IASB Update October 2021

Research and standard-setting

Pension Benefits that Depend on Asset Returns (Agenda Paper 6)

The Board met on 27 October 2021 to discuss additional research findings and the future direction of the project.

The Board decided to stop the research project.

Seven of 12 Board members agreed with this decision.

The Board will consider any further work on pension benefits as part of the Third Agenda Consultation.

All 12 Board members agreed with this decision.

Post-implementation Review of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities (Agenda Paper 7)

The Board met on 26 October 2021 to:

• assess whether IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities are working as intended; and
• decide whether the Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12 has identified topics on which the Board should consider taking further action.

All 12 Board members concluded that IFRS 10, IFRS 11 and IFRS 12 are working as intended.

The Board decided that, while developing its work plan for 2022 to 2026 as part of the Third Agenda Consultation, it will consider topics arising from the Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12, including:

1. topics that are of high priority:
   1.  investment entities—subsidiaries that are investment entities; and
   2. collaborative arrangements outside the scope of IFRS 11;
2. topics that are of medium priority:
   1. investment entities—definition of an investment entity; and
   2. corporate wrappers; and
3. a low-priority topic (transactions that change the relationship between an investor and an investee).

All 12 Board members agreed with this decision.

Next steps

The Board will consider whether to take further action in relation to other topics identified from feedback on Request for Information Post-implementation Review of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities.

Rate-regulated Activities (Agenda Paper 9)

The Board met on 28 October 2021 to discuss feedback on its Exposure Draft  Regulatory Assets and Regulatory Liabilities. The Exposure Draft sets out the Board’s proposals for a model to account for regulatory assets and regulatory liabilities. If issued as a new IFRS Standard, the proposals would replace IFRS 14  Regulatory Deferral Accounts.

The Board was not asked to make any decisions.

Next step

The Board will continue discussing feedback on the Exposure Draft at the next meeting.

Equity Method (Agenda Paper 13)

The Board met on 26 October 2021 to continue its discussions on the Equity Method research project. The Board:

1. received an update on application questions within the scope of the project; and
2. discussed the next steps for the project.

The Board decided the staff should research the implications of differences between the principles in IAS 28 Investments in Associates and Joint Ventures and those in other IFRS Standards relating to business combinations and consolidation before considering the application questions.

All 12 Board members agreed with this decision.

Next step

At a future meeting the Board will review the research findings on differences between the principles in IAS 28 and those in other IFRS Standards relating to business combinations and consolidation. The Board will also discuss application questions within the scope of the project and consider whether other application questions should be included in the scope of the project.

Goodwill and Impairment (Agenda Paper 18)

The Board met on 26 October 2021 to redeliberate whether to develop proposals to enhance the disclosure objectives and requirements in IFRS 3 Business Combinations in order to improve the information provided to users of financial statements about a business combination and its subsequent performance. The Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment sets out the Board’s preliminary view on this matter.

Conceptual considerations for location of disclosures (Agenda Paper 18A)

The Board tentatively decided that, based on the Conceptual Framework for Financial Reporting, information can be required in financial statements about the benefits an entity’s management expects from a business combination and the extent to which management’s objectives are being met—such as information about the subsequent performance of a business combination, and quantitative information about expected synergies.

Nine of 12 Board members agreed with this decision.

Practical Challenges—Forward-looking information (Agenda Paper 18B)

The Board also discussed practical concerns over requiring entities to include such information in financial statements. In particular, the Board discussed the staff’s additional research and analysis of concerns over requiring entities to disclose information that might be considered forward-looking in some jurisdictions.

The Board was not asked to make any decisions about the practical concerns.

Next steps

The Board will continue its redeliberations on its preliminary views on the package of disclosure requirements at future meetings, including whether not to proceed with some or all of the disclosure requirements for practical reasons.

Primary Financial Statements (Agenda Paper 21)

The Board met on 27 and 28 October 2021 to redeliberate some of the proposals in the Exposure Draft General Presentation and Disclosures relating to:

• the classification and presentation of income and expenses from associates and joint ventures in the statement of profit or loss—Agenda Paper 21A.
• the presentation of operating expenses in the statement of profit or loss and disclosure in the notes—Agenda Paper 21B and Agenda Paper 21C.
• the operating profit or loss before depreciation and amortisation subtotal—Agenda Paper 21D.

Associates and joint ventures (Agenda Paper 21A)

The Board tentatively decided:

1. to proceed with the proposal to require an entity to classify income and expenses from equity-accounted associates and joint ventures outside the operating category;
2. not to proceed with the proposal to require an entity to present the subtotal ‘operating profit or loss and income and expenses from integral associates and joint ventures’; and
3. not to proceed with the proposal to require an entity to identify and present income and expenses from integral associates and joint ventures separately from income and expenses from non-integral associates and joint ventures.

All 12 Board members agreed with these decisions.

The Board also tentatively decided to require an entity to include income and expenses from equity-accounted associates and joint ventures in the statement of profit or loss after operating profit and before the subtotal profit before financing and income taxes, but not to specify that such income and expenses should be presented immediately after operating profit.

Six of 12 Board members agreed with this decision. The Chair used his additional casting vote, making the vote 7–6 in favour of the decision.

The Board deferred a decision on whether to include such income and expenses in the investing category until it considers the definition of the investing category.

Analysis of operating expenses—Presentation in the statement of profit or loss (Agenda Paper 21B)

The Board tentatively decided:

1. to explore providing limited application guidance on the ‘function of expense’ method set out in paragraph 70 of the Exposure Draft.
   Nine of 12 Board members agreed with this decision.
2. not to develop a definition of the term ‘cost of sales’ as part of this project.
   All 12 Board members agreed with this decision.
3. to explore providing application guidance to explain that, as a minimum, cost of sales would include inventory expense (if applicable), calculated in accordance with IAS 2 Inventories.
   Eight of 12 Board members agreed with this decision.
4. to explore:

1. retaining the proposal to require an entity to analyse and present operating expenses in the statement of profit or loss based on their nature or function;
2. withdrawing the proposed prohibition on a mixed presentation and instead to provide application guidance in order to improve comparability and help achieve faithful representation; and
3. retaining the proposal to provide application guidance on how to determine which presentation method an entity would use to provide the most useful information to users of the financial statements (but modifying that guidance as a consequence of withdrawing the proposal to prohibit a mixed presentation).
   

All 12 Board members agreed with this decision.

Analysis of operating expenses—Disclosure in the notes (Agenda Paper 21C)

The Board tentatively decided not to explore providing a partial cost relief for the disclosure of information about operating expenses by nature when an entity presents in the statement of profit or loss an analysis of expenses by function.

All 12 Board members agreed with this decision.

The Board deferred a decision on the extent of the requirement for the disclosure of information about operating expenses by nature when an entity presents in the statement of profit or loss an analysis of expenses by function. The Board will make that decision after it has considered further analysis of feedback on this topic.

Operating profit or loss before depreciation and amortisation (Agenda Paper 21D)

The Board tentatively decided:

1. to specify an operating profit or loss before depreciation and amortisation subtotal that excludes impairments of assets within the scope of IAS 36 Impairment of Assets.
2. to do this by amending the specified subtotal ‘operating profit or loss before depreciation and amortisation’, rather than adding an additional subtotal to the list of specified subtotals.
3. to label the amended specified subtotal as ‘operating profit or loss before depreciation, amortisation, and specified impairments’.
4. not explicitly to prohibit ‘EBITDA’ as a label for an ‘operating profit or loss before depreciation, amortisation and specified impairments’ subtotal, but to explain in the Basis for Conclusions that such a label would rarely be a faithful representation of the subtotal.
5. to include no further specific requirements in relation to this subtotal.

         Eleven of 12 Board members agreed with these decisions.

Next step

The Board will continue to redeliberate the project proposals at future meetings.

Second Comprehensive Review of the IFRS for SMEs Standard (Agenda Paper 30)

The Board met on 25 October 2021 to discuss whether and, if so, how to propose amendments to the IFRS for SMEs Standard.

Towards an exposure draft—IFRS 9 Financial Instruments (fallback to full IFRS recognition and measurement requirements) (Agenda Paper 30A)

The Board tentatively decided to propose an amendment to the IFRS for SMEs Standard to remove an entity’s option to apply the recognition and measurement requirements for financial instruments in full IFRS Standards.

All 12 Board members agreed with this decision.

Towards an exposure draft—IFRS 9 Financial Instruments (hedge accounting) (Agenda Paper 30B)

The Board tentatively decided to retain unchanged the hedge accounting requirements in Section 12 Other Financial Instrument Issues of the IFRS for SMEs Standard.

All 12 Board members agreed with this decision.

Towards an exposure draft—IFRS 13 Fair Value Measurement (Agenda Paper 30C)

The Board tentatively decided to propose amendments to the IFRS for SMEs Standard:

1. to align the definition of fair value in the IFRS for SMEs Standard with that in IFRS 13 Fair Value Measurement;
2. to align the guidance on fair value measurement in the IFRS for SMEs Standard with that in IFRS 13 by including in the IFRS for SMEs Standard the principles of the fair value hierarchy set out in IFRS 13;
3. to include examples relevant to SMEs that illustrate how to apply the hierarchy; and
4. to move the guidance and related disclosure requirements for fair value to a new section of the IFRS for SMEs Standard.

All 12 Board members agreed with these decisions.

Towards an exposure draft—IFRS 14 Regulatory Deferral Accounts (Agenda Paper 30D)

The Board tentatively decided to consider amending the IFRS for SMEs Standard to include requirements for regulatory assets and regulatory liabilities in a future review of the IFRS for SMEs Standard.

All 12 Board members agreed with this decision.

Towards an exposure draft—IFRS 15 Revenue from Contracts with Customers (Agenda Paper 30E)

The Board tentatively decided:

1. to develop amendments to the IFRS for SMEs Standard to align it with IFRS 15 Revenue from Contracts with Customers by rewriting Section 23 Revenue of the IFRS for SMEs Standard to reflect the principles and language used in IFRS 15; and
2. to consider providing transition relief by permitting an entity to continue its current revenue recognition policy for any contracts already in progress at the transition date or scheduled to be completed within a set time after the transition date.

All 12 Board members agreed with these decisions.

Next step

The Board will continue to develop the project proposals at a future meeting.

Maintenance and consistent application

Initial Application of IFRS 17 and IFRS 9—Comparative Information (Amendment to IFRS 17) (Agenda Paper 2)

The Board met on 28 October 2021 to redeliberate the amendment to IFRS 17 Insurance Contracts proposed in the Exposure Draft Initial Application of IFRS 17 and IFRS 9—Comparative Information (Exposure Draft).

Classification overlay—Scope (Agenda Paper 2A)

The Board tentatively decided to expand the proposed scope of the classification overlay so that:

1. an entity that first applies IFRS 17 and IFRS 9 Financial Instruments at the same time is permitted to apply the classification overlay to any financial asset for which comparative information has not been restated for IFRS 9.
2. an entity that has already applied IFRS 9 is permitted to apply the overlay to a financial asset that would have been redesignated in accordance with paragraph C29 of IFRS 17 if that asset had not been derecognised in the comparative period.

 

All 12 Board members agreed with these decisions.

Classification overlay—Other matters (Agenda Paper 2B)

The Board tentatively decided to finalise the proposals in the Exposure Draft relating to impairment and disclosures, subject to requiring entities that apply the classification overlay to disclose whether the impairment requirements in Section 5.5 of IFRS 9 were applied to the financial assets in the comparative period.

All 12 Board members agreed with these decisions.

Finalising the amendment (Agenda Paper 2C)

All 12 Board members confirmed they were satisfied the Board has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting the amendment to IFRS 17.

No Board member indicated an intention to dissent from issuing the amendment to IFRS 17.

Maintenance and consistent application (Agenda Paper 12)

The Board met on 26 October 2021 to consider matters discussed at the September meeting of the IFRS Interpretations Committee (Committee) and to discuss supplier finance arrangements.

Non-refundable Value Added Tax on Lease Payments (IFRS 16): Finalisation of agenda decision (Agenda Paper 12A)

The Board was asked whether it objected to the Agenda Decision Non-refundable Value Added Tax on Lease Payments (IFRS 16 Leases).

No Board member objected to the Agenda Decision.

Next step

The Agenda Decision will be published in October 2021 in an addendum to IFRIC Update September 2021.

Accounting for Warrants that are Classified as Financial Liabilities on Initial Recognition (IAS 32): Finalisation of agenda decision (Agenda Paper 12B)

The Board was asked whether it objected to the Agenda Decision Accounting for Warrants that are Classified as Financial Liabilities on Initial Recognition (IAS 32 Financial Instruments: Presentation).

No Board member objected to the Agenda Decision.

Next step

The Agenda Decision will be published in October 2021 in an addendum to IFRIC Update September 2021.

Supplier Finance Arrangements: Sweep issue (Agenda Paper 12C)

The Board discussed a sweep issue identified in drafting the exposure draft on supplier finance arrangements.

The Board tentatively decided to add to the proposals a requirement for an entity to disclose, as at the beginning and end of the reporting period, the line items in the statement of financial position in which the entity presents financial liabilities that are part of each supplier finance arrangement.

All 12 Board members agreed with this decision.

Next step

The Board plans to publish the exposure draft in November 2021.

IFRIC Update (Agenda Paper 12D)

The Board received an update on the Committee’s September 2021 meeting. Details of this meeting were published in IFRIC Update September 2021.

The Board was not asked to make any decisions.

Taxonomy

IFRS Taxonomy Update—Initial Application of IFRS 17 and IFRS 9—Comparative Information (Agenda Paper 25)

The Board met on 27 October 2021 to discuss the comment period for the forthcoming proposed IFRS Taxonomy update and the timing of its approval.

The Board decided to shorten the comment period to 30 days.

All 12 Board members agreed with this decision.

Next step

The Board expects that the proposed IFRS Taxonomy update will be balloted alongside the planned amendments to IFRS 17 Insurance Contracts before the end of 2021.