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October 2021 IASB meeting notes posted

01 Nov 2021

The IASB met in London on Monday, Tuesday, Wednesday and Thursday of the week beginning 25 October 2021. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The following topics were discussed:

Goodwill and Impairment: The IASB began making decisions related to the package of disclosures about business combinations. The IASB decided to confirm that the information about the benefits an entity’s management expect from a business combination can be required in the financial statements. The Board also considered, but made no decisions about, the practical concerns raised by respondents with regard to the proposed package of additional disclosures about business combinations in financial statements, particularly commercial sensitivity of the information, the potentially forward-looking nature of the information, the auditability of the information, and the integration of the information.

Second Comprehensive Review of the IFRS for SMEs Standard: The Board continued to deliberate specific sections of the IFRS for SMEs Standard that could be aligned with IFRS requirements. The IASB decided to: remove the option to apply the recognition and measurement requirements in full IFRS Standards for financial instruments; retain the existing hedge accounting requirements unchanged (i.e. not align with IFRS 9); align the definition of, and guidance on, fair value with IFRS 13; not align with IFRS 14 but revisit this topic once it has completed its project on rate-regulated activities; and align the requirements with IFRS 15.

Post-implementation Review of IFRS 10-12: The IASB considered feedback gathered from its Post-Implementation Review, which the staff conclude, and the IASB agrees, supports the conclusion that IFRS 10, 11 and 12 are working as intended. The IASB decided to consider some topics for further action when developing its work plan for 2022–2026: (high priority) investment entities and collaborative arrangements outside the scope of IFRS 11; (medium priority) definition of an investment entity and corporate wrappers; and (low priority) transactions that change the relationship between an investor and an investee.  The staff are also looking at the disclosure of interests in other entities and assisting the application of IFRS 10 and IFRS 11, which they will bring back to a future meeting. The staff will then prepare a “Report and Feedback Statement” on the PIR.

Equity Method: The staff have updated the IASB on questions identified applying the equity method. The staff have had difficulties identifying underlying principles when the application questions involve the application of IAS 28 paragraph 26 (i.e. the interaction of the principles in IAS 28 with other IFRS Standards, such as IFRS 3 and IFRS 10). The staff plan to undertake more research, and the IASB agreed.

Maintenance and consistent application:

  • Two Agenda Decisions from the IFRS Interpretations Committee were finalised by virtue of no IASB members objecting to their publication: Non-refundable Value Added Tax on Lease Payments (IFRS 16) and Accounting for Warrants that are Classified as Financial Liabilities on Initial Recognition (IAS 32)
  • The staff have been preparing the ED Supplier Finance Arrangements, which proposes to amend IAS 7 and IFRS 7. During drafting, the staff identified one issue that they want the IASB to consider. The IASB decided to add a requirement for an entity to disclose, as at the beginning and end of the reporting period, the line item(s) in the statement of financial position in which the entity presents the carrying amount of financial liabilities that are part of a supplier finance arrangement.
  • IASB members had no comments or questions on the September 2021 IFRIC Update.

Pensions Benefits that Depend on Asset Returns: Following the 2015 Agenda Consultation, the Board has been considering whether to propose amendments to IAS 19 for pension benefits that depend on the return on a specified pool of assets (reference assets). The pension benefits to be paid to employees reflect the variability inherent in the reference assets, yet IAS 19 requires a discount rate that reflects high-quality corporate bonds. Applying the IAS 19 discount rate can overstate the pension liability, producing information that is not relevant to users of financial statements. The staff recommended the Board propose that an entity estimate the ultimate cost of providing pension benefits that vary with asset returns applying the IAS 19 discount rate, but only when the IAS 19 discount rate is lower than the expected rate of return on the reference assets. Only 5 IASB members voted to continue the project and therefore the project will be stopped. All Board members supported the staff recommendation to consider any further work as part of the Third Agenda Consultation.

IFRS Taxonomy due process: The IASB decided to shorten the comment period for the Proposed IFRS Taxonomy Update for the amendment Initial Application of IFRS 17 and IFRS 9—Comparative Information to 30 days.

Primary Financial Statements: The IASB discussed two papers carried over from the September meeting, relating to associates and joint ventures and the analysis of operating expenses. The IASB decided to proceed with the proposal to present income and expenses from equity-accounted associates and joint ventures outside of operating profit, but not to require income and expenses from integral associates and joint ventures to be identified and presented separately from non-integral associates and joint ventures. They also decided to provide application guidance that builds on the description of the function of expense method in the ED to set out the relationship with expenses of the same nature; the attributes of functions; and the interaction with the role of the primary financial statements and the principles of aggregation and disaggregation.

Additionally, the IASB decided:

  • Not to develop a definition of ‘cost of sales’
  • To explore an approach to analysing and presenting operating expenses in the statement of profit or loss that would:
    • Retain the proposal to require operating expenses to be analysed and presented based on their nature or function
    • Not retain the proposed prohibition on a mixed presentation in the statement of profit or loss and instead provide application guidance and disclosure requirements to improve comparability
    • Retain the proposal to provide application guidance on how to determine which presentation method should be used to provide the most useful information to users of the financial statements
  • Undertake more research on providing a partial cost relief from the proposed requirement for an entity that presents an analysis of operating expenses by function in the statement of profit or loss to also disclose an analysis of its total operating expenses by nature
  • Amend the definition of the specified subtotal ‘operating profit or loss before depreciation and amortisation’ to also exclude impairments of assets within the scope of IAS 36 and label that subtotal ‘operating profit or loss before depreciation, amortisation, and specified impairments’

Amendments to IFRS 17 Insurance Contracts: The Board's Exposure Draft (ED) Initial Application of IFRS 17 and IFRS 9—Comparative Information (Proposed amendment to IFRS 17) was published in July 2021. The proposed amendment allows an entity to apply a classification overlay when first applying IFRS 17 and IFRS 9 at the same time for the purpose of presenting comparative information about a financial asset, if the comparative information for that financial asset has not been restated for IFRS 9.

The ED proposed that an entity would not be permitted to apply the classification overlay to financial assets held in respect of an activity that is unconnected with contracts within the scope of IFRS 17. Most respondents suggested the IASB remove this scope restriction, and the staff agree. The ED also proposed that an entity that first applies IFRS 17 and IFRS 9 at the same time it is permitted to apply the classification overlay. The proposed classification overlay would not apply to entities that have already applied IFRS 9 before initial application of IFRS 17, however the staff considered that the scope of the classification overlay should be expanded to apply in such cases. The staff recommended no substantive changes be made to the classification overlay proposed in the ED relating to impairment of financial assets or disclosures. The Board supported all of the staff recommendations with the addition to add a disclosure requirement for the impairment method used for the asset overlay and expect to issue the amendments to IFRS 17 before the end of 2021.

Rate-regulated Activities: In January 2021, the Board published Exposure Draft ED/2021/1 Regulatory Assets and Regulatory Liabilities. The proposals in the ED have generally been well-received by respondents, agreeing  with: the proposed definitions for regulatory assets and regulatory liabilities; the existence threshold of ‘more likely than not’ for recognising regulatory assets and regulatory liabilities; using a cash-flow-based measurement technique to measure regulatory assets and regulatory liabilities; and using the regulatory interest rate for a regulatory asset or regulatory liability as the discount rate for that regulatory asset or regulatory liability. However, concerns were expressed about the scope; returns on assets not yet available for use; regulatory assets and regulatory liabilities arising from differences between assets’ regulatory recovery pace and their useful lives; recognition, measurement and discount rate; minimum interest rate; and the interaction with IFRIC 12. The IASB discussed the feedback but made no decisions. The IASB will continue its discussions of the feedback in November, but no decisions are expected to be made at that meeting.

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

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Updated IASB work plan — Analysis (October 2021)

01 Nov 2021

Following the IASB's October 2021 meeting, we have analysed the IASB work plan to see what changes have resulted from the meetings and other developments since the work plan was last revised in September 2021.

Below is an analysis of all changes made to the work plan since our last analysis on 27 September 2021.

Standard-setting projects

  • Management commentary Feedback on the exposure draft will now be discussed in Q1 2022 (previously H1 2022)
  • Rate-regulated activities The discussion of feedback to the exposure draft will continue in November 2021

Maintenance projects

  • Initial application of IFRS 17 and IFRS 9 — Comparative Information — After discussion of the feedback received at the October 2021 meeting, final amendments are expected in December 2021
  • IAS 21 — Lack of exchangeability — The discussion of feedback is now expected in January 2021 (previously Q1 2022)
  • Lease liability in a sale and leaseback — a decision on the project direction is now expected in December 2021 (previously Q4 2021)

Research projects

  • Business combinations under common control — Feedback received on the discussion paper will now be discussed in December 2021 (previously Q4 2021)
  • Goodwill and impairment — A decision on the project direction is now expected in Q1 2022 (previously H1 2022)
  • Pension benefits that depend on asset returns The IASB decided at the October 2021 meeting to discontinue this project; the publication of a project summary will be the final project step (no date given)
  • Post-implementation review of IFRS 10-12 A feedback statement is now expected in H1 2022 (previously Q1 2022)
  • Post-implementation review of IFRS 9 A request for information was published on 30 September 2021, the discussion of the feedback received is expected in H1 2022

Other projects

  • IFRS Taxonomy Update — 2021 General improvements and common practice newly added to the work plan; a proposed update is expected in December 2021
  • IFRS Taxonomy Update — Amendments to IAS 1, IAS 8 and IFRS Practice Statement 2 a final update is now expected in December 2021 (previously November 2021)
  • IFRS Taxonomy Update — Initial Application of IFRS 17 and IFRS 9 ― Comparative Information newly added to the work plan; a proposed update is expected in December 2021
  • Sustainability-related reporting While the work plan still says that the discussion of the feedback on the exposure draft is expected to occur in October 2021, the publicly expected next step is a formal announcement of the current state of developments at COP26

The above is a faithful comparison of the IASB work plan at 27 September 2021 and 1 November 2021. For access to the current IASB work plan at any time, please click here.

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G20 supports IFRS Foundation sustainable standard-setting

01 Nov 2021

The Group of 20 (G20) has released its G20 Leaders' Declaration from the G20 Leaders' summit held in Rome on 30-31 October 2021.

Generally, the declaration stresses that sustainable finance is crucial for promoting orderly and just transitions towards green and more sustainable economies and inclusive societies, in line with the 2030 Agenda for Sustainable Development and the Paris Agreement. On the setting of sustainable disclosure standards, the declaration notes:

We also welcome the work programme of the International Financial Reporting Standards Foundation to develop a baseline global reporting standard under robust governance and public oversight, building upon the FSB’s Task Force on Climate-Related Financial Disclosures framework and the work of sustainability standard-setters.

Please click to access the full G20 Leaders' Declaration.

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ESMA announces enforcement priorities for 2021 financial statements

29 Oct 2021

The European Securities and Markets Authority (ESMA) has announced the priority issues that the assessment of listed companies' 2021 financial statements will focus on. A special focus is on COVID-19 and climate-related disclosures.

The common enforcement priorities related to 2021 IFRS financial statements include:

  • careful assessment and transparency in accounting for longer-term impacts of the COVID-19 pandemic and the recovery phase;
  • consistency between the information disclosed within the IFRS financial statements and the non-financial information concerning climate-related matters, consideration of climate risks, disclosure of any significant judgements and estimation of uncertainty regarding climate risks while clearly assessing materiality; and
  • enhanced transparency regarding the measurement of Expected Credit Loss (ECL), particularly in relation to management overlays, significant changes in credit risk, forward-looking information, changes in loss allowances, credit risk exposures and collateral, and the effect of climate-related risk on ECL measurement.

ESMA also reminds issuers that starting from the financial year 2021, all annual financial reports shall be prepared in compliance with the European Single Electronic Format, or ESEF (xHTML or inline XBRL).

ESMA and European national enforcers will monitor and supervise the application of the IFRS requirements outlined in the priorities, with national authorities incorporating them into their reviews and taking corrective actions where appropriate. ESMA will collect data on how European listed entities have applied the priorities and will publish its findings in a separate report.

Please click for the following documents on the ESMA website:

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Agenda for November 2021 CMAC meeting

28 Oct 2021

Representatives from the International Accounting Standards Board (IASB) will meet with the Capital Markets Advisory Council (CMAC) by video conference on 11 November 2021. The agenda for the meeting has been released.

The full agenda for the meeting is sum­marised below:

Thursday, 11 November 2021 (11:00-14:35)

  • Welcome
  • IASB Update
  • Goodwill and impairment
    • Disclosures for business combinations
    • Amortisation of goodwill
    • Convergence with US GAAP
  • Supplier finance arrangements — Proposed amendments to IAS 7 and IFRS 7
    • Overview of upcoming exposure draft
    • Feedback from members on the proposals

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

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IFRS Foundation publishes fifth compilation of IFRS Interpretations Committee agenda decisions

28 Oct 2021

The IFRS Foundation has issued 'Compilation of Agenda Decisions — Volume 5' which contains all the agenda decisions made by the IFRS Interpretations Committee from April 2021 to October 2021.

The IFRS Foundation initiated the new compilation series in October 2019 and will continue it by publishing new volumes biannually in April and October. For more information, see the press release and compilation on the IASB website.

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IASB meeting agenda updated

28 Oct 2021

The IASB has added another slot on primary financial statements to its agenda for Friday.

The Board will continue yesterday's discussion on Friday at 9:30. We have updated our agenda for the meeting accordingly.

Update: During the meeting session on 28 October, the IASB has decided to have its session on primary financial statements on 28 October as it finished early with the discussions on rate-regulated activities. The primary financial statements discussions will now begin at 14:45 on Thursday 28 October.

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Recent sustainability and integrated reporting developments

27 Oct 2021

A summary of recent developments at WBCSD, the Carbon Tracker initiative, UNEP FI, G20, CAQ, GRI, IIRC, FRC, A4S, SASB, XRB, FASF, CSA, EFAA, EFRAG, and Deloitte.

The World Business Council for Sustainable Development (WBCSD) has released the 2021 edition of Reporting matters. The press release on the WBCSD website offers a summary of the key findings and access to the full report.

The Carbon Tracker initiative has released Flying blind: The glaring absence of climate risks in financial reporting showing that over 70% of reviewed companies fail to disclose climate risk in their financials reporting. Key findings and access to the full report are available on the Carbon Tracker website.

The United Nations Environment Programme Finance Initiative (UNEP FI) has published a global investor statement urging governments to undertake five priority actions before COP26, including committing to implementing mandatory climate risk disclosure requirements aligned with the TCFD recommendations. The statement can be accessed here.

The G20 Presidency has published the G20 Sustainable Finance Roadmap that contains as Action 6 "G20 to welcome the work program of the IFRS Foundation to develop a set of internationally consistent, comparable, and reliable baseline standards for disclosure of sustainability-related information on enterprise value creation." The roadmap can be accessed on the G20 website, the full Action 6 is on page 9.

The Center for Audit Quality (CAQ) of the American Institute of Certified Public Accountants (AICPA) has published Audited Financial Statements and Climate-Related Risk Considerations discussing items that public companies a re currently reporting and how that information is material to their financial statements. The report can be downloaded from the CAQ website.

The Global Reporting Initiative (GRI) has announced that they have revised and strengthened their Universal Standards and have published their first sector-specific standard (for oil and gas). More information is available on the GRI website.

The International Integrated Reporting Council (IIRC) has published Transition to integrated reporting: A Guide to getting started as companion publication to the <IR> Framework. In addition, the <IR> Framework is now available in an Italian and a Turkish translation.

The UK Financial Reporting Council (FRC) has published FAQs on International Sustainability Standards Setting. The purpose of the FAQs is to inform stakeholders of developments in sustainability standard setting by the IFRS Foundation. Please click to access the FAQs on the FRC website.

The FRC has also released Taskforce on Climate-related Financial Disclosures (TCFD): ahead of mandatory reporting to help companies prepare for mandatory TCFD reporting in the UK. The report and a snapshot of the status of current reporting against the TCFD framework can be accessed through the press release on the FRC website.

The Prince of Wales' Accounting for Sustainability Project (A4S) has published a guide to TCFD Climate Scenario Analysis. Scenario analysis is a key recommendation of the TCFD and allows a company to understand and quantify the risks and uncertainties it may face under different hypothetical futures. The guide can be downloaded from the A4S website.

The Sustainability Accounting Standards Board (SASB) has formally released the SASB Standards XBRL Taxonomy to facilitate reporting in accordance with its 77 Industry Standards using structured data. More information is available here.

The New Zealand External Reporting Board (XRB) began consultation with business on the first part of the Government’s proposed climate-related disclosure standards by releasing its first climate-related disclosure consultation document. More information is available here.

Japan's Financial Accounting Standards Foundation (FASF) has announced that it has revised its organisation charter to include sustainability reporting standards in its purpose and business, in addition to its existing purpose/business on accounting standards. This move is for the organisation to become the counterparty of the IFRS Foundation's ISSB in Japan. The press release is only available in Japanese.

The Canadian Securities Administrators (CSA) have also published for comment proposed climate-related disclosure requirements. The requirements contemplate disclosure largely consistent with the TCFD recommendations. The proposed requirements can be accessed through the press release on the CSA website.

The European Federation of Accountants and Auditors for SMEs (EFAA) has released a podcast The Future of Corporate Reporting in Europe: What are the Implications and Next Steps for Europe’s Small- and Medium-Sized Practices? The podcast is available on YouTube.

The task force on sustainability reporting of the European Financial Reporting Advisory Group (EFRAG) has released a working paper on the basis for conclusions for the prototype for the climate standard they are working on. The paper is for information only and not open for public comments. Please click to access the paper here.

The Deloitte firms in the European Union have responded to the EFRAG consultation paper EFRAG Due Process Procedures on EU Sustainability Reporting Standard-Setting. Please click to access our comment letter.

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IASB publishes webcast series on its management commentary ED

27 Oct 2021

A series of five short webcasts on the IASB's exposure draft on management commentary has been made available to answer frequently asked questions about the project.

The aspects of the project addressed in the webcasts are:

  • Why and why now?
  • Value creation
  • Disclosure objectives
  • Key matters and materiality
  • Terminology

Each of the webcasts is about ten minutes long. They can be accessed through the press release on the IASB website.

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European Union asked to follow a global baseline approach to ESG reporting

26 Oct 2021

Supported and coordinated by the European Round Table for Industry, the Value Balancing Alliance, the World Business Council for Sustainable Development and the World Economic Forum, 57 organisations have sent an open letter to the European Commission, the European Parliament and the Council of the European Union calling on them to align upcoming European sustainability reporting standards with globally consistent and comparable performance metrics and disclosures.

The signatories to the letter point out that preparers and consumers of environmental, social and governance (ESG) data all over the world are struggling with a profusion of reporting frameworks and standards that do not enable consistent and comparable disclosures. At the same time, the standardisation that has taken place in financial reporting has proved to be a success. Therefore, the letter expresses strong support for the initiative of the International Financial Reporting Standards (IFRS) Foundation to create an International Sustainability Standards Board (ISSB) to develop globally accepted standards for sustainability reporting that can be adopted worldwide.

The letter also acknowledges that there are jurisdictions that are more advanced in their ESG reporting initiatives and might want to go further and faster to meet specific policy priorities. Therefore, the 57 organisations support the International Organisation of Securities Commissions (IOSCO) and the IFRS Foundation in their recommendation of a ‘building block approach’ for the establishment of a globally-consistent foundation of sustainability standards, upon which national and regional standard-setters may build supplementary standards that serve their needs. They also note that this building blocks approach has recently been endorsed by G7 and G20 finance ministers and central bank governors. The letter notes:

Global alignment of reporting standards is crucial to provide a comprehensive view of a company’s sustainability performance. We encourage the European Commission to support the establishment of the International Sustainability Standards Board and actively and urgently promote cooperation between EFRAG and the new Board. Increased international cooperation in aligning and harmonising sustainability reporting standards is essential to ensure a global level playing field.

Finally, the letter points to IOSCO’s proposal for a multi-stakeholder consultative committee to operate within the IFRS Foundation structure to help promote consistency and comparability with jurisdiction-specific reporting standards. The appropriate presence of multilateral bodies and major stakeholders in such a body, including the European Commission, could provide the necessary support for achieving a global baseline and an effective mechanism for cooperation with national or regional standard-setters.

Please click to access the full letter on the World Economic Forum website.

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