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Pre-meeting summaries for the October 2021 IASB meeting

21 Oct 2021

The IASB meets in London on Monday, Tuesday, Wednesday and Thursday of the week beginning 25 October 2021. We have posted our pre-meeting summaries for the meeting that allow you to follow the IASB’s decision making more closely. We summarised the agenda papers made available by the IASB staff and point out the main issues to be discussed by the IASB and the staff recommendations.

The following topics are on the agenda:

Goodwill and Impairment: The IASB will begin making decisions related to the package of disclosures about business combinations. The staff recommend that the Board 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 will also consider 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 will continue to deliberate specific sections of the IFRS for SMEs Standard that could be aligned with IFRS requirements. The staff recommend that the Board: 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 the Board has completed its project on rate-regulated activities; and align the requirements with IFRS 15.

Post-implementation review (PIR) of IFRS 10-12: The IASB is considering feedback gathered from its PIR, which the staff find supports the conclusion that IFRS 10, 11 and 12 are working as intended. They have, however, identified some topics which the Board may wish to consider 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 are updating 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.

Maintenance and Consistent Application:

  • The IASB will be asked if any Board members object to finalising two agenda decisions from the IFRS Interpretations Committee: 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 staff recommend that the Board 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.
  • The staff are also asking the Board whether they have any 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 recommend 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.

IFRS Taxonomy due process: The staff are seeking permission 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 will discuss two papers carried over from the September meeting, relating to associates and joint ventures and the analysis of operating expenses. The staff recommend proceeding 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  recommend providing 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 will consider the following staff recommendations:

  • Not to develop a definition of ‘cost of sales’
  • Exploring 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
  • Exploring 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
  • Amending 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: ED/2021/8 Initial Application of IFRS 17 and IFRS 9—Comparative Information 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 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 consider that the scope of the classification overlay should be expanded to apply in such cases. The staff recommend no substantive changes be made to the classification overlay proposed in the ED relating to impairment of financial assets or disclosures. If the Board agrees with the staff recommendations, the staff expect to be able to issue the amendment 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; minimum interest rate; and the interaction with IFRIC 12.

The Board is not asked to make any decisions in this session. Instead, decisions will be asked when the Board discusses those topics that raised concerns over the next few months.

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

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AASB research into going concern disclosures

21 Oct 2021

The Staff of the Australian Accounting Standards Board (AASB) has published 'Going Concern Disclosures: A Case for International Standard-Setting'.

The paper analyses feedback received from a range of Australian and international stakeholders over the period of July 2020 – March 2021, including financial statement preparers, auditors, regulators and users. The question asked was whether the current going concern reporting requirements in IAS 1 Presentation of Financial Statements are sufficient in their current form or whether it is a matter that needs to be addressed by the IASB.

In relation to the adequacy of current going concern disclosures, feedback indicated that there are issues surrounding inconsistency and inappropriate interpretation of the current requirements. Additionally, concerns were raised around the diversity in practice regarding the information disclosed in circumstances when the financial statements are prepared on a going concern basis, but management is aware of events or conditions that may cast significant doubt on this judgement. Respondents also suggested that the development of guidance would be useful to ensure consistency and comparability of financial statements when the entity is no longer a going concern.

Overall, based on the findings presented, the paper recommends that the IASB revisit IAS 1 to develop specific examples and guidance for preparers on how to assess and disclose going concern matters. The authors also recommend that the IASB initiate a research project to better understand the extent of underlying considerations regarding the preparation of financial statements on a non-going concern basis.

Please click to access the full paper on the AASB website.

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IASB publishes editorial corrections

21 Oct 2021

The IASB has published a second set editorial corrections for 2021.

The corrections relate to Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2) published in February 2021.

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.

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Report on the September 2021 IFRS Advisory Council meeting

20 Oct 2021

A summary report has been released of the meeting of the IFRS Advisory Council held by remote participation on 13 September 2021.

The par­tic­i­pants discussed:

  • Update on Trustees Ac­tiv­i­ties — Received an update on recent Trustee ac­tiv­i­ties which included the G7 and G20 meetings, the FSB report on the IFRS Foundation sustainability-related reporting, IFRS Foundation Constitution and work of the Technical Readiness Working Group, funding and establishment of the International Sustainability Standards Board.
  • Update on Board Activities — Received an update on recent Board activities which include changes in the membership of the Board, publishing of three consultation papers, the addition of three projects to the workplan, and other significant developments. In addition, the Advisory Council discussed the review of the Management Commentary Practice Statement and the work of the ISSB, post-implementation review of IFRS 9, the Dynamic Risk Management project, and the work being conducted between the IASB and FASB to maintain the converged goodwill and impairment project.
  • Update on the sustainability-related reporting project — Discussed matters related to IASB, TRWG, and ISSB.
  • Update on the IFRS Foundation Constitution’s consultation — Discussed the objective of the IFRS Foundation and how the Constitution can articulate the concept of interconnectivity between the IASB and the ISSB. In addition, the Council discussed the naming and branding of the new Board and its Standards.
  • Update on sustainability-related work of the US SEC — Updated on the progress of the US SEC’s climate change disclosures proposals
  • Update on the TRWG — Presented with an overview of the TRWG structure, proposed architecture for new standards, connectivity between the IASB and the ISSB, and outreach programme. The Council discussed the importance of collaborating with relevant parties in each region to collect a diverse range of feedback, importance of industry-specific metrics, how to assess what material for its sustainability-related disclosures, and achieving coordination between global baseline and jurisdictional initiatives.

The full meeting summary is available on the IASB's website.

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FASB and ASBJ hold biannual meeting

20 Oct 2021

On 18-19 October 2021, the FASB and the Accounting Standards Board of Japan (ASBJ) held a joint virtual meeting. The meeting was the 30th in a series of biannual meetings between the two standard setters.

The two boards informed each other about their respective activities and exchanged views on technical topics in which they both have an interest, including accounting for goodwill and accounting for financial instruments.

The next meeting between the FASB and ASBJ is expected to be held in the first half of 2022. For more information about the latest meeting, see the press release on the ASBJ website.

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Report of the September 2021 SME Implementation Group meeting

19 Oct 2021

The IASB has issued a report on the SME Implementation Group (SMEIG) meeting held on 9 September 2021 via video conference.

The topics discussed at the meeting were:

  • update on work completed;
  • proposals relating to the Conceptual Framework and to financial instruments;
  • alignment with IFRS 16 Leases;
  • Section 28 of the IFRS for SMEs Employee Benefits;
  • update to multiple sections of the IFRS for SMEs for amendments to IFRSs and IFRIC Interpretations;
  • alignment with IFRS 14 Regulatory Deferral Accounts;
  • other topics; and
  • subsidiaries without public accountability.

The report from the meeting is available on the IASB website.

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Communiqué from latest China-Japan-Korea accounting standard setters meeting

18 Oct 2021

A communiqué has been issued from a meeting of the standard setters from China, Japan and the Republic of Korea held by video conference on 13 October 2021.

In addition to representatives from the three countries' standard-setting bodies, observers from the IASB and guests from Hong Kong and Macao attended the meeting.

The three countries presented and shared experiences and views on the following accounting topics:

  • Independent Supplementary Temporary Standards (e.g., Covid-19-related amendments to IFRS 16)
  • Business Combinations under Common Control
  • Intangible assets, with a focus on crypto-assets

Please click for the full communiqué (link to KASB website).

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October 2021 IASB meeting agenda posted

15 Oct 2021

The IASB has posted the agenda for its next meeting, which will be held in its office in London on 25–28 October 2021. There are ten topics on the agenda.

The Board will discuss the following:

  • Second comprehensive review of the IFRS for SMEs Standard
  • Goodwill and impairment
  • Post implementation review of IFRS 10–12
  • Equity method
  • Main­te­nance and con­sis­tent ap­pli­ca­tion
  • Pensions benefits that depend on asset returns
  • IFRS taxonomy due process
  • Primary financial statements
  • Amendments to IFRS 17
  • Rate-regulated activities

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.

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New TCFD status report, additional and updated guidance

15 Oct 2021

The Task Force on Climate-related Financial Disclosures (TCFD) set up by the Financial Stability Board (FSB) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to lenders, insurers, investors and other stakeholders has published a fourth status report providing an overview of the extent to which companies in their 2020 reports included information aligned with the core TCFD recommendations published in June 2017.

The TCFD found that:

  • Disclosure increased more between 2019 and 2020 than in any previous year assessed, consistent with global momentum around climate-related reporting. However, significant progress is still needed as an average of only one in three companies reviewed disclosed climate-related information aligned with the TCFD recommendations.
  • Companies remain more likely to disclose information on their climate-related risks and opportunities than on any other recommended disclosure, with over half of the companies reviewed including such information in their 2020 reports.
  • Disclosure of the resilience of companies’ strategies under different climate-related scenarios is still the least reported recommended disclosure, however, disclosure increased from 5% of companies in 2018 to 13% in 2020.
  • Although the TCFD recommends disclosure of governance regardless of materiality, the Governance recommendation remains the least disclosed recommendation with the two Governance recommended disclosures the second and third least disclosed.
  • Materials and buildings companies now lead on disclosure. The average level of disclosure across the 11 recommended disclosures for fiscal year 2020 was 38% for materials and buildings companies.
  • The insurance industry significantly increased its average level of disclosure by 11 percentage points between 2019 and 2020, and now leads all groups by at least 15 percentage points in disclosure of risk management processes.
  • Europe remains the leading region for disclosures, with average level of reporting across the 11 recommended disclosures from fiscal year 2020 now at half of European companies assessed. European companies have increased their average disclosure by 15 percentage points since 2019, and now disclose 16 percentage points more than the next closest region.

The TCFD has also published two additional documents: Guidance on Metrics, Targets, and Transition Plans to support preparers in disclosing decision-useful information and linking those disclosures with estimates of financial impacts and Implementing the Recommendations of the Task Force on Climate-related Financial Disclosures, which updates and replaces Implementing the Recommendations of the TCFD initially published in 2017.

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

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Third IVSC perspectives paper on ESG and business valuation

15 Oct 2021

The International Valuation Standards Council (IVSC) has published a third perspectives paper 'ESG and Real Estate Valuation' that focuses on environmental factors that relate to real estate valuations, especially on valuations of existing real estate.

The paper is a follow-up to the perspectives papers A Framework to Assess ESG Value Creation released in May 2021 and ESG and Business Valuation released in March 2021, which explore how ESG characteristics are, or can be, incorporated into the value measurement process.

Please click to access ESG and Real Estate Valuation on the IVSC website.

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