IASB Update April 2023

Research and standard-setting

Dynamic Risk Management (Agenda Paper 4)

The IASB met on 25 April 2023 to continue its discussions on the Dynamic Risk Management (DRM) model.

Summary of tentative decisions and glossary of defined terms (Agenda Paper 4A)

The IASB received an update on the project, including summaries of:

1. tentative IASB decisions to date relating only to the current DRM model; and
2. topics remaining for the IASB to deliberate.

The IASB was not asked to make any decisions.

Risk mitigation intention and the construction of the benchmark derivatives (Agenda Paper 4B)

The IASB discussed the proposed requirements for determining the risk mitigation intention (RMI), specifically considering how an entity would define managed risk and construct benchmark derivatives.

The IASB tentatively decided that:

1. the managed risk is the specified interest rate risk an entity manages consistent with its risk management strategy, and is therefore the risk an entity’s risk limits are based on; and
2. the benchmark derivative is calibrated to current market rates of the managed risk to achieve a fair value of zero based on the RMI by repricing period.

The IASB also reconsidered and reconfirmed two tentative decisions from previous meetings:

1. the RMI is evidenced by the actual amount of interest rate risk by repricing period transferred to a party external to the reporting entity (for example, external to the group or individual entity that is being reported on); and
2. the repricing periods of the available risk to mitigate are aligned with an entity’s risk management strategy.

All 14 IASB members agreed with these decisions.  

Further considerations on the current net open risk position (Agenda Paper 4C)

The IASB considered further a qualifying criterion for determining the current net open risk position (CNOP)—that future transactions can only be designated in the DRM model when they are highly probable. The IASB tentatively decided:

1. to require future transactions that are the reinvestment or refinancing of existing financial assets or financial liabilities at the prevailing market interest rate to be included in the CNOP when they are expected to occur; and
2. all other future transactions must be highly probable to occur in order to qualify for inclusion in the CNOP.

All 14 IASB members agreed with these decisions.

Next step

The IASB will continue its discussion on the topics identified in the project plan.

Financial Instruments with Characteristics of Equity (Agenda Paper 5)

The IASB met on 27 April 2023 to continue its discussions on the remaining topics in the project plan.

Project update (Agenda Paper 5A)

The IASB received an update on the project status. The IASB was not asked to make any decisions.

Scope of IFRS 7 Financial Instruments: Disclosures and additional disclosures (Agenda Paper 5B)

The IASB discussed whether to amend the scope of IFRS 7 Financial Instruments: Disclosures to reflect the fact that the proposed disclosure requirements would apply to an entity’s issued equity instruments. The IASB tentatively decided:

1. to expand the objective of IFRS 7 to enable users of financial statements to understand how an entity is financed and what its current and potential ownership structures are; and
2. to delete the reference to derivatives that meet the definition of an equity instrument in IAS 32 Financial Instruments: Presentation from paragraph 3(a) of IFRS 7, which excludes such derivatives from the scope of the latter Standard.

All 14 IASB members agreed with these decisions.

The IASB then discussed whether its proposed disclosure requirements on terms and conditions (which the IASB tentatively agreed on in April 2021) needed any further refinement, and whether to require other disclosures on terms and conditions. The IASB tentatively decided:

1. to include explanations and examples of ‘debt-like’ and ‘equity-like’ features in the sections of the forthcoming exposure draft containing application guidance and illustrative examples;
2. to clarify that the disclosures of ‘debt-like’ and ‘equity-like’ features would include both quantitative and qualitative information;
3. to require an entity to disclose the amounts allocated initially to the financial liability and equity components of compound financial instruments;
4. to require an entity to disclose the significant judgements it made in classifying the financial instrument, or its component parts, as a financial liability or as equity; and
5. to require an entity to disclose, if applicable, information about terms and conditions that become, or stop being, effective with the passage of time before the end of the contractual term of the instrument.

All 14 IASB members agreed with these decisions.

The IASB also considered whether to develop further disclosure requirements to complement the proposed clarifications to the classification and presentation requirements in IAS 32. The IASB tentatively decided:

1. to relocate the disclosure requirement in paragraph 80A of IAS 1 Presentation of Financial Statements to IFRS 7 and expand it to cover reclassifications when changes in the substance of the contractual terms arise from changes in circumstances outside the contract. An entity would be required to disclose the amounts reclassified into and out of financial liabilities or equity, and the timing and reason for that reclassification.
2. to require an entity to disclose, for instruments containing obligations to redeem its own equity instruments:
   1. the amount removed from equity and included in financial liabilities when the obligation was initially recognised and the component of equity from which it was removed;
   2. the amount of remeasurement gain or loss recognised in profit or loss during the reporting period;
   3. the amount of gain or loss, if any, that was recognised on settlement if the obligation is settled during the reporting period;
   4. the amount removed from financial liabilities and included in equity if the written put option has expired unexercised; and
   5. the cumulative amount transferred within equity and the component of equity to which it was transferred, if any cumulative amount in retained earnings was transferred.
3. to amend paragraph 20(a)(i) of IFRS 7 to require the separate disclosure of the total gains or losses in each reporting period that arise from remeasuring financial liabilities containing contractual obligations to pay amounts based on an entity’s performance or changes in the entity’s net assets.

All 14 IASB members agreed with these decisions.

Transition requirements (Agenda Paper 5C)

The IASB discussed proposed transition requirements for an entity that applies the proposed amendments to IAS 32, IFRS 7 and IAS 1. The IASB tentatively decided:

1. to require an entity to apply the proposed amendments retrospectively with the restatement of comparative information (that is, a fully retrospective approach);
2. for an entity already applying IFRS Accounting Standards:
   1. to require the entity to treat the fair value at the beginning of the earliest comparative period presented as the amortised cost of the financial liability at that date if it is impracticable (as defined in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors) for the entity to apply the effective interest method retrospectively.
   2. not to require the entity to separate the liability and equity components if the liability component of a compound financial instrument with a contingent settlement provision was no longer outstanding at the date of initial application.
   3. to require the entity to disclose the nature and amount of any changes in classification resulting from initial application.
   4. to provide transition relief from the quantitative disclosures in paragraph 28(f) of IAS 8.
   5. not to provide any transition relief from the requirements in IAS 34 Interim Financial Reporting for interim financial statements issued within the annual period in which the entity first applies the amendments.
3. for first-time adopters, not to require any additional transition relief.

All 14 IASB members agreed with these decisions.

Next step

The staff will ask the IASB for permission to begin the balloting process for the exposure draft.

Rate-regulated Activities (Agenda Paper 9)

The IASB met on 26 April 2023 to redeliberate the proposals in its Exposure Draft Regulatory Assets and Regulatory Liabilities relating to:

• the recognition and measurement of regulatory assets and regulatory liabilities arising from performance incentives that relate to an entity’s performance over several periods (long-term performance incentives) (Agenda Paper 9A); and
• the derecognition of regulatory assets and regulatory liabilities (Agenda Paper 9B).

Long-term performance incentives (Agenda Paper 9A)

The IASB tentatively decided to retain the proposal to require an entity to estimate the amount of a long-term performance incentive, and to determine the portion of that estimated amount that relates to the reporting period using a reasonable and supportable basis.

Twelve of 14 IASB members agreed with this decision.

Derecognition (Agenda Paper 9B)

The IASB tentatively decided that the prospective Standard would:

1. require an entity to derecognise:
   1. a regulatory asset as it recovers part or all of the regulatory asset by adding amounts to future regulated rates charged to customers; and
   2. a regulatory liability as it fulfils part or all of the regulatory liability by deducting amounts from future regulated rates charged to customers.
2. explain that the derecognition of regulatory assets and regulatory liabilities, as described in paragraph (a), is the most common way in which regulatory assets and regulatory liabilities would be derecognised. Therefore, in applying the recognition and measurement requirements at the end of each reporting period, an entity would not be required to consider explicitly when and how its regulatory assets and regulatory liabilities should be derecognised.
3. clarify that an entity would derecognise a regulatory asset or a regulatory liability if the asset or liability ceased to meet the ‘more likely than not’ recognition threshold.
4. include guidance on the derecognition of regulatory assets and regulatory liabilities settled by a regulator or another designated body. The guidance would also require an entity to recognise the difference between the derecognised regulatory asset or regulatory liability and any new asset or liability in profit or loss.
5. specify that if a regulatory asset or a regulatory liability is added to or deducted from an entity’s regulatory capital base and the entity’s regulatory capital base has no direct relationship with its property, plant and equipment, the entity would derecognise:
   1. the regulatory asset and recognise any associated regulatory expense in profit or loss; and
   2. the regulatory liability and recognise any associated regulatory income in profit or loss.

All 14 IASB members agreed with decisions (a)–(d). Eleven of 14 IASB members agreed with decision (e).

The IASB also tentatively decided not to include in the prospective Standard any guidance on the securitisation of regulatory assets.

All 14 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 27 April 2023 to continue its discussions on application questions within the scope of the Equity Method research project.

The IASB also discussed moving the project to its standard-setting work plan and working towards publishing an exposure draft as the next due process step.

Initial recognition of an investment in an associate—Deferred taxes (Agenda Paper 13A)

The IASB tentatively decided to propose that an investor would account for, and include in the carrying amount of its investment in an associate, a deferred tax asset (or liability) arising from recognising its share of the associate’s net identifiable assets and liabilities at fair value.

All 14 IASB members agreed with this decision.

Moving the research project to the standard-setting work plan (Agenda Paper 13B)

The IASB decided:

1. to move the Equity Method research project to its standard-setting work plan;
2. to continue to use the expertise of its advisory bodies instead of establishing a consultative group; and
3. to update the project’s objective so that it is now:

To develop answers to application questions about the equity method, as set out in IAS 28 Investments in Associates and Joint Ventures, using the principles derived from IAS 28 where possible.

All 14 IASB members agreed with these decisions.

The IASB also decided to work towards publishing an exposure draft as the next due process step.

Thirteen of 14 IASB members agreed with this decision.

Next step

The IASB will continue its discussions on the application questions within the scope of the project, including any implications of applying its tentative decisions to investments (other than those in associates) accounted for using the equity method. 

Business Combinations under Common Control (Agenda Paper 23)

The IASB met on 25 April 2023 to consider the direction of its project on Business Combinations under Common Control. The IASB discussed whether the merits of continuing in the current direction are likely to justify the necessary resources or whether to consider changing the direction.

The IASB was not asked to make any decisions.

Next step

The IASB will seek feedback from its consultative groups before continuing its discussions.

Post-implementation Review of IFRS 9—Impairment (Agenda Paper 27)

The IASB met on 25 April 2023 to discuss the forthcoming Request for Information Post-implementation Review of IFRS 9—Impairment.

The IASB approved the publication of the Request for Information for public comment and set a 120-day comment period.

All 14 IASB members agreed with these decisions.

Next step

The IASB expects to publish the Request for Information at the end of May 2023.

Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures (Agenda Paper 31)

The IASB met on 26 April 2023 to continue redeliberating the proposals in its Exposure Draft Subsidiaries without Public Accountability: Disclosures.

Feedback on proposed disclosure requirements (Agenda Paper 31A)

The IASB discussed the feedback on some of the proposed disclosure requirements in the Exposure Draft.

The IASB tentatively decided not to include in the prospective Standard:

1. disclosure objectives; or
2. guidance on how to apply the disclosure requirements.

However, the IASB tentatively decided to retain the relief from providing comparative information as specified in the Exposure Draft for some of the proposed disclosure requirements.

Thirteen of 14 IASB members agreed with this decision.

The IASB tentatively decided to revise the proposed disclosure requirements in the Exposure Draft by:

1. removing from the Exposure Draft:
   1. paragraph 25(a), proposed under the subheading IFRS 1 First-time Adoption of International Financial Reporting Standards;
   2. paragraphs 55 and 60, proposed under the subheading IFRS 7 Financial Instruments: Disclosures;
   3. paragraph 81, proposed under the subheading IFRS 13 Fair Value Measurement;
   4. paragraph 145, proposed under the subheading IAS 12 Income Taxes; and
   5. paragraph 185(k), proposed under the subheading IAS 34 Interim Financial Reporting.
2. adding to the prospective Standard:
   1. paragraphs 33(c) and 41(d) of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations;
   2. paragraph 39 of IFRS 7;
   3. paragraph 26 of IAS 24 Related Party Disclosures;
   4. paragraphs 130(d)(i) and (iii), 134(d)(iv)–(v) and 134(e)(iv)–(v) of IAS 36 Impairment of Assets; and
   5. paragraph 79(e) of IAS 40 Investment Property.

All 14 IASB members agreed with these decisions.

The IASB tentatively decided not to add paragraph 24(c) of IFRS 1 to the prospective Standard. Thirteen of 14 IASB members agreed with this decision.

Updating the language of the disclosure requirements (Agenda Paper 31B)

The IASB discussed how to implement its tentative decision to update the language in IFRS Accounting Standards for the disclosure requirements in the prospective Standard.

The IASB was not asked to make any decisions.

Next step

The IASB will continue discussing the feedback on its Exposure Draft.

Maintenance and consistent application

Maintenance and consistent application (Agenda Paper 12)

The IASB met on 26 April 2023:

• to consider the Agenda Decision Definition of a Lease—Substitution Rights (IFRS 16 Leases), and other matters discussed at the March 2023 meeting of the IFRS Interpretations Committee (Committee); and
• to discuss a potential amendment to the IFRS for SMEs Accounting Standard in response to the Pillar Two Model Rules published by the Organisation for Economic Co-operation and Development.

Definition of a Lease—Substitution Rights (IFRS 16 Leases): Finalisation of Agenda Decision (Agenda Paper 12A)

The IASB was asked whether it objected to the Agenda Decision Definition of a Lease—Substitution Rights (IFRS 16 Leases).

No IASB member objected to the Agenda Decision.

Next step

The Agenda Decision will be published in April 2023 in an addendum to IFRIC Update March 2023.

IFRIC Update March 2023 (Agenda Paper 12B)

The IASB received an update on the Committee’s March 2023 meeting. Details of this meeting were published in IFRIC Update March 2023.

The IASB was not asked to make any decisions.

Potential amendment to the IFRS for SMEs Accounting Standard—International Tax Reform—Pillar Two Model Rules (Agenda Paper 14)

The IASB considered the relevance of the Exposure Draft International Tax Reform—Pillar Two Model Rules, which proposes amendments to IAS 12 Income Taxes, to entities applying the IFRS for SMEs Accounting Standard.

The IASB tentatively decided to develop narrow-scope amendments to the IFRS for SMEs Accounting Standard outside the periodic review of the Accounting Standard (that is, outside the Second Comprehensive Review of the IFRS for SMEs Accounting Standard).

All 14 IASB members agreed with this decision.

Next step

The IASB expects to publish an exposure draft proposing amendments to the IFRS for SMEs Accounting Standard in the second quarter of 2023.

Provisions—Targeted Improvements (Agenda Paper 22)

The IASB met on 26 April 2023 to discuss its project to make improvements to IAS 37 Provisions, Contingent Liabilities and Contingent Assets.

The IASB discussed possible amendments to the requirements and guidance supporting one criterion for recognising a provision—the criterion that an entity has a present obligation as a result of a past event.

The IASB was not asked to make any decisions.

Next step

The IASB will consult stakeholders on the possible amendments.