Maintenance and consistent application

Date recorded:

Cover paper (Agenda Paper 12)

At this meeting, the IASB discussed an agenda decision from the IFRS Interpretations Committee (IFRS IC) and sweep issues on ED/2021/9 Non-current Liabilities with Covenants.

Cash Received via Electronic Transfer as Settlement for a Financial Asset (IFRS 9)—Next steps (Agenda Paper 12A)

At its June 2022 meeting, the IFRS IC voted to finalise the agenda decision Cash Received via Electronic Transfer as Settlement for a Financial Asset (IFRS 9). The agenda decision addresses the recognition of cash received via an electronic transfer system as settlement for a trade receivable.

In the fact pattern described in the submission:

  • The electronic transfer system has an automated settlement process that takes three working days to settle a cash transfer. All cash transfers made via the system are therefore settled (deposited in the recipient’s bank account) two working days after they are initiated by the payer
  • An entity has a trade receivable with a customer. At the entity’s reporting date, the customer has initiated a cash transfer via the electronic transfer system to settle the trade receivable. The entity receives the cash in its bank account two days after its reporting date

The Committee concluded in a tentative agenda decision that, applying IFRS 9, the entity:

  • Derecognises the trade receivable on the date on which its contractual rights to the cash flows from the trade receivable expire
  • Recognises the cash (or another financial asset) received as settlement for that trade receivable on the same date

Many respondents to the tentative agenda decision suggested that the Committee not finalise the agenda decision but, instead, refer the matter to the IASB. These respondents said:

  • Finalising the agenda decision would not be cost-effective because its implementation would require significant cost and might not improve financial reporting
  • The agenda decision has broad and pervasive implications beyond the submitted fact pattern
  • Further research is needed to understand the scope of transactions affected by the agenda decision and thus its overall effects on entities

Staff recommendation

Based on the staff’s analysis in the paper, they recommended that the IASB explore narrow-scope standard-setting in response to respondents’ comments as part of its PIR of IFRS 9. On balance, the staff think it is possible that the benefits of narrow-scope standard-setting could outweigh the costs.

If the IASB agrees with the recommendation, the staff will bring to a future meeting a paper including analysis of possible narrow-scope standard-setting. In particular, the staff will provide analysis on:

  • The form that any narrow-scope standard-setting would take (for example, whether it might be an exemption from specific requirements or a practical expedient to facilitate the application of existing requirements)
  • The scope of transactions to which it would apply (for example, whether it would apply to payments an entity makes, receives, or both)

If the IASB disagrees with the recommendation, the staff ask the IASB members whether they object to the Committee’s:

  • Decision not to add a standard-setting project to the work plan
  • Conclusion that the agenda decision (set out in Appendix A) does not add or change requirements in IFRS Accounting Standards

IASB discussion

IASB members agreed with the staff recommendation. They highlighted the excellent work of the IFRS IC who did the best they could within their limitations. However, constituents’ concerns are valid and therefore the IASB should now explore standard-setting.

Several IASB members noted that the IASB should move quickly as it affects almost all entities in all industries. The Chair acknowledged this but said that there are limitations as to how quickly a solution could be provided given the IASB’s due process and endorsement processes around the world.

It was noted that the relevant principles in IFRS 9 are very fundamental, so the IASB should be cautious when changing them as there is potential for significant disruption of practice. The Chair said that it is important to note that the staff recommendation uses the term ‘explore standard-setting’ which means that it is not certain yet that standard-setting will be undertaken. Only if the issue can be resolved in a timely fashion without significant disruption would the IASB move to standard-setting.

IASB decision

All IASB members voted in favour of the staff recommendation.

Non-current Liabilities with Covenants (IAS 1)—Sweep issue (Agenda Paper 12B)

In June 2022, the IASB decided to finalise its proposed amendments to IAS 1 published in ED/2021/9 with some changes to the proposals.

The purpose of this paper was to consider the following sweep issue:

The IASB tentatively decided to allow an entity to early apply the 2022 amendments or the 2020 Classification of Liabilities as Current or Non-current amendments, but only if the entity applies both amendments at the same time. The staff has since found that such a requirement would force entities that have already early applied the 2020 amendments to reverse the application of these amendments until they apply the 2022 amendments. In the staff’s view, such an outcome would be inappropriate.

Staff recommendation

The staff recommended that the IASB:

  • Allow early application of the 2020 amendments; but
  • Require entities that early apply the 2020 amendments after the issue of the 2022 amendments to apply both amendments at the same time.

IASB decision

There was no discussion of this paper. The IASB voted unanimously in favour of the staff recommendation.

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