The Committee discussed the comment letter analyses for three tentative agenda decisions:

IAS 19 Employee Benefits—Attributing Benefit to Periods of Service: In December 2020, the Committee discussed the periods of service to which an entity attributes the benefit for a defined benefit plan when the amount of the retirement benefit to which an employee is entitled depends on the length of service before retirement. The Committee concluded that the entity attributes the period of service to only the last 16 years of employee services. A number of respondents commented that the Committee should not rule out the possibility of attributing the obligation from the date of employment applying the overarching objective in IAS 19:1.

The Committee decided to finalise the agenda decision with some suggested changes to wording. The matter will also be reported to the Board due to the complexity of IAS 19.

IAS 1 Presentation of Financial Statements—Classification of Debt with Covenants as Current or Non-current: In December 2020, the Committee discussed the informal feedback and enquiries received concerning the different interpretations arising from the application of recent amendments to IAS 1 related to the classification of liabilities. In the meeting, the Committee members generally agreed with the analysis of how an entity determines 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, in the three cases described. However, almost all of the respondents expressed concerns about the outcome of applying the IAS 1 amendments and suggested the matter be referred to the Board.

The Committee decided not to finalise the agenda decision at this moment but to defer the matter to the Board, particularly highlighting the new information raised by the respondents.

IFRS 9 Financial Instruments—Hedging Variability in Cash Flows due to Real Interest Rates: In December 2020, the Committee discussed whether a hedge of the variability in cash flows arising from the changes in the real interest rate could rebut the presumption in IFRS 9:B6.3.13 and be accounted for as a cash flow hedge. The Committee members generally agreed with the staff's conclusion that hedge accounting cannot be applied to the inflation swap in the fact pattern described. Half of the respondents to the tentative agenda decision did not agree with the discussion explaining that cash flow hedge accounting could not be applied. The staff analysed the reasons for the disagreement and continue to support the conclusion in the agenda decision.

The Committee decided to finalise the agenda decision with the suggested change made by the Committee members. At the same time, the matter would be reported to the Board due to the concerns raised

More In­for­ma­tion

Please click to access the detailed notes taken by Deloitte observers.

The four EDs are published together to highlight the common measurement principles proposed and the ways these are applied consistently throughout the draft guidance. The four EDs are listed below (all links to the IPSASB website). Comments on all EDs are requested by 25 October 2021.

• ED 76 Conceptual Framework Update: Chapter 7, Measurement of Assets and Liabilities in Financial Statements streamlines the measurement principles in the Conceptual Framework by eliminating unused measurement bases and enhancing focus on those that are commonly used.
• ED 77 Measurement proposes new guidance in a single standard which addresses how commonly used measurement bases are applied in practice.
• ED 78 Property, Plant, and Equipment updates IPSAS 17 Property, Plant, and Equipment by adding general measurement guidance and measurement options when accounting for assets within its scope.
• ED 79 Non-Current Assets Held for Sale and Discontinued Operations is aligned with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations and proposes new guidance how to account for non-current assets that are classified as held for sale.

FICE: At its February meeting, the staff presented papers on Terms and Conditions, Priority on Liquidation and Potential Dilution, to enable the Board to make its decisions on the objectives and principles of the disclosure requirements and disclosures required to meet these objectives. The staff have brought back refinements to the proposals. The staff set out proposed requirements to disclose information about key terms and conditions of instruments (including disclosure of debt-like features in financial instruments that are classified as equity, equity-like features in financial instruments that are classified as financial liabilities and debt-like and equity-like features that determine the classification of components of compound financial instruments); liquidation (such as its capital structure disaggregated into categories to enable users of the financial statements to understand its capital structure and the quality of different categories of capital, including priority on liquidation); and the potential dilution of ordinary shares arising from financial instruments that could be settled by delivering ordinary shares (for example, convertible bonds and derivatives on own equity).

Dynamic Risk Management: At this meeting the Board will discuss the feedback from outreach focused on banks. The main messages are that almost all participants supported the objective of the DRM model, but that as risk management strategy commonly defines the target profile on a risk limit basis, this should be incorporated into the DRM model to better reflect the risk management view. Most participants indicated that the issue of accounting mismatch is still not fully resolved in the DRM model or is inconsistent with accounting practices. All participants were concerned about the potential impact of recognising changes in fair value of derivatives in OCI on the regulatory capital and volatility of the capital. Many participants also commented on implementation costs and change of current practices, users’ need for information about DRM and disclosure of sensitive information. Almost all participants responded positively to the ability to designate a net open risk position or core demand deposits. However, in respect of prepayable assets, most participants suggested that the designation of the layer of nominal amounts instead of a percentage (proportion) of portfolio should be allowed. The staff asks the Board whether the Board have any views, comments or questions on the feedback that would help staff to formulate the plan for the next steps in the project.

Goodwill and impairment: At this meeting the Board will discuss feedback from users of financial statements and feedback on disclosing information about business combinations, the effectiveness of the impairment test and whether to reintroduce amortisation of goodwill. There was support for enhancing the disclosures for business combinations, including information about subsequent performance of business combinations, but some concerns about the monetary and proprietary costs of doing so. Most respondents agreed that it is not feasible to design a significantly more effective impairment test at a reasonable cost, but provided some suggestions about improving its application. Views about whether amortisation should be reintroduced remain mixed and no new conceptual arguments were put forward. The Board will not be asked to make any decisions.

Maintenance and consistent application: The Board will be asked to ratify the Agenda Decision Configuration or Customisation Costs in a Cloud Computing Arrangement (IAS 38). The staff will also present the latest IFRIC Update.

Primary Financial Statements: The Board will discuss the staff’s initial analysis and recommendations on the principles of aggregation and disaggregation and the roles of the primary financial statements and notes. The staff recommend the Board should state more clearly the principle relating to the purpose of disaggregation (i.e. items shall be disaggregated if the resulting disaggregated information is material). The staff also recommend that the Board include a reference to understandability in the description of the primary financial statements when considering the role of the primary financial statements and the notes.

Our pre-meet­ing summaries are available on our April meeting notes page and will be sup­ple­mented with our popular meeting notes after the meeting.

The proposed taxonomy update includes changes to elements to reflect new and amended disclosure requirements in Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) and Definition of Accounting Estimates (Amendments to IAS 8). Comments on the proposed taxonomy update are due by 21 June 2021.

For more information, see the press release and proposed taxonomy update on the IASB’s website.

The objective of the proposed CSRD is to improve sustainability reporting to better exploit the potential of the European single market and to contribute to the transition to a fully sustainable and inclusive economic and financial system in line with the European Green Deal and the UN Sustainable Development Goals. The proposal also notes that the COVID-19 pandemic has accelerated the increase in users’ information needs, in particular as it has exposed the vulnerabilities of workers and of undertaking’s value chains.

The key proposals include a massive broadening of scope of the NFRD from 11,600 to approximately 49,000 entities in the EU including foreign subsidiaries. Companies coming under the CSRD would be:

• all companies listed on a regulated EU market (with the exception of micro entities), and
• large companies that are not listed on a regulated EU market; large companies are defined as companies that exceed at least two of the following three size criteria at the balance sheet date:
  
  • Balance sheet total: EUR 20,000,000;
  • net revenue: EUR 40,000,000;
  • average number of employees during the financial year: 250.

In order to take into account the limited capacities and resources of the SMEs concerned and to allow them sufficient time to prepare for the first-time application of the requirements, the proposal provides that SMEs may use separate sustainability reporting standards for SMEs and do not have to start reporting until three years after the effective date (i.e. 1 January 1 2026).

Entities coming under the new CSRD would have to report on:

• their business model and strategy,
• the sustainability targets set and the progress made towards achieving them,
• the role of the administrative, management and governance bodies in relation to sustainability factors,
• their policies in relation to sustainability matters,
• the company's most significant negative impacts on sustainability factors,
• a description of their principal risks related to sustainability matters, including their principal dependencies on such matters, and how they manage those risks, and
• the manner in which they have identified the information on which they report.

The CSRD would require companies to provide qualitative and quantitative information, forward-looking and retrospective information, and information that covers short, medium and long-term time horizons. Where appropriate, report content should also include information about the company's value chain, including the company's own operations, products and services, business relationships and supply chain.

The information would have to be provided mandatorily as part of management report, and entities would have to report using European sustainability reporting standards (still to be developed with a first set standards expected by October 2022, a second one year later). The proposed CSRD includes mandatory audit of the information provided (limited assurance) and mandatory digital reporting in ESEF format with corresponding labeling of sustainability information using a taxonomy yet to be developed.

Envisaged content areas of the European sustainability reporting standards are:

• Information with regard to environmental factors, including:
  • climate change mitigation and adaption;
  • water and marine resources;
  • resource use and circular economy;
  • pollution; and
  • biodiversity and ecosystems.
• Information with regard to social factors, including:
  • equal opportunities, including gender equality and equal pay for equal work, training and skills development, and employment and inclusion of people with disabilities;
  • working conditions, including secure and adaptable employment, wages, social dialogue and the involvement of workers, work-life balance, and a healthy, safe and well-adapted work environment; and
  • the human rights, fundamental freedoms, democratic principles and standards.
• Information with regard to governance factors, including:
  • supervisory bodies, including with regard to sustainability factors, and their composition;
  • business ethics and corporate culture, including anti-corruption and anti-bribery;
  • political engagements of the undertaking, including its lobbying activities;
  • the management and quality of relationships with business partners, including payment terms; and
  • the company's internal control and risk management systems, including in relation to the reporting process.

The EC proposes a transposition of the CSRD into national law by member states by 1 December 2022, so that the amendments would be applicable for the first time for fiscal years beginning on or after 1 January 2023.

The CSRD also comments on the context of the proposal and in the introductory explanatory memorandum especially notes the IFRS Foundation's proposal to establish a new international Sustainability Standards Board:

There are a number of important international initiatives in place. Their aim is to help to achieve the worldwide convergence and harmonisation of sustainability reporting standards. […] EU companies and investors that operate globally will benefit from such convergence and harmonisation. […] The proposals of the International Financial Reporting Standards Foundation to create a new Sustainability Standards Board are especially relevant in this context, as is the work already carried out by established initiatives […]. This proposal aims to build on and contribute to international sustainability reporting initiatives.  

Please click for:

• Proposed sustainable finance package and a corresponding press release on the EC website.
• Deloitte's Purpose-driven Business Reporting in Focus — European Commission publishes proposed Corporate Sustainability Reporting Directive.

This issue features:

• Spotlight — Improving the financial reporting of rate-regulated companies
• In profile — Jeremy Stuber, analyst and member of the Capital Markets Advisory Committee
• We need your views
• Stay up to date
• Resources for investors

The Investor Update newsletter is available on the IASB’s website.

Background

The IFRS Interpretations Committee received a submission about the determination of the exchange rate when there is a long-term lack of exchangeability as IAS 21 The Effects of Changes in Foreign Exchange Rates does not include explicit requirements on the exchange rate an entity uses when the spot exchange rate is not observable. The Committee researched possible narrow-scope standard-setting and concluded that the best way forward was to recommend that the IASB propose narrow-scope amendments to IAS 21 to address the matter.

In November 2019, the IASB took the matter over and during its subsequent meetings discussed how to assess whether a currency is exchangeable and which exchange rate to use when it is not. The Board decided to propose to add requirements to IAS 21 that will help an entity determine whether a currency is exchangeable into another currency and requirements the entity would apply when it is not.

Suggested changes

The proposed amendments in exposure draft ED/2021/4 Lack of Exchangeability (Proposed amendments to IAS 21) would amend IAS 21 to:

• Specify when a currency is exchangeable into another currency and when it is not — a currency is exchangeable when an entity is able to exchange that currency for the other currency, even if indirectly through another currency, through markets or exchange mechanisms that create enforceable rights and obligations without undue delay; a currency is not exchangeable into the other currency if an entity can only obtain an insignificant amount of the other currency.
• Specify how an entity determines the exchange rate to apply when a currency is not exchangeable — when a currency is not exchangeable an entity estimates the spot exchange rate as a rate that the entity would have been able to access had the currency been exchangeable, would have applied to an orderly transaction between market participants, and would faithfully reflect the economic conditions prevailing; an entity would also be able to use an observable exchange rate as the estimated spot exchange rate if it meets the noted requirements or the first subsequent exchange rate after exchangeability is restored.
• Require the disclosure of additional information when a currency is not exchangeable — when a currency is not exchangeable an entity discloses information that would enable users of its financial statements to evaluate how a currency’s lack of exchangeability affects, or is expected to affect, its financial performance, financial position and cash flows.

Comments on the proposed changes are requested by 1 September 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. The amendments would apply prospectively from the date of initial application of the amendments.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• Introductory webcast to the exposure draft (link to IASB website)
• Deloitte's IFRS in Focus newsletter explaining the proposed amendments
• Our IAS Plus project page on IAS 21 — Lack of exchangeability

During the meeting, the IASB will discuss the following:

• Goodwill
• Primary financial statements
• Maintenance and consistent application
• Dynamic risk management
• Financial instruments with characteristics of equity

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.

Apart from the Chair's welcome and preview and an address by the IASB Chair Hans Hoogervorst, the only topic of discussion will be the recently launched third agenda consultation.

Agenda papers for the meeting will be made available on the IASB website.

The IFRS Advisory Council provides a forum for the IASB to consult a wide range of interested parties affected by the IASB's work, with the objective of advising the Board on agenda decisions and priorities in the Board's work, informing the Board of the views of the organisations and individuals on the Council on major standard-setting projects, and giving other advice to the Board or to the Trustees.

For more information, please see the press releases on the IASB website:

• Advisory Council members
• Advisory Council Chair