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October 2021 IASB meeting notes posted

  • IASB meeting (blue) Image

01 Nov 2021

The IASB met in London on Monday, Tuesday, Wednesday and Thursday of the week beginning 25 October 2021. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The following topics were discussed:

Goodwill and Impairment: The IASB began making decisions related to the package of disclosures about business combinations. The IASB decided to confirm that the information about the benefits an entity’s management expect from a business combination can be required in the financial statements. The Board also considered, but made no decisions about, the practical concerns raised by respondents with regard to the proposed package of additional disclosures about business combinations in financial statements, particularly commercial sensitivity of the information, the potentially forward-looking nature of the information, the auditability of the information, and the integration of the information.

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 IASB decided to: remove the option to apply the recognition and measurement requirements in full IFRS Standards for financial instruments; retain the existing hedge accounting requirements unchanged (i.e. not align with IFRS 9); align the definition of, and guidance on, fair value with IFRS 13; not align with IFRS 14 but revisit this topic once it has completed its project on rate-regulated activities; and align the requirements with IFRS 15.

Post-implementation Review of IFRS 10-12: The IASB considered feedback gathered from its Post-Implementation Review, which the staff conclude, and the IASB agrees, supports the conclusion that IFRS 10, 11 and 12 are working as intended. The IASB decided to consider some topics for further action when developing its work plan for 2022–2026: (high priority) investment entities and collaborative arrangements outside the scope of IFRS 11; (medium priority) definition of an investment entity and corporate wrappers; and (low priority) transactions that change the relationship between an investor and an investee.  The staff are also looking at the disclosure of interests in other entities and assisting the application of IFRS 10 and IFRS 11, which they will bring back to a future meeting. The staff will then prepare a “Report and Feedback Statement” on the PIR.

Equity Method: The staff have updated the IASB on questions identified applying the equity method. The staff have had difficulties identifying underlying principles when the application questions involve the application of IAS 28 paragraph 26 (i.e. the interaction of the principles in IAS 28 with other IFRS Standards, such as IFRS 3 and IFRS 10). The staff plan to undertake more research, and the IASB agreed.

Maintenance and consistent application:

  • Two Agenda Decisions from the IFRS Interpretations Committee were finalised by virtue of no IASB members objecting to their publication: Non-refundable Value Added Tax on Lease Payments (IFRS 16) and Accounting for Warrants that are Classified as Financial Liabilities on Initial Recognition (IAS 32)
  • The staff have been preparing the ED Supplier Finance Arrangements, which proposes to amend IAS 7 and IFRS 7. During drafting, the staff identified one issue that they want the IASB to consider. The IASB decided to add a requirement for an entity to disclose, as at the beginning and end of the reporting period, the line item(s) in the statement of financial position in which the entity presents the carrying amount of financial liabilities that are part of a supplier finance arrangement.
  • IASB members had no comments or questions on the September 2021 IFRIC Update.

Pensions Benefits that Depend on Asset Returns: Following the 2015 Agenda Consultation, the Board has been considering whether to propose amendments to IAS 19 for pension benefits that depend on the return on a specified pool of assets (reference assets). The pension benefits to be paid to employees reflect the variability inherent in the reference assets, yet IAS 19 requires a discount rate that reflects high-quality corporate bonds. Applying the IAS 19 discount rate can overstate the pension liability, producing information that is not relevant to users of financial statements. The staff recommended the Board propose that an entity estimate the ultimate cost of providing pension benefits that vary with asset returns applying the IAS 19 discount rate, but only when the IAS 19 discount rate is lower than the expected rate of return on the reference assets. Only 5 IASB members voted to continue the project and therefore the project will be stopped. All Board members supported the staff recommendation to consider any further work as part of the Third Agenda Consultation.

IFRS Taxonomy due process: The IASB decided to shorten the comment period for the Proposed IFRS Taxonomy Update for the amendment Initial Application of IFRS 17 and IFRS 9—Comparative Information to 30 days.

Primary Financial Statements: The IASB discussed two papers carried over from the September meeting, relating to associates and joint ventures and the analysis of operating expenses. The IASB decided to proceed with the proposal to present income and expenses from equity-accounted associates and joint ventures outside of operating profit, but not to require income and expenses from integral associates and joint ventures to be identified and presented separately from non-integral associates and joint ventures. They also decided to provide application guidance that builds on the description of the function of expense method in the ED to set out the relationship with expenses of the same nature; the attributes of functions; and the interaction with the role of the primary financial statements and the principles of aggregation and disaggregation.

Additionally, the IASB decided:

  • Not to develop a definition of ‘cost of sales’
  • To explore an approach to analysing and presenting operating expenses in the statement of profit or loss that would:
    • Retain the proposal to require operating expenses to be analysed and presented based on their nature or function
    • Not retain the proposed prohibition on a mixed presentation in the statement of profit or loss and instead provide application guidance and disclosure requirements to improve comparability
    • Retain the proposal to provide application guidance on how to determine which presentation method should be used to provide the most useful information to users of the financial statements
  • Undertake more research on providing a partial cost relief from the proposed requirement for an entity that presents an analysis of operating expenses by function in the statement of profit or loss to also disclose an analysis of its total operating expenses by nature
  • Amend the definition of the specified subtotal ‘operating profit or loss before depreciation and amortisation’ to also exclude impairments of assets within the scope of IAS 36 and label that subtotal ‘operating profit or loss before depreciation, amortisation, and specified impairments’

Amendments to IFRS 17 Insurance Contracts: The Board's Exposure Draft (ED) Initial Application of IFRS 17 and IFRS 9—Comparative Information (Proposed amendment to IFRS 17) was published in July 2021. The proposed amendment allows an entity to apply a classification overlay when first applying IFRS 17 and IFRS 9 at the same time for the purpose of presenting comparative information about a financial asset, if the comparative information for that financial asset has not been restated for IFRS 9.

The ED proposed that an entity would not be permitted to apply the classification overlay to financial assets held in respect of an activity that is unconnected with contracts within the scope of IFRS 17. Most respondents suggested the IASB remove this scope restriction, and the staff agree. The ED also proposed that an entity that first applies IFRS 17 and IFRS 9 at the same time it is permitted to apply the classification overlay. The proposed classification overlay would not apply to entities that have already applied IFRS 9 before initial application of IFRS 17, however the staff considered that the scope of the classification overlay should be expanded to apply in such cases. The staff recommended no substantive changes be made to the classification overlay proposed in the ED relating to impairment of financial assets or disclosures. The Board supported all of the staff recommendations with the addition to add a disclosure requirement for the impairment method used for the asset overlay and expect to issue the amendments to IFRS 17 before the end of 2021.

Rate-regulated Activities: In January 2021, the Board published Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities. The proposals in the ED have generally been well-received by respondents, agreeing  with: the proposed definitions for regulatory assets and regulatory liabilities; the existence threshold of ‘more likely than not’ for recognising regulatory assets and regulatory liabilities; using a cash-flow-based measurement technique to measure regulatory assets and regulatory liabilities; and using the regulatory interest rate for a regulatory asset or regulatory liability as the discount rate for that regulatory asset or regulatory liability. However, concerns were expressed about the scope; returns on assets not yet available for use; regulatory assets and regulatory liabilities arising from differences between assets’ regulatory recovery pace and their useful lives; recognition, measurement and discount rate; minimum interest rate; and the interaction with IFRIC 12. The IASB discussed the feedback but made no decisions. The IASB will continue its discussions of the feedback in November, but no decisions are expected to be made at that meeting.

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

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