Trustees meeting

Meeting activities included the following:

• Reports of the Chair of the Trustees and the Executive Director 
• Integrated thinking and integrated reporting
• Report of the Chair of the IASB
• Report of the Chair of the ISSB
• ‘Scorecard’ on key requirements for success (Sustainability reporting)
• Report of the Chair of the Advisory Council
• Annual review of key organisational risks
• Assurance
• IFRS Foundation Transitional Advisory Group
• Integrated Reporting and Connectivity Council
• Reports from the Trustee Committee meetings
• Stakeholder engagement
• Meeting with the Monitoring Board

DPOC meeting

Meeting activities included the following:

• IASB-related matters
  • Update on IASB technical activities
• ISSB-related matters
  • Update on ISSB technical activities
  • Due process ‘lifecycle’ review of the development of IFRS S1 and IFRS S2
  • Request for approval of shortened comment periods
  • SASB Standards taxonomy due process
  • Interim approach to ISSB taxonomy consultative group
• Correspondence

For more information, see the summary of the Trustees' meeting and the summary of the DPOC meeting on the IFRS Foundation’s website.

During the IASB’s meeting this week, the project was discussed for the first time. Outcome of deliberations during the meeting were that the IASB will consider the work of the ISSB to ensure that any proposals complement the IFRS Sustainability Disclosure Standards (expected by the end of the second quarter of 2023). In addition, the IASB will (1) conduct research to determine how much the educational materials published in 2020 are helping entities reflect the effects of climate-related risks in their financial statements and (2) consider what further actions can be taken to improve information about these risks.

In a statement regarding the project, IASB Chair Andreas Barckow said: “Feedback from our Agenda Consultation indicates a desire for us to go further. Therefore, we are initiating this project, informed by the ongoing work of our colleagues on the ISSB.”

The project is part of a wider effort by IASB and ISSB to work together to ensure connectivity in both their products and processes. Sustainability-related financial disclosures and financial statements complement each other, with the former providing early indications of matters that will subsequently be reflected in financial statements. Achieving connectivity in reports requires consistency in language, compatibility of concepts, and no gaps or unintended overlaps between IASB and ISSB Standards and digital taxonomies. This journey is still in its early stages, and feedback from stakeholders will be taken into account in the ISSB’s forthcoming consultation on agenda priorities.

For more information, see the following:

• Press release on the new project
• Statement by IASB Chair Andreas Barckow
• Article by IASB Chair Andreas Barckow and ISSB Chair Emmanuel Faber on connectivity

The 2023 IFRS Accounting Taxonomy is consistent with IFRSs as issued by the IASB at 1 January 2023, including those issued but not yet effective. The 2023 IFRS Taxonomy also incorporates the two changes made to the IFRS Taxonomy in 2022 reflecting amended IFRSs and common reporting practice by companies that apply IFRS Accounting Standards as well as general taxonomy improvements.

For more information, see the press release and the 2023 IFRS Accounting Taxonomy page  on the IFRS Foundation website website.

In a speech given on 21 March 2023, Commissioner McGuinness explained:

We know that the EU sustainability reporting standards will be challenging for companies. And that's why we're asking EFRAG, who developed the draft standards, if you like, to focus attention on providing additional guidance for companies to apply the first set of horizontal standards. And indeed to free up resources for this very critical task, we have asked EFRAG to prioritise its efforts on that first set of horizontal standards over preparatory work for the sector standards.

She explained that this decision would also avoid having overlapping consultations on the final first set of standards to be proposed by the EC and Set 2 of draft ESRS to be developed by EFRAG:

And we will soon publish the proposed final version of the first set of horizontal standards for a period of public comment. And in my view, prioritising EFRAG's efforts on the first set of standards over preparatory work for the sector standards will avoid overlapping consultations, and ease the burden on all stakeholders wanting to contribute to this busy agenda.

Please click to access the full transcript of Commissioner McGuinness' speech on the EC website.

Background

In 2022, the IASB concluded its post-implementation review of the classification and measurement requirements of IFRS 9 Financial Instruments. In general, the IASB found that preparers can apply the requirements consistently. However, the IASB identified some requirements that would benefit from clarification to improve their understandability.

The IASB believed that two of the matters should be addressed quickly and other matters, although of a lower priority, would also benefit from being addressed. The IASB came to the conclusion that it would be most efficient for stakeholders if the IASB proposed all amendments in a single exposure draft.

Suggested changes

The proposed amendments in exposure draft IASB/ED/2023/2 Amendments to the Classification and Measurement of Financial Instruments (Proposed amendments to IFRS 9 and IFRS 7) are:

• Derecognition of a financial liability settled through electronic transfer: The IASB proposes amendments to the application guidance of IFRS 9 to permit an entity to derecognise a financial liability that is settled using an electronic payment system even if cash has not yet been delivered by the entity if specified criteria are met. An entity that elects to apply the proposed derecognition option would be required to apply it to all settlements made through the same electronic payment system.
• Classification of financial assets:
  
  • Contractual terms that are consistent with a basic lending arrangement. The IASB proposes amendments to the application guidance of IFRS 9 to provide guidance on how an entity can assess whether contractual cash flows of a financial asset are consistent with a basic lending arrangement. To illustrate the changes to the application guidance, the IASB proposes adding examples of financial assets that have, or do not have, contractual cash flows that are solely payments of principal and interest on the principal amount outstanding.
  • Assets with non-recourse features. The IASB proposes amendments to enhance the description of the term ‘non-recourse’. Under the amendments, a financial asset has non-recourse features if an entity’s contractual right to receive cash flows is limited to the cash flows generated by specified assets both over the life of the financial asset and in the case of default. 
  • Contractually linked instruments. The IASB proposes to clarify the description of transactions containing multiple contractually linked instruments that are in the scope of IFRS 9. The proposed amendments would also introduce an example of when transactions with multiple debt instruments do not meet the criteria of transactions with multiple contractually linked instruments. In addition, the proposed amendments clarify that the reference to instruments in the underlying pool can include financial instruments that are not within the scope of the classification requirements.
• Disclosures:
  • Investments in equity instruments designated at fair value through other comprehensive income. The IASB proposes amendments to IFRS 7 to require disclosure of an aggregate fair value of these equity instruments rather than the fair value of each instrument at the end of the reporting period and the changes in fair value presented in other comprehensive income during the period.
  • Contractual terms that could change the timing or amount of contractual cash flows. The IASB proposes to require the disclosure of contractual terms that could change the timing or amount of contractual cash flows. The requirements would apply to each class of financial asset measured at amortised cost or fair value through other comprehensive income and each class of financial liability measured at amortised cost.

Comments on the proposed changes are requested by 19 July 2023.

Effective date and transition

The IASB will decide on the effective date for the proposed amendments after exposure. The IASB proposes to require an entity to apply the amendments retrospectively, but not to restate comparative information.

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• Snapshot offering an overview of the proposals (link to IASB website)
• Deloitte's iGAAP in Focus newsletter explaining the proposed amendments
• Our IAS Plus project page on Classification and measurement of financial instruments

Comment letters on tentative agenda decision: IFRS 16 Leases—Definition of a Lease: Substitution Rights: In November 2022, the IFRS IC published a tentative agenda decision in response to a submission about how to assess whether a contract contains a lease applying IFRS 16 when the supplier has particular substitution rights.  Almost all respondents agreed with the IFRS IC’s analysis of level at which to evaluate whether a contract contains a lease. Most respondents agreed (or did not necessarily disagree) with the conclusion that, there is an identified asset in the fact pattern described, but some of them raised comments on the analysis in the tentative agenda decision. In this meeting, all IFRS IC members agreed with the conclusion in the agenda decision with suggested amendments to the text.

New item: IFRS 9 Financial Instruments—Guarantee over a Derivative Contract: The IFRS IC received a submission about how to assess whether an issuer accounts for a guarantee written over a derivative contract as a financial guarantee contract or a derivative. In the fact pattern described, Entity C provides a guarantee over a derivative contract between Entity A and Entity B, which promises to reimburse Entity A, in full or in part, the actual loss suffered in the event of a default by Entity B. The submitter asked whether such guarantee written meets the definition of a financial guarantee contract of a derivative. The staff concluded that the matter described in the request is, in isolation, too narrow for the IASB or the IFRS IC to address in a cost-effective manner.  All IFRS IC members agreed with this.

New item: IFRS 17 Insurance Contracts and IFRS 9 Financial Instruments—Premium Receivable from an Intermediary: The IFRS IC received a submission about how an issuer accounts for premiums receivable from an intermediary. In the fact pattern described, a policyholder has paid the premiums to an intermediary when the amounts became due under an insurance contract. At this point, the insurer is legally obliged to provide insurance contract services to the policyholder, even if the intermediary does not pay the premiums to the insurer (under the agreement between the insurer and the intermediary, the intermediary is allowed to pay later). The submission asked, when the policyholder pays the premiums to the intermediary, whether the insurer is required to recognise the premiums receivable from an intermediary as a separate financial asset under IFRS 9 and remove these premiums from the measurement of the group of insurance contracts under IFRS 17. The staff concluded that the premiums receivables from the intermediary remain in the measurement of a group of insurance contracts until recovered or settled in cash. However, the view that the premiums receivable from an intermediary should be recognised as a separate financial asset under IFRS 9 and are removed from the measurement of the group of insurance contracts under IFRS 17 cannot be precluded. Some of the IFRS IC members agreed that both views are acceptable. Some had their preferred view over another, but they accepted or did not preclude another view. Overall, the IFRS IC decided to publish the tentative agenda decision.

New item: Home and Home Loans Provided to Employees: The IFRS IC received a submission about how an entity accounts for homes and loans to buy homes provided to its employees in two fact patters. In view of the fact that outreach indicates that neither of the fact patterns described in the submission is widespread, nor are the amounts involved material, that staff recommend not adding a standard-setting project to the work plan and to publish a tentative agenda decision that explains the reasons. All IFRS IC members agreed with this.

Potential Annual Improvements to IFRS Accounting Standards: IFRS IC members shared their views on the staff’s preliminary views on the following two proposed amendments to IFRS Accounting Standards and to include them in the next annual improvements cycle:

• IFRS 9 Financial Instruments and IFRS 16 Leases—Lessee accounting for lease payments forgiven
• Guidance on implementing IFRS 17 Insurance Contracts: Disclosure of deferred difference between fair value and transaction price

Input on IASB project: Business Combinations—Disclosures, Goodwill and Impairment: Possible changes to the impairment test of cash-generating units (CGU) containing goodwill: The IASB has a project which aims at improving information entities provide about their business combinations at a reasonable cost. The staff identified suggestions for changes to the impairment test of CGUs containing goodwill that the staff considered warrant further consideration. The staff paper provided details of each suggestion and initial staff comments. The purpose of the discussion is to obtain feedback on some suggestions respondents to the Discussion Paper had for changes to the impairment test of CGUs containing goodwill. The IFRS IC members shared their views on each of the suggestions for changes to the impairment test of CGUs containing goodwill.

Work in progress: The new matter, Merger between a parent and its subsidiary in separate financial statements, has not yet been presented to the IFRS IC.

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

Highlights of the podcast include discussions on:

• discussions from the March ISSB meeting;
• activities following final decisions on S1 and S2;
• statements from IOSCO;
• recent meetings in Tokyo;
• the board’s discussions on the SASB Standards;
• update on agenda priorities; and
• next phases of work.

The podcast can be accessed on the IFRS Foundation website.

The following topics are on the agenda.

Climate-related risks in the financial statements: The IASB will start discussions on its project on climate-related risks in the financial statements. Particularly, the staff will present the origins of the project, the purpose of the project and the planned initial steps for the project. The IASB will not be asked to make any decisions on the project.

Work plan update: In this session, the staff will provide an update on the IASB’s work plan since the last update in December 2022. The purpose of the session is to provide a holistic view of the IASB’s technical projects to support decisions about whether to add or remove projects, as may be discussed in individual project papers and assessment of overall progress on the work plan, including project prioritisation and timing.

Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures: In this session, the IASB will continue its redeliberations of the relationship of the new IFRS Accounting Standard with the IFRS for SMEs Accounting Standard. The staff recommend that the IASB assess separately the costs and benefits for subsidiaries applying the reduced disclosure Standard and the costs and benefits for SMEs applying the IFRS for SMEs.

Equity Method: In this session, the IASB will discuss three application questions on its project to revise IAS 28. The staff recommend responses and actions with regard to these application questions.

Primary Financial Statements: The staff recommend detailed revisions to the Exposure Draft in the areas of disclosure of operating expenses by nature in the notes; management performance measures (MPMs)—rebuttable presumption; MPMs—relationship with the requirements of other IFRS Accounting Standards; MPMs—tax disclosure; issues related to categories in the statement of profit or loss; and issues related to the proposals for entities with specified main business activities.

Post-implementation Review of IFRS 15: The IASB will discuss which questions to include in the forthcoming Request for Information. In particular, the staff recommend questions on the standard as a whole and the convergence with US GAAP; the five steps of revenue recognition; principal versus agent considerations; licensing; disclosures; transition; and interaction with IFRS 9, IFRS 10 and IFRS 16.

Business Combinations—Disclosures, Goodwill and Impairment: In this session, the IASB will make decisions about some of the IASB’s preliminary views regarding reducing the cost and complexity of the impairment test, and some aspects of the proposed package of disclosure requirements in IFRS 3.

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

The following topics are on the agenda:

ISSB Consultation on Agenda Priorities: The staff recommend refining the specifics surrounding the upcoming Request for Information (RFI). In particular, The staff recommend that, within the RFI the scope of the connectivity project be expanded to be more broadly focused on ‘integration in reporting’; the requirements of S1 and S2 related to connected information be included to provide necessary context when considering the project on ‘integration in reporting’; the project be rearticulated as an ISSB project that could be pursued jointly with the IASB, rather than presenting it only as a formal ‘joint project’; and the questions asked are framed in a manner that elicits input about how this project should be pursued.

International Applicability of the SASB Standards: The ISSB is developing an exposure draft (ED) that explains the process and the methodology for updating specific jurisdictional laws and regulations in the SASB Standards in order to enhance the international applicability of the SASB Standards. In this session, ISSB members will receive a status update of the project and details on the concepts and processes that guide that effort. The ISSB expects to publish the ED in May 2023.

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

The bases for conclusions illustrate the objective and context of each draft standard, the process followed in its preparation, the reasons to include in the standard a disclosure requirement, when relevant the alternative considered, the references to other standard-setting initiatives or European or other relevant regulations and, where appropriate, the argument supporting the need for granular guidance.

Each basis for conclusions appears under the draft standard available on this EFRAG website.