In September 2020, the Trustees of the IFRS Foundation published a consultation paper to assess demand for global sustainability standards and, if demand is strong, assess whether and to what extent the Foundation might contribute to the development of such standards. The paper noted the option of creating the SSB. The new board could operate alongside the IASB under the same three-tier governance structure, build on existing developments, and collaborate with other bodies and initiatives in sustainability, focusing initially on climate-related matters.

In his letter, Mr Carney notes:

The IFRS Foundation has an essential role to play in making this vision a reality, and I fully endorse your proposal for a new Sustainability Standards Board under the Foundation’s remit. The Foundation, with its track record of robust, reliable and independent global standard-setting should play a pivotal role in delivering sustainability reporting standards that are in the public interest.

Please click to download the full letter from the IASB website.

Details on the presenters, roundtable participants and speakers are available in the programme on the ANC website.

Three policy papers to be presented at the symposium are available in advance (all links to ANC website):

• Disclosure Transparency and Disagreement Among Economic Agents: The Case of Goodwill Impairment
• The Distinction between Debt and Equity
• Materiality assessment: contribution to single or double materiality debate

Note: A recording of all presentations, speeches, and panel discussions was made available on the ANC website after the event.

In our comments on the proposals in the consultation paper, we also note that the standards to be developed should build on the best of what we have and cite the work of CDP, CDSB, GRI, IIRC and SASB who in September 2020 released a statement of intent to work together towards comprehensive corporate reporting in a comprehensive corporate reporting system. We believe the vision in that statement could serve as a natural starting point for progress towards a more coherent, comprehensive corporate reporting system. For the reasons stated in the consultation paper, we believe that the IFRS Foundation should begin with sustainability reporting standards for climate-related information, however, whilst we believe these standards to be the first priority, we also note that the SSB should proceed without delay to other sustainability topics.

In addition, we point out that the IFRS Foundation’s proposal would lead to a significant step towards a comprehensive corporate reporting system that builds on the well-established efforts of the existing sustainability standards and frameworks to create a standard-setting solution for reporting focused on long-term value creation, connected to financial information. Further blocks can be added to address the wider impacts of companies on the economy, environment and people, and to reflect regional and local public policy priorities. We cite IFAC’s Enhancing Corporate Reporting: The Way Forward as a demonstration of how a ‘building block approach’ can both achieve a core set of global sustainability standards and respond to the local or regional public policy objectives.

Lastly, we stress that timely action is needed to avoid fragmentation, duplications or parallel reporting requirements on topics that are common across the system. In the absence of a single set of global sustainability reporting standards, some regions are moving ahead by themselves. This could result in multiple reporting frameworks and reporting standards existing for an extended (or indefinite) period. The primary objective needs to be a reduction in, and consolidation of, the plethora of different frameworks and standards that currently exist.

We sum up our position by stating:

The scale of the challenges and the increasing momentum from all stakeholders for a global solution for sustainability reporting standards make the undeniable case for immediate action. The actions proposed in the Consultation Paper should be taken without delay.

Download the full comment letter here.

The participants discussed:

• Updates on Trustees and Board’s Activities — The Advisory Council received an update on recent Trustee activities that focused on COVID-19, roles requiring succession, and sustainability. There was also an update on recent Board activities that focused on IFRS 17 amendments, IBOR Phase 2, COVID-19, and the post-implementation reviews of IFRS 9 and IFRS 15.
• Feedback from previous Adisory Council meetings — Council members received an update on how the IFRS Foundation has incorporated past Advisory Council feedback into its strategic activities related to relevance, risk, process and the IFRS Standards, since the last Council meeting.
• Sustainability — This was the main agenda item and focused on the consultation paper on sustainability reporting. Questions considered were:
  • Is there a need for a global set of internationally recognised sustainability reporting standards?
  • Is the development of a sustainability standards board (SSB) to operate under the governance structure of the IFRS Foundation an appropriate approach to achieving further consistency and global comparability in sustainability reporting?
  • Do Council members have any comment or suggested additions on the requirements for success (including on the requirements for achieving a sufficient level of funding and achieving the appropriate level of technical expertise)?
  • Could the IFRS Foundation use its relationships with stakeholders to aid the adoption and consistent application of SSB standards globally? If so, under what conditions?
  • How could the IFRS Foundation best build upon and work with the existing initiatives in sustainability reporting to achieve further global consistency?
  • How could the IFRS Foundation best build upon and work with the existing jurisdictional initiatives to find a global solution for consistent sustainability reporting?
  • If the IFRS Foundation were to establish an SSB, should it initially develop climate-related financial disclosures before potentially broadening its remit into other areas of sustainability reporting?
  • Should an SSB have a focused definition of climate-related risks or consider broader environmental factors?
  • Do Council members agree with the proposed approach to materiality that could be taken by the SSB?

The full meeting summary is available on the IASB's website. There are also recordings of the individual sessions.

He has now collected the input received in to one document, which again consults on. The document focuses on obtaining additional input on a number of matters that were not, or not fully addressed in the first public consultation conducted in October 2020.

Please click for more information in the press release on the EFRAG website.

The concept of ‘Social Value’ is an area of growing government, public and commercial interest. However, its meaning is often clouded in uncertainty, with many definitions, and the lack of an internationally recognised measurement framework and standards of practice.

This new perspectives paper explores some of the concepts surrounding social value and seeks comments to determine whether standards or guidance material are required.

Please click to access the paper on the IVSC website.

The event focused on the views of European investment decision-makers as regards information about the objectives and targets for an acquisition and, in subsequent periods, information about how that acquisition is performing against those targets that they consider important.

High-level speakers and panellists considered the IASB’s preliminary views included in the Discussion Paper Business Combinations —  Disclosures, Goodwill and Impairment and the EFRAG’s Draft Comment Letter.

Please click for access to the summary report on the EFRAG website.

Background

Business combinations under common control are excluded from the application of the current IFRS requirements for business combinations. Under IFRSs, there are requirements for the parent consolidated financial statements and for the selling entity, but no rules for the acquiring entity. As a result, the preparers of the financial statements of the acquiring entity must develop an accounting policy to account for such transactions. There are accointing policy choices - both in choosing the method and in presenting the comparative information for the previous period.

In practice, the need to develop a suitable accounting method can lead to different presentations of comparable facts and circumstances. Especially since such transactions often occur during restructuring or the creation of new entities - possibly also for an IPO. For these reasons, the IASB has been pursuing a research project for a long time, which was suspended for a time, but which, after intensive consideration, has now culminated in a discussion paper, which, in terms of process, precedes the development of an exposure draft.

Summary of preliminary views

Scope. The proposed requirements would apply to all transactions under common control. There would therefore no longer be any differentiation as to whether or not these transactions have economic substance, i.e. whether they constitute pure capital reorganisations or not.

Accounting method dependent on the existence of non-controlling interests. Following its analysis, the Board came to the preliminary conclusion that not one single method for all transactions is in the best interests of all stakeholders. The objective criterion for determining when a transaction should be accounted for using the acquisition method is the existence of a non-controlling interest in the acquiring entity, or at higher levels in the case of sub-groups. Consequently, the book-value method should be applied to all acquiring entities in which there are no non-controlling interests. The only exception is for acquirers whose shares are not traded on a public market, provided that all non-controlling shareholders have been informed of and have not objected to the proposed use of the book-value method. If all non-controlling interests are held by related parties within the scope of IAS 24, application of the book-value method is mandatory.

Application of the acquisition method. Where the acquisition method is to be applied, it must be applied in accordance with IFRS 3. However, if the consideration given is less than the fair value of the assets and liabilities received, this amount is not recognised in profit or loss but in equity.

Application of the book-value method. The IASB proposes to apply the IFRS carrying amounts of the transferred entity prospectively, i.e. from the date of acquisition. The consideration in the form of assets is to be determined at the carrying amounts of the acquiring entity, liabilities incurred are to be determined using the standards applicable to initial measurement. Any difference between the carrying amounts of the assets and liabilities received and the consideration given should be recognised in equity. Transaction costs should be recognised in profit or loss in the period in which they are incurred. The only exception to this are costs for the issuance of additional equity or debt instruments, which must be recognised in accordance with the provisions of IAS 32.

Disclosures. When applying the acquisition method, the disclosure requirements resulting from IFRS 3 should be disclosed, taking into account the improvements proposed in discussion paper DP/2020/1 Business Combinations - Disclosures, Goodwill and Impairment. However, there are additional requirements with regard to IAS 24 that intended to assist preparers. For acquisitions that must be accounted for using the book-value method, adjusted reporting obligations are proposed based on the disclosures required by IFRS 3. This should enable users to assess the nature, financial impact and benefits of the acquisition. However, it is explicitly not required to disclose financial information for periods prior to the acquisition date. Similarly, no fair value of the consideration given is to be disclosed or additionally determined. However, the amount recognised in equity as the difference between the carrying amounts of the assets and liabilities received and the consideration given should be disclosed.

The deadline for comments on the discussion paper is 1 September 2021.

Additional information

• Press release on the IASB's website (includes a short introductory video)
• Discussion Paper DP/2020/2 Business Combinations under Common Control (link to IASB website)
• IASB Snapshot introducing the DP (link to IASB website)
• Fact sheet illustrating the Board’s preliminary views (link to IASB website)
• IFRS in Focus newsletter explaining the key concepts of the discussion paper
• IAS Plus project page on Common control transactions

Agenda decision to finalise

Supply Chain Financing Arrangements — Reverse Factoring: In June 2020, the Committee published a tentative agenda decision which analyses the presentation of liabilities arising from reverse financing arrangement in the statement of financial position, statement of cash flows and the related disclosure. The staff recommend that the Committee finalise the tentative agenda decision with some editorial changes.

New issues

IAS 1 Presentation of Financial Statements — Classification of debt with covenants as current or non-current: How does an entity determine whether it has "the right to defer settlement" when a long-term liability is subject to a condition and its compliance with the condition is tested at dates after the reporting date, applying the amended IAS 1?

IAS 19 Employee Benefits — Attributing benefit to periods of service: To which periods of service should an entity attribute benefit for a defined benefit plan, in a scenario where the amount of the retirement benefit an employee is entitled to depends on the length of services before retirement?

IAS 38 Intangible Assets — Configuration or customisation of costs in a cloud computing arrangement: How should a customer account for the upfront costs of configuring and customising the suppliers' application software to which it receives access in future?

IFRS 9 Financial Instruments — Hedging variability in cash flows due to real interest rates: Could a hedge of the variability in cash flows arising from the changes in real interest rate based on inflation index be accounted for as a cash flows hedge?

For all of the new issues, the staff have concluded that the principles and requirements in the relevant Standards provide an adequate basis to determine the appropriate accounting for the issue and that the Committee should publish a tentative agenda decision saying that no further action is required.

Work in progress: The staff are analysing requests related to the accounting of warrants that are initially classified as liabilities, costs necessary to sell inventories and preparation of financial statements when an entity is no longer a going concern.

The full agenda for the meeting and our comprehensive pre-meeting summaries can be found here.

Background

The IFRS Interpretations Committee received a submission about IFRS 16 Leases and a sale and leaseback transaction with variable payments that do not depend on an index or rate and came to the conclusion (and the IASB agreed) that it would be beneficial to amend IFRS 16 to specify how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in the sale and leaseback transaction.

The IASB has now published an exposure draft (ED) of a proposed clarifying amendment.

Suggested changes

The IASB proposes in ED/2020/4 Lease Liability in a Sale and Leaseback (Proposed amendment to IFRS 16) to improve the sale and leaseback requirements in IFRS 16 by specifying how to apply paragraphs 36–38 of IFRS 16 in subsequently measuring the lease liability that arises in a sale and leaseback transaction. Specifically, the ED proposes that a seller-lessee

• when applying the IFRS 16 requirements for measuring the right-of-use asset and lease liability arising from the leaseback, determines the proportion of the asset sold that relates to the right of use retained by comparing the discounted present value of the expected payments for the lease to the fair value of the asset sold and
• subsequently measures the lease liability by reducing the carrying amount to reflect the expected payments for the lease.

A seller-lessee would apply the proposed amendment retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except when such application to sale and leaseback transactions with variable lease payments would be possible only with the use of hindsight.

The amendment would also add two illustrative examples to IFRS 16

Comments on the proposed changes are requested by 29 March 2021.

Effective date

The exposure draft does not contain a proposed effective date as the IASB intends to decide on this after exposure. Early application would be permitted.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• IFRS in Focus newsletter explaining the proposed amendment
• Our IAS Plus project page on IFRS 16 — Lease liability in a sale and leaseback