Background

The requirements in IFRSs, in particular in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, make a distinction between how an entity should present and disclose different types of accounting changes in its financial statements. Changes in accounting policies must be applied retrospectively while changes in accounting estimates are accounted for prospectively.

Companies sometimes struggle to distinguish between accounting policies and accounting estimates and enforcers have identified divergent practices and the Interpretations Committee received a request to clarify the distinction. The Interpretations Committee passed the request on to the IASB. An exposure draft of proposed amendments published in September 2017 has now been finalised.

Changes

The changes to IAS 8 focus entirely on accounting estimates and clarify the following:

• The definition of a change in accounting estimates is replaced with a definition of accounting estimates. Under the new definition, accounting estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”.
• Entities develop accounting estimates if accounting policies require items in financial statements to be measured in a way that involves measurement uncertainty.
• The Board clarifies that a change in accounting estimate that results from new information or new developments is not the correction of an error. In addition, the effects of a change in an input or a measurement technique used to develop an accounting estimate are changes in accounting estimates if they do not result from the correction of prior period errors.
• A change in an accounting estimate may affect only the current period’s profit or loss, or the profit or loss of both the current period and future periods. The effect of the change relating to the current period is recognised as income or expense in the current period. The effect, if any, on future periods is recognised as income or expense in those future periods.

Effective date

The amendments are effective for annual periods beginning on or after 1 January 2023 and changes in accounting policies and changes in accounting estimates that occur on or after the start of that period. Earlier application is permitted.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Deloitte's IFRS in Focus newsletter explaining the amendments
• Our IAS Plus project page on Changes in accounting policies and estimates
• Updated EFRAG endorsement status report

Background

The feedback on the Board's DP on Principles of Disclosure suggested that guidance is required to assist entities in determining which accounting policies to disclose. It was noted that the application of materiality is key to deciding which accounting policies to disclose, however IAS 1 Presentation of Financial Statements does not refer to materiality but states that ‘[a]n entity shall disclose its significant accounting policies' without the Board providing a definition for the term ‘significant’.

Therefore, the Board decided to develop amendments IAS 1 to require entities to disclose their material accounting policies rather than their significant accounting policies. To support this amendment the Board has also developed guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ described in IFRS Practice Statement 2 Making Materiality Judgements to accounting policy disclosures.

Changes

Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) amends IAS 1 in the following ways:

• An entity is now required to disclose its material accounting policy information instead of its significant accounting policies;
• several paragraphs are added to explain how an entity can identify material accounting policy information and to give examples of when accounting policy information is likely to be material;
• the amendments clarify that accounting policy information may be material because of its nature, even if the related amounts are immaterial;
• the amendments clarify that accounting policy information is material if users of an entity’s financial statements would need it to understand other material information in the financial statements; and
• the amendments clarify that if an entity discloses immaterial accounting policy information, such information shall not obscure material accounting policy information.

In addition, IFRS Practice Statement 2 has been amended by adding guidance and examples to explain and demonstrate the application of the ‘four-step materiality process’ to accounting policy information in order to support the amendments to IAS 1.

Effective date and transition

The amendments are applied prospectively. The amendments to IAS 1 are effective for annual periods beginning on or after 1 January 2023. Earlier application is permitted. Once the entity applies the amendments to IAS 1, it is also permitted to apply the amendments to IFRS Practice Statement 2.

Dissenting opinion

Board member Françoise Flores dissented from issuing the final amendments. Ms Flores believes that stating that accounting policy information is material even if it is standardised or duplicates the requirements of IFRSs if the underlying accounting is complex and users of the entity’s financial statements would otherwise not understand material transactions, other events or conditions stretches the concept of materiality beyond its intended scope and undermines the overall aim of the amendments, which is to help an entity reduce the disclosure of immaterial accounting policy information.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Deloitte's IFRS in Focus newsletter explaining the amendments
• Our IAS Plus Project page on Disclosure initiative — Accounting policies
• Updated EFRAG endorsement status report

Background

In May 2020, the IASB issued Covid-19-Related Rent Concessions (Amendment to IFRS 16). The pronouncement amended IFRS 16 Leases to provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification. On issuance, the practical expedient was limited to rent concessions for which any reduction in lease payments affects only payments originally due on or before 30 June 2021.

Since lessors continue to grant COVID-19-related rent concessions to lessees and since the effects of the COVID-19 pandemic are ongoing and significant, the IASB is now proposing to extend the time period over which the practical expedient is available for use.

Suggested changes

The changes proposed in ED/2021/2 Covid-19-Related Rent Concessions beyond 30 June 2021 (Proposed amendment to IFRS 16) would amend IFRS 16 to

1. permit a lessee to apply the practical expedient regarding COVID-19-related rent concessions to rent concessions for which any reduction in lease payments affects only payments originally due on or before 30 June 2022 (rather than only payments originally due on or before 30 June 2021);
2. require a lessee applying the amendment to do so for annual reporting periods beginning on or after 1 April 2021;
3. require a lessee applying the amendment to do so retrospectively, recognising the cumulative effect of initially applying the amendment as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of the annual reporting period in which the lessee first applies the amendment; and
4. specify that, in the reporting period in which a lessee first applies the amendment, a lessee is not required to disclose the information required by paragraph 28(f) of IAS 8.

Comment period

The IFRS Foundation's Due Process Handbook sets out that 75% of the Trustees must approve comment periods shorter than 30 days. The Trustees approved a 14-day comment period. Therefore, comments on the proposed changes are requested by 25 February 2021.

Effective date

The Board expects to finalise the amendment by the end of March 2021 and proposes an effective date of 1 April 2021 for the final amendment (earlier application permitted, including in financial statements not yet authorised for issue at the date the amendment is issued).

Alternative view

The exposure draft includes an alternative view by Board member Nick Anderson. Mr Anderson voted against publication of the exposure draft noting that when the practical expedient was initially offered, its application was limited to a very specific timeframe. Extending the period during which the practical expedient is available would further impede comparability between lessees that apply the practical expedient and those that do not.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• EFRAG's draft comment letter which expresses the support for the amendments. Comments on the EFRAG's comment letter are due by 22 February 2021.
• Deloitte's IFRS in Focus newsletter
• Our IAS Plus project page on IFRS 16 and COVID-19 — Extension of practical expedient

The research papers are due by 15 May 2022. Selected research papers will be featured at a joint conference on 2–4 November 2022 and considered for potential publication in the TAR. For more information, see the press release on the IASB’s website.

A recording of the virtual workshop is now available. It can be accessed here on the IASB website.

The IASB's project on Common control transactions is designed to address accounting for transactions between entities that are ultimately controlled by the same party or parties (so-called 'common control transactions').

In its draft comment letter on the discussion paper published in November 2020, EFRAG

• supports the proposed scope of the discussion paper but considers that the IASB should better define 'group restructurings' without labelling them Business Combinations under Common Control (BCUCC) when they do not meet the description of a business combination in IFRS 3 Business Combinations;
• agrees that a single measurement method is not appropriate for all BCUCC and supports the two concepts of acquisition method and book-value method but proposes a few modifications to the IASB’s decision tree on when to apply each method;
• generally agrees with the IASB's proposals on how to apply the two methods but is consulting constituents on certain aspects of both methods;
• supports the proposed disclosure requirements for BCUCC accounted for under both the acquisition method and a book-value method.

Comments on EFRAG's draft comment letter are requested by 30 July 2021. For more information, see the press release and the draft comment letter on the EFRAG's website.

The webinars lasted approximately 60 minutes and consisted of an overview of the standard’s objectives and related research opportunities, followed by questions and answers.

For more information, see the press release on the IASB’s website.

The event will focus on the views of European investment decision-makers and information that they consider important in this area. The audience will be able to contribute to the discussion through polling questions and Q&A sessions. 

For more information and registration, please see the press release on the EFRAG website.

A recording of this webinar was released on 8 March 2021.

A summary report on the webinar was released on 12 May 2021.

A summary of the agenda is set out below:

Agenda papers for the meeting are available on the IASB website.

During the meeting, the IASB will discuss the following:

• Financial in­stru­ments with char­ac­ter­is­tics of equity
• Management commentary
• Agenda consultation
• Disclosure initiative — Subsidiaries that are SMEs
• SME Standard review and update
• Extractive activities

The full agenda for the meeting can be found here. We will post any updates to the agenda, our com­pre­hen­sive pre-meet­ing summaries, as well as observer notes from the meeting on this page as they become available.