Cover paper (Agenda Paper  16)

In this meeting the staff presented its analysis and recommendations relating to feedback on:

• the disclosure requirements relating to contractual terms that could change the contractual cash flows of financial assets and financial liabilities not measured at fair value through profit or loss; and
• the effective date and transition requirements for the final amendments.

The staff will requested permission to begin the balloting process for the final amendments and considers which of the new or amended disclosure requirements should apply to subsidiaries without public accountability.

No discussion was held on this paper as this was an overview paper.

Feedback analysis—Disclosures—contractual cash flows (Agenda Paper 16A)

In March 2023, the IASB published the exposure draft Amendments to the Classification and Measurement of Financial Instruments (ED). In the ED, the IASB proposed:

• In paragraph 20B, to require entities to disclose the following for contractual terms that could change the timing or amount of contractual cash flows on the occurrence (or non-occurrence) of a contingent event that is specific to the debtor:
  • A qualitative description of the nature of the contingent event
  • Quantitative information about the range of changes to contractual
  • Cash flows that could result from those contractual terms
• In paragraph 20C to require entities to disclose the information in paragraph 20B separately for each class of financial assets measured at amortised cost or fair value through other comprehensive income and for each class of financial liabilities measured at amortised cost.

Many respondents, including most standard-setters, said that the proposed disclosures would provide useful information to users of financial statements. However, many other respondents, specifically banks and banking organisations, voiced strong objections against the proposed scope of the requirements. Their view was that the cost on preparers would outweigh any benefit to investors and provided suggestions to limit the scope.

Staff recommendation

The staff recommended finalising the proposed amendments to paragraph 20B and 20C of the ED subject to:

• referring to contractual terms that could change the amount of contractual cash flows based on a contingent event that is not directly related to a change in basic lending risks or costs (for example, the time value of money or credit risk) and including an example of a contractual term to which this disclosure requirement would apply; and
• not requiring an explicit disclosure of the range of possible adjustments but giving this as an example of the quantitative information about the adjustments to contractual cash flows that an entity should disclose.

IASB discussion

In the previous meeting, the IASB had agreed that when making the SPPI assessment, if the impact of the contingent event on the cash flows before and after the contingent event was not significant, the contingent event would not affect the SPPI assessment. An IASB member therefore challenged the need for these disclosures on a contract-by-contract basis if the impact is not material. The staff confirmed these disclosures could be provided on an aggregate basis if the impact is not significant on a contract-by-contract basis. Some wording will be added in the amendments to make this clear.

An IASB member asked the staff to confirm that the disclosures still require quantitative information and the staff confirmed that is the case.

IASB decision

All IASB members voted in favour of the staff recommendation.

Feedback analysis—Effective date and transition requirements (Agenda Paper 16B)

This paper focused on Question 7 of the ED which asked about the transition requirements for the amendments.

The ED did not propose an effective date but proposed to permit early application. The ED proposed that the amendments should be applied retrospectively and that an entity is not required to restate comparatives.

Many respondents recommended different effective dates for different parts of the amendments noting that more time would be needed to implement the amendments relating to the derecognition of financial liabilities.

A few respondents asked for clarification on how changes to the amount of cash and cash equivalents should be presented in the statement of cash flows upon initial application of the amended derecognition requirements if an entity decides not to restate prior periods. The staff considers that this is already answered in the proposals, where it is stated that if an entity does not restate prior periods, the entity shall recognise any difference between the previous carrying amount and the carrying amount at the beginning of the annual reporting period in which an entity initially apply the amendments. Therefore, a reconciliation would be provided to show the impact of the amendments.

Staff recommendation

The staff recommended finalising the transition requirements proposed in the ED and:

• set an effective date of annual reporting periods beginning on or after 1 January 2026; and
• permit entities to elect to early apply the amendments to the solely payments of principal and interest (SPPI) requirements together with the disclosure requirement in IFRS 7 relating to changes in contractual cash flows, without having to early apply the other amendments from the same date.

IASB discussion

The IASB discussion focused on whether the effective date of 1 January 2026 would give preparers sufficient time to implement the amendments to settlement date accounting. Some IASB members argued that this would be a significant change in cash reporting for most corporate companies, as they would need to analyse the banking systems in each country and adapt their systems, so the effective date should be pushed back to 1 January 2027. However, others argued that the effective date of 1 January 2026 should give preparers a sufficient amount of time, as they do not need to restate comparatives. The IASB prioritised this project over other projects due to high demand and therefore some IASB members were not keen to allow a long transition period.

An IASB member also highlighted that as some requirements can be early adopted, without having to apply the other amendments, the staff should connect with the taxonomy team to ensure there will be no issues with tagging.

IASB decision

For the effective date of annual reporting periods beginning on or after 1 January 2026, 8 members voted in favour of the staff recommendation.

All members voted in favour of permitting entities to early apply the amendments to the SPPI requirements together with the disclosure requirement in IFRS 7 relating to changes in contractual cash flows, without having to early apply the other amendments from the same date.

Due process steps (Agenda Paper 16C)

The staff recommended that the IASB should not re-expose the amendments to IFRS 9 and IFRS 7, as most respondents supported the proposals in the ED and also highlighted the urgency of the clarifications. The staff does not consider any of the changes made by the IASB since the ED as fundamental and requiring re-exposure.

IASB members were asked if they agree with the staff recommendation not to re-expose the proposals.

IASB members were asked if they intend to dissent from the publication of the amendments (NB: no IASB member dissented from the ED).

IASB members were asked if they are satisfied that the IASB has complied with the applicable due process requirements and that it has undertaken sufficient consultation and analysis to begin the balloting process for the amendments to IFRS 9 and IFRS 7.

IASB decisions

All members voted in favour of the staff recommendation not to re-expose the proposals.

Two members noted that they intend to dissent.

All members were satisfied that the IASB has complied with the applicable due process requirements.

Reduced disclosure requirements for subsidiaries without public accountability (Agenda Paper 16D)

The purpose of this paper was to ask the IASB to consider to what extent the new and amended disclosure requirements from the forthcoming amendments should apply to subsidiaries without public accountability.

Staff recommendations

The staff recommended to:

• not include the forthcoming amendments to disclosure requirements relating to equity instruments and other comprehensive income (IFRS 7:11A-11B); and
• to include the forthcoming disclosure requirements relating to contractual terms that could change the contractual cash flows of financial assets and financial liabilities not measured at fair value through profit or loss, as discussed in Agenda Paper 16A.

IASB voting

All members voted in favour of the staff recommendation.