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March

EFRAG issues final endorsement advice on IFRS 17 including June 2020 amendments

31 Mar 2021

The European Financial Reporting Advisory Group (EFRAG) has submitted final endorsement advice on IFRS 17 ‘Insurance Contracts’ including the June 2020 amendments to the European Commission.

EFRAG assesses that “on a consensus basis that, apart from the requirement to apply annual cohorts to intergenerationally-mutualised and cash-flow matched contracts, all the other requirements of IFRS 17, on balance (i) meet the qualitative characteristics of relevance, reliability, comparability and understandability required to support economic decisions and the assessment of stewardship, raise no issues regarding prudent accounting, and that they are not contrary to the true and fair view principle; and (ii) are conducive to the European public good.” EFRAG did not reach a consensus related to the requirement to apply annual cohorts to intergenerationally-mutualised and cash-flow matched contracts. Seven EFRAG Board members believe that the annual cohorts requirement meets the endorsement criteria, whereas seven EFRAG Board members believe it does not and two EFRAG Board members abstained.

For more information, see the press release which includes links to the final endorsement advice package on the EFRAG website. In addition, the EFRAG endorsement status report has been updated.

IASB extends practical relief regarding COVID-19-related rent concessions

31 Mar 2021

The International Accounting Standards Board (IASB) has published 'Covid-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16)' that extends, by one year, the May 2020 amendment that provides lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification.

 

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 decided to extend the time period over which the practical expedient is available for use.

 

Changes

The Changes in Covid-19-Related Rent Concessions beyond 30 June 2021 (Amendment to IFRS 16) 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.

 

Effective date

The amendment is effective for annual reporting periods beginning on or after 1 April 2021 (earlier application permitted, including in financial statements not yet authorised for issue at the date the amendment is issued).

 

Dissenting opinion

The final amendment includes a joint dissenting opinion by Board members Nick Anderson and Zachary Gast. They voted against publication of the final amendments 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 does further impede comparability between lessees that apply the practical expedient and those that do not. They also note that support from users of financial statements for the original amendment was based on limiting the practical expedient to a specific time frame. In addition, they highlight that lessees are no longer applying IFRS 16 for the first time.

 

Additional information

Please click for:

 

IOSCO sets up working group to support the IFRS Foundation sustainability initiative

31 Mar 2021

The International Organization of Securities Commissions (IOSCO) has announced the establishment of a new Technical Expert Group (TEG) under its Sustainable Finance Task Force (STF) that will work closely with the IFRS Foundation’s working group on its sustainability project.

The new TEG will be tasked with reviewing and assessing technical recommendations focused on enterprise value creation that will be developed the working group recently set up by the IFRS Foundation to prepare for a potential international Sustainability Standards Board (SSB). The working group's tasks also include planned work to further refine the prototype climate-related disclosure standard, its content, and industry-specific metrics. IOSCO has been invited to join the IFRS Foundation working group as an observer.

Please click to access the announcement of the new TEG on the IOSCO website.

Report on the application of IFRS 10, IFRS 11 and IFRS 12 in the EU

31 Mar 2021

The European Securities and Markets Authority (ESMA) has published a report that analyses the application of the requirements of IFRS 10 'Consolidated Financial Statements', IFRS 11 'Joint Arrangements' and IFRS 12 'Disclosure of Interests in Other Entities' by European issuers.

The analysis builds on a review of the 2017, 2018 and 2019 annual reports of a sample of European issuers and on the evidence from supervision and enforcement activities undertaken by European enforcers on financial statements relating to financial years between 2014 and 2020.

The report was submitted to the IASB as part of the ESMA response to the post-implementation review of the three standards that the IASB is currently conducting.

Overall, the results show that the requirements of the standards have generally been well applied in the financial statements of the issuers in the sample. However, ESMA believes there is room for improvement in the level of compliance, comparability and transparency in the application of the requirements. In addition, ESMA notes that some aspect of the IFRSs can be improved to bring more clarity in areas where uncertainty in practice still exists.

Please click to access the full report on the ESMA website.

FASB and ASBJ hold biannual meeting

31 Mar 2021

On 29-30 March 2021, the FASB and the Accounting Standards Board of Japan (ASBJ) held a joint virtual meeting. The meeting was the 29th in a series of biannual meetings between the two standard-setters.

The two boards informed each other about their respective activities, including the response to the COVID-19 pandemic’s effects, and exchanged views on technical topics in which they both have an interest, including accounting for goodwill, accounting for leases, and rate-regulated activities.

The next meeting between the FASB and ASBJ is expected to be held in the second half of 2021. For more information about the latest meeting, see the press release on the ASBJ website.

IASB launches third agenda consultation on its future work programme

30 Mar 2021

The International Accounting Standards Board (IASB) launched today its third public consultation to seek broad public input on the strategic direction and overall balance of its future work programme by publishing a request for information. The deadline for submitting comments is 27 September 2021.

 

Introduction

The request for information includes an introductory section that states the objective of the request for information and describes how responses will help the Board in determining its future work programme. The introduction also explains the difference between the IFRS Foundation's five-yearly review of structure and effectiveness that is currently underway and that includes a consultation on sustainability reporting and the IASB's agenda consultation. The IASB's agenda consultation seeks feedback on the priorities of activities within the current scope of the Board’s work, whereas the Trustees’ consultation seeks feedback on a potential expansion in the role of the IFRS Foundation. The IASB is currently working on its management commentary project and could do more on sustainability aspects, should stakeholders wish so, as long as this is connected to financial statements. While there is some connecting middle ground, respondents should not confuse the two initiatives. As the IFRS Foundation Trustees move forward quickly with their initiative, their decisions would be available before the Board makes decisions on its future agenda.

 

Request for information

The request for information consists of three parts: (1) strategic direction and balance of the Board's activities, (2) criteria for assessing the priority of projects that could be added to the work plan, and (3) financial reporting issues that could be added to the Board’s work plan.

Strategic direction and balance of the Board's activities

Part one of the request for information regarding the strategic direction and balance notes that the IASB's work is currently following six lines:

  • New IFRS Standards and major amendments to IFRS Standards
  • Maintenance and consistent application of IFRS Standards
  • The IFRS for SMEs Standard
  • Digital financial reporting and the IFRS Taxonomy
  • Understandability and accessibility
  • Stakeholder engagement

In this part of the request for views the IASB is seeking stakeholders’ views on whether the Board should increase, leave unchanged or decrease its current level of focus on each line of work. And while there is a little room for additional work, respondents are asked to assume that the Board’s overall level of resources will remain substantially unchanged during the 2022 to 2026 period.

Criteria for assessing the priority of projects that could be added to the work plan

Part two of the request for information regarding criteria for assessing the priority of projects that could be added to the work plan notes that the Board will use a specified list of seven criteria to assess the potential financial reporting issues that could be added to its work plan to develop new IFRS Standards and major amendments to IFRS Standards. They are:

  • The importance of the matter to investors
  • Whether there is any deficiency in the way companies report the type of transaction or activity in financial reports
  • The type of companies that the matter is likely to affect, including whether the matter is more prevalent in some jurisdictions than others
  • How pervasive or acute the matter is likely to be for companies
  • The potential project’s interaction with other projects on the work plan
  • The complexity and feasibility of the potential project and its solutions
  • The capacity of the Board and its stakeholders to make timely progress on the potential project

The criteria are derived from the Due Process Handbook and the 2015 Agenda Consultation. The relative importance of any specific criterion will vary depending on the particular circumstances. Generally, the Board will evaluate potential project for its work plan primarily on the basis of whether the project will meet investors’ needs, while also taking into account the costs of producing the information.

Financial reporting issues that could be added to the Board’s work plan

Finally, part three of the request for information regarding financial reporting issues that could be added to the Board’s work plan refers to 22 projects that have frequently been suggested to the Board for consideration. The request for information seeks stakeholders’ views on what priority they would give each of the potential projects — high, medium or low — and whether their prioritisation refers to all or only some aspects included in the project description. Respondents are also invited to suggest additional issues that they believe the Board should add to its work plan for 2022 to 2026.

 

Appendices

For reasons of readability, some of the information referred to in the request for information has been relegated to appendices:

  • Appendix A describes the active projects on the Board’s work plan as of March 2021
  • Appendix B describes the 22 financial reporting issues that were frequently suggested to the Board for potential potential inclusion in its work programme
  • Appendix C describes additional financial reporting issues that were suggested to the Board by only a small number of stakeholders

 

Comment deadline and next steps

Stakeholders are invited to provide feedback on the request for information by 27 September 2021. The Board expects to discuss the feedback in the second half of 2021 and to publish a feedback statement summarising the feedback and announcing the work plan for 2022 to 2026 in the first quarter of 2022.

 

Additional information

The following additional information is available on the IASB website and on IAS Plus:

 

EFRAG announces new Board members

30 Mar 2021

The EFRAG’s General Assembly has announced the appointment of five new EFRAG Board members and the ppointment of a new EFRAG Board Vice-President.

The new Board members are Olivier Scherer (accountancy profession se​​​at, French); Michael Fechner (corporate sector seat, German); Roman Sauer (insurance sector seat, German); Serge Pattyn (user seat, Belgian); and Gerhard Prachner (AFRAC, Austria). Serge Pattyn has also been appointed EFRAG Board Vice-President.

The new members will begin their three-year terms on 1 May 2021. They replace Hans Buysse (EFRAG Board Vice-President), Luca Cencio​​​ni, Benoit Jaspar, Claes Norberg, Laurence Rivat and Mark Vaessen.

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

IFRS Foundation seeks Trustee applications

29 Mar 2021

The IFRS Foundation announces that it is seeking two applications for the role of Trustee.

The IFRS Foun­da­tion is seeking two Trustees: one from the Americas and one from the Asia-Oceania. Trustees’ re­spon­si­bil­i­ties include oversight of the organisation in the public interest, its strategic direction, ap­point­ments to the Board, the IFRS In­ter­pre­ta­tions Committee and the IFRS Advisory Council, and ensuring the financing of the organisation and approving its budget. The role de­scrip­tion notes:

Qualified candidates should have top-level experience in an organisation with an interest in accounting standards. They should demonstrate a firm commitment to serving the public interest, to the work of the Foundation and to the Board as a high quality global standard-setter. They should be financially knowledgeable and be able to meet the time commitment, which includes, but is not limited to, at least three three-day meetings each year. Trustees should have an understanding of, and be sensitive to, the challenges associated with the adoption and application of high-quality global accounting standards developed for use in the world’s capital markets as well as to relevant current issues such as the impact of new technologies on corporate reporting, the development of non-financial reporting and changes in investors' and markets' demands. Trustees are aware of the increasing focus on sustainability reporting by major companies and would welcome applications from candidates with a knowledge and interest in sustainability reporting.

Please click to access the press release on the IASB website.

IASB issues podcast on latest Board developments (March 2021)

29 Mar 2021

The IASB has released a podcast featuring IASB Chair Hans Hoogervorst and IASB Vice-Chair Sue Lloyd discussing deliberations at the March 2021 IASB meeting as well as the 10 March supplementary meeting on IFRS 16 and covid-related rent concessions.

The podcast discusses:

  • Extensions to comment periods for three of the Board’s current consultations.
  • Goodwill and Impairment project.
  • Primary Financial Statements project.
  • Request for Information Comprehensive Review of the IFRS for SMEs Standard.
  • Equity Method research project.

The podcast (14 minutes) can be accessed through the press release on the IASB website.

Please click to view the detailed notes taken by Deloitte observers for the IASB regular meeting and supplementary meeting.

Deloitte comments on the IASB's proposal on lease liability in a sale and leaseback

29 Mar 2021

We have commented on IASB exposure draft ED/2020/4 ‘Lease Liability in a Sale and Leaseback’, which was published by the IASB on 27 November 2020. The exposure draft aims at clarifying how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in a sale and leaseback transaction.

We do not support the proposals in the ED for reason cited by Ms Flores in her alternative view. We are concerned that the method proposed results in recognition of a lease liability for the expected variable payments not based on an index or rate, which is inconsistent with the general requirements in IFRS 16 and that the ED will be difficult to implement. In addition, we propose that a practical alternative would be to require that the “deferred gain” that results from the mechanical application of the existing requirements in IFRS 16:100 be recognised in profit or loss over the lease term on a straight-line basis (or another systematic basis) and presented as a reduction of the lease expense and suggest that no amendment be made at this time to specify the method that should be used by a seller-lessee to measure the proportion of the previous carrying amount of the lease asset that relates to the right of use retained.

Please click to download our full comment letter.

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