We comment on the IASB's management commentary proposal

24 Nov 2021

Deloitte has commented on the exposure draft 'Management Commentary' published by the IASB in May 2021.

We welcome the Board’s project to revise the Practice Statement on Management Commentary. However, we believe that further improvements are necessary on the following issues:

  • The Practice Statement would benefit from clearer concepts to help preparers and users understand its underlying thinking and to set a context for the type and range of disclosures envisaged.
  • We do not think that it is sufficient to measure financial outcomes alone as appears to be proposed in the Exposure Draft.
  • We suggest restructuring the Practice Statement to make it easier to navigate and apply, for example, by reducing the number of elements. In our view, these elements overlap in many aspects and their interaction and purpose is not always immediately understandable. We suggest a closer alignment to the <IR> Framework, whose structure includes fundamental concepts, guiding principles for the preparation and presentation of an integrated report, content elements that are fundamentally linked to each other, and high-level and specific objectives for each content element.
  • We suggest that the approach to materiality set out in the Practice Statement should articulate more clearly that it necessitates the application of a filter to identify a subset of impacts that are relevant to enterprise value and are therefore material to the information needs of users of management commentary.

In addition, since this project commenced, the IFRSF has made a significant move towards establishing global sustainability standards. We think the Board should therefore consider the future direction of the project in the light of this development.

Please click to download our full comment letter here.

Agenda for the December 2021 ASAF meeting

23 Nov 2021

The International Accounting Standards Board (IASB) has released an agenda and meeting papers for the meeting of the Accounting Standards Advisory Forum (ASAF), which is to be held by remote participation on 9-10 December 2021. A summary of the agenda is set out below:

Thursday 9 December 2021 (11:00-14:45)

  • Intangibles — ASAF members will share preliminary feedback on EFRAG’s Discussion Paper Better Information on Intangibles.
  • Strategic / agenda consultations — ASAF members will discuss any recent strategic / agenda consultations in their jurisdictions and discuss how it compares to the feedback on the IASB’s Third Agenda Consultation.
  • Agenda planning and feedback from the previous ASAF meeting — ASAF members will provide views on topics for future meetings and any comments on how the feedback from the October 2021 ASAF meeting has been (or will be) used by the staff or the Board.

Friday 10 December 2021 (11:00-14:45)

  • Goodwill and impairment — ASAF members’ views on staff examples illustrating the information the staff expect an entity to disclose applying the Board’s preliminary views expressed in the Discussion Paper Business Combinations — Disclosures, Goodwill and Impairment.
  • Disclosure initiative — Subsidiaries without public accountability: Disclosures — ASAF members’ views on the scope of the draft Standard.
  • Disclosure Initiative — Targeted Standards-level review of disclosures — ASAF members will have the opportunity to share feedback from their jurisdictions on the Exposure Draft Disclosure Requirements in IFRS Standards—A Pilot Approach.

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

Agenda for the November 2021 Islamic Finance Consultative Group meeting

23 Nov 2021

An agenda has been released for the meeting of the Islamic Finance Consultative Group that will be held by remote participation on 30 November 2021.

A summary of the agenda is set out below:

Tuesday 30 November 2021 (08:55-10:45)

  • Post-implementation review of IFRS 9 — Classification and Measurement
  • IFRS 17 Insurance Contracts and Takaful
  • IASB Update

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

Interesting in this context is also a paper prepared for the latest meeting of the Asian-Oceanian Standard-Setters Group (AOSSG) that discusses IFRS 17 adoption and Takaful in Indonesia, Malaysia, Pakistan, Saudi Arabia, and Syria. Please see the paper on the AOSSG website.

November 2021 IASB meeting notes posted

23 Nov 2021

The IASB met in London on Monday, Tuesday and Friday of the week beginning 15 November 2021. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The following topics were discussed:

Third Agenda Consultation: The Board published its Request for Information (RfI) Third Agenda Consultation in March 2021. The staff provided the Board with a summary of the feedback on the RfI. Most respondents commented on the strategic direction and balance of the Board’s activities and supported the Board’s current strategic direction. In terms of specific projects, most respondents rated climate-related risks, cryptocurrencies and related transactions, and intangible assets as high priority. Many rated going concern, pollutant pricing mechanisms, and the statement of cash flows and related matters as high priority. The Board gave initial reactions to the feedback presented but did not make any decisions.

Goodwill and Impairment: In September 2021, the Board decided to prioritise making tentative decisions about proposing disclosures about business combinations and perform further analysis of the feedback received on the subsequent accounting for goodwill. In this meeting, the Board continued to make tentative decisions about the package of disclosures about business combinations. The Board decided to require disclosure of quantitative information about expected synergies from a business combination but not to define ‘synergies’. The Board decided that rather than requiring an entity to explain when expected synergies from a business combination are expected to be realised they should be required to disclose information about when the benefits from synergies are expected to start, and the expected duration of those benefits.

Primary Financial Statements: The Board decided to retain ‘providing insight into management’s view of an aspect of performance’ as the objective of the requirements for MPMs and ‘management’s view of an aspect of performance’ in the definition of MPMs. The Board also voted in favour of establishing a rebuttable presumption that a subtotal of income and expenses included in public communications outside financial statements represents management’s view of an aspect of performance, allow an entity to rebut the presumption when there is reasonable and supportable information demonstrating that a subtotal of income and expenses does not represent management’s view of an aspect of performance and provide application guidance on how to assess whether there is reasonable and supportable information to support the rebuttal. The Board also decided to narrow the scope of public communications considered for the purposes of applying the definition of MPMs to exclude oral communications, transcripts, and social media posts. The Board agreed to add application guidance clarifying how an entity applies the requirement to describe an MPM in a clear and understandable manner that does not mislead users.

Board Work Plan—Timing of PIRs: The Board decided to begin the PIR of the impairment requirements of IFRS 9, and IFRS 15 in the second half of 2022 and consider in the second half of 2022 when to begin the PIR of the hedge accounting requirements of IFRS 9, and IFRS 16.

Post-implementation Review of IFRS 10-12: The purpose of this session was for the Board to conclude which, if any, topics it could consider further. The staff have identified as medium priorities: the relationship between substantive rights and protective rights; a change in relevant activities during the life-cycle of an investee; assessing non-contractual agency relationships and accounting for disproportionate share of output compared to share of ownership. The Board did not vote on the topics and instead requested that the staff prepare a further paper setting out the proposed strategy for PIRs including the relationship between PIRs and agenda consultations. After that, the Board will decide which topics from the IFRS 10-12 PIR to take forward. 

Dynamic Risk Management: The Board decided to revise the definition of the target profile to “the range (risk limits) within which the current net open risk position can vary while still being consistent with the entity’s risk management strategy”. They also decided introducing the risk mitigation intention, described as “the extent to which an entity intends to mitigate the current net open risk position through the use of derivatives”. The Board agreed that no further refinements to the DRM model are needed in respect of the designation of a portion of prepayable assets.

Second Comprehensive Review of the IFRS for SMEs Standard: The Board continued to deliberate specific sections of the IFRS for SMEs Standard that could be aligned with IFRS requirements. The Board decided against aligning Section 20 of the IFRS for SMEs with IFRS 16 at this point. They decided to revisit the decision at a later time. However, the Board agreed with aligning the IFRS for SMEs with the 2011 amendments to IAS 19 in respective of the recognition requirement for termination benefits. The Board decided to retain the accounting policy option in paragraph 28.24 of the IFRS for SMEs Standard to present actuarial gains and losses either in profit or loss or in other comprehensive income.

Rate-regulated Activities: In January 2021, the Board published Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities. Most respondents agreed with the proposals to present all regulatory income minus all regulatory expense, including regulatory interest income and regulatory interest expense, as a separate line item immediately below revenue. Most respondents who commented agreed with the focus of the proposed overall disclosure objective on information about an entity’s regulatory income, regulatory expense, regulatory assets and regulatory liabilities. Some suggested the Board develop a broader overall objective of providing users of financial statements with information about the nature of the regulatory agreement, the risks associated with it and its effects on an entity’s financial performance, financial position or cash flows. Most respondents did not support the proposed requirement to apply the Standard retrospectively on initial application. Most respondents who commented asked for a longer transition period. The Board gave initial comments on the topics discussed but did not make any decisions.

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

Updated IASB work plan — Analysis (November 2021)

23 Nov 2021

Following the IASB's November 2021 meeting, we have analysed the IASB work plan to see what changes have resulted from the meetings and other developments since the work plan was last revised in October 2021.

Below is an analysis of all changes made to the work plan since our last analysis on 1 November 2021.

Standard-setting projects

  • Disclosure initiative — Subsidiaries without public accountability: Disclosures — Feedback on the exposure draft will now be discussed in Q2 2022 (previously H1 2022)
  • Disclosure initiative — Targeted standards-level review of disclosures — Feedback on the exposure draft will now be discussed in Q2 2022 (previously Q1 2022)
  • Rate-regulated activities After the discussion of the feedback on the exposure draft in October and November 2021, a decision on the project direction is now expected in December 2021

Maintenance projects

  • Non-current liabilities with covenants — After publication of the exposure draft on 19 November 2021 the next project step in now the discussion of the feedback on the exposure draft in H1 2022; the project has also been renamed from the previous Classification of debt with covenants as current or non-current

Research projects

  • Dynamic risk management — A decision on the project direction is now expected in Q1 2022 (previously H1 2022)
  • Equity method — A decision on the project direction is now expected in Q1 2022 (previously no date given)
  • Extractive activities — A decision on the project direction is now expected in H2 2022 (previously H1 2022)
  • Goodwill and impairment — A decision on the project direction is now expected in Q2 2022 (previously Q1 2022)
  • Pension benefits that depend on asset returns The publication of a project summary is now expected in H1 2022 (previously no date given)

Other projects

  • IFRS Taxonomy Update — 2021 General improvements and common practice The date entry for a proposed update (December 2021) has been removed from the work plan
  • IFRS Taxonomy Update — 2021 technology update Newly added to the work plan with an expected date December 2021for the proposed update
  • Sustainability-related reporting The entry that was erraneously kept in the work plan has been removed with the announcement of the creation of the new ISSB

The above is a faithful comparison of the IASB work plan at 1 November 2021 and 23 November 2021. For access to the current IASB work plan at any time, please click here.

European Union adopts IFRS 17 — with annual cohort exemption

23 Nov 2021

The European Union has published a Commission Regulation endorsing IFRS 17 'Insurance Contracts', albeit with an exemption regarding the annual cohort requirement.

The Commission Regulation amending Regulation (EC) No 1126/2008 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council was published in the Official Journal of the European Union on 23 November 2021.

The regulation adopts IFRS 17 Insurance Contracts and the June 2020 amendments to IFRS 17 with the same effective date as the IASB (1 January 2023). However, the regulation provides an optional exemption from applying the annual cohort requirement that relates to the timing of the recognition of the profit in the contract, the contractual service margin, in profit or loss. Entities making use of the exemption are not applying IFRSs as issued by the IASB and need to disclose the fact. The regulation states:

Investors should be able to understand if a company has applied the exemption from the annual cohort requirement for groups of contracts. A company should therefore disclose in accordance with International Accounting Standard 1 Presentation of Financial Statements, in the notes to its financial statements the use of the exemption as a significant accounting policy and provide other explanatory information such as for which portfolios it has applied the exemption.

The regulation also notes that Commission should by 31 December 2027 review the exemption from the annual cohort requirement taking into account the IASB post-implementation review of IFRS 17.

EFRAG has updated its endorsement status report to reflect the adoption.

11th ANC Symposium on Accounting Research

23 Nov 2021

On 13 December 2021, the Autorité des Normes Comptables (ANC), the French standard setter, will host its 11th Symposium on Accounting Research in Paris. The general theme will be "Accounting, Growth & Sustainability".

The following topics are to be discussed:

  • Accounting and intangibles
  • Accounting, control, joint-ventures and partnerships
  • Accounting and growth: what funding for growth?
  • The challenge of the non-financial information: long-term in crisis time?
  • Public good and accounting impacts of growth

Please click for more information on the ANC website:

AcSB and UKEB hold joint meeting

23 Nov 2021

On 17 November 2021, the Canadian standard setter AcSB and the UK Endorsement Board (UKEB) held a joint virtual meeting. The meeting was the first meeting following the formation of the UKEB in March 2021.

The two boards informed each other about their respective activities and exchanged views on technical topics in which they both have an interest, including rate-regulated activities and the IASB’s third agenda consultation. The UKEB also updated the AcSB on its activities relating to its assessment of IFRS 17 for adoption for use in the UK. For more information about the latest meeting, see the press release on the UKEB website.

Responses to the EFRAG consultation on the due process for EU sustainability reporting standard-setting

23 Nov 2021

In June 2021, EFRAG launched a public consultation on the requirements EFRAG plans to follow in its role as technical advisor to the European Commission in the preparation of European sustainability reporting standards envisioned in the draft Corporate Sustainability Reporting Directive. A summary of the responses to the consultation is now available.

Respondents to the consultation especially stressed the need for proper due process and transparency during the work that is already being carried out before the new Sustainability Standards Board has been established, the need for an orderly and transparent transition to the new governance structure, and the need to build on existing standards and frameworks for sustainability reporting and accounting and to cooperate with other standard setters in the field, especially the IFRS Foundation's ISSB.

The summary of responses is available on the EFRAG website.

Updated IPSAS-IFRS alignment dashboard

22 Nov 2021

The International Public Sector Accounting Standards Board (IPSASB), which develops the International Public Sector Accounting Standards (IPSAS) for financial reporting by governments and other public sector entities, has released an updated IPSAS-IFRS alignment dashboard showing how far individual IPSAS are aligned with corresponding IFRSs.

Please click to access the updated alignment dashboard prepared for the December 2021 IPSASB meeting on the IPSASB website.

In this context, please see also our 2021 edition of IPSAS in your pocket published in February.

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