Andreas Barckow—IFRS Foundation Conference keynote speech

Introduction

Ladies and gentlemen, it gives me great pleasure and honour to be with you at the opening of the second day of the IFRS Foundation Conference. On behalf of the International Accounting Standards Board (IASB) and the IFRS Foundation, allow me to extend a very warm welcome to all of you.

Many of you have been with us since yesterday when we provided opportunities to learn about our sister board, the International Sustainability Standards Board (ISSB), and the connectivity between them and the IASB. Judging from the conversations I have had with many of you, you have found yesterday’s sessions compelling. I hope that you will find today’s sessions on accounting matters just as absorbing.

Today I will set out the IASB’s decisions on its work plan and the rationale for these decisions. In my speech, I want to set the scene for the discussions that will unfold throughout today.

But let me first touch on some important recent developments for the IASB.

IASB members

You will have noticed that the IASB has been operating with fewer Board members than usual for the last few months. Let me assure you that this has not been a deliberate choice but a consequence of some unforeseen developments that are impossible to plan for. The good news is that we are well on track and hope to have our appointment process for the remaining vacancies completed over the summer—with a view to have a full Board again before the end of the year.

Last month, the IFRS Foundation Trustees announced the appointment of two new IASB members who will fill the two Americas positions in September—Linda Mezon-Hutter and Robert Uhl, both with vast experience in accounting and standard-setting that will be of great value to us. Linda and Bob succeed Tom Scott, whose term ended in February, and Mary Tokar, who will be leaving the Board by the end of August but has kindly agreed to assist us in onboarding Linda and Bob during their first month. I would like to thank Tom and Mary for their profound contributions to the IASB and wish them the very best for the future.

I am also delighted to say that three of our current IASB members—Nick Anderson, Jianqiao Lu and Ann Tarca—have been reappointed to serve for a second term. Their renewed membership will no doubt be highly beneficial to us in getting our current projects successfully over the finishing line.

Let me now come to the main topic for today: our Third Agenda Consultation and the decisions taken thereon by the IASB.

Strategy—Agenda Consultation 

The Agenda Consultation is an exercise that the IASB undertakes every five years to set its priorities for the next five years. You will remember that we conducted a public consultation last year. We asked our stakeholders around the world for their feedback on the strategic direction of the IASB’s activities for the period ranging from 2022 to 2026.

Specifically, we wanted to know:

• whether the mix of our different activities is still appropriate;
• what factors the IASB should use when considering which projects to pursue; and
• which projects stakeholders would want us to pursue.

We received valuable input from respondents from around the globe through comment letters, surveys, webinars and outreach programmes. Overall, there was a high degree of consensus, especially in regard to the level of priority of our ongoing work, the appropriateness of the current mix of activities, the factors to be considered when assessing potential future projects, and the key projects themselves. Let me take each of these in turn.

Strategy—completing our current work plan

The first clear message we have heard from you is that we need to prioritise our current work plan; that we need to complete projects before beginning new ones; and that less is more.

Any standard-setting activity we carry out leads to changes. Changes cause disruption. And while disruption may be desirable for some—those who proposed we engage in standard-setting—changes affect every stakeholder, including those that did not suggest or were even opposed to us doing so. Therefore, we must be judicious in deciding when to change course by taking active projects off the agenda or adding new ones to it.

The IASB agreed unanimously with making the completion of our current work plan our priority for our new work programme. Consistent with your feedback, we expect to continue the deliberations on our current projects throughout 2022 and the majority (if not all) of 2023. In fact, we are in an intense stage of decision-making on projects such as Primary Financial Statements, Goodwill and Impairment and Rate-regulated Activities, to name but a few. You will hear more about these and other projects later today.

Strategy—setting out the balance of our activities

As you would expect, the IASB’s core activity is to develop new accounting standards and major amendments of existing ones, including the IFRS for SMEs Accounting Standard. Even though this is our core activity, we do much more than standard-setting:

• we support the consistent application of IFRS Accounting Standards, for instance, through the work of the IFRS Interpretations Committee;
• we assist the digital consumption of financial reports; and
• we are actively involved in stakeholder engagement around the world.

The feedback we have received from you confirms that the balance of the IASB’s activities is about right and that we should leave it largely unchanged. Surely, there were nuances with some wanting us to do more or less in certain areas. Overall, though, the balance was deemed appropriate, with two noticeable exceptions: stakeholders asked us to increase our efforts in the area of digital reporting and on understandability and accessibility of the standards. The IASB agreed with these comments and decided to provide for a modest increase in these two areas.

Now, a ‘modest increase’ should not be taken as if we are not considering the input seriously. We truly are, but we also want to give credit to the overarching feedback by most stakeholders who thought that our balance is about right. Further, we do not want to stretch our resources to their very limit, leaving us completely spent. We need to be sufficiently agile to stand ready for or to react to developments appearing on the horizon and respond quickly to challenges.

Lastly, we received another clear signal from you: that we need to set aside some capacity to work with the ISSB. I will expand on this toward the end of my speech.

Strategy—two new research pipeline projects

All stakeholders commented on what they believed we should be tackling next. And how well they did: we received recommendations for some 70 potential projects! No doubt, there were many good recommendations, but we needed to narrow this list down and prioritise. We did this through the criteria we had proposed to determine whether a potential project should be added to our work plan, for which there was broad agreement by our stakeholders. Let me briefly remind you of those criteria.

Our overarching consideration is whether and how important a topic is to investors. Points we consider include the following:

• Is there any deficiency in the way companies currently report the type of transaction or activity in financial reports?
• Which type of companies are likely to be affected by this topic?
• How significant and how prevalent is the topic across jurisdictions?

We also consider how a topic will interact with the other projects already on our work plan and take into account the complexity and feasibility of the potential topic and its solutions. Finally, we must be mindful of both your and our capacity to make timely progress on a topic.

I can share with you today that we have decided to add only two projects to our research pipeline. That is two, not 70. We did so in a very deliberate move by carefully considering the likely time needed to complete our current projects and by wishing to send a clear and unambiguous signal to our stakeholders where to expect activity—and where not. This deliberate move does by no means deny the validity of the other proposals submitted, but we felt we have to be judicious and realistic. Less is more, remember? You see—we do listen!

The first project will be a comprehensive review of our Accounting Standard on intangible assets, IAS 38. Stakeholders across the board supported our doing something in that area. IAS 38 is more than 20 years old and was developed with a completely different objective in mind and in a vastly different environment. In today’s service-oriented world, it is almost impossible to gain a good understanding from the financial statements as to how such service-oriented entities derive their value. Hence, bringing about greater transparency in this area is a must.

We will start the project with research to determine its scope and how to sequence possible project stages. Intangibles can be thought of rather narrowly or more widely—imagine a spectrum ranging from intangible assets such as software and patents at one end to intellectual property, human capital and social capital at the other end. What I want to demonstrate with this little thought exercise is that some areas may suitably fall into our remit, whereas others may be better addressed by the ISSB. What this exercise also shows is that there will likely be areas that are of mutual interest to both boards. Hence, I would envisage us working in conjunction in at least some phases of the project.

The second project chosen for the research pipeline will be devoted to the statement of cash flows and related matters. Here, we will also initially consider what the scope should be—to either comprehensively review IAS 7, the existing Accounting Standard on the statement of cash flows, or to decide if we need to make more targeted improvements.

Many stakeholders have suggested areas for improvements, and many have also commented on knock-on consequences on the statement of cash flows in our current project on Primary Financial Statements. The IASB decided not to broaden the scope of that project so as not to jeopardize its completion, but to pursue it as a project in its own right.

Strategy—climate-related risks as a maintenance pipeline project

In addition to its work on the two projects I just mentioned, the IASB also decided to add one further project to its agenda: climate-related risks in the financial statements. In contrast to the other two projects, however, we decided to add this topic to the maintenance pipeline and not as a full-scale project in its own right. While the IASB acknowledged that many stakeholders wished us to devote our attention to the subject, we believe that some comments about climate may actually be for disclosures outside the financial statements, which would be handled by the ISSB. And indeed, as you will know, one of the first two Exposure Drafts the ISSB published in March is devoted to climate disclosures.

Further, it is worth reminding our stakeholders that the IASB already published educational guidance in November 2020 on how to consider climate-related risks in financial statements. I wish to stress that our literature is principles-based. The fact that we do not have a standard dealing specifically with climate-related risks does not mean that such risks can be ignored. Whenever these risks are material to an understanding of the financial statements of an entity, their impact must be considered in applying our standards and any necessary disclosures must be made. I should also note that this requirement extends to any kind of risk, not just to climate-related risks. You can hear more about this topic in the breakout session later in the day.

The fact that the IASB decided to add the topic to the maintenance pipeline has to be seen in conjunction with the ongoing work of the ISSB in that area: we want to investigate whether there are any shortcomings in today’s reporting in the financial statements by entities and, if so, whether these shortcomings are due to a deficiency in our literature. Even if we conclude that we have no gaps on our side, we want to make sure that whatever the ISSB finalises on their side ties in to and is connected to our Accounting Standards. Therefore, it seems appropriate to consider the feedback to their Exposure Draft before deciding on any next steps.

Strategy—a limited reserve list of two further projects

The IASB also has decided to create a reserve list of projects and add operating segments and pollutant pricing mechanisms to it. Now, neither of the two projects rose to the same priority as the other three, and we have a clear understanding that they will only be added to the work plan if additional capacity becomes available unexpectedly—for example, if the current projects on the work plan are completed faster than anticipated. If that is not the case, we will be including both projects for consideration in the next agenda consultation.

Let me quickly add a word about our decision not to add a project on cryptocurrencies to our work programme, since many of you have suggested we focus on this topic. You may also be aware that the FASB has decided to add a project on the accounting for and disclosure of digital assets to their agenda. Our rationale was based on two factors:

• First, we do not have a gap in our literature. In 2019, our Interpretations Committee issued an agenda decision regarding the appropriate accounting for holdings of cryptocurrencies under the existing literature. The Committee concluded that cryptocurrencies meet the definition of an intangible asset, so generally IAS 38 would be the Accounting Standard to look at—unless an entity holds cryptocurrencies for sale in the ordinary course of business, in which case IAS 2 is the appropriate basis. Now, you may not like this answer, which is appreciated, but that is different from there being a gap.
• Second, and more importantly, the evidence from many of the respondents to the Agenda Consultation does not show that holdings of cryptocurrency are either significant or prevalent for IFRS reporters in their respective jurisdictions at this stage. It was on this evidence that the IASB concluded that cryptocurrencies have not risen to the same priority as other projects. That said, we will likely be considering the accounting for cryptocurrencies again as part of our research project on intangible assets. And we will, of course, monitor what is happening on the FASB side.

Before I conclude, let me devote a couple of minutes to working with our sister Board, the ISSB.

Connectivity between the IASB and the ISSB

I have made several mentions of the accountancy side of the IFRS Foundation working with the sustainability side, and vice versa. As I mentioned in the beginning, our stakeholders have urged connectivity between the IASB and the ISSB—or, as we would put it, communication and coordination between our boards that will result in connected information coming from both our requirements to serve investors’ needs. I mentioned the review of our Standard on intangible assets and climate-related risks in financial statements as projects that will require collaboration and consideration from the two boards.

Management Commentary seems another obvious candidate for a cross-cutting project between both sides. To recap, last year, the IASB issued proposals for a comprehensive framework to enable companies to bring together in Management Commentary the information investors and creditors need to assess a company’s long-term prospects. Such information would focus on the company’s intangible resources and relationships as well as sustainability matters affecting the company.

While we have had very strong support—including from investors—for the Management Commentary project, many have urged us not to finalise the proposals unilaterally, but to consider input from the ISSB as well. Being the good listeners we are, we have therefore slowed the pace of this project while the ISSB is becoming quorate and getting into operating mode. Clearly, our intention is to return to this project as soon as possible, and I would hope that when the ISSB asks its stakeholders about standard-setting priorities, they receive similarly strong support from their stakeholders to work with us on this project.

When redeliberating the project proposals, many stakeholders have also urged us to take advantage of the Integrated Reporting Framework that we at the Foundation will soon be inheriting from the Value Reporting Foundation. You may have seen the joint statement in that regard that Emmanuel Faber and I issued last month. I would expect us to consider any opportunities that exist to address the similarities and differences between Management Commentary and the Integrated Reporting Framework.

In the future, there will be other topics and activities, such as stakeholder outreach, that the IASB and the ISSB will consider jointly. We will be careful to be coordinated. Let me ease any concerns you may have about how the establishment of the ISSB will affect your workload. The existence of the ISSB does not mean that we will need to make changes to the entire suite of IFRS Accounting Standards—in fact, I would expect most of our literature to remain untouched. However, I cannot rule out the possibility that there will be no changes either. Yet, even if the Sustainability Disclosure Standards the ISSB produces may have some implications for our work plan, I think the impact will be manageable.

The positive news is that with the creation of the ISSB, the Foundation is now in the exceptionally good place, arguably a unique one, of having two boards that can look into the entirety of standardising financial reporting and connect the information for the benefit of investors and other capital market participants.

Conclusion

Let me conclude. I have spoken to you about our work programme for the coming five years and how we have carefully considered your valuable feedback to us. Three key messages are there for you to take home:

• First, we have prioritised the completion of our present work plan and are fully committed to finalising the projects underway.
• Second, we are cognisant of the constraints in capacity that you and we face. These constraints led us to add only three projects to our work plan—intangibles, the statement of cash flows, and a narrow-scope maintenance project on climate-related risks in the financial statements.
• And third, we will be taking advantage of the existence of the ISSB in addressing the full spectrum of financial information directed to capital markets, and we will work collegially and efficiently to achieve that.

For the rest of the day today, you will be hearing further details on what I had set out here. I hope that you will engage with our sessions—your voice is important to the work we do.