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ESAs issue opinions on ESRS

27 Jan 2023

On 25 November 2022, the European Commission requested the European Supervisory Authorities (ESAs) to provide an opinion on the technical advice on the first set of European Sustainability Reporting Standards (ESRS), which the European Financial Reporting Advisory Group (EFRAG) submitted on 22 November 2022.

The following quotes give a general impression of the opinions issued by the ESAs:

European Securities and Markets Authority (ESMA)

To bring Set 1 from broadly capable to fully capable of meeting that objective, ESMA advises the European Commission to address selected technical issues set out in the opinion. Most notably, these issues relate to possible improvements of the level of consistency vis-à-vis the requirements of the Corporate Sustainability Reporting Directive and other pieces of EU legislation, important clarifications of definitions and terminology and further guidance on the materiality assessment process.

European Banking Authority (EBA)

In particular, the EBA acknowledges the significant improvement of the draft ESRS prepared by EFRAG compared to the versions put out for consultation. Overall, the EBA welcomes the consistency of ESRS with international standards and relevant EU Regulation, and a better alignment with the disclosure requirements under the EBA Pillar 3 framework. As regards proportionality, the EBA believes that the draft standards offer a well-balanced approach with the relevant phasing-in provisions in place. A few aspects should deserve further consideration by the European Commission, including the timetable for the development of the sector-specific standards for credit institutions.

European Insurance and Occupational Pensions Authority (EIOPA)

Concerning international standards, EIOPA underlines the importance of avoiding the fragmentation of sustainability reporting requirements across jurisdictions. To this end, compatibility between ESRS standards and IFRS standards should be ensured so that European companies reporting according to ESRS are automatically considered to be compliant with the IFRS sustainability reporting framework.

The full opinions are are are available on the ESAs website:

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January 2023 ISSB meeting notes posted

24 Jan 2023

The ISSB met in Frankfurt on Tuesday 17, Wednesday 18 and Thursday 19 January 2023. We have posted our comprehensive Deloitte observer notes for all projects discussed during the meeting.

The following topics were discussed.

Metrics and Targets

The ISSB agreed minor drafting changes to clarify that the objective of disclosures on metrics and targets in the proposals is to enable users to understand performance on sustainability-related risks and opportunities, including (but not limited to) how an entity measures, monitors and manages such risks and opportunities.

Disclosure of judgements, assumptions and estimates

The ISSB decided to require, in addition to requiring disclosure of the sources of estimation uncertainty, the judgements that the entity has made in the process of preparing and disclosing its sustainability-related financial information. They also decided requiring disclosure of the sources that have been applied in preparing the entity’s sustainability-related financial disclosures, including the industry or industries specified in IFRS Sustainability Disclosure Standards, SASB Standards or other industry-based sources of guidance.

In addition, the ISSB decided to clarify that the words ‘to the extent possible’ mean ‘to the extent possible taking into consideration the requirements of IFRS Accounting Standards (or other relevant GAAP)’ and to require an entity to explain significant differences in the financial data and assumptions that the entity has used in preparing its sustainability-related financial disclosures, in comparison to those that the entity has used in preparing its financial statements.

Furthermore, the ISSB decided to clarify that the disclosure requirements on estimation uncertainty relating to metrics also apply to current and anticipated effects of sustainability-related risks and opportunities on the entity’s financial position, financial performance and cash flows. The ISSB also decided to provide guidance on the disclosure of judgements, assumptions and estimates that an entity is required to make in applying IFRS Sustainability Disclosure Standards.

Commercially sensitive information about opportunities

The ISSB decided to introduce an exemption in [draft] S1 that would permit entities, in limited circumstances, to exclude information about a sustainability-related opportunity when the information is commercially sensitive. It would specify that this would not be applicable to information which is already publicly available, nor would it able to be used to justify broad non-disclosure, using commercial sensitivity as a justification, or to avoid disclosing information about risks.

Reasonable and supportable information that is available at the reporting date without undue cost or effort

The ISSB decided to introduce the concept of ‘reasonable and supportable information that is available at the reporting date without undue cost or effort’ into IFRS S1 and IFRS S2, to help an entity to apply specific requirements in the Standards.

Current and anticipated financial effects and connected information

The ISSB decided to make minor drafting changes to clarify that when sustainability-related risks and opportunities have affected or are expected to affect the information in an entity’s financial statements, the entity is required to explain the connections between those current and anticipated financial effects and the sustainability-related risks and opportunities. They also decided to clarify the relationship between resilience assessment requirements and the requirements to disclose current and anticipated financial effects by emphasising those requirements can be applied independently, but the resilience assessment can inform the disclosures of current and anticipated financial effects. Furthermore, the ISSB decided to clarify that there is no requirement for an entity to perform a resilience assessment to determine current and anticipated financial effects of sustainability-related risks and opportunities.

Using scenario analysis to assess climate resilience

The ISSB decided to require an entity to use an approach to climate-related scenario analysis that enables the entity to consider all reasonable and supportable information that is available without undue cost or effort, at the reporting date, including information about past events, current conditions and forecasts of future economic conditions, taking into consideration the degree of the entity’s exposure to climate-related risks and opportunities and the skills, capabilities and resources available to the entity to conduct climate-related scenario analysis.

Greenhouse gas emissions—reporting period relief

The ISSB decided to provide relief that allows an entity to measure its GHG emissions using information for reporting periods that are different from the entity’s reporting period when that information arises from entities in its value chain with reporting periods that are different from that of the entity, on condition that the entity uses the most recent data available without undue cost or effort to measure and disclose its GHG emissions, the length of the reporting periods is the same and the entity discloses the effects of significant events and changes in circumstances (relevant to its GHG emissions information) that occur between the reporting dates of the entities in its value chain and the date of the entity’s general purpose financial reporting.

Climate-related targets—Latest international agreement on climate change

The ISSB decided to amend the proposal in paragraph 23(e) of [draft] S2 to require an entity to disclose how the latest international agreement on climate change has informed any climate-related targets it has set.

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

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ISSB issues podcast on latest Board developments (January 2023)

24 Jan 2023

The IFRS Foundation has released a podcast discussing highlights from the January 2023 ISSB meeting. The podcast is hosted by ISSB Chair Emmanuel Faber and Vice-Chair Sue Lloyd.

Highlights of the podcast include discussions on:

  • 2023 priorities and milestones;
  • clarity on metrics in S1 and S2;
  • judgements, assumptions and estimates;
  • repurposing the IASB's concept of ‘reasonable and supportable information’;
  • commercially sensitive information about opportunities;
  • current and anticipated financial effects and connected information; and
  • the rollout and adoption of S1 and S2.

The podcast can be accessed through the press release on the IFRS Foundation’s website.

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Podcast on Q4 2022 IFRS Interpretations Committee developments

23 Jan 2023

The IASB has issued a podcast on the developments of the IFRS Interpretations Committee during the fourth quarter of 2022.

The podcast is hosted by IFRS In­ter­pre­ta­tions Committee Chair and IASB member Bruce Mackenzie and Technical Staff members Riana Wiesner and Jawaid Dossani and focused on whether a contract that includes a particular substitution right is considered a lease (IFRS 16).

For more in­for­ma­tion, see the press release on the IFRS Foun­da­tion’s website.

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Pre-meeting summaries for the January 2023 IASB meeting

20 Jan 2023

The IASB will meet in London from 24-26 January 2023. 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:

Maintenance and consistent application

The IASB will make the final decisions on its project on Supplier Finance Arrangements. The staff recommend that entities be required to apply the amendments for annual reporting periods beginning on or after 1 January 2025, with earlier application permitted. The staff also recommend that the IASB require entities to apply the amendments retrospectively in accordance with IAS 8. 

Equity Method

IFRS 10 requires that when a parent loses control of a subsidiary it recognises a gain or loss. However, if the subsidiary is sold to an associate or joint venture of the parent, IAS 28 requires that the gain be limited to the  extent of the unrelated investors’ interests. This is perceived as a conflict. The IASB will discuss four ways of addressing the issue. The staff are seeking feedback and the IASB will not be asked to make any decisions at this meeting.

Business Combinations—Disclosures, Goodwill and Impairment

In September 2022, the IASB tentatively decided to exempt entities from some disclosure requirements but did not establish the conditions for that exemption. The staff are recommending that the exemption be based on whether disclosing the information could be expected to prejudice seriously any of the entity’s objectives for a business combination. Application guidance would set out the factors that would need to be considered when assessing if the exemption applies and entities would need to disclose the reason for applying the exemption. The staff also recommend that, subject to the proposed exemption, an entity be required to disclose quantitative information about total expected synergies disaggregated by nature (e.g. total revenue, total cost synergies), when the synergistic benefits are expected to start, and how long they are expected to last. In addition, the staff will ask the IASB to clarify a vote taken in the September 2022 meeting. The staff ask whether the vote means that an entity should be required to disclose a qualitative statement as to whether actual performance in subsequent periods met the target, to which the proposed exemption would apply, or whether it means that an entity is not required to disclose such a statement.

Primary Financial Statements

The staff recommend:

  • Disaggregation: not requiring disaggregation of material information in relation to information about the nature of operating expenses that are included in a function line item in the statement of profit or loss; clarify the requirements for how disaggregated amounts are labelled (described); add a requirement that any line items presented in the statement(s) of financial performance and the statement of financial position must be recognised and measured in accordance with IFRS Accounting Standards but not prohibit the disaggregation of income and expenses in the notes to the financial statements into components not recognised and measured in accordance with IFRS Accounting Standards; and extend the proposals in the ED for the label ‘other’ to be used only if no more informative label can be found
  • Comprehensive income: withdraw the proposal to relabel the two categories of other comprehensive income as remeasurements permanently reported outside profit or loss and income and expenses to be included in profit or loss in the future
  • Statement of cash flows: confirm that entities other than entities with specified main business activities classify interest received as cash flows arising from investing; and confirm that entities with specified main business activities classify dividends received (other than dividends received investments accounted for using the equity method), interest paid and interest received in a single category of the statement of cash flows (either as cash flows from operating, investing or financing activities)

IFRS Accounting Taxonomy

In November 2022, the IASB published the Proposed IFRS Taxonomy Update—Lease Liability in a Sale and Leaseback and Non-current Liabilities with Covenants. The purpose of this meeting is to summarise the feedback received on the PTU and set out the next steps in the publication of the Update.

Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures

The staff recommend that the IASB proceed with the proposal to include reduced disclosure requirements for IFRS 1. The staff also recommend that when an eligible subsidiary that elects, revokes an election or is no longer eligible to apply the Standard, it does not apply the requirements in IAS 8 on changes in accounting policies or be required to present a third statement of financial position. Finally, the staff recommend that the IASB confirm its proposal to consider amendments to the Standard when it publishes an exposure draft of a new or amended IFRS Accounting Standard.

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

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Webcast on financial instrument proposals in the IFRS for SMEs ED

19 Jan 2023

On 8 September 2022, the IASB published an Exposure Draft (ED) of proposed amendments to its 'International Financial Reporting Standard for Small and Medium-sized Entities' (IFRS for SMEs). The IASB has now released a webcast offering deeper insights into the proposals on financial instruments included in the ED.

The 19-minute webcast:

  • provides background on the IASB’s alignment approach applied during this second comprehensive review;
  • explains how this approach was applied to develop the proposals for financial instruments; and
  • summarises the proposals for financial instruments.

The webcast can be accessed through the press release on the website of the IFRS Foundation.

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CMAC seeks members

18 Jan 2023

The Capital Markets Advisory Committee (CMAC) is seeking new members and welcomes applications from analysts and investors from all over the world.

New members will start on 1 January 2024 for a term of three years, renewable once for a further three years. For more information, please see the press release on the IASB website.

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IPSASB ED on concessionary leases

18 Jan 2023

As part of phase two of its project on leases, the International Public Sector Accounting Standards Board (IPSASB) has released an exposure draft (ED) proposing amendments to two of its existing standards.

The proposed amendments would affect IPSAS 43 Leases (accounting for concessionary leases) and IPSAS 23 Revenue from Non-Exchange Transactions (new guidance on right-of-use assets in-kind).

Comments on the ED are requested by 17 May 2023. Please click for additional information and access to the ED in the press release on the IPSASB website.

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Summary of the December 2022 ITCG meeting

17 Jan 2023

The IASB has published a summary of the IFRS Taxonomy Consultative Group (ITCG) meeting held on 5 December 2022.

The ITCG discussed the following topics:

  • Digital representation of specific proposals related to the primary financial statements project:
    • subtotals/categories in the statement of profit or loss
    • disclosure of operating expenses by nature in the notes
  • Summary of feedback on the staff draft of the IFRS Sustainability Disclosures Taxonomy

The meeting summary is available on the IFRS Foundation website.

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ASAF meeting on proposed amendments to IAS 12 regarding the international tax reform

16 Jan 2023

On 10 February 2023, the Accounting Standards Advisory Forum (ASAF) will hold a virtual meeting on the IASB exposure draft 'International Tax Reform — Pillar Two Model Rules (Proposed amendments to IAS 12)'.

The purpose of the meeting is to encourage ASAF members to share their views on the proposals by submitting a comment letter.

Please click for the agenda and agenda paper for the meeting on the IFRS Foundations website.

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