IASB Update September 2020

Research and standard-setting

Rate-regulated Activities (Agenda Papers 9–9A)

The Board met on 22 September 2020 to discuss sweep issues identified in drafting the Exposure Draft Regulatory Assets and Regulatory Liabilities: 

• definitions of a regulatory asset and a regulatory liability;
• regulatory returns on assets not yet available for use;
• effective date; and
• comment period. 

The Board tentatively decided that: 

1. a regulatory asset is ‘an enforceable present right, created by a regulatory agreement, to add an amount in determining a regulated rate to be charged to customers in future periods because part of the total allowed compensation for goods or services already supplied will be included in revenue in the future’. Ten of 13 Board members agreed with the decision. One Board member was absent.
2. a regulatory liability is ‘an enforceable present obligation, created by a regulatory agreement, to deduct an amount in determining a regulated rate to be charged to customers in future periods because the revenue already recognised includes an amount that will provide part of the total allowed compensation for goods or services to be supplied in the future’. Ten of 13 Board members agreed with the decision. One Board member was absent.
3. the regulatory return on a balance relating to an asset not yet available for use forms part of the total allowed compensation for goods or services supplied once the asset is available for use and over the remaining periods in which an entity recovers the carrying amount of the asset through the regulated rates. The entity shall use a reasonable and consistent basis in determining how to allocate the return on that balance over those remaining periods. Eleven of 13 Board members agreed with the decision. One Board member was absent.
4. an entity be required to apply the final Standard for annual reporting periods beginning on or after a date 18–24 months from the date of its publication. Twelve of 13 Board members agreed with the decision. One Board member was absent.
5. the comment period for the exposure draft be extended from 120 days to 150 days. Seven of 13 Board members agreed with the decision. One Board member was absent.
   

Next step

This meeting completes the public discussions for this project. The Board expects to publish its exposure draft in January 2021.

Management Commentary (Agenda Paper 15)

The Board met on 23 September 2020 to discuss the status that the revised IFRS Practice Statement 1 Management Commentary (revised Practice Statement) would have, and the procedures for an entity to follow when it chooses or is required by local legislation to issue management commentary applying the Practice Statement.

The Board tentatively decided that the revised Practice Statement should retain the status of the current Practice Statement, meaning that:

1. the revised Practice Statement would be a non-binding framework for the preparation of management commentary;
2. the revised Practice Statement would not become an IFRS Standard; and
3. an entity could state that its financial statements comply with IFRS Standards without preparing a management commentary that complies with the revised Practice Statement.

Eleven of 13 Board members agreed with this decision. One Board member was absent.

The Board tentatively decided that the revised Practice Statement should:

1. require an entity to include in its management commentary an unqualified statement of compliance with the revised Practice Statement if the management commentary complies with all the requirements in the revised Practice Statement. Nine of 13 Board members agreed with this decision. One Board member was absent.
2. permit an entity to include in its management commentary a statement of partial compliance with the revised Practice Statement. In this case, the management commentary would need to explain which requirements of the revised Practice Statement the management commentary does not comply with. Seven of 13 Board members agreed with this decision. One Board member was absent.

The Board tentatively decided that the revised Practice Statement should require an entity to:

1. either make the financial statements to which management commentary relates available with the management commentary, or identify them in the management commentary; and
2. clearly identify what information constitutes its management commentary and distinguish it from other information in the same report and from information in other reports.

Twelve of 13 Board members agreed with this decision. One Board member was absent.

The Board tentatively decided that the revised Practice Statement should require an entity to:

1. specify the date when its management commentary was authorised for issue;
2. reflect in its management commentary material information about events that occurred after the end of the reporting period and before the date the management commentary was authorised for issue; and
3. identify the individuals or the bodies who authorised management commentary for issue.

Twelve of 13 Board members agreed with this decision. One Board member was absent.

Next Steps

At a future meeting, the Board expects to:

1. consider whether its proposals on the project sufficiently and appropriately cover topics of particular interest to investors and creditors—for example, environmental, social and governance matters, and intangible resources and relationships; and
2. decide whether to begin the balloting process for the Exposure Draft.

Extractive Activities (Agenda Paper 19)

The Board met on 23 September 2020 to discuss findings from research it undertook to help decide at a future meeting whether to replace or amend IFRS 6 Exploration for and Evaluation of Mineral Resources.

Reserve and resource reporting (Agenda Paper 19A)

The Board considered research findings on regulatory requirements for reserve and resource reporting in jurisdictions which have significant extractive activities.

The Board was not asked to make any decisions.

Next steps

The Board will continue to discuss research findings on extractive activities; and it will hold educational sessions to develop its understanding further.

Business Combinations under Common Control (Agenda Paper 23)

The Board met on 23 September 2020 to discuss the comment period for the forthcoming discussion paper on business combinations under common control.

The Board decided to set a 180-day comment period for the discussion paper.

Twelve of 13 Board members agreed with this decision. One Board member was absent.

Next step

The Board expects to publish a discussion paper in November 2020.

Maintenance and consistent application

Lease Liability in a Sale and Leaseback (Agenda Paper 12)

The Board met on 22 September 2020 to discuss a sweep issue identified during the balloting process for the proposed amendment to IFRS 16 Leases. The sweep issue relates to the Board's tentative decisions on how a seller-lessee applies IFRS 16 to measure the right-of-use asset and lease liability that arise in a sale and leaseback transaction.

The Board tentatively decided to:

1. specify that in applying paragraph 100(a) of IFRS 16 to measure the right-of-use asset and lease liability arising from the leaseback, a seller-lessee determines the proportion of the asset sold that relates to the right of use it retains by comparing the present value of the expected payments for the lease at market rates, discounted using the rate specified in paragraph 26 of IFRS 16, to the fair value of the asset sold.
2. require a seller-lessee to subsequently measure the lease liability by reducing the carrying amount to reflect the expected payments for the lease.
3. require a seller-lessee to apply the proposed amendment to IFRS 16 retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, except when such application to sale and leaseback transactions with variable lease payments would be possible only with the use of hindsight. The Board tentatively decided to require a seller-lessee in such circumstances to determine the expected payments for the lease at the beginning of the annual reporting period in which it first applies the proposed amendment.

Twelve of 13 Board members agreed with these decisions. One Board member was absent.

Next step

The Board expects to publish an exposure draft of its proposed amendment to IFRS 16 in November 2020.