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IASB publishes proposed amendments to IFRS 13 and IAS 19 and draft guidance for developing and drafting disclosures

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25 Mar 2021

The International Accounting Standards Board (IASB) has published an exposure draft 'Disclosure Requirements in IFRS Standards — A Pilot Approach (Proposed amendments to IFRS 13 and IAS 19)' that contains proposed guidance for itself when developing and drafting disclosure requirements in IFRSs in future as well as proposed amendments to IFRS 13 'Fair Value Measurement' and IAS 19 'Employee Benefits' that result from applying the proposed guidance to those standards. Comments are requested by 12 January 2022.

 

Background

The IASB noted constituent concern about the cumulative effect of disclosure requirements introduced by new and revised standards and conducted a research project with the aim of a general review of disclosure requirements.

As a first step, the Board published a discussion paper DP/2017/1 Disclosure Initiative — Principles of Disclosure in March 2017 that contained an appendix with two examples of how existing standards could be re-drafted using the principles described in the DP.

Many respondents to the DP highlighted the ‘checklist’ approach as a significant factor contributing to the disclosure problem and that the Board’s way of developing and drafting disclosure requirements in IFRSs is partly responsible for this as there often are a large number of disclosure requirements without specific disclosure objectives. In addition, disclosure sections are drafted inconsistently.

The Board acknowledged these concerns and decided to pursue a project following a four-step approach:

  • Develop draft guidance for the Board to use when developing and drafting disclosure sections;
  • Select two standards on which to apply the draft guidance;
  • Test the draft guidance by applying it to those standards; and
  • Prepare an ED of amendments to those standards.

The exposure draft published today includes the draft guidance as well as proposed amendments to IFRS 13 Fair Value Measurement and IAS 19 Employee Benefits that result from applying the draft guidance to those standards. 

 

Draft guidance and suggested changes

The exposure draft ED/2021/3 Disclosure Requirements in IFRS Standards — A Pilot Approach (Proposed amendments to IFRS 13 and IAS 19) is made up of three blocks: the draft guidance for the IASB to apply when developing and drafting disclosure requirements in IFRSs in future; proposed amendments to IFRS 13; and proposed amendments to IAS 19.

Draft guidance

As one of the main reasons for the perceived disclosure problem was the 'checklist' mentality, the IASB decided to develop an approach that would shift the focus to the use of judgement and to determining whether the objective behind the disclosures has been met by the entity.

To this end, the the Board proposes to use overall disclosure objectives in future that that describe the overall information needs of users of financial statements and specific disclosure objectives that describe the detailed information needs of users of financial statements. An entity would then need to apply judgement to identify items of information for each specific disclosure objective by considering whether the information is relevant or irrelevant and whether it helps the entity to communicate effectively. For the overall disclosure objectives, the IASB would use more prescriptive language, while for the information needed to meet specific disclosure objectives it would typically use less prescriptive language.

The draft guidance is not a standard. However, once finalised, the Board will apply the guidance in developing and drafting disclosure sections of IFRSs in the future. The Board expects that the broad application of the guidance will have a significant effect on the behaviour of entities, auditors and regulators. Instead of checking whether a specific piece of information required by an IFRS has been provided, auditors and regulators will have to use judgement to assess compliance. Compliance will be achieved if the information provided effectively meets the disclosure objectives in the entity’s case.

Proposed amendments to IFRS 13

In line with the draft guidance, the Board proposes an overall disclosure objective that requires an entity to disclose information that shows

  • the significance of the assets and liabilities measured at fair value;
  • how the fair value measurements have been determined; and
  • how changes in those measurements affect the entity’s financial statements.

Specific disclosure objectives would then regard the fair value hierarchy, measurement uncertainties, possible alternative fair value measurements, and drivers of change in fair value measurements. The proposed amendments also note the kind of information needed to meet the disclosure objectives. In addition, the specific disclosure requirements also cover disclosures regarding assets and liabilities not measured at fair value in the statement of financial position but for which fair value is disclosed in the notes.

Proposed amendments to IAS 19

The overall disclosure objectives proposed for IAS 19 distinguish between defined benefit plans and define contribution plans. For defined benefit plans, the overall disclosure objective requires an entity to disclose information that shows enables users of financial statements to evaluate the uncertainties associated with the entity’s involvement in its defined benefit plans and to assess the effect that the defined benefit plans have on the financial performance, financial position and cash flows of the entity. For defined contribution plans, the overall disclosure objective requires requires an entity to disclose information that enables users of financial statements to understand the effect that defined contribution plans have on the financial performance and cash flows of the entity.

While the Board does not propose specific disclosure objectives for defined contribution plans, the proposed specific disclosure objectives for defined benefit plans include amounts in the primary financial statements relating to defined benefit plans, the nature of, and risks associated with, defined benefit plans, expected future cash flows relating to the defined benefit obligations at the end of the period, future payments to members of defined benefit plans that are closed to new members, measurement uncertainties associated with the defined benefit obligation, and drivers of change in the amounts in the statement of financial position relating to the defined benefit plans. The proposed amendments also note the kind of information needed to meet the disclosure objectives.

In addition, the proposed amendments also touch on  multi-employer plans and defined benefit plans that share risks between entities under common control as well as other types of employee benefit plans.

Comments on the draft guidance and the proposed changes are requested by 12 January 2022 (comment letter deadline extended on 21 July 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.

 

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