In preparation for the public outreach to inform the AASB response to the forthcoming IASB exposure draft expected tomorrow, the paper compares the draft disclosure objectives included in publicly available IASB staff papers for each of the main content areas to be included in the forthcoming exposure draft of the revised practice statement with existing narrative reporting requirements applicable to for-profit entities in Australia, Canada, Germany, Hong Kong, New Zealand, Singapore, South Africa, the United Kingdom, and the United States.

The staff paper identifies possible sources of the best practice in relation to the narrative reporting requirements for for-profit entities and outlines several areas that could be considered in the effort to maintain Australian narrative reporting in step with global best practice.

Please click to access the staff paper on the AASB website.

More information about the issues is set out below:

Click to access all our comment letters to the IASB, IFRS Foundation, and IFRS Interpretations Committee.

Accounting for derecognised financial assets when insurers first apply IFRS 17: The Board will discuss an accounting mismatch between financial assets and insurance contract liabilities that could arise at the beginning of the comparative period on transition to IFRS 17 when financial assets have been derecognised during the comparative period. The staff recommend proposing a narrow-scope amendment to IFRS 17. The amendment would permit an entity, on initial application of IFRS 17, for the purpose of presenting comparative information, to elect to measure at fair value through profit or loss financial assets derecognised between the transition date and the date of initial application of IFRS 17. There would be some restrictions on when the election can be made.

Goodwill and Impairment: The Board will continue its discussion of feedback on particular aspects of the DP—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. The staff propose that the Board reconsider the objective and scope of the project first to determine whether all of the topics covered in the DP should remain as one project. They recommend that the Board prioritise the redeliberations around reintroduction of amortisation of goodwill as this may impact other decisions.

Financial Instruments with Characteristics of Equity: The staff recommend that entities be required to categorise their claims that are financial instruments in a way that reflects differences in their nature and priority, and at a minimum, distinguish between secured and unsecured financial instruments; contractually subordinated and unsubordinated financial instruments; and those issued/owed by the parent and those issued/owed by subsidiaries. Furthermore, to provide information about the risks and returns of particular instruments in the event the entity is liquidated.

Primary Financial Statements: The staff recommend that the Board retain the proposal to introduce separate investing and financing categories in the statement of profit or loss. The staff recommend that all income and expenses from liabilities that arise from transactions that involve only the raising of finance and interest income and expenses from other liabilities to be classified in the financing category of profit or loss. They also recommended that the Board not proceed with either the proposed addition to the definition of financing activities in IAS 7 or the proposed definition of liabilities (in the new Standard).

Dynamic Risk Management: The staff will give the Board an overview of the challenges identified during the outreach and discussed during the April 2021 meeting that are key to the viability and operability of the Dynamic Risk Management (DRM) model, a proposal of the next steps and the indicative timeline to address each of the identified challenges. It is proposed that the Board will decide on the project direction in H1 2022. The staff is not looking for any decisions based on this paper. Instead they are asking only for comments in respect of the proposed next steps and indicative timeline.

Maintenance and Consistent Application:

IFRS Interpretations Committee Agenda Decisions

The Board will be asked if any members object to the publication of two agenda decisions:  Attributing Benefit to Periods of Service (IAS 19) and Hedging Variability in Cash Flows due to Real Interest Rates (IFRS 9).

Lease Liability in a Sale and Leaseback

The Board will consider the feedback received on Exposure Draft ED/2020/4 Lease Liability in a Sale and Leaseback, which proposes to amend IFRS 16. The Board received 87 comment letters. While a few respondents agreed with the proposed amendment, most respondents disagreed with, or expressed concerns about, aspects of the proposals. Nevertheless, most respondents agreed that there is a need to amend IFRS 16 and enhance the measurement requirements for sale and leaseback transactions. Many respondents suggested possible ways forward, including alternative solutions to account for sale and leaseback transactions. The staff plan to submit a paper to a future Board meeting analysing the feedback and providing recommendations on the project direction. No decisions will be required on this month’s papers.

IFRIC Update April 2021

The staff will present the April 2021 IFRIC Update to the Board and will ask whether Board members have any questions or comments.

Disclosure Initiative—Subsidiaries that are SMEs: The staff are drafting the proposal and recommend that it refer to material rather than significant accounting policies. They also propose that a description of resulting changes to the entity’s risk management strategy be included.

Second Comprehensive Review of the IFRS for SMEs Standard: The staff recommend that the status of Section 2 of the IFRS for SMEs Standard will remain unchanged but that it be aligned with the 2018 Conceptual Framework. The Board will assess if there are potential inconsistencies between a revised Section 2 and any other section of the IFRS for SMEs Standard. The staff also recommend the retention of the concept of ‘undue cost or effort’. In relation to IFRS 9, the staff recommend the Board propose an amendment to the IFRS for SMEs Standard to supplement the list of examples in Section 11 with a principle for classifying financial assets based on their contractual cash flow characteristics.

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

The sessions on Insurance contracts (now Thursday) and on Dynamic risk management (now Monday) have been swapped. We have updated our agenda for the meeting accordingly.

The field-test­ing will help ‘identify potential implementation and application concerns, to determine whether there is a need for additional guidance, and to estimate the cost and effort required to implement and apply the proposals on a recurring basis’.

For more in­for­ma­tion, see the press release on the EFRAG’s website. There is also a ten minute podcast on the field testing. Please note that the deadline for expressing interest in participating has been extended to 20 July 2021.

Update: On 23 July 2021, the EFRAG has extending the deadline for those interested in participating in the field test to 10 September 2021 and extend the period to conduct the field test to 25 October 2021.

In the draft comment letter, EFRAG considers that the priorities for the IASB should be to finalise the projects on its active work plan and conduct on a timely basis the planned post-implementation reviews of major standards. 

EFRAG considered the 22 projects described in the request for information and also identified a number of additional possible projects. Overall, EFRAG believes that the following six projects should be given the highest priority by the IASB:

• Connecting financial and sustainability reporting, starting from climate-related financial implications;
• Crypto-assets and related transactions;
• Discontinued operations and disposal groups;
• Intangible assets;
• Statement of cash flows and related matters; and
• Variable and contingent consideration.​

Comments on EFRAG's draft comment letter are requested by 17 September 2021. For more information, see the press release on the EFRAG website. The consultation document EFRAG has published also includes a consultation on EFRAG's own proactive research agenda. A podcast released on 27 July 2021 provides additional insights on EFRAG’s joint consultation on the IASB’s future agenda and EFRAG’s proactive research agenda.

The subject of discussion will be an accounting mismatch between financial assets and insurance contract liabilities that could arise at the beginning of the comparative period when financial assets have been derecognised during the comparative period. The mismatch arises because entities are not permitted to restate comparative information for those assets.

As explaining this mismatch to users of financial statements would be difficult and would not provide useful information because it does not represent an economic mismatch, the staff is asking the Board whether it wants to develop a narrow-scope amendment that would reduce the accounting mismatch, without having a wider effect and creating a risk of unintended consequences.

The amendment the staff is proposing would permit an entity, on initial application of IFRS 17, for the purpose of presenting comparative information, to elect to measure at fair value through profit or loss financial assets derecognised between the transition date and date of initial application of IFRS 17. The transition requirements in IFRS 9 would remain unchanged.

Please click to access the paper for the session (scheduled for Monday 24 May 2021, 13:15-14:15) on the IASB website. A summary of the paper is available here.

Update: The session has been moved to Thursday 27 May 2021, 13:30-14:30.

Update: The original paper has been withdrawn and has been replaced with an updated version of the agenda paper (link to IASB website).

At a high-level conference on 6 May 2021, Mairead McGuinness, European Commissioner for Financial Services, Financial Stability and Capital Markets Union had already indicated that the development of the new standards should be based on the work done by the project task force on preparatory work for the elaboration of possible EU non-financial reporting standards of the European Corporate Reporting Lab, which works under the roof of EFRAG, but is not subject to its governance structure. The letter notes that this approach should be "taken in a pragmatic spirit". However, the letter also notes that the development of the new standards should be handed over to the revised EFRAG governance structure at the earliest opportunity. Further, the letter declares that while EFRAG should aim to submit the first set of draft standards by 15 June 2022, no drafts should be submitted to the EC until EFRAG's revised governance structure has been fully implemented and until the European co-legislators have agreed to the EC's proposals.

Please click to access the letter on the EFRAG website.

The Board will discuss the following:

• Main­te­nance and con­sis­tent ap­pli­ca­tion
• Disclosure initiative — Subsidiaries that are SMEs
• Accounting for derecognized financial assets when insurers first apply IFRS 17
• Goodwill and im­pair­ment
• Financial instruments with characteristics of equity
• Second com­pre­hen­sive review of the IFRS of SMEs Standard
• Primary financial state­ments
• Dynamic risk management

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.

The agenda for the meeting is sum­marised below:

Agenda papers from this meeting are available on the IASB's website.