Background

Since IFRS 17 Insurance Contracts was issued in May 2017, the Board has been monitoring the implementation and has learned about concerns and implementation challenges. The Board had previously indicated that it would consider whether additional action is needed to address matters arising during implementation. At the October 2018 meeting of the Board a list of 25 potential amendments to the standard was identified and the criteria against which any possible amendment would be considered were agreed. An exposure draft of proposed amendments was published on 26 June 2019 with comments requested by 25 September 2019.

In the redeliberations in the project on possible amendments to IFRS 17 following the end of the comment period, the IASB refined its proposals and took additional feedback by constituents on board resulting in the final amendments issued today.

Changes

The main changes resulting from Amendments to IFRS 17 and Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4) are:

• Deferral of the date of initial application of IFRS 17 by two years to annual periods beginning on or after 1 January 2023 and change the fixed expiry date for the temporary exemption in IFRS 4 Insurance Contracts from applying IFRS 9 Financial Instruments, so that entities would be required to apply IFRS 9 for annual periods beginning on or after 1 January 2023.
• Additional scope exclusion for credit card contracts and similar contracts that provide insurance coverage as well as optional scope exclusion for loan contracts that transfer significant insurance risk.
• Recognition of insurance acquisition cash flows relating to expected contract renewals, including transition provisions and guidance for insurance acquisition cash flows recognised in a business acquired in a business combination.
• Clarification of the application of IFRS 17 in interim financial statements allowing an accounting policy choice at a reporting entity level.
• Clarification of the application of contractual service margin (CSM) attributable to investment-return service and investment-related service and changes to the corresponding disclosure requirements.
• Extension of the risk mitigation option to include reinsurance contracts held and non-financial derivatives.
• Amendments to require an entity that at initial recognition recognises losses on onerous insurance contracts issued to also recognise a gain on reinsurance contracts held.
• Simplified presentation of insurance contracts in the statement of financial position so that entities would present insurance contract assets and liabilities in the statement of financial position determined using portfolios of insurance contracts rather than groups of insurance contracts.
• Additional transition relief for business combinations and additional transition relief for the date of application of the risk mitigation option and the use of the fair value transition approach.
• Several small amendments regarding minor application issues.

Although the IASB had in its discussions leading up to the exposure draft voted unanimously to leave the annual cohort requirement in IFRS 17 unchanged and did not ask a question on it in the draft, some respondents commented on the IASB’s decision to retain the requirements unchanged. The IASB, therefore, included in its deliberations the question of annual cohorts in February 2020 once more. However, it came to the same conclusion as before and decided to retain, unchanged, the annual cohort requirement in IFRS 17.

Effective date and transition

The amendments to IFRS 17 are effective for annual periods beginning on or after 1 January 2023. Earlier application is permitted. They are applied retrospectively.

Extension of the Temporary Exemption from Applying IFRS 9 (Amendments to IFRS 4) defers the fixed expiry date of the amendment to annual periods beginning on or after 1 January 2023. 

Additional information

Please click for:

• IASB press release (link to IASB website)
• IASB webcast about the amendments to IFRS 17 (link to IASB website)
• Project summary and feedback statement on the IASB website
• Consolidated version of IFRS 17 incorporating the June 2020 amendments (link to IASB website)
• Our IFRS in Focus newsletter explaining the amendments in detail
• Our IAS Plus project page on Amendments to IFRS 17 Insurance Contracts
• Updated EFRAG endorsement status report

Disclosure Initiative: Accounting Policies: The Board will continue to discuss disclosures that simply duplicate the requirements of a Standard. The staff continue to recommend that the Board apply the concept of materiality to all types of accounting policy information, including accounting policy information that is standardised information or information that duplicates or summarises the requirements of a Standard.

Disclosure Initiative: Targeted Standards-level Review of Disclosures: The Board will decide whether the staff can begin the balloting process on Exposure Draft (ED) Targeted Standards-level Review of Disclosures—Amendments to IAS 19 and IFRS 13. The staff recommend proceeding with a comment period of 180 days (longer than the normal minimum of 120 days because the proposals could have significant consequences).

Extractive Activities: In September 2019, the IASB asked the staff to assess what problems, if any, entities with extractive activities have applying IFRS requirements and whether the primary users of their financial statements are getting all the information they need.  At this meeting the staff report the results of their research, which indicated mixed views. The Board is not asked to make any decisions in this session. Board members are invited to ask questions and to comment on the feedback.

Maintenance and Consistent Application

• Sale of a Subsidiary to a Customer. In October 2019, the Board discussed the accounting for transactions that involve the sale of a subsidiary to a customer when that subsidiary holds a single asset and whether IFRS 10 or IFRS 15 should apply. The staff conclude that if the inventory that is an output of its ordinary activities, but that inventory (and any related income tax asset or liability) are sold in a corporate wrapper IFRS 15 should apply. The entity cannot retain any interest in the inventory transferred to the customer.
• Accounting Policy Changes (proposed amendments to IAS 8 in relation to agenda decisions). In December 2019, the Trustees amended the Due Process Handbook to clarify that the explanatory material in an agenda decision derives its authority from the Standards and accordingly, entities are required to apply the applicable Standards, reflecting the explanatory material in an agenda decision. ED/2018/1 Accounting Policy Changes proposed amending IAS 8 to simplify the application of accounting policy changes that result from an agenda decision. The staff recommend that the Board not proceed with the proposed amendments and do no further work on the project.

IBOR: The IASB will discuss feedback on the Exposure Draft (ED) Interest Rate Benchmark Reform—Phase 2 (Proposed Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16), published in April 2020. The staff provide recommendations on all topics except for the proposals on accounting for qualifying hedging relationships and groups of items. That topic will be discussed in July 2020, when the staff also expect to ask the IASB to finalise the proposals.

More information

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

The Q&A addresses key questions such as:

• Is there any existing IPSASB literature relevant to consider for climate change reporting?
• When governments or public sector entities have strategies and programs in place to manage climate change risks, how should these be treated?
• When governments or public sector entities adopt the UN’s Sustainable Development Goals (SDGs), what IPSAS financial reporting guidance should be considered?

The guidance can be accessed through the press release on the IPSASB website.

Mr Gast will join the Board for an initial term of five years on 1 August 2020. He comes from the Center for Financial Research and Analysis (CFRA) — a provider of independent investment research — where he currently serves as president, directing the organisation’s forensic accounting and equity research strategy.

For more information, please see the press release on the IASB website.

The virtual conference will include the latest developments in IFRS Standards and major consultations as well as other presentations and interactive Q&A sessions.

For more information, see the conference page on the IASB’s website.

Supply Chain Financing Arrangements — Reverse Factoring: The Committee decided to publish a tentative agenda decision outlining how IFRS Standards apply to different aspects of accounting for reverse factoring arrangements (mainly presentation of the liability in the statement of financial position and presentation in the statement of cash flows). With regard to the recommended narrow-scope standard-setting on new disclosure requirements for arrangements entered in to fund payables to suppliers, no decision has been made and this will be reconsidered at a future meeting.

The comment period for the tentative agenda decision has been extended until the end of September 2020.

IFRS 16 Leases — Sale and Leaseback with Variable Payments: In March 2020, the Committee published a tentative agenda decision stating that for a sale and leaseback transaction with variable payments the seller-lessee recognises a lease liability at the date of the transaction, even if all the payments for the lease are variable and do not depend on an index or rate, reflecting how the right-of-use asset is measured to determine the gain or loss on the sale and leaseback transaction. The Committee decided to finalise the agenda decision, with some suggested changes to the drafting.

IAS 12 Income Taxes — Deferred Tax Related to an Investment in Subsidiary: In March 2020, the Committee published a tentative agenda decision that when an entity expects to recover the carrying amount of its investment in the subsidiary through distributions of profits by the subsidiary, the entity uses the distributed tax rate to measure the deferred tax liability related to its investment in the subsidiary. The Committee decided to finalise the agenda decision.

IAS 38 Intangible Assets — Player Transfer Payments: In November 2019, the Committee published a tentative agenda decision stating that when a football club transfers a player to another club it recognises the gain or loss in profit or loss applying IAS 38, and not revenue (IFRS 15). However, the agenda decision suggested that the intangible asset could be classified as inventory (IAS 2) if it was is acquired for development and sale in the ordinary course of business. The Committee decided to finalise the agenda decision, with the suggested removal of the analysis under IAS 2.

More In­for­ma­tion

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

The report aims to provide issuers with an example of an annual report in the ESEF format for their submissions to the national Officially Appointed Mechanisms.

Please click for access to the report and more information on the ESMA website.

As reported in April 2020, the responses to the cogito paper show strong support for a global solution to non-financial reporting. Accountancy Europe summarises the key takeaways from the comment letters received as follows:

• The ultimate objective should be a system solution to deliver global NFI reporting standards connected to financial information.
• The ‘system solution’ could be achieved in steps such as bilateral moves to closer align or converge NFI reporting standards, policy developments, and expand the mandates for multilateral organisations.
• A ‘building blocks’ approach could address global challenges and varying policy needs with a core set of global metrics for NFI reporting to ensure comparability and address global challenges and with optional further blocks to reflect jurisdictional priorities or address sector-specific topics.
• Quickest progress could be made by building on the best of NFI frameworks and standards (CDP, CDSB, GRI, and SASB).
• The European Union should collaborate with different organisations to help catalyse a global solution.

Please click to access the follow-up paper on the Accountancy Europe website.

The Board will discuss the following:

• Maintenance and consistent application
• Disclosure initiative — Accounting policies
• Disclosure initiative — Targeted standards-level review of disclosures
• Classification of liabilities as current or non-current
• Extractive activities
• IBOR reform and the effects on financial reporting — Phase 2

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 reports found that investors recognise COVID-19 may create a wide range of issues for companies, but that the provision of transparent and timely information helps investors in their decision-making and drives the allocation of capital when companies are looking to the markets for support.

Specific elements of uncertainty relevant to the next 12 months might include (but are not limited to):

• Timing of resumption of operations.
• Further restrictions that limit the return to normal operations.
• Restrictions placed on government (or other) capital.
• Timing and continuation of government schemes and support packages.
• The outcome of capital raising actions, discussions with banks, and landlords.
• Short-term impacts of pricing changes to revenue and expenses.
• Impacts on human capital, the supply chain and customers.

Please click for the following additional information on the FRC website:

• Report with practical advice to companies and infographic setting out the disclosures investors expect to see from companies during this time of uncertainty
• Report with specific guidance on going concern, risk and viability disclosures