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December 2021 IASB meeting notes posted

  • IASB meeting (blue) Image

20 Dec 2021

The IASB met for three days, starting on Tuesday 14 December 2021. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The following topics were discussed:

Financial Instruments with Characteristics of Equity

The staff are proposing amendments to IAS 32. The Board decided to (a) clarify that some financial instruments with contingent settlement provisions can be compound instruments and clarify the measurement requirements for the liability component of such instruments; (b) specify that the term ‘liquidation’ in paragraph 25(b) of IAS 32 refers to when an entity has started the process to permanently cease to trade; (c) specify that the assessment of whether a contractual term is ‘not genuine’ in paragraph 25(a) of IAS 32, is not purely a probability-based assessment; and (d) amend IAS 32 to specify how an entity must consider the effects of applicable laws when classifying financial instruments as financial liabilities or equity.

The staff plan to bring recommendations on the classification of financial instruments that are subject to shareholders’ discretion and whether additional disclosures would be beneficial at a future meeting.

Maintenance and Consistent Application

Lease Liability in a Sale and Leaseback: The Board decided to proceed with ED/2020/4 Lease Liability in a Sale and Leaseback (Proposed amendments to IFRS 16). The Board decided to retain the following proposals: clarify that the leaseback liability is a liability to which IFRS 16 applies; not change the initial measurement requirements in paragraph 100(a) of IFRS 16 for the right-of-use asset and the gain or loss arising from the sale and leaseback; clarify that a seller-lessee subsequently measures the right-of-use asset arising from the leaseback applying paragraphs 29-35 of IFRS 16; and include an illustrative example of a sale and leaseback transaction with variable payments. However, the Board decided to change the following aspects of the proposals: no longer prescribe how a seller-lessee determines the proportion of the previous carrying amount of the asset that relates to the right of use the seller-lessee retains; require the seller-lessee to subsequently measure the leaseback liability applying paragraphs 36-46 of IFRS 16; and specify that the term ‘lease payments’ may not be as defined in Appendix A to IFRS 16. Instead, the seller-lessee would apply the term ‘lease payments’ or ‘revised lease payments’ in such a manner that it does not recognise any amount of the gain or loss that relates to the right of use retained to the extent that the right of use is retained.

Economic Benefits from Use of a Windfarm (IFRS 16)—Finalisation of Agenda Decision: No Board members objected to the finalisation of the agenda decision.

Business Combinations under Common Control

The Board published its Discussion Paper (DP) Business Combinations under Common Control (BCUCC) in November 2020, with a comment letter deadline of 1 September 2021. The purpose of this meeting was to provide the Board with an overview of feedback on the DP and detailed summaries of feedback on selected topics from the DP. The Board was not be asked to make decisions in this session.

Almost all respondents agreed that the project should cover the receiving entity’s reporting for all transfers of businesses under common control. Most respondents agreed with the preliminary view that neither the acquisition method nor a book-value method should be applied to all BCUCCs. Some respondents (including most respondents from China) disagreed and said a book-value method should be applied to all BCUCCs. A few respondents reported mixed views within their organisation/jurisdiction or did not express a clear view.

Third Agenda Consultation

The Board decided to proceed with the criteria as proposed in the Request for Information for evaluating potential projects: its importance to investors; whether there is any deficiency how the matter is reported; the type of entities it is likely to affect or whether it is more prevalent in some jurisdictions than others; how pervasive or acute the matter is likely to be; interaction with other projects; the complexity and feasibility of the potential project and its solutions; and whether the Board and its stakeholders have capacity and could make timely progress.

Primary Financial Statements

The Board decided to proceed with a definition for unusual items, removing the reference to ‘limited predictive value’, developing application guidance which clarifies that the definition captures income or expenses that are dissimilar in type or amount from income or expenses expected in the future and explain that in considering whether income or expenses are similar, an entity would consider characteristics of the income and expenses, including the underlying event or transaction.

The Board decided to retain the proposal to classify in the investing category: income and expenses from assets that generate returns individually and largely independently of other resources; adding further application guidance; and income and expenses from associates and joint ventures. The Board also decided retaining the label ‘investing category’ and not continuing with the proposal to define ‘income and expense from investments’.

Second Comprehensive Review of the IFRS for SMEs Standard

The Board decided that the IFRS for SMEs be amended to make it more closely aligned with IFRS 3, IFRS 10 (but not investment entities) and IFRS 11 (but retain the IFRS for SME classifications of joint arrangements and the accounting requirements for jointly controlled entities). The Board discussed whether and how to align the IFRS for SMEs Standard with the impairment requirements in IFRS 9 and asked the staff for more analysis. The Board decided adding the definition of a financial guarantee contract from IFRS 9. The summaries contains the full list of amendments the Board decided to incorporate or not to incorporate into IFRS for SMEs, as well as other narrower amendments the Board should make.

Rate-regulated Activities

The staff has developed a plan for redeliberating ED/2021/1 Regulatory Assets and Regulatory Liabilities. The Board decided to prioritise total allowed compensation (returns on assets not yet available for use and regulatory assets and regulatory liabilities arising from differences between assets’ regulatory recovery pace and their useful lives) and scope (including interaction of the proposals with IFRIC 12). These are topics about which respondents raised significant concerns.

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

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