IASB Update February 2022

Research and standard-setting

Dynamic Risk Management (Agenda Paper 4)

The IASB met on 21 February 2022 to discuss feedback on and an initial analysis of the mechanics of the Dynamic Risk Management model (DRM model)—which amounts to recognise and where to recognise them in financial statements. Preparers have identified the mechanics of the DRM model as the main remaining challenge.

The IASB was not asked to make any decisions.

Next step

The IASB will continue its discussion about the mechanics of the DRM model that would provide more useful information.

Financial Instruments with Characteristics of Equity (Agenda Paper 5)

The IASB met on 22 February 2022 to continue its discussions on applying IAS 32 Financial Instruments: Presentation to the classification of financial instruments as financial liabilities or equity.

Project update (Agenda Paper 5A)

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

Shareholders’ discretion (Agenda Paper 5B)

The IASB discussed the classification of a financial instrument with a contractual obligation to deliver cash (or to settle it in such a way that it would be a financial liability) at the discretion of the issuer’s shareholders.

The IASB tentatively decided to explore a factors-based approach to help an entity apply its judgement when classifying these types of financial instruments as financial liabilities or as equity. Such an approach would provide examples of potential factors for an entity to consider when assessing whether a decision of shareholders is treated as a decision of the entity. This assessment is needed to determine whether an entity has an unconditional right to avoid delivering cash (or settling a financial instrument in such a way that it would be a financial liability).

Seven of 12 IASB members agreed with this decision.

Next step

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

Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12 (Agenda Paper 7)

The IASB met on 23 February 2022 to apply the approach agreed at its January 2022 meeting to decide:

• the priority of topics discussed at its October 2021 meeting arising from the Post-implementation Review of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities;
• whether and, if so, when to take further action on additional topics arising from the Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12; and
• topics not to take further action on.

The IASB was also asked whether it had undertaken sufficient work to conclude the Post-implementation Review.

Based on its analysis and deliberation of the feedback, the IASB decided that topics identified in the Post-implementation Review were not of high enough priority to be added to the IASB’s work plan of active projects or research pipeline for 2022 to 2026. The IASB commented that if stakeholders required more immediate support on application questions, questions can be submitted to the IFRS Interpretations Committee. 

Specifically, the IASB decided the following topics do not have medium-priority characteristics:

1. investment entities—subsidiaries that are investment entities;
2. collaborative arrangements outside the scope of IFRS 11; and
   
3. transactions that involve ‘corporate wrappers’.
   Nine of 12 IASB members agreed with the decisions in (a) and (b). All 12 IASB members agreed with the decision in (c).

The IASB decided that these three topics are of low priority, to be addressed only if identified as a priority in the next Agenda Consultation.

The IASB decided that the topic—transactions that change the relationship between an investor and an investee—is also of low priority.
Ten of 12 IASB members agreed with this decision.

The IASB decided to take further action on disclosure of interests in other entities as a low-priority topic.
All 12 IASB members agreed with this decision.

The IASB decided not to take further action on any other topics arising from the Post-implementation Review.
All 12 IASB members agreed with this decision.

The IASB decided that sufficient work has been completed to conclude the Post-implementation Review and for the staff to prepare the Report and Feedback Statement on the Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12.
All 12 IASB members agreed with this decision.

Next step

The IASB will publish a Report and Feedback Statement on the Post-implementation Review of IFRS 10, IFRS 11 and IFRS 12.

Rate-regulated Activities (Agenda Paper 9)

The IASB met on 22 February 2022 to discuss plans for redeliberating specific topics relating to the scope of the proposals in the Exposure Draft Regulatory Assets and Regulatory Liabilities (Agenda Paper 9A). The IASB was not asked to make any decisions.

After discussing the redeliberation plan for topics relating to the scope of the proposals, the IASB started redeliberating specific topics relating to:

• determining whether a regulatory agreement is within the scope of the proposals (Agenda Paper 9B); and
• the definition of a regulator (Agenda Paper 9C).

Scope—Determining whether a regulatory agreement is within the scope of the proposals (Agenda Paper 9B)

The IASB tentatively decided:

1. to reconfirm the proposals in the Exposure Draft on:
   1. requiring an entity to apply the Standard to all its regulatory assets and regulatory liabilities.
   2. requiring the Standard to apply to all regulatory agreements and not only to those that have a particular legal form.
   3. the conditions necessary for a regulatory asset or a regulatory liability to exist.
      
   Eleven of 12 IASB members agreed with these decisions.
2. not explicitly to specify in the Standard which regulatory schemes would be within or outside its scope. All 12 IASB members agreed with this decision.
3. to clarify in the Standard that:
   1. a regulatory agreement may include enforceable rights and enforceable obligations to adjust the regulated rate beyond the current regulatory period.
   2. regulatory agreements that create either regulatory assets or regulatory liabilities, but not both, are within its scope.
   3. a regulatory agreement that causes differences in timing when a specified regulatory threshold is met creates regulatory assets or regulatory liabilities.
   4. a regulatory agreement is not required to determine a regulated rate using an entity’s specific costs for the regulatory agreement to create regulatory assets or regulatory liabilities.
      
   All 12 IASB members agreed with these decisions.

Scope—Definition of a regulator (Agenda Paper 9C)

The IASB tentatively decided that the Standard will:

1. include the existence of a regulator as part of the conditions necessary for a regulatory asset or a regulatory liability to exist. Eleven of 12 IASB members agreed with this decision.
2. define a regulator as ‘a body that is empowered by law or regulation to determine the regulated rate or a range of regulated rates’. All 12 IASB members agreed with this decision.
3. include guidance to clarify that:
   1. self-regulation is outside the scope of the Standard.
   2. a situation in which an entity or its related party determines the rates, but does so in accordance with a framework that is overseen by a body empowered by law or regulation, is not self-regulation for the purposes of the Standard.

   All 12 IASB members agreed with this decision.

Next step

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

Disclosure Initiative—Targeted Standards-level Review of Disclosures (Agenda Paper 11)

The IASB met on 21 February 2022 to discuss feedback from preparer fieldwork participants and users of financial statements on the Exposure Draft Disclosure Requirements in IFRS Standards—A Pilot Approach.

The IASB published the Exposure Draft in March 2021. It proposed:

1. guidance for the IASB to use when developing and drafting disclosure requirements in IFRS Accounting Standards; and
2. new disclosure requirements in IFRS 13 Fair Value Measurement and IAS 19 Employee Benefits, developed by applying the proposed guidance.

The comment period for the Exposure Draft ended in January 2022. During the comment period, 50 companies participated in fieldwork by applying the proposed disclosure requirements for either or both of IFRS 13 and IAS 19.

The IASB was not asked to make any decisions at this meeting.

Next step

The IASB will discuss comment letter feedback and its plans for redeliberating the project proposals at future meetings.

Primary Financial Statements (Agenda Paper 21)

The IASB met on 22 February 2022 to redeliberate some of the proposals in the Exposure Draft General Presentation and Disclosures relating to principles for presentation and to the required line items in primary financial statements.

Principles for presentation and required line items in primary financial statements (Agenda Paper 21A)

The IASB tentatively decided:

1. to revise the general principle for the presentation of line items in the primary financial statements set out in paragraph 42 of the Exposure Draft by removing the term ‘relevant’ and instead including a reference to an understandable overview of an entity’s income and expenses or assets, liabilities and equity. Eight of 12 IASB members agreed with this decision.
2. to require all presentation requirements to apply only when the resulting presentation does not detract from the primary financial statement providing an understandable overview. Ten of 12 IASB members agreed with this decision.
3. to add application guidance that indicates that in the operating category it is unlikely that the presentation of items set out in paragraph 65 of the Exposure Draft would reduce how useful the statement is in providing an understandable overview of the entity’s income and expenses. Nine of 12 IASB members agreed with this decision.
4. to remove the term ‘minimum’ from paragraph 42 of the Exposure Draft. Ten of 12 IASB members agreed with this decision.
5. not to revisit the requirements for specified line items brought forward from IAS 1 Presentation of Financial Statements. Eleven of 12 IASB members agreed with this decision.
6. not to add a specific requirement to present impairments of non-financial assets. All IASB members agreed with this decision.
7. to proceed with the proposed requirement to present goodwill separately from intangible assets. Ten of 12 IASB members agreed with this decision.
8. to proceed with the proposed requirement for required line items to be presented in each affected category in the statement of profit or loss. All 12 IASB members agreed with this decision.
9. not to specify any required line items to be presented in the financing category in the statement of profit or loss. Nine of 12 IASB members agreed with this decision.

The IASB made drafting suggestions on how to improve the understandability of the requirements described in (a) and (b).

Next step

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

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

The IASB met on 24 February 2022 to discuss whether and, if so, how to propose amendments to the IFRS for SMEs Standard.

Towards an exposure draft—IFRS 9 Financial Instruments (Impairment of Financial Assets) (Agenda Paper 30A)

The IASB tentatively decided:

1. to retain unchanged the incurred loss model in Section 11 Basic Financial Instruments of the IFRS for SMEs Standard for trade receivables and contract assets within the scope of Section 23 Revenue of the IFRS for SMEs Standard;
2. to propose amendments to Section 11 to require an SME to use an expected credit loss model for all other financial assets measured at amortised cost; and
3. to retain unchanged the requirements in Section 11 for impairment of equity instruments measured at cost.

Seven of 12 IASB members agreed with this decision.

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

The IASB tentatively decided to propose amendments to the IFRS for SMEs Standard to align Section 23 of the IFRS for SMEs Standard with IFRS 15 Revenue from Contracts with Customers, with simplifications for:

1. contract modifications—an SME would be required to account for a contract modification either on a prospective basis, following a single approach, or on a cumulative catch-up basis. All 12 IASB members agreed with this decision.
2. series of distinct goods or services—an SME would be permitted to account for the promise to transfer a series of distinct goods or services that are substantially the same and that have the same pattern of transfer to the customer as separate performance obligations, if the amount of consideration varies in a way that corresponds with the value of the distinct goods or services transferred to the customer. All 12 IASB members agreed with this decision.
3. performance obligation terminology—the IFRS for SMEs Standard would require an SME to identify each ‘promise to transfer a distinct good or service, or bundle of goods or services’. Nine of 12 IASB members agreed with this decision.
4. constraining estimates of variable consideration—an SME would be required to recognise variable consideration only to the extent that it is highly probable that the variable amount will be recovered. All 12 IASB members agreed with this decision.
5. significant financing components—an SME would be required to recognise the effects of any financing implicit in deferred payment by applying the requirements in Section 11 of the IFRS for SMEs Standard. An SME may not apply these requirements if the SME expects, at contract inception, that the period between when the entity transfers a promised good or service to a customer, and when the customer pays for that good or service, will be one year or less. Seven of 12 IASB members agreed with this decision.
6. allocating discounts and variable consideration—an SME would be required to allocate discounts and variable consideration to the performance obligations in the contract on a relative stand-alone selling price basis, unless an alternative method more faithfully depicts the amount of consideration to which the entity expects to be entitled in exchange for satisfying each separate performance obligation. All 12 IASB members agreed with this decision.
7. selecting a method for measuring progress towards complete satisfaction of a performance obligation—the IFRS for SMEs Standard would include a list of methods frequently used by entities to measure progress and describe circumstances where those methods may be appropriate. All 12 IASB members agreed with this decision.
8. incremental costs of obtaining a contract—an SME would be required to recognise as an asset the incremental costs of obtaining a contract with a customer if the SME expects to recover those costs, only when these costs can be identified and assessed as recoverable without undue cost or effort; otherwise the SME would recognise these costs as expenses. All 12 IASB members agreed with this decision.

The IASB tentatively decided to propose amendments to the IFRS for SMEs Standard to include the factors in paragraphs 29(a)–(c) of IFRS 15 to help an SME determine whether a promised good or service is separately identifiable. The IASB also tentatively decided to ask for further views on this proposal in the invitation to comment. Six of 12 IASB members agreed with these decisions. The Chair used his additional casting vote, making the vote seven‒six in favour of the decisions.

Towards an exposure draft—Cryptocurrency (Agenda Paper 30C)

The IASB tentatively decided to retain unchanged the IFRS for SMEs Standard for cryptocurrency as part of this comprehensive review and revisit the topic in the next comprehensive review of the IFRS for SMEs Standard.

All 12 IASB members agreed with this decision.

Towards an exposure draft—Other topics (Recognition and measurement of development costs) (Agenda Paper 30D)

The IASB tentatively decided to seek views, in the Exposure Draft proposing amendments to the IFRS for SMEs Standard, on introducing an accounting policy option permitting an SME to recognise intangible assets arising from development costs meeting the criteria in paragraphs 57(a)–(f) of IAS 38 Intangible Assets.

Ten of 12 IASB members agreed with this decision.

Towards an exposure draft—IFRS 3 Business Combinations (Definition of a Business and Reacquired rights) (Agenda Paper 30E)

The IASB tentatively decided:

1. to propose aligning the definition of a business in the IFRS for SMEs Standard with the amended definition of a business issued in 2018, without introducing any rebuttable presumption; and
2. to retain unchanged Section 19 Business Combinations and Goodwill of the IFRS for SMEs Standard without reflecting the requirements in IFRS 3 Business Combinations that provided additional guidance on reacquired rights.

All 12 IASB members agreed with these decisions.

Towards an exposure draft—Other issues (due to the alignment with IFRS 3, IFRS 10 and IFRS 11) (Agenda Paper 30F)

The IASB tentatively decided:

1. to propose amendments to Section 9 Consolidated and Separate Financial Statements of the IFRS for SMEs Standard to align it with the requirements:
   1. for step-disposals that result in loss of control, as set out in paragraph 25(b) of IFRS 10 Consolidated Financial Statements—an SME would measure any retained interest at fair value when control is lost; and
   2. for changes in a parent’s ownership interests in a subsidiary without losing control, as set out in paragraph 23 of IFRS 10—such changes are equity transactions.
      
2. to propose amendments to Section 15 Investments in Joint Ventures of the IFRS for SMEs Standard to align it with the requirements of paragraph 23 of IFRS 11 Joint Arrangements, so that a party that does not have joint control of a jointly controlled operation or a jointly controlled asset would account for its interest according to the classification of that jointly controlled operation or the jointly controlled asset. The IASB also tentatively decided to ask for further views on this proposal in the invitation to comment.

All 12 IASB members agreed with these decisions.

Next step

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

Maintenance and consistent application

Maintenance and consistent application (Agenda Paper 12)

The IASB met on 23 February 2022 to discuss three projects:

• Availability of Refund (Agenda Paper 12A);
• Provisions—Targeted Improvements (Agenda Paper 12B); and
• Lease Liability in a Sale and Leaseback (Agenda Paper 12C).

Availability of a Refund (Amendments to IFRIC 14): Project review (Agenda Paper 12A)

The IASB has done research to help it decide whether to develop a more principle-based approach than is currently in IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction for an entity to assess and measure its right to a refund of a surplus.

The IASB reviewed the project’s prospects for progress and concluded that these prospects are limited. Therefore, the IASB decided to withdraw the project from its work plan.

Eleven of 12 IASB members agreed with these decisions.

Provisions—Targeted Improvements: Project review (Agenda Paper 12B)

The IASB’s work plan includes a project to make targeted improvements to IAS 37 Provisions, Contingent Liabilities and Contingent Assets. 

The IASB reviewed the project’s prospects for progress and concluded that efficient progress is possible. Therefore, the IASB decided to keep the project on its work plan. 

Eleven of 12 IASB members agreed with these decisions. 

Lease Liability in a Sale and Leaseback (Amendments to IFRS 16): Transition, effective date and due process (Agenda Paper 12C)

The IASB discussed its amendments to IFRS 16 Leases to add subsequent measurement requirements for the lease liability arising from a sale and leaseback transaction.

Transition

The IASB tentatively decided to:

1. require entities to apply the amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors; and
2. provide no specific transition exemption for first-time adopters.

Eleven of 12 IASB members agreed with these decisions.

Effective date

The IASB tentatively decided to require entities to apply the amendments for annual reporting periods beginning on or after 1 January 2024, with earlier application permitted.

Eleven of 12 IASB members agreed with these decisions.

Due process

The IASB decided that the amendments do not require re-exposure.

Eleven of 12 IASB members agreed with these decisions.

One Board member indicated an intention to dissent from the issue of the amendments.

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

Strategy and governance

Third Agenda Consultation (Agenda Paper 24)

The IASB met on 23 February 2022:

• to begin discussing financial reporting issues on the IASB’s work plan (Agenda Paper 24A); and
• to discuss and decide the strategic direction and balance of the IASB’s activities from 2022 to 2026 (Agenda Papers 24B and 24C).

Projects on the current work plan—Proposed response to feedback (Agenda Paper 24A)

The IASB decided not to reprioritise projects on its current work plan, but to continue working on those projects (except for a maintenance project discussed in Agenda Paper 12A—Availability of a Refund (Amendments to IFRIC 14 IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction)).

All 12 IASB members agreed with this decision.

Strategic direction and balance of the IASB’s activities from 2022 to 2026 (Agenda Papers 24B and 24C)

The IASB decided to begin no new activities within the current scope of its work.

All 12 IASB members agreed with this decision.

The IASB also decided to leave its current level of focus on its main activities largely unchanged but to:

• slightly decrease the current level of focus on new Accounting Standards and major amendments to Accounting Standards;
• slightly increase the current level of focus on digital financial reporting; and
• slightly increase the current level of focus on understandability and accessibility of Accounting Standards, which will indirectly support consistent application of Accounting Standards.

Nine of 12 IASB members agreed with this decision.

Next step

The IASB will discuss and make decisions on new financial reporting issues to be added to the IASB’s work plan for 2022 to 2026.