IASB and joint IASB–FASB Update September 2022

Work plan overview

IASB work plan update (Agenda Paper 8)

The IASB met on 21 September 2022 to consider:

• an update on its work plan;
• clarifications to the description of the objective, process and outcome of a post-implementation review (PIR); and
• the timing of its PIRs of the hedge accounting requirements of IFRS 9 Financial Instruments and of IFRS 16 Leases.

IASB work plan update (Agenda Paper 8)

The IASB received an update on its work plan. The IASB was not asked to make any decisions.

Post-implementation reviews—objective and process (Agenda Paper 8A)

The IASB considered clarifications to the description of the objective, process and outcome of a PIR. The IASB intends to use the clarified description in its future PIRs. The IASB was not asked to make any decisions.

Timing of the post-implementation reviews of the hedge accounting requirements of IFRS 9 and of IFRS 16 (Agenda Paper 8B)

The IASB discussed the timing of its PIRs of the hedge accounting requirements of IFRS 9 and of IFRS 16.

The IASB decided:

• to consider in the second half of 2023 when to begin the PIR of the hedge accounting requirements of IFRS 9. All 11 IASB members agreed with this decision.
• to consider in the second half of 2023 when to begin the PIR of IFRS 16. All 11 IASB members agreed with this decision.

Next step

The IASB expects to receive the next update on its work plan by January 2023.

Research and standard-setting

Post-implementation Review of IFRS 9—Classification and Measurement (Agenda Paper 3)

The IASB met on 20 September 2022 to continue analysing feedback on the classification and measurement requirements in IFRS 9 Financial Instruments.

The IASB considered six matters raised in the feedback about how entities would apply requirements not specifically covered in the Request for Information Post-implementation Review of IFRS 9—Classification and Measurement:

1. application of the derecognition requirements to financial assets;
2. cash received via electronic transfer as settlement for a financial asset;
3. contracts to buy or sell non-financial items;
4. accounting for transaction costs on equity investments for which an entity has elected to present changes in fair value in other comprehensive income;
5. financial assets and financial liabilities held for trading; and
6. purchased or originated credit-impaired financial assets.

The IASB also considered feedback from the Accounting Standards Advisory Forum (ASAF) on two application questions about the requirements in IFRS 9 to assess the contractual cash flow characteristics of a financial asset:

1. Question 1—whether interest rates that are contractually adjusted for inflation introduce leverage; and
2. Question 2—whether interest rates that include a government-imposed leverage factor are regulated interest rates as described in IFRS 9.

The IASB decided to consider the matter described in subparagraph (f) when it analyses feedback on the upcoming post-implementation review of the impairment requirements in IFRS 9; but to take no further action on the other matters listed or on the two application questions considered by ASAF.

All 11 IASB members agreed with this decision.

Next step

At future meetings, the IASB will analyse feedback on the remaining topics being considered in this post-implementation review.

Financial Instruments with Characteristics of Equity (Agenda Paper 5)

The IASB met on 20 September 2022 to continue its discussions on the accounting for financial instruments containing obligations for an entity to redeem its own equity instruments, including written put options on non-controlling interests.

The IASB tentatively decided to propose amendments to IAS 32 Financial Instruments: Presentation to clarify:

1. that paragraph 23 applies also to an obligation to redeem an entity’s own equity instruments that is required to be settled in a variable number of a different type of the entity’s own equity instruments.
2. the accounting on initial recognition of the obligation to redeem an entity’s own equity instruments, if the entity does not already have access to the returns associated with an ownership interest. If the obligation involves non-controlling interests, the debit entry is recognised against a component of equity other than non-controlling interests. In the case of an entity’s other obligations to purchase its own shares, the debit entry is recognised against a component of equity other than issued share capital.
3. that on expiry of a written put option on an entity’s own equity instruments:
   1. the financial liability is reclassified to the same component of equity as that from which it was reclassified on initial recognition of the put option; and
   2. the cumulative amount in retained earnings related to remeasuring the financial liability could be reclassified to another component of equity but is not reversed in profit or loss.

The IASB also tentatively decided to clarify that written put options and forward purchase contracts on an entity’s own equity instruments are required to be presented gross, instead of net, in order:

1. to align the accounting for these instruments with the accounting for other obligations that are conditional on events or choices that are beyond the entity’s control; and
2. to assist users of financial statements in assessing the entity’s exposure to liquidity risk.

Ten of 11 IASB members agreed with these decisions.
 

Next step

The IASB will discuss other topics set out in the project plan at future meetings.

Post-implementation Review of IFRS 15 (Agenda Paper 6)

The IASB met on 21 September 2022 to discuss the objective, activities and an anticipated time line for the first phase of the Post-implementation Review of IFRS 15 Revenue from Contracts with Customers.

The IASB was not asked to make any decisions.

Next step

The IASB plans to meet with stakeholders from October 2022 to March 2023 and expects to publish a request for information in the first half of 2023.

Rate-regulated Activities (Agenda Paper 9A)

The IASB met on 22 September 2022 to redeliberate the interaction between the proposals in its Exposure Draft Regulatory Assets and Regulatory Liabilities and IFRIC 12 Service Concession Arrangements.

The IASB tentatively decided that the Standard:

1. clarify the intended interaction between the Standard and IFRIC 12. That is, an entity would apply IFRIC 12 first and then apply the requirements of the Standard to any remaining rights and obligations to determine if the entity has regulatory assets or regulatory liabilities.
2. include examples to illustrate that interaction.

All 11 IASB members agreed with this decision.

Next step

The IASB will continue to redeliberate the project proposals.

Equity Method (Agenda Paper 13)

The IASB met on 20 September 2022 to continue its discussions on these two application questions:

1. how to measure the portion of an investment to be derecognised on the disposal of an interest in an associate entity while retaining significant influence; and
2. how to apply the equity method to changes in an associate’s net assets that change the investor’s ownership interest.

The IASB also started to discuss the application question ‘how should an investor recognise gains and losses that arise from the sale of subsidiary to an associate, applying the requirements in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures?’.

Partial disposals—How to measure the portion to be derecognised (Agenda Paper 13A)

The IASB asked the staff to consider further how its preferred approach for applying the equity method to acquisitions and disposals while retaining significant influence would be applied on initial recognition and on subsequent measurement of the investment in the associate.

Changes in an associate’s net assets that change the investor’s ownership interest (Agenda Paper 13B)

The IASB discussed how to apply the equity method to changes in an associate’s net assets that change the investor’s ownership interest from the issue of equity instruments.

The IASB tentatively decided that when the investor’s ownership interest increases and retains significant influence, an investor applying the preferred approach would recognise that increase as a purchase of an additional interest.

Ten of 11 IASB members agreed with this decision.

The IASB tentatively decided that when the investor’s ownership interest decreases and retains significant influence, an investor applying the preferred approach would recognise that decrease as a partial disposal.

Ten of 11 IASB members agreed with this decision.

Transactions between investor and associate—An acknowledged inconsistency between the requirements in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures (Agenda Paper 13C)

The IASB discussed four alternatives for how an investor recognises gains and losses that arise on the sale of a subsidiary to its associate. The IASB was not asked to make any decisions.

The IASB asked the staff to continue exploring the four alternatives and bring a decision-making paper for consideration at a future meeting.

Next step

The IASB will discuss the project’s direction and other application questions within the scope of the project at future meetings.

Contractual Cash Flow Characteristics of Financial Assets (Amendments to IFRS 9) (Agenda Paper 16)

The IASB met on 21 September 2022 to discuss how to clarify the requirements in IFRS 9 Financial Instruments for assessing a financial asset’s contractual cash flow characteristics.

General requirements (Agenda Paper 16A)

The IASB tentatively decided to amend IFRS 9 to clarify that:

1. for contractual cash flows of a financial asset to be ‘solely payments of principal and interest on the principal amount outstanding’, a basic lending arrangement does not cause variability in cash flows arising from risks or factors that are unrelated to the borrower, even if such terms and conditions are common in the specific market in which the entity operates; and
2. a financial asset that includes contractual terms that change the timing and amount of the contractual cash flows would be consistent with ‘a basic lending arrangement’, if:
   1. the contractual cash flows that could arise from any contingent events are solely payments of principal and interest in all circumstances (that is, the probability of a contingent event occurring is not considered);
   2. the contingent event is specific to the borrower;
   3. the timing and amount of any variability in contractual cash flows are determinable and specified in the contract; and
   4. the contractual cash flows arising from the contingent event do not represent an investment in the borrower or exposure to the performance of any underlying assets.

The IASB also tentatively decided to add examples in order to illustrate the application of the contractual cash flow characteristics assessment to specific fact patterns.

All 11 IASB members agreed with these decisions.

Financial assets with non-recourse features and contractually linked instruments (Agenda Paper 16B)

The IASB tentatively decided to amend IFRS 9 in order to clarify that a financial asset with non-recourse features:

1. exposes the lender to the performance risk of underlying assets throughout the life of the instrument, both in making contractual payments as well as in default; and
2. restricts the lender’s contractual right to receive contractual payments over the life of the instrument to the cash flows generated by the underlying assets.

The IASB also tentatively decided to include examples of relevant factors that an entity could consider when assessing the contractual cash flow characteristics of a financial asset with non-recourse features, such as:

1. the legal or capital structure of the borrower;
2. the extent to which the expected cash flows from the underlying assets exceed the contractual cash flows of the financial asset; or
3. whether there are other sources of finance (that is, loans) that are subordinated to the loan from the lender.

All 11 IASB members agreed with this decision.

The IASB tentatively decided to clarify that the unique characteristics of a structure of contractually linked instruments are:

1. the use of multiple contractually linked instruments;
2. the presence of non-recourse features;
3. the prioritisation of payments through a waterfall payment structure; and
4. concentrations of credit risk that disproportionately reduce contractual rights in the event of cash flow shortfalls.

The IASB also tentatively decided to clarify that the reference to ‘instruments’ in paragraph B4.1.23 of IFRS 9 includes financial instruments that are not entirely in the scope of IFRS 9, such as lease receivables.

All 11 IASB members agreed with this decision.

Next step

The IASB will continue to discuss further potential clarifications of the requirements.

Goodwill and Impairment (Agenda Paper 18)

The IASB met on 20 September 2022 to discuss some of the preliminary views related to disclosures about business combinations that were expressed in the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment.

Disclosure objectives

The IASB tentatively decided to propose adding two new disclosure objectives to IFRS 3 Business Combinations that would require an entity to disclose information to help users of financial statements understand:

1. the benefits that an entity expected from a business combination when agreeing the price to acquire a business; and
2. the extent to which an entity’s objectives for a business combination are being met.

All 11 IASB members agreed with this decision.

Information about business combinations

The IASB tentatively decided to propose:

1. replacing the requirement for an entity to disclose the ‘primary reasons for the business combination’ in paragraph B64(d) of IFRS 3 with a requirement to disclose the ‘strategic rationale for undertaking the business combination’; and
2. adding to IFRS 3 a requirement for an entity to disclose in the year of a business combination quantitative information about expected synergies.

All 11 IASB members agreed with this decision.

The IASB tentatively decided to propose adding to IFRS 3 a requirement for an entity to disclose, for ‘strategically important’ business combinations, information about:

1. management’s objectives for the business combination;
2. the metrics and targets management will use to monitor whether those objectives are being met; and
3. in subsequent periods, the extent to which management’s objectives are being met, using those metrics, for as long as management monitors the business combination against its objectives.

All 11 IASB members agreed with this decision.

‘Strategically important’ business combinations

The IASB tentatively decided that a ‘strategically important’ business combination would be a business combination for which not meeting the objectives would seriously put at risk the entity achieving its overall business strategy. To identify such business combinations, the IASB tentatively decided to propose using a closed list of thresholds—a business combination that meets any one of those thresholds would be ‘strategically important’. The thresholds would be:

1. Quantitative—that is, a business combination in which:
   1. the acquiree’s operating profit (to be defined by the IASB’s Primary Financial Statements project) exceeds 10% of the acquirer’s operating profit, for the acquirer’s most recent annual reporting period ending before the business combination was completed;
   2. the acquiree’s revenue exceeds 10% of the acquirer’s revenue for the acquirer’s most recent annual reporting period ending before the business combination was completed; or
   3. the amounts recognised as of the acquisition date for all assets acquired (including goodwill) exceed 10% of the carrying value of the assets recognised on the acquirer’s balance sheet as at the acquirer’s most recent reporting period date before the business combination.
2. Qualitative—that is a business combination that results in an entity entering a new geographical area of operations or a new major line of business.

Ten of 11 IASB members agreed with this decision.

Exemption from disclosing information

The IASB tentatively decided to propose an exemption in specific circumstances that would permit an entity not to disclose information about:

1. management’s objectives for a business combination;
2. the metrics and targets management will use to monitor whether the objectives for the business combination are being met; and
3. quantitative information about synergies expected to arise from the business combination.

All 11 IASB members agreed with this decision.

The IASB tentatively decided to propose no exemption from disclosing information about:

1. the strategic rationale for the business combination; and
2. the actual performance in subsequent periods using the metrics management uses to monitor whether the objectives for the business combination are being met.

All 11 IASB members agreed with this decision.

The IASB gave direction on the design of the exemption. In particular, the IASB directed the staff to: (a) allow the exemption in situations in which disclosing an item of information can be expected to prejudice seriously any of the entity’s objectives for the business combination; and (b) supplement the exemption with application guidance.

All 11 IASB members agreed with this direction.

Alternatives not considered further

The IASB tentatively decided:

1. not to require an entity to disclose only qualitative information in the year of a business combination; and
2. not to specify metrics that all entities would be required to disclose information about.

All 11 IASB members agreed with this decision.

Next step

In the last quarter of 2022 the IASB will decide whether to proceed with its preliminary view that it should retain the impairment-only model to account for goodwill or explore reintroducing amortisation of goodwill.

At future meetings the IASB will make decisions about:

1. other aspects of the disclosures about business combinations;
2. whether to move the project from the research phase to the standard-setting phase; and
3. other topics within the scope of the project.

Extractive Activities (Agenda Paper 19)

The IASB met on 22 September 2022 to discuss its Extractive Activities research project. The scope and objective of the project is to explore:

• developing requirements or guidance to improve an entity’s disclosures about its exploration and evaluation expenditure and activities in order to provide more useful information to users of financial statements; and
• removing the temporary status of IFRS 6 Exploration for and Evaluation of Mineral Resources.

The IASB discussed: (a) findings from the first phase of the project; (b) disclosure suggestions; and (c) the plan for further research on developing requirements or guidance to improve the disclosure objectives and requirements of IFRS 6.

The IASB was not asked to make any decisions.

Next step

The IASB plans to engage with a limited number of stakeholders, including users, preparers, regulators and auditors to explore further the suggestions discussed at this meeting.

Primary Financial Statements (Agenda Paper 21)

The IASB met on 20 and 21 September 2022 to redeliberate the proposals in its Exposure Draft General Presentation and Disclosures relating to:

• unusual income and expenses (Agenda Paper 21A);
• entities with specified main business activities—associates and joint ventures (Agenda Paper 21B);
• investments in subsidiaries, associates and joint ventures (Agenda Paper 21C);
• classification of incremental expenses (Agenda Paper 21D);
• specified subtotals (Agenda Paper 21E); and
• presentation of operating expenses (Agenda Paper 21F).

Unusual income and expenses (Agenda Paper 21A)

The IASB tentatively decided that it will not proceed with any specific requirements for unusual income and expenses as part of this project. All 11 IASB members agreed with this decision.

Entities with specified main business activities—Associates and joint ventures (Agenda Paper 21B)

The IASB tentatively decided to require an entity with specified main business activities to classify in the investing category income and expenses from associates and joint ventures accounted for using the equity method. Nine of 11 IASB members agreed with this decision.

Investments in subsidiaries, associates and joint ventures (Agenda Paper 21C)

The IASB tentatively decided:

1. to clarify that income and expenses from associates and joint ventures not accounted for using the equity method includes income and expenses from associates and joint ventures accounted for: 
   1. at cost (paragraph 10(a) of IAS 27 Separate Financial Statements);
   2. in accordance with IFRS 9 Financial Instruments (paragraph 10(b) of IAS 27); and  
   3. at fair value through profit or loss in accordance with IFRS 9 (paragraph 18 of IAS 28 Investments in Associates and Joint Ventures).
      All 11 IASB members agreed with this decision.
2. to require income and expenses from investments in subsidiaries not accounted for using the equity method to be classified:
   1. in the investing category if investing in subsidiaries is not a main business activity; and
   2. in the operating category if investing in subsidiaries is a main business activity.
      All 11 IASB members agreed with this decision.
3. to clarify that income and expenses from subsidiaries not accounted for using the equity method includes income and expenses from all subsidiaries that are accounted for: 
   1. at cost (paragraph 10(a) of IAS 27);
   2. in accordance with IFRS 9 (paragraph 10(b) of IAS 27); and
   3. at fair value through profit or loss in accordance with IFRS 9 (paragraph 31 of IFRS 10 Consolidated Financial Statements).
      All 11 IASB members agreed with this decision.
4. to require that an entity classifies income and expenses from subsidiaries accounted for using the equity method in the investing category. All 11 IASB members agreed with this decision.
5. to clarify that how an entity categorises subsidiaries, associates and joint ventures to assess whether investing in subsidiaries, associates and joint ventures is a main business activity should be consistent with how the entity categorises investments to determine the measurement basis (paragraph 10 of IAS 27).
   All 11 IASB members agreed with this decision.

Classification of incremental expenses (Agenda Paper 21D)

The IASB tentatively decided to withdraw the proposed requirement in the Exposure Draft for an entity to classify incremental expenses in the investing category. All 11 IASB members agreed with this decision.

The IASB asked the staff as a drafting consideration to explain the types of income and expenses classified in the investing category.

Specified subtotals (Agenda Paper 21E)

The IASB tentatively decided:

1. to confirm the proposal that the specified subtotals listed in paragraph 104 of the Exposure Draft are not management performance measures. All 11 IASB members agreed with this decision.
2. to add ‘operating profit or loss and income and expenses from investments accounted for using the equity method’ to the list of specified subtotals in paragraph 104 of the Exposure Draft. All 11 IASB members agreed with this decision.
3. to confirm the examples of subtotals similar to gross profit listed in paragraph B78 of the Exposure Draft. All 11 IASB members agreed with this decision.
4. to specify in the application guidance that if a management performance measure is reconciled to a specified subtotal that is not presented in the statement of profit or loss, an entity is required to reconcile that specified subtotal to a subtotal presented in the statement(s) of financial performance. An entity would not be required to disclose any other information relating to the specified subtotal.  

All 11 IASB members agreed with this decision.

The IASB also asked the staff to explore a general reconciliation requirement for subtotals disclosed in the notes and not presented in the statement(s) of financial performance.

Presentation of operating expenses (Agenda Paper 21F)

The IASB tentatively decided:

1. to expand the explanation in the description of the function of expense method to clarify how the function of expense method involves allocating and aggregating operating expenses according to the activity to which the consumed economic resource relates.
2. to provide application guidance to clarify the role of primary financial statements and the aggregation and disaggregation principles in applying the function of expense method.
3. to require an entity to include in cost of sales the carrying amount of inventories recognised as an expense during the period when presenting cost of sales.
4. to require an entity that presents functional line items to disclose a narrative description of what types of expenses (based on their nature) are included in each functional line item.

All 11 IASB members agreed with this decision.

The IASB also tentatively decided:

1. to confirm the proposals to: 
   1. require operating expenses to be presented in the statement of profit or loss using a classification based either on their nature or function; and
   2. include application guidance on deciding which method of presenting operating expenses provides the most useful information, including the factors set out in paragraph B45 of the Exposure Draft.
2. to withdraw the proposed prohibition on a mixed presentation of operating expenses, and: 
   1. require an entity, when considering which method to use, to consider the role of primary financial statements; and
   2. provide examples of when a mixed presentation might provide the most useful information.
3. to provide application guidance to clarify:
   1. the requirement for consistent presentation of operating expenses from one reporting period to the next; and
   2. how to label nature line items when a mixed presentation is used.

All 11 IASB members agreed with this decision subject to some drafting considerations relating to the application guidance.

Next step

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

Maintenance and consistent application

Maintenance and consistent application (Agenda Paper 12)

The IASB met on 22 September 2022 to consider a submission discussed at the June 2022 meeting of the IFRS Interpretations Committee (Committee); and a sweep issue on the Non-current Liabilities with Covenants (Amendments to IAS 1) project.

Cash Received via Electronic Transfer as Settlement for a Financial Asset (IFRS 9)—Next steps (Agenda Paper 12A)

The IASB considered the Committee’s discussions and respondents’ comments on the submission Cash Received via Electronic Transfer as Settlement for a Financial Asset (IFRS 9 Financial Instruments).

Having considered those discussions and comments, the IASB decided to explore narrow-scope standard-setting as part of its post-implementation review of IFRS 9.

All 11 IASB members agreed with this decision.

Next step

The IASB will explore possible narrow-scope standard-setting at a future meeting.

Non-current Liabilities with Covenants (IAS 1)—Sweep issue (Agenda Paper 12B)

The IASB considered a sweep issue identified during the balloting of the amendments to IAS 1 Presentation of Financial Statements that the IASB decided to make as part of its Non-current Liabilities with Covenants project (2022 amendments). Specifically, the IASB discussed the requirements for early application of the amendments made to IAS 1 in 2020 in Classification of Liabilities as Current or Non-current (2020 amendments).

The IASB tentatively decided to:

1. allow early application of the 2020 amendments; but
2. after the issue of the 2022 amendments, require an entity that applies the 2020 amendments early also to apply the 2022 amendments.

All 11 IASB members agreed with this decision.

Next step

The IASB expects to issue the 2022 amendments in the fourth quarter of 2022.

Projects discussed at the joint IASB–FASB meeting

Discussion points

The IASB held an education meeting with the Financial Accounting Standards Board (FASB) on 30 September 2022. The two boards discussed:

• digital assets;
• goodwill and impairment;
• disaggregation-related topics, including primary financial statements, income statement expenses, income tax disclosures and segments; and
• each board’s recent agenda consultations.

The boards were not asked to make any decisions.