Financial Instruments with Characteristics of Equity: At the December 2019 Board meeting, the Board discussed the staff’s preliminary analysis on how the fixed-for-fixed requirement in IAS 32 could be clarified. At this meeting the Board decided to articulate its foundation principle by stating that in a derivative on own equity that meets the fixed-for-fixed condition, the amount of functional currency units to be exchanged with each underlying equity instrument is fixed and does not vary other than (if applicable) with preservation adjustments and passage of time adjustments. The Board also supported the staff recommendations for how the preservation and passage of time adjustments should be expressed. The staff set out their plan for outreach with stakeholders on potential disclosures that can be developed as part of the project.

Post-implementation review of IFRS 10, 11 and 12: The Board decided to proceed with the PIR and publish (in December) a Request for Information to gather more information about the application of these Standards.

Disclosure Initiative—Subsidiaries that are SMEs: In the January 2020 meeting, the Board agreed to move the project from the research programme to the standard-setting programme. The objective is to develop a reduced disclosure IFRS Standard that would apply on a voluntary basis to subsidiaries that are SMEs, adapted from the disclosure requirements of the IFRS for SMEs. The staff expect to start drafting an ED or a DP in Q4 2020.

Maintenance and Consistent Application:

• Commodity loans: In 2017, the IFRS Interpretations Committee (Committee) received a question about a particular commodity loan transaction and observed that the transaction may not be captured within the scope of any IFRS Standard. The Board decided to refer to commodity transactions as a potential project in its Request for Information on the 2020 Agenda Consultation.
• Sale and leaseback with variable payments. At its March 2020 meeting, the Committee discussed a submission about a sale and leaseback transaction with variable payments. The Committee published a tentative agenda decision but its discussions highlighted that IFRS 16 is not as complete as it could be regarding the subsequent measurement of the lease liability arising in a sale and leaseback transaction. They therefore recommended that the Board make a narrow-scope amendment to IFRS 16. The Board decided to amend IFRS 16 to state that for lease modifications or changes in the lease term of a sale and leaseback transaction, the seller-lessee remeasures the lease liability by discounting the revised expected payments for the lease using a revised discount rate.
• Lack of exchangeability. At its November 2019 meeting, the Board decided to propose an amendment to IAS 21 to address the accounting when the spot exchange rate is not observable (because of a lack of exchangeability between two currencies). The Board supported the staff recommendations for a definition of a lack of exchangeability, indicators for assessing exchangeability and disclosure requirements.
• Deferred tax related to assets and liabilities arising from a single transaction. In July 2019 the Board published the Exposure Draft Deferred Tax related to Assets and Liabilities arising from a Single Transaction, proposing an amendment to IAS 12 to narrow the scope of the recognition exemption (which affects initial recognition of leases and decommissioning liabilities). The staff presented a summary of feedback received. Although a majority of Board members thought the staff should continue with the project, several members questioned whether the benefits of the change would exceed the costs.

Second comprehensive review of the IFRS for SMEs Standard: The staff have published a survey on 20 April 2020, with comments to be received by 27 July 2020, for stakeholders who do not have an existing process or do not have sufficient capacity or resources to submit a comment letter.

Management Commentary: The Board discussed disclosure objectives and the type of information that would support those objectives, focusing on business model, strategy and resources and relationships.

There was also an oral update on amendments to IFRS 17 Insurance Contracts. The amendments are expected to be finalised at the end of June 2020.

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

The agenda for the meeting is summarised below:

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

So far, the following articles are available (all links to the AcSB website):

• Going Concern and Liquidity Risk. Most companies, unless they are an essential service, are likely in a situation where they’ve had a significant drop in their operations or are closed, which may call into question their long-term viability or ability to continue as a going concern.
• Potential Impact on Lease Accounting. The COVID-19 pandemic is affecting the ability of organisations to collect and pay rent and other lease obligations. This means companies should use professional judgement and consider the potential implications that COVID-19 could have relating to the accounting for leases under IFRS 16 Leases.
• Events After the Reporting Period. Most companies, unless they are an essential service, are likely experiencing a material decline in their operations or are closed. This raises questions about whether they need to adjust their year-end or interim financial statements or provide additional disclosures for events after the reporting period.
• Income Taxes. The COVID-19 pandemic is affecting the recoverability of deferred tax assets and has introduced new government relief measures. Entities should use professional judgment to assess how this will impact the accounting for income taxes in accordance with IFRS Standards.
• Impairment of Non-financial Assets. COVID-19 is having a significant economic effect on companies, many of which are now facing declines in production, sales, and demand for their goods or services. These declines affect a company’s profitability and may give rise to events that indicate that its non-financial assets, such as intangible assets, goodwill, property, plant, and equipment may not be recoverable.
• Potential Impact on IFRS 13 Fair Value Measurement. The COVID-19 pandemic continues to evolve rapidly and market-based measures like fair value are likely to change significantly and perhaps in unpredictable ways as a result.
• Discount Rates. The risks and uncertainties arising from COVID-19 and the move by central banks to cut their overnight rates may affect discount rates used in asset and liability measurements.

Please note that these articles are also available in the French language and can be accessed here.

Note: The AcSB is continuing to expand the series - a collection of all articles can be accessed here.

IASB members are appointed for an initial five-year term with the possibility of being reappointed for another three years (in exceptional circumstances for another five years). Nominations for IASB Board membership close on 26 June 2020. For more information, see the press release on the IASB’s website.

In the article, In Brief: IFRS 17 Insurance Contracts — why annual cohorts?, Mr Hoogervorst states:

The Board is particularly concerned that financial reporting presents fairly the financial performance of businesses in each period and how profitability changes over time. As emphasised by the Board’s Conceptual Framework, IFRS Standards must result in useful information about financial performance as well as financial position. Much of existing insurance contract accounting is founded on prudential regulation that has a primary focus on solvency. We believe the dual focus of IFRS Standards on financial performance and financial position greatly enriches the information provided in financial statements. The statements of financial performance often serve as a canary in the coal mine. An erosion of profits may be a foreboding of problems to come.

Mr Hoogervorst goes on to discuss:

• most financial reporting is applied at the individual contract level;
• why accounting for individual insurance contracts is not appropriate;
• annual cohorts essential for prudent planning;
• objections to annual cohorts raised during the recent consultation, including:
  • Do annual cohorts fail to reflect intergenerational sharing of risk?
  • Do annual cohorts result in arbitrary allocations?
  • Are annual cohorts too costly for contracts with intergenerational sharing of risks?
• deliberations and redeliberations; and
• implementing the standard.

The article is available on the IASB's website. For more information on the IASB's decision on annual cohorts, see our meeting minutes from the IASB's February 2020 meeting.

The discussion paper, published in May 2019, explored alternative accounting treatments for post-retirement employee benefits promising the higher of the return on an identified item or group of items and a minimum guaranteed return. The discussion paper considered three alternatives for accounting for pension plans in the scope of the project: capped asset return approach, fair-value based approach, and fulfilment value approach.

The feedback statement (link to EFRAG website) describes the main comments received from comment letters and presentation of the Discussion Paper at the July 2019 meeting of the Accounting Standards Advisory Forum (ASAF).

During the meeting, the IASB was given a short oral update on the progress as regards finalising the amendments.

The podcast can be accessed through the press release on the IASB website.

The main activities of EFRAG in this context are the EFRAG draft comment letter and field-testing on the exposure draft. Please click for more information in the press release on the EFRAG website.

Below is an analysis of all changes made to the work plan since our last analysis on 18 April 2020.

Standard-setting projects

• Disclosure initiative — Subsidiaries that are SMEs — The Board will decide whether to publish a discussion paper or an exposure draft as next step in this project in the fourth quarter of 2020 (previously no date given)
  

Maintenance projects

• Accounting policy changes — The Board will decide on the future project direction in June 2020 (previously May 2020)
• Classification of liabilities — Effective date — A project newly added to the work plan to defer the effective date effective date of the January 2020 amendments to IAS 1 to 2023; an exposure draft is expected in May 2020
• Deferred tax related to assets and liabilities arising from a single transaction — The Board was expecting to discuss exposure draft feedback in June 2020; the entry has now been changed to a decision of the future project direction (no date given)
• IBOR reform and its effects on financial reporting — Phase 2 — Discussion of the feedback on the April 2020 exposure draft is now expected to occur in June 2020 (previously third quarter of 2020)
• IFRS 16 and COVID-19 — Feedback on the exposure draft published earlier today is expected to be discussed in May 2020
• Lease liability in a sale and leaseback — A project newly added to the work plan; an exposure draft is expected in the third quarter of 2020

Research projects

• Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12 — the entry has been changed from research review  to request for information; the date remains unchanged as fourth quarter of 2020

Other projects

• Due Process Handbook review — The revised handbook is now expected in June 2020 (previously April 2020)

The above is a faithful comparison of the IASB work plan at 18 April 2020 and at 24 April 2020. For access to the current IASB work plan at any time, please click here.

Background

The COVID-19 pandemic has led to some lessors providing relief to lessees by deferring or relieving them of amounts that would otherwise be payable.  In some cases this is through negotiation between the parties, but can be as a consequence of a government encouraging or requiring that the relief be provided. Such relief is taking place in many jurisdictions in which entities that apply IFRSs operate.

When there is a change in lease payments, the accounting consequences will depend on whether that change meets the definition of a lease modification, which IFRS 16 Leases defines as “a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease (for example, adding or terminating the right to use one or more underlying assets, or extending or shortening the contractual lease term)”.

The proposed amendment published today are intended to provide practical relief to lessees in accounting for rent concessions arising as a result of the COVID-19 pandemic.

Suggested changes

The changes proposed in ED/2020/2 Covid-19-Related Rent Concessions (Proposed amendment to IFRS 16) would amend IFRS 16 to

1. provide lessees with an exemption from assessing whether a COVID-19-related rent concession is a lease modification;
2. require lessees that apply the exemption to account for COVID-19-related rent concessions as if they were not lease modifications;
3. require lessees that apply the exemption to disclose that fact; and
4. require lessees to apply the exemption retrospectively in accordance with IAS 8, but not require them to restate prior period figures (a lessee would recognise any difference arising on initial application of the amendment in opening retained earnings (or other component of equity, as appropriate) in the annual reporting period that includes the date of initial application).

The proposed amendment would not supersede the educational material recently published on the same topic, but rather the two complement each other.

The IASB is not proposing any additional relief for lessors as the current situation is not as equally challenging for lessors, as most have operating leases and even if they have lease modifications, the required accounting is not as complicated.

Comment period

The IFRS Foundation's Due Process Handbook sets out that 75% of the Trustees must approve comment periods shorter than 30 days. In a phone meeting on 17 April 2020, the Trustees approved a 14-day comment period. Therefore, comments on the proposed changes are requested by 8 May 2020.

Effective date

The Board expects to finalise the amendment to IFRS 16 by the end of May 2020 and proposes an effective date of 1 June 2020 for the final amendment (earlier application permitted, including in financial statements not yet authorised for issue at the date the amendment is issued).

Additional information

Please click for:

• IASB press release (link to IASB website)
• Access to the exposure draft on the IASB website
• Related IFRS in Focus newsletter
• Deloitte's comment letter on ED/2020/2
• Our IAS Plus project page on IFRS 16 and COVID-19