After an introductory assessment of the current situation, which stresses the growing and urgent demand and the need for consistency in reporting and comparable information, the consultation paper sets out high-level options for the IFRS Foundation. These options are explained as maintaining the status quo, facilitating existing initiatives, or creating a Sustainability Standards Board (SSB) and becoming a standard-setter working with existing initiatives and building upon their work.

For establishing the possible new sustainability standards board the existing IFRS Foundation’s three-tier governance structure could be leveraged. The new board could operate alongside the International Accounting Standards Board (IASB) under the existing governance structure, build on existing developments and collaborate with other bodies and initiatives in sustainability, focusing initially on climate-related matters. However, the consultation paper sets out critical success factors for the creation of an SSB. These include:

• Achieving sufficient support from public authorities and market participants;
• working with regional initiatives to achieve global consistency and reduce complexity in the reporting landscape;
• achieving the appropriate level of funding; and
• ensuring the current mission of the IFRS Foundation is not compromised.

If respondents believe that the SSB could and should be established by the IFRS Foundation, the discussion paper suggests a ‘climate-first’ approach, proposes that the SSB would initially focus its efforts on the sustainability information most relevant to investors and other market participants and could consider how to broaden its scope as it proceeds with its work, and discusses assurance aspects.

The consultation paper includes ten questions to respondents and encourages stakeholders to raise any other comment or relevant matters for the consideration of the Trustees. Comments on the consultation are requested by 31 December 2020.

Please click for the following additional information:

• Press release
• Consultation paper
• IFRS in Focus — Ground-breaking proposal from IFRS Foundation points to global standards for sustainability reporting

In addition, the CDP, Climate Disclosure Standards Board, Global Reporting Initiative, International Integrated Reporting Council and Sustainability Accounting Standards Board have issued an open letter to Erik Thedéen, Chair of the Sustainable Finance Task Force of the International Organization of Securities Commissions, on the need to work together to meet the needs of the capital markets. Mr. Thedéen acknowledged the letter and the IFRS Foundation consultation in a speech stating that: "While these initiatives are currently running in parallel, I expect them to come together."

IFAC has issued a press release, applauding both, the IFRS Foundation consultation and the open letter.
 

We agree that the IFRS Interpretations Committee’s conclusions regarding supply chain financing arrangements reflect the requirements of IFRS Standards and that the outcome of applying these requirements will lead to different presentations in the statement of financial position, within trade payables, other payables or in other financial liabilities depending on the terms of the arrangement and the relative similarity of the nature and function of the liability under the arrangement with more conventional trade payables. However, we are concerned that users are not benefiting from a fuller understanding of these arrangements given the lack of specific disclosures required by IFRS 7. The Board may wish to consider adding to its agenda a project to improve disclosures in this area, potentially through illustrative examples, due to the increasing prevalence of alternative financing models such as these, and the move away from obtaining finance from a broad range of suppliers to a more concentrated approach with a single or small number of financial institutions or other funding vehicles.

Click to view the comment letter and Deloitte's notes from the June 2020 IFRS Interpretations Committee meeting.

Maintenance and Consistent Application — Lease Liability in a Sale and Leaseback — Sweep Issue: The staff are drafting the exposure draft (ED) to amend IFRS 16. They identified matters that the Board needed to consider. The Board decided that the ED specify that when measuring the ROU asset and lease liability arising from a sale and leaseback, a seller-lessee determines the proportion of the asset sold that relates to the right of use it retains by comparing the present value of the expected payments for the lease to the fair value of the asset sold.  It also decided to modify its tentative proposed approach for how a seller-lessee subsequently measures the lease liability arising from the leaseback such that the seller-lessee would reduce the carrying amount of the lease liability to reflect expected payments for the lease at market rates. The ED is expected to be published in November 2020.

Business Combinations under Common Control: The BCUCC Discussion Paper is expected to be published in November 2020. The Board decided to have a comment period of 180 days.

Management Commentary: The Board decided that the proposed revised practice statement remain a non-binding framework for the preparation of management commentary; require management commentary to include an unqualified statement of compliance with the Practice Statement if it complies with all the requirements in the Practice Statement; retain the requirement that when management commentary relates to financial statements, an entity should either make the financial statements available with the management commentary or identify in the management commentary the financial statements to which it relates; and require an entity to specify the date when its management commentary is authorised for issue and to reflect any material information about events occurring after the end of the reporting period and before the date when the management commentary was authorised for issue.

Extractive activities: The staff papers summarise the results of outreach to determine what problems, if any, entities with extractive activities have applying IFRS Standards and whether the primary users of financial statements of entities with extractive activities are obtaining all the information they need for these entities. The Board asked the staff to examine further differences identified between jurisdictions of reserve and resource disclosure requirements.

Rate-regulated Activities: The staff are drafting the ED on regulatory assets and liabilities. They identified matters that the Board needed to consider. The Board decided to change the definitions of a regulatory asset and regulatory liability and to clarify the measurement of regulatory returns on assets not yet available for use.  The Board also decided to have a comment period of 150 days. The ED is expected to be published in January 2021.

Board work plan update: The staff gave the Board an oral update on the work plan. The staff intend to bring more formal work plan updates every 3 to 4 months.

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

The new set of editorial corrections affect the Red Book and the annotated Red Book 2020 as well as the Blue Book and the annotated Blue Book 2020 regarding IFRS 7 Financial Instruments: Disclosures, IFRS 9 Financial Instruments and the glossary. The only stand-alone standard affected is IFRS 17 Insurance Contracts.

Editorial corrections do not change the meaning or application of pronouncements, but instead correct inadvertent errors. The editorial corrections can be viewed on the editorial corrections page of the IASB's website.

In his speech, which also touched briefly on COVID-19 matters, Mr Hoogervorst noted that the growing urgency of climate change has intensified interest in sustainability reporting in recent years. Exploring the relationship between financial reporting and non-financial reporting, he made the following points:

• None of the IFRSs even mentions ‘climate change’ or ‘sustainability’. Financial reporting merely seeks to neutrally describe economic reality as it is.
• However, that does not mean that there is a disconnect between IFRSs and sustainability issues and financial reporting based on current IFRSs can be more reflective of sustainability issues than many people realise.
• The principle-based approach of IFRSs means that many issues can be captured by the requirements, both in terms of recognition and measurement and disclosure. In fact, separate disclosures on the effects of climate change might already be required based on the materiality requirements.
• Sustainability reporting has important added value to the financial statements. However uncertain this information may be, it can very well be material to investors.
• Sustainability reporting may also serve to make a company aware of the financial consequences of such issues much earlier.
• There is hope that in the future financial reporting and sustainability reporting will come even closer together.

Mr Hoogervorst also noted that, as a separate piece of work that is complimentary to the requirements in IFRSs and the IASB’s work on Management Commentary, the Trustees of the IFRS Foundation are currently considering sustainability reporting. They are in the process of preparing for their next five-yearly strategy review and a working group of Trustees has done research into sustainability reporting. Mr Hoogervorst explained that the Trustees plan to build on that work by consulting on the topic more broadly shortly.

Please click to access the full transcript of Mr Hoogervorst's speech on the IASB website.

Below is an analysis of all changes made to the work plan since our last analysis on 28 August 2020.

Standard-setting projects

• Management Commentary — the issuance of an exposure draft is now expected in the first quarter of 2021 (previously first half of 2021)
• Rate-regulated Activities — the issuance of an exposure draft is now expected in the first quarter of 2021 (previously fourth quarter of 2020)

Maintenance projects

• Deferred Tax Related to Assets and Liabilities Arising From a Single Transaction — a decision on the project directions is now expected in October 2020 (previously fourth quarter of 2020)
• Lease Liability in a Sale and Leaseback — the issuance of an exposure draft is now expected in November 2020 (previously fourth quarter of 2020)

Research projects

• Business Combinations under Common Control — a discussion paper is now expected in November 2020 (previously fourth quarter of 2020)
• Dynamic Risk Management — Core model outreach is now expected in October 2020 (previously fourth quarter of 2020)
• Pension Benefits That Depend on Asset Returns — A review of the research is now expected in November 2020 (previously fourth quarter of 2020)

The above is a faithful comparison of the IASB work plan at 28 August 2020 and 28 September 2020. For access to the current IASB 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 IASB's website.

The summary report​ on the EFRAG website has been prepared for the convenience of European constituents to summarise the input from the workshop and will be further considered by the involved organisations in the respective due process on the IASB proposals.

Mr Garnett served as an IASB board member from 2001 to 2010, during a period of widespread adoption of IFRS Standards around the world. He also chaired the IFRS Interpretations Committee from 2005 until 2011. He served as a committee member on IASC's (the predecessor of the IASB) project on extractive industries and was a member of the South African Accounting Practices Board.

Please click for the statement on the passing of Mr Garnett on the IASB website.

The thematic review of IFRS 15 focused on those areas which gave the FRC greatest cause for concern in its thematic review of October 2019. The bulk of the review was focused on certain aspects of revenue reporting by a sample of 22 companies but also covered ‘quick reviews’ of 50 companies to substantiate and further inform the findings. Although the FRC notes some progress, it continues to identify disclosures by many companies that do not meet the FRC’s quality threshold. Companies should critically review their revenue-related disclosures to ensure they provide a clear understanding of how they have applied the requirements of the standard to their own particular circumstances. 

The thematic review of IFRS 16 focused on the disclosures made by a sample of twenty companies following the first year of adoption of IFRS 16 and is a follow up to the FRC’s report published in November 2019 that focused on disclosures made by interim reporters. The FRC found that most companies provided a good explanation of the impact of adopting IFRS 16. However, the quality of their disclosures should improve in future reporting.

For additional information and links to the reports, please see the press release on the FRC website.