently, he is unfamiliar with some of those projects and it would be good to have a session on these projects to bring all Board members on the same information level.
With regard to Management Commentary, one Board member suggested that the project be brought back to the Board to decide whether this will stay on the IASB workplan or will move to the ISSB workplan.
No decisions were made on this paper.
One of the objectives of the agenda consultation is to gather stakeholders’ views on the criteria for assessing the priority of financial reporting issues that could be added to the Board’s work plan. The RFI proposed that the Board evaluates a potential project for inclusion in its work plan primarily by assessing whether the project will meet investors’ needs, while taking into account the costs of producing the information. In addition, the RFI set out seven criteria that the Board proposes to use in deciding whether to add a potential project to its work plan:
Most respondents provided feedback on this aspect of the agenda consultation. Of those respondents, almost all agreed with the criteria proposed by the Board. Many said the criteria are well-balanced and adequate. Many respondents who commented did not express any concerns about the criteria. Some respondents suggested the Board split the criteria into essential and secondary criteria—for example, some said the importance of the matter to users should be given the highest weight, whereas some others said the priority of any project should depend on its urgency and relevance. A few other respondents suggested the Board rank the criteria—for example, rank the first four criteria as the primary criteria and the three other, more practical criteria, as secondary (confirmatory) criteria.
The staff recommended proceeding with the criteria as proposed in the RFI without any additions to the list of criteria.
There was some discussion around the focus of the criteria on investors’ needs. One Board member said that the focus should not be limited to investors but should also include preparers and other stakeholders. As a result, the projects retained on the agenda should be those that benefit most stakeholders and not only investors.
One Board member said that the Board should not overengineer the criteria as resources are limited. This was echoed by the Chairman who said that the criteria should more be seen as considerations, rather than criteria to avoid that the Board will be held against the criteria and therefore constrain itself. It was agreed that the criteria should not be added to the IFRS Foundation’s Due Process Handbook.
With regard to the criterion of whether a requirement inspires non-GAAP measures, one Board member said that this does not necessarily mean the requirement is flawed. It could be that the entity would like to give different perspectives on a figure.
11 of the 12 Board members supported the staff recommendation to proceed with the criteria as proposed in the RFI.
In this session, the Board discussed the staff’s analysis and recommendations on how to proceed on the project and to ask the Board whether it agrees with the staff recommendations.
In November 2020, the Board published Exposure Draft ED/2020/4 Lease Liability in a Sale and Leaseback (Proposed amendments to IFRS 16).
At its May 2021 meeting, the Board discussed a summary of feedback on the ED. The Board did not make any decisions at that meeting, but members did provide their initials thoughts on the feedback.
In September 2021, the staff presented its analysis to the IFRS Interpretations Committee (Committee) preliminary views on how to proceed on the project, having considered respondents’ comments on the Exposure Draft. The staff developed their analysis and recommendations in the paper considering feedback from Committee members as well as in comment letters and from other meetings.
The purpose of this meeting was to provide the Board with the staff’s analysis and recommendations on how to proceed on the project and to ask the Board whether it agrees with the staff recommendations.
Staff recommendation
Based on the analysis in the paper, the staff recommended that the Board retains the following proposals in the ED:
The staff recommend that the Board deviates from the proposals in the ED as follows:
Board members acknowledged the concern raised by respondents to the ED as to whether it was appropriate to constrain the gain or loss resulting from a sale and leaseback transaction. However, to address those comments the Board would have to undertake standard-setting that goes beyond a narrow-scope amendment. The proposed changes to IFRS 16 are pragmatic and much needed. It was conceded though that the drafting of the amendment should be looked at to see if some of the concerns could be addressed by a change of words. Nonetheless, Board members suggested to finalise the proposals and look at the wider issue of gain or loss recognition during the post-implementation review of IFRS 16.
10 of the 11 Board members present supported the staff recommendation.
At its November 2021 meeting, the Committee decided not to add a standard-setting project to the work plan in response to a submission on IFRS 16 on economic benefits from use of a windfarm. The Committee instead decided to finalise the agenda decision.
The purpose of this meeting was to ask Board members whether they object to the agenda decision.
No Board member objected to the agenda decision. There was no discussion on this topic.
In this session, the Board was provided with an overview of feedback on the Discussion Paper (DP) 'Business Combinations under Common Control' (BCUCC) and detailed summaries of feedback on selected topics from the DP.
The Board published its Discussion Paper (DP) Business Combinations under Common Control (BCUCC) in November 2020, with a comment letter deadline of 1 September 2021. The purpose of this meeting was to provide the Board with an overview of feedback on the DP and detailed summaries of feedback on selected topics from the DP.
The Board was not asked to make decisions in this session.
Almost all respondents agree that the project should cover the receiving entity’s reporting for all transfers of businesses under common control. That is, they do not say any transaction should be removed from the project’s scope or disagree with covering the receiving entity’s reporting.
Most respondents suggest also covering:
Some respondents suggest covering these matters by expanding the scope of the BCUCC project whilst others suggest covering these matters in a separate project(s) to avoid delaying the BCUCC project.
Several Board members expressed a view that care must be taken not to expand the scope of this project too far as this may impede on the timeliness and ultimate success of the assignment. One Board member added that the first step should be to identify the core issues and only then look at whether there should be any additional extensions or exceptions to consider. One Board member expressed a view that the project should concentrate on BCUCC only as opposed to also covering any other form of common control transaction as this could lead to the scope becoming too broad.
A number of Board members also noted that there seemed to be some confusion amongst respondents around certain definitions, such as ‘group reorganisation’, ‘control’ and ‘transfer of a business’, and noted that it would be important to clearly define such terminology at the outset.
Whether to apply one method
Most respondents agree with the preliminary view that neither the acquisition method nor a book-value method should be applied to all BCUCCs. Some respondents (including most respondents from China) disagree and say a book-value method should be applied to all BCUCCs. A few respondents report mixed views within their organisation/jurisdiction or do not express a clear view.
BCUCCs that affect non-controlling shareholders of the receiving entity (NCS)
Many respondents agree with the preliminary view that, in principle, the acquisition method should be applied if a BCUCC affects NCS, subject to the cost-benefit trade-off and other practical considerations (the NCS principle). Additionally, some respondents agree with the NCS principle overall but suggest modifying it such that a receiving entity would apply a book-value method if affected NCS are insignificant.
Many respondents disagree, of which:
BCUCCs that do not affect NCS
Many respondents agree with the preliminary view that a book-value method should apply to BCUCCs that do not affect NCS, including combinations between wholly-owned entities. However, many disagree, of which:
Some Board members commented that it was clear that there is wide support for the use of two methods which is consistent with the findings from the consultation period. One Board member noted that this demonstrates overall support for the Board to pursue this project to establish some clear principles, adding that the challenge will be determining how much flexibility should be factored in.
A number of Board members noted that many respondents wish to have a choice in which method to use. These members agreed that this was unlikely to be a viable option given that there is currently a free choice available to preparers and the overall feedback received from users was that this approach is not working as it is leading to disparity in reporting. One Board member expressed concern that these views were based on respondents’ desire to continue their current practices or to achieve a certain accounting outcome.
One Board member expressed a view that the DP does not address the true economic substance of these transactions as they are almost always directed by the ultimate controlling party as opposed to the receiving entity itself which has no option to refuse the transaction.
Several Board members commented on the view given by some respondents that the acquisition method should be used by receiving entities which hold traded debt and requested that this be explored further to understand what is driving this and what further information is needed by bond holders, particularly given that the initial feedback received from credit agencies was that they did not have a preference between the two methods.
With regards to the proposals by some respondents that additional relief should be provided if NCS is insignificant, one Board member disagreed, adding that the Board had thought very hard about the exemption included in the DP and therefore this should not be revisited unless there is new information which becomes apparent.
Many respondents agree with the optional exemption which permits the receiving entity to use a book-value method unless NCS object. Additionally, some respondents generally agree with the optional exemption but suggest modifying it to disregard objecting NCS if those NCS are insignificant. Some other respondents disagree with the optional exemption.
Many respondents agree and many others disagree with the related-party exception which requires the receiving entity to use a book-value method if all NCS are its related parties. Most who disagree say, similar to NCS, some related parties (for example associates) rely on financial statements to meet their information needs.
Most respondents agree that the optional exemption and related-party exception should not apply to publicly traded entities—that is, a receiving entity should apply the acquisition method if its shares are traded in a public market and the BCUCC affects NCS. Some respondents disagree, most of which say that whether an entity has publicly traded shares should not affect the method selected.
One Board member noted overall agreement with the optional exemption however suggested that some of the proposed modifications were worth considering, for instance, the suggestion that objecting NCS could be disregarded if deemed to be insignificant as otherwise one or two ‘hold-outs’ could object to something that a clear majority supported.
One Board member expressed disappointment that some respondents disagree with the concept that NCS should be able to influence accounting policies, adding that this was a misunderstanding as management can decide however acceptance by NCS is a pre-requisite that needs to be met.
Another Board member commented that although the feedback is useful, none of the reasons given by respondents who disagree with the optional exemption were compelling or warranted further investigation.
Almost all users—except users from China—agree with the preliminary view that neither the acquisition method nor a book-value method should be applied to all BCUCCs. Almost all users from China disagree and say a book-value method should be applied to all BCUCCs.
All users—except users from China—agree the acquisition method should be applied to a BCUCC which affects non-controlling shareholders of the receiving entity (NCS) with shares traded in a public market—that is, the outcome of applying the NCS principle. Almost all users from China say a book-value method should be applied to the same scenario.
Almost all users agree a book-value method should be applied to a BCUCC by a wholly-owned receiving entity in preparation for an initial public offering (IPO)—that is, the outcome of applying the preliminary view that a book-value method should be applied to other BCUCCs, including combinations between wholly-owned entities.
Most users agree a book-value method should be applied to a BCUCC by a wholly-owned receiving entity which has bank debt or bonds traded in a public market—that is, the outcome of applying the preliminary view that a book-value method should be applied to other BCUCCs, including combinations between wholly-owned entities. Some users say the acquisition method should be applied in this scenario because, similar to NCS, bondholders need information provided by the acquisition method.
A number of Board members highlighted that it was clear within this paper that in all jurisdictions other than one (China), there was support for a general framework and agreement that neither the acquisition method nor the book-value method should be applied to all BCUCCs.
Another Board member noted that a few respondents had commented that they would prefer to apply the acquisition method but did not give any further feedback explaining why this might be therefore asked whether they could be contacted again to enable the Board understand their reasoning in further detail.
One Board member flagged that the paper sets out that any difference between book values and fair values could impact a debt analyst’s decision by impacting key ratios such as gearing, flagging that gearing is now rarely focussed on and there are other ratios used with far greater prominence.
This paper provides an overview of academic papers we identified that are relevant to reporting BCUCC.
One Board member asked why there were so few studies in this area given that IFRS 3 generated a vast amount of literature, then added that this was likely due to a lack of available data.
Another Board member flagged that, whilst agreeing that leverage ratios are used much less frequently these days, one of the academic papers featured in this paper suggested that some managers still considered leverage ratios to hold some importance, albeit less than cash flow ratios.
The staff will provide detailed feedback summaries on the Board’s preliminary views on the following topics at future meeting:
23 Apr 2024
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