Cover paper (Agenda Paper 24)

The Board published its Request for Information (RfI) Third Agenda Consultation in March 2021, with a comment letter deadline of 27 September 2021. The RfI gathered views on:

• The strategic direction and balance of the Board’s activities
• The criteria for assessing the priority of financial reporting issues that could be added to the Board’s work plan
• Financial reporting issues that could be added to the Board’s work plan

The purpose of this meeting was to provide the Board with a summary of the feedback on the RfI. No decisions were asked from the Board.

There was no discussion on that paper.

Feedback summary—Overview (Agenda Paper 24A)

This paper summarised key messages from the feedback received and provides an overview of the comment letters received, responses to the online survey and other outreach undertaken during the comment period for the RfI.

Board discussion

Board members were pleased about the responses received through the survey as they included responses of stakeholders that do not normally respond to consultations. It was noted that providing the possibility to reply by way of a survey should also be considered for future consultations as it encouraged a broader stakeholder base to respond.

One Board member also noted that building capacity at the IFRS Foundation does not automatically mean that the Board can get more projects done. Stakeholders have signalled that they are at capacity with regard to their ability to respond to consultations. The new sustainability standards board (ISSB) will also take up some of that capacity as it will initially be the staff responsible for financial statements who will respond to the ISSB consultations. The Board should also inform stakeholders as to how they intend to coordinate their work with the ISSB.

Feedback summary—Strategic direction and balance of the Board’s activities (Agenda Paper 24B)

This paper analysed feedback from comment letters, responses to the survey and outreach meetings on the strategic direction and balance of the Board’s activities included in the RfI.

Most respondents commented on the strategic direction and balance of the Board’s activities and supported the Board’s current strategic direction. Many said the current allocation of resources to the Board’s main activities is about right and suggested only minor modifications to the level of focus on some of the activities. Many respondents said the Board should be flexible to changes in financial reporting priorities and should set aside capacity to respond to emerging issues in a timely manner. At times, this may require reprioritising some of its activities. Many respondents emphasised the increasing importance of sustainability. Of those respondents, almost all commented on a potential interaction and connectivity between the Board, its technical staff and the ISSB. Many of these respondents said the Board should set aside capacity to support that interaction and connectivity but said it should not affect the Board’s capacity to deliver timely improvements to financial reporting. Some respondents, mainly standard-setters, said partnering with stakeholders from the broad IFRS community could alleviate some of the Board’s capacity constraints.

Board discussion

Board members noted that respondents to the RfI generally agreed with the balance of how the Board allocates its resources to the different projects. One Board member noted that it is difficult to determine at this point how much resource should be allocated to joint work with the ISSB. The Chairman echoed this and said that in the first year the ISSB will focus on its climate and general requirements standards, but the agenda consultation comprises a period of five years, so the Board would have to think about this. Another Board member said that some responses contained ideas for smaller projects that the Board could do if there is no appetite for a bigger project on a topic. This could be used to fill the work plan of the Board without too much commitment.

One Board member said that many responses stated what the Board should focus on but did not give any ideas on how to achieve it. She noted that some responses contained minor comments that referred to how the Board and its staff do their work. She asked the staff whether they could bring a paper in one of the future meetings analysing those comments, which could then educate the Board on how to achieve certain objectives. For example, it was often raised that the Board should do more about education, but it was not said what exactly should be done with regard to education. The Chairman echoed this concern with regard to comments received on the IFRS for SMEs Standard. Respondents said that more should be done, but not exactly what.

With regard to using national standard-setters for projects, one Board member cautioned that IFRS Standards are written from a global perspective and national standard-setters may introduce a jurisdictional bias in the Standards. With regard to the status of agenda decisions and TRG publications, he said that their status is currently well understood and that should not be changed. Another Board member echoed that and said that there have been responses stating that agenda decisions should have more detail while others said they should be less detailed. On balance, there is no need for a change as to the level of detail. There might, however, be room for improvement as to the stakeholder involvement in the consultation process for agenda decisions. An idea might be to remind stakeholders that this due process exists and that they can participate in it.

Feedback summary—Criteria for assessing the priority of financial reporting issues that could be added to the Board’s work plan (Agenda Paper 24C)

Most respondents provided feedback on the criteria for assessing the priority of financial reporting issues that could be added to the Board’s work plan of the agenda consultation. Almost all agreed with the criteria proposed by the Board. Many said the criteria are well-balanced and adequate. Some respondents said they would like to better understand how the criteria will be applied to individual projects. Some respondents suggested the Board consider additional criteria in deciding whether to add a potential project to its work plan—for example, the consideration of a cost-benefit analysis. Some respondents said some of the proposed criteria are not included in the Due Process Handbook (Handbook). They suggested the proposed criteria be included in the Handbook or the Board clarify the link between the proposed criteria and the criteria included in the Handbook.

Board discussion

The Board members were pleased with the external validation of the criteria, however there was some concern around whether these criteria would be too limiting for the Board. The Chairman said that in hindsight, they should have been called considerations, as otherwise stakeholders could expect that the Board adheres to them and the Board would have to demonstrate how the criteria were adhered to. One Board member said that they should not be added to the Handbook to avoid creating a formal process. It was also said that they should not be ranked or prioritised as suggested by some respondents as that would involve much judgement and the criteria are evolving.

It was also discussed how the criteria would apply to the ISSB as they might have a different user base. However, one Board member replied that the General Requirements Prototype of the Technical Readiness Working Group defined materiality based on the Conceptual Framework and therefore the user base would be expected to be the same.

One Board member said that the focus on users might be too one-sided and that the criteria should also focus on preparers.

Feedback summary—Potential projects (part 1) (Agenda Paper 24D)

This paper analyses feedback on the potential projects described in the RfI. The RfI described potential projects that were suggested to the Board during outreach conducted to help prepare the RfI. Of the respondents who commented on those potential projects most respondents rated potential projects on climate-related risks, cryptocurrencies and related transactions, and intangible assets as high priority.

Many respondents rated potential projects on going concern, pollutant pricing mechanisms, and the statement of cash flows and related matters as high priority. Mixed comments were received on potential projects on discontinued operations and disposal groups, discount rates, income taxes, other comprehensive income, and variable and contingent consideration. Some respondents rated these potential projects as high priority, some rated them as medium priority and some rated them as low priority.

Many respondents rated potential projects on borrowing costs, commodity transactions, employee benefits, expenses—inventory and cost of sales, foreign currencies, government grants, negative interest rates and separate financial statements as low priority. Many respondents, other than users, rated potential project on operating segments as low priority. Most respondents rated potential projects on inflation and interim financial statements as low priority.

Board discussion

Board members asked whether the staff could bring back papers that set out for each proposed project whether stakeholders saw significant issues, which would have to be addressed by a holistic project or whether there was an information gap that could be addressed by a narrow-scope project.

Board members discussed the following for individual proposed projects:

• Intangibles—Board members seemed to agree that a broader project on intangibles could include cryptocurrencies and polluting price mechanisms. However, the Chairman warned that issues should not only be added because they are a new occurrence like cryptocurrencies. If there are principles in IFRS Standards that address the issue, educational material would be sufficient. Prevalence of the issues would have to be taken into account, e.g. how many IFRS preparers have significant holdings of cryptocurrencies. A Board member agreed but said that it should also be taken into account how prevalence will change in the near future
• Going concern—One Board member said it would be interesting to know whether stakeholders called for providing the basis for preparation of an entity that is not a going concern or whether they only asked for more disclosures. If basis for preparation, this would be an entirely new framework, which would require much more resource than disclosures only. One Board member suggested to assess how many of the issues are pandemic-related and might lose their relevance after the pandemic
• Climate-related issues—The Chairman remarked that it should be assessed whether current IFRS Standards already address the climate-related issues raised by stakeholders or whether a project was needed. For example, the IASB educational material sets out how IFRS Standards apply to several climate-related issues. One Board member added that the recent agenda paper on green bonds that was presented during the discussions on the PIR of IFRS 9 was a good resource to address that specific issue. It was noted that many of the high-priority projects (including the project on climate change) were projects that stakeholders also saw as projects where the Board should interact with the ISSB. However, the Vice Chair said that some of the issues around climate change could be taken forward by the IASB without initial consultation with the ISSB as they were pertaining to financial statements only. The ISSB could then be involved at a later stage to see whether this agrees with their standard-setting in that area. The ISSB would be occupied in its first year with the prototypes and would not have much scope to take on any of those issues immediately
• Discount rates—Board members acknowledged that there was an appetite among stakeholders for addressing issues around discount rates. One Board member said that a project on discount rates could also cover negative interest rates, foreign exchange issues and inflation. However, another Board member reminded the Board that some of these issues had been looked at as part of a research project and it was decided that there could not be a standardised solution for discount rates as they fulfilled different objectives in different Standards

One Board member noted that a combination of projects (for example foreign exchange and discount rates) could create economies of scale, but also the opposite. He asked the staff whether an analysis could be prepared as to whether it makes sense to combine or keep separate. The staff responded that empirically projects with a focused scope have been more successful. One Board member said that scope was a major deciding point for many of the proposed projects and it would not always be straight-forward to determine the right scope.

Feedback summary—Potential projects (part 2) (Agenda Paper 24E)

This paper analyses feedback received on other potential projects, including the financial reporting issues listed in Appendix C of the RfI and other potential projects suggested by respondents.

Respondents suggested a wide range of other potential projects that the Board should consider adding to its work plan. In all cases, those potential projects were suggested by one or a few respondents.

Board discussion

Board members noted that some requests for projects are very specific and would not meet the need of the many. It was also noted that some requests would require much allocation of resource, e.g. the revision of IFRS 16 or IAS 24. For specific issues with a Standard, it was noted that this is in the remit of the IFRS Interpretations Committee to address those, who can then refer on to the Board if the issue cannot be solved with existing IFRS Standards.

On the request for a Standard for not for profit organisations, one Board member said that while this issue is important for those organisations, but this would be a decision to be made by the IFRS Foundation Trustees and not the Board as the Board’s remit is to develop Standards for “for profit” organisations.

Feedback summary—Potential projects (part 3) (Agenda Paper 24F)

This paper summarises feedback previously received on potential projects from the IFRS Interpretations Committee (football player transfer payments, software-as-a-service (SaaS) arrangements), the Extractive Activities project and the post-implementation review (PIR) of IFRS 10-12.

Board discussion

One Board member said that items in this paper should be treated differently to other items as a significant amount of work has already been done with regard to them and the distilled issues are now being presented to the Board in this agenda consultation. Consequently, they should not be weighed up against any of the projects discussed above but should automatically get a higher priority. For example, stakeholders rightfully expect that a PIR should result in projects that are then treated with a higher priority. Another Board member disagreed and said that if the PIR resulted in very specific issues that are rated low priority within the PIR, they should not be treated with a higher priority in the agenda consultation only based on the fact they resulted from a PIR. The Chairman suggested to leave some room for projects referred from PIRs to which the staff replied that this was already the case and no specific time needs to be reserved for projects resulting from a PIR.

Feedback summary—Users of financial statements (Agenda Paper 24G)

This paper analyses feedback from user comment letters, user responses to the survey and user outreach meetings.

Board discussion

Board members noted that users sent mixed messages with regard to several issues and that it was difficult to differentiate between those respondents who had thought an issue through completely and others that just dismissed issues easily as they are not affected. One Board member said it would be helpful if the staff could do a project-by-project analysis to see whether any issues raised are new issues or whether they are issues the Board had recently addressed and respondents did not agree with the Board’s solution. An example was the issues raised around IFRS 3. The Board has just recently completed the PIR on IFRS 3 and looked thoroughly into many issues. Some of the dismissed issues seem to resurface now.

Board members noted user demand for a broader project on intangibles. Some asked for a project to revise the recognition and measurement requirements while others asked for a disclosure-only project. One Board member said that the Board would have to decide early on the direction. He also said that users who preferred a disclosure-only project might change their minds when they see a sound proposal for revising the recognition and measurement requirements.

It was also noted that users would like to see a project on IFRS 8. Board members seemed to have little appetite for such a project given the PIR on IFRS 8 (which was finalised not long ago) did not reveal any major issues with IFRS 8.

On the cash flow statement, users had mixed views as to whether the direct method to determine operating cash flows should be mandated. While the direct method would give more information, it is quite costly. One Board member said that if the Board did not prefer a requirement of the direct method, it should at least look into the arguments for a direct method and see if additional information can be given when using the indirect method.