Highlights of the podcast include discussions on:

• key developments since the last board meeting;
• highlights from the discussion on feedback to draft standards;
• the importance of proportionality and scalability;
• prioritisation and agenda setting; and
• expectations for the October meeting in Montreal.

The podcast can be accessed through the press release on the IFRS Foundation’s website.

Please click to view the detailed notes taken by Deloitte observers for the ISSB meeting.

Following the first paper The Case for Realigning Reporting Standards with Modern Value Creation published in September 2021, the second paper Human Capital Introspective published in June 2022, a third paper Rethinking Brand Value can now be accessed through the press release on the IVSC website.

The meeting began with three presentations: A representative of the European Financial Reporting Advisory Group (EFRAG) introduced ESRS E1 Climate Change; a representative of the International Public Sector Accounting Standards Board (IPSASB) discussed the consultation paper Advancing Public Sector Sustainability Reporting; and Acting Chief Accountant Paul Munter presented on the proposed US Securities and Exchange Commission (SEC) rule The Enhancement and Standardization of Climate-Related Disclosures for Investors.

The objective of ESRS E1 is to specify disclosure requirements that would enable users of sustainability reporting to understand how an undertaking affects climate change in terms of actual or potential impacts, the undertaking’s past, current and future mitigation efforts, the plans and capacity of the undertaking to adapt its business model(s) and operations, the nature, type and extent of the material physical and transition risks and opportunities, and the effects of climate-related risks and opportunities on the undertaking’s development, performance, position over the short, medium and long term and its ability to create enterprise value. The proposed requirements are very comprehensive and granular, so while the overall feedback was generally supportive, there were calls to simplify and clarify. The IFASS members also commented on the degree of detail, but were told that while EFRAG was working hard on identifying possible simplifications, there was little room for them and that there was also the need to balance granularity for comparability against the call for simplifications. 

The IPSASB consultation is not about about standard-setting per se, but more about the question whether the IPSASB should move into the area of sustainability reporting. Triggering the IPSASB's initiative was the clear realisation that there is a marked gap in the public sector that needs to be filled, especially since natural resources are a major source of income of governments in some jurisdictions. Feedback to the consultation showed that stakeholders agreed that the public sector needs sustainability reporting, that the IPSASB should lead the development of public sector sustainability reporting guidance, and that the IPSASB should work in collaboration with other international bodies to address global inconsistencies. Comments from the room echoed the feedback that a global approach is needed and that the IPSASB should not start from scratch but should build on existing frameworks (especially on the ISSB standards) and adjust them to public sector needs. The IPSASB representative admitted that sustainability reporting was not a political priority for jurisdictions and also not an area of IPSASB expertise. So further steps of the IPSASB regarding sustainability reporting need to be carefully thought about.

The Acting Chief Accountant noted that the SEC proposed rule amendments that would require a domestic or foreign registrant to include certain climate-related information in its registration statements and periodic reports as investors have expressed a need for more consistent, comparable and reliable information about the effects of climate-related risks on a company’s business and as current climate-related disclosure practices are fragmented and inconsistent. He explained that the rule amendments are not aimed at telling businesses what to do, but if they do something, then the rule amendments would detail how to report on it. He also noted that many companies already report on sustainability outside of their filings, but to require them to include this information in their filings would streamline the reporting and, most importantly, ensure that the information reported is prepared with greater care and rigour. The SEC received more than 14,000 comments on its proposal - after evaluating the feedback, the Commission will decide whether to adopt final rules.

The presentations were followed by a panel discussion chaired by ISSB Vice-Chair Sue Lloyd with panel members from the Australian Accounting Standards Board (AASB), the UK Financial Reporting Council (FRC), the Korean Accounting Standards Board (KASB), the Pan-African Federation of Accountants (PAFA), and the Sustainability Standards Board of Japan (SSBJ). The panel members expressed full support for the global baseline approach of the ISSB, which they described as much needed. Other comments included:

• Global baseline does not mean that the standards are basic; they will provide a full set of information for investors.
• The fact that the standards are based on the TCFD recommendations is greeted in the UK where mandatory TCFD-reporting is currently being phased in.
• There is some anxiety in African countries about what sustainability reporting will mean in practice.
• Australia will use the ISSB standards as starting point and then, if necessary, add Australia-specific requirements (same approach as with IFRSs).
• It was noted that the ISSB standards will need to allow for enough flexibility to actually build on them (e.g. regarding double materiality).
• There were concerns from several jurisdictions regarding the industry specific part of the climate standard, which were perceived as not being international enough and in some cases divided rather arbitrarily between the two standards proposed by the ISSB.
• The standards should be inclusive and scalable. This should not only refer to more advance and less advanced jurisdictions, but also to entity size.
• It would be good if the standards could also be applied across different sectors.
• The tension between investors calling for industry-specific requirements for reasons of comparability and the fact that industries and companies falling into these industries differ across jurisdictions was pointed out.
• The amount of quantitative information required might be difficult to obtain. Might qualitative information work as an interim replacement?
• The level of preparedness and knowledge between jurisdictions and between companies differs greatly. In some jurisdictions companies have other pertinent problems.
• Jurisdictions are willing to support adoption of ISSB standards and capacity building, however, the ISSB will also have to provide support and supporting material.
• The link between financial reporting and sustainability reporting was considered problematical, especially in jurisdictions where there is a great litigation risk (Korea, Australia).
• The different time horizon between financial reporting and sustainability reporting was seen as difficult as the same issue might be assessed differently when looked at with a time horizon of one year or several years.
• It was also noted, that some information that would be included in sustainability reporting simply could not be reflected in financial reporting.

The UKEB representative noted that the research objective of the UKEB's goodwill research project is to contribute to the ongoing international debate on the subsequent measurement of goodwill by exploring the practical implications of a potential transition to a hybrid model consisting of an annual amortisation charge, combined with impairment testing that would take place only when there was an indicator of impairment, and supporting disclosures to increase management accountability for acquisitions.

The research explored the effects of the application of the impairment-only model for UK IFRS reporters from 2005 to 2021. It found that:

• The carrying amount of goodwill in the FTSE 350 increased from £227 billion in 2005 to £397 billion in 2021.
• A total of 228 companies in the FTSE 350 reported goodwill in 2021, representing on average 18% of total assets and 63% of net assets.
• Current disclosures on goodwill and impairment provide limited insight into the age of goodwill or the acquisitions that led to its recognition on companies’ balance sheets.

The research also indicated that a transition to a hybrid model would be practically feasible as the majority of preparers involved in the outreach believe it is possible to estimate a useful life for goodwill through consideration of a range of relevant factors and if sufficient application guidance is provided. They also believed that suitable transition arrangements could be provided for legacy goodwill. No significant adverse consequences for financial stability or for processes, operations or costs were identified.

Feedback from outreach participants also revealed that the following benefits from a hybrid model could be anticipated:

1. More faithful representation of underlying economics by reflecting the consumption of economic benefits (although not all stakeholders agree that goodwill is a wasting asset).
2. Reduced impact of the shielding effect because the hybrid model would require management tracking of goodwill on an acquisition by acquisition basis.
3. Improved comparability between entities that grow organically and those that grow through acquisition.
4. Disclosure of management assumptions underpinning the estimate of useful life would increase management accountability for acquisitions.
5. Potential cost savings as impairment testing will be done on an indicator only basis (potentially offset by cost of monitoring useful life of goodwill).

The full research report is available on the UKEB website.

The UKEB will also present its research at the upcoming ASAF meeting on 29 September 2022 (15:15-16:30). The ASAF meeting is open to observers and can be watched online.

Transactions or contractual arrangements involving variable consideration often occur in practice and can arise for a variety of reasons, for example, whenever there is a risk-sharing arrangement in an exchange transaction involving a buyer and seller.

EFRAG points out that there is currently divergence in practice on how a purchaser should account for the variable consideration related to some transactions. EFRAG also notes that the IFRS Interpretations Committee received numerous submissions on IAS 16 and IAS 38 on that topic, but in its discussions concluded that the matters raised were too broad to be addressed within the confines of existing IFRSs.

The IASB added the topic to its research pipeline after its 2015 agenda consultation. However, due to other priorities, the IASB did not include this project on its active research agenda. Moreover, following constituents’ feedback to the IASB’s 2021 agenda consultation, the project was excluded from the IASB’s 2022-2026 work plan.

Therefore, EFRAG went ahead and now published a discussion paper focussing on two issues faced by purchaser entities where there is divergence in practice. These issues are (a) when to recognise a liability for variable consideration; and (b) whether/when subsequent changes in the estimate of variable consideration should be reflected in the cost of the acquired asset. The discussion paper also presents alternatives for accounting requirements for the two issues and outlines the qualitative characteristics of useful information for each of these alternatives. In addition, the discussion paper assesses the general IFRS requirements for variable consideration.

Comments on the discussion paper are requested by 30 November 2023.

Please click for access to the following additional information on the EFRAG website:

• Press release
• Discussion paper
• Access to an introductory podcast
• Electronic survey on the discussion paper

Note: On 18 April 2024, EFRAG released a feedback statement summarising the responses received on the discussion paper.

The following topics are on the agenda:

Goodwill and Impairment (IASB) and Identifiable Intangible Assets and Subsequent Accounting for Goodwill (FASB)

The IASB has, and the FASB had, on their respective agenda projects covering the accounting for goodwill and intangible assets acquired in a business combination. The purpose of this meeting is to provide an opportunity for FASB and IASB members to discuss the status of the respective projects; the subsequent accounting for goodwill (including the FASB’s progress with developing an amortisation-with-impairment model and recent decision to deprioritise and remove the project from its technical agenda, and the IASB’s research on this topic); and the redeliberations of the IASB in relation to disclosures about business combinations.

Disaggregation-related projects

Both the IASB and the FASB are currently undertaking, or will undertake, projects whose objectives include providing users of financial statements with more disaggregated information. The purpose of this meeting is to provide both boards with an opportunity to share comments and ask questions about these projects.

Digital Assets

The boards will discuss the results of the FASB’s research and outreach related to digital assets, which led the FASB to add a project to its technical agenda—Accounting for and Disclosure of Crypto Assets. The IASB will outline its work and its decision not to add a project on cryptocurrencies and related transactions to its work plan.

2021 Agenda Consultation (FASB) and Third Agenda Consultation (IASB)

Both the IASB and the FASB have recently finalised their agenda consultations. The purpose of this meeting is to provide both boards with an opportunity to share comments and ask questions about these consultations.

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

Below is an analysis of all changes made to the work plan since our last analysis on 25 July 2022.

Standard-setting projects

• Climate-related disclosures — Feedback to the exposure draft will be discussed in December 2022 (previously Q4 2022)
• Contractual cash flow characteristics of financial assets — This project was moved from the maintenance agenda to the standard-setting agenda
• Disclosure initiative — Targeted standards-level review of disclosures — The IASB will now decide on the project direction in October 2022 (previously Q4 2022)
• General sustainability-related disclosures — Feedback to the exposure draft will be discussed in December 2022 (previously Q4 2022)
• Second comprehensive review of the IFRS for SMEs — After publishing the exposure draft of proposed amendments in September 2022, the next project step is now discussion of the feedback received in H1 2023

Maintenance projects

• Lease liability in a sale and leaseback — This project is still in the work plan, although it was completed by issuing final amendments in September 2022
• Non-current liabilities with covenants — Final amendments are now expected in November 2022 (previously Q4 2022)
• Supplier finance arrangements — A decision on the project direction is now expected in November 2022 (previously no date given)

Research projects

• Extractive activities — The work plan still notes that a decision on the project direction is expected in September 2022, while in fact the IASB decided to proceed with phases II and III of the project
• Goodwill and impairment — A decision on the project direction is now expected in November 2022 (previously Q4 2022)
• Post-implementation of IFRS 15 — A project newly added to the work plan; the next expected project step is a request for information to be published in H1 2023

Other projects

• IFRS accounting taxonomy update — Amendments to IAS 1 and IFRS 16 —A project newly added to the work plan; the next expected project step is a proposed taxonomy update in November 2022
• IFRS sustainability disclosure taxonomy — Feedback on the staff request for feedback will now be discussed in November 2022 (previously Q4 2022)
• Third agenda consultation — This project was removed from the work plan as the IASB concluded the agenda consultation by releasing a feedback statement in July 2022
  

The above is a faithful comparison of the IASB and ISSB work plan at 25 July 2022 and 26 September 2022. For access to the current work plan at any time, please click here.

The full agenda for the meeting is summarised below:

Agenda papers for this meeting are available on the IFRS Foundation website.

Background

The IFRS Interpretations Committee received a submission about IFRS 16 Leases and a sale and leaseback transaction with variable payments that do not depend on an index or rate and came to the conclusion (and the IASB agreed) that it would be beneficial to amend IFRS 16 to specify how a seller-lessee should apply the subsequent measurement requirements in IFRS 16 to the lease liability that arises in the sale and leaseback transaction.

The IASB published an exposure draft (ED) of a proposed clarifying amendment in November 2020 and has now issued final amendments to IFRS 16.

Changes

Lease Liability in a Sale and Leaseback (Amendments to IFRS 16) requires a seller-lessee to subsequently measure lease liabilities arising from a leaseback in a way that it does not recognise any amount of the gain or loss that relates to the right of use it retains. The new requirements do not prevent a seller-lessee from recognising in profit or loss any gain or loss relating to the partial or full termination of a lease.

While the November 2020 ED had proposed that a seller-lessee initially measures the right-of-use asset and lease liability arising from a leaseback using the present value of expected lease payments at the commencement date, the final amendments do not prescribe specific measurement requirements for lease liabilities arising from a leaseback.

The amendments also include one amended and one new illustrative examples.

Effective date and transition

The amendments are effective for annual reporting periods beginning on or after 1 January 2024. Earlier application is permitted.

A seller-lessee applies the amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to sale and leaseback transactions entered into after the date of initial application.

Dissenting opinion

One Board member voted against issuing the finalised amendments. This Board member believes that a sale and leaseback transaction should be accounted for by the seller-lessee by recognising the full gain or loss on the transaction immediately. This approach would have required the IASB to reconsider the sale and leaseback requirements in IFRS 16 as a whole, which the IASB decided against.

Additional information

Please click for:

• IASB press release (link to IFRS Foundation website)
• Deloitte's iGAAP in Focus newsletter.
• Our IAS Plus project page on IFRS 16 — Lease liability in a sale and leaseback

The agenda for the meeting is summarised below.

Agenda papers for the meeting are available on the IFRS Foundation's website.