IASB Update May 2022

Work plan overview

IASB work plan update (Agenda Paper 8)

The IASB met on 23 May 2022 to receive an update on its work plan. The IASB was not asked to make any decisions.

Next step

The IASB expects to receive the next update on its work plan by September 2022.

Research and standard-setting

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

The IASB met on 24 May 2022 to continue its discussions from April 2022 on the requirements for assessing a financial asset’s contractual cash flow characteristics. The IASB discussed whether and, if so, when to clarify how an entity would apply the requirements to financial assets with particular features such as ESG-linked features and to contractually linked instruments.

Based on its analysis, the IASB decided to start a standard-setting project to clarify particular aspects of the requirements in IFRS 9 Financial Instruments for assessing the contractual cash flow characteristics of a financial asset.

All 10 IASB members agreed with this decision.

Next step

The IASB will discuss the project plan at the June 2022 meeting.

Dynamic Risk Management (Agenda Paper 4)

The IASB met on 23 May 2022 for final deliberations on three key challenges identified during meetings with preparers. The IASB:

• discussed refinements to the mechanics of the Dynamic Risk Management (DRM) model, namely, which amounts to recognise and where to recognise them in financial statements (Agenda Paper 4A).
• discussed whether to move the Dynamic Risk Management project from the research programme to the standard-setting programme (Agenda Paper 4B).

Mechanics of the DRM model (Agenda Paper 4A)

The DRM model is intended to enable an entity to better reflect its dynamic risk management strategy in its financial statements and provide useful information to users of financial statements. The IASB tentatively decided to change the mechanics of the DRM model to require:

1. designated derivatives to be measured at fair value in the statement of financial position.
2. the DRM adjustment to be recognised in the statement of financial position, as the lower of (in absolute amounts):
   1. the cumulative gain or loss on the designated derivatives from the inception of the DRM model; and
   2. the cumulative change in the fair value of the risk mitigation intention attributable to the repricing risk from inception of the DRM model (which would be calculated using the benchmark derivatives as a proxy).
3. the net gain or loss from the designated derivatives calculated in accordance with (a) and the DRM adjustment calculated in accordance with (b) to be recognised in the statement of profit or loss.

All 10 IASB members agreed with these decisions.

Project Direction (Agenda Paper 4B)

The IASB decided to:

1. add the Dynamic Risk Management project to its standard-setting programme; and
2. continue using the expertise of advisory bodies instead of establishing a dedicated consultative group for the project.

All 10 IASB members agreed with these decisions.

Next step

At a future meeting, the IASB will discuss the detailed project proposal, setting out the specific areas for deliberation and potential time line.

Rate-regulated Activities (Agenda Paper 9)

The IASB met on 26 May 2022 to discuss:

• the main features of different regulatory schemes (Agenda Paper 9A);
• the advice from the Consultative Group for Rate Regulation on how the IASB might respond to feedback on its proposals on total allowed compensation in the Exposure Draft Regulatory Assets and Regulatory Liabilities (Agenda Paper 9B); and
• its plans for redeliberating specific topics relating to the proposals on total allowed compensation (Agenda Paper 9C).

The IASB was not asked to make any decisions.

At this meeting, the IASB also continued to redeliberate the scope of the proposals. In particular, the IASB discussed:

• application questions relating to the term ‘customers’ in the Exposure Draft (Agenda Paper 9D); and
• the potential scope exclusion of regulatory assets or regulatory liabilities relating to financial instruments within the scope of IFRS 9 Financial Instruments (Agenda Paper 9E).

Scope—Customers (Agenda Paper 9D)

The IASB tentatively decided to clarify in the Standard that, for a regulatory asset or a regulatory liability to arise, it is necessary that differences in timing originate from, and reverse through, amounts included in the regulated rates that an entity accounts for as revenue in accordance with IFRS 15 Revenue from Contracts with Customers. This is the case even when:

1. an entity charges the regulated rates to its customers indirectly through another party.
2. the origination and reversal of differences in timing occur in different revenue streams through regulated rates charged to different groups of customers.

All 10 IASB members agreed with this decision.

Scope—Financial instruments within the scope of IFRS 9 (Agenda Paper 9E)

The IASB tentatively decided:

1. not to exclude from the scope of the Standard regulatory assets or regulatory liabilities related to financial instruments within the scope of IFRS 9.
2. to explain in the Basis for Conclusions on the Standard that the regulation of interest rates is typically limited to setting a cap or floor on interest rates. This type of regulation is not expected to give rise to differences in timing.

All 10 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 25 May 2022 to discuss feedback provided in comment letters on its Exposure Draft Disclosure Requirements in IFRS Standards—A Pilot Approach. The IASB also discussed preliminary views on the next steps for this project.

The IASB was not asked to make any decisions.

Next step

The IASB will consider the next steps for this project at a future meeting.

Goodwill and Impairment (Agenda Paper 18)

The IASB met on 27 May 2022 to discuss its Goodwill and Impairment project. In September 2021 the IASB decided to prioritise:

1. making tentative decisions on the package of disclosure requirements about business combinations described in the Discussion Paper Business Combinations—Disclosures, Goodwill and Impairment; and
2. analysing specific aspects of the feedback on the subsequent accounting for goodwill.

At this meeting the IASB discussed additional research on:

1. whether it is feasible to estimate the useful life of goodwill and the pattern in which it diminishes; and
2. the potential consequences of transitioning to an amortisation-based model.

The IASB was not asked to make any decisions.

Next step

The IASB will complete its research on the practical concerns raised by stakeholders with regard to the preliminary views described in the Discussion Paper on potential improvements to the disclosure requirements about business combinations.

The IASB will then make decisions about: (a) the package of disclosure requirements about business combinations; (b) its preliminary view to retain the impairment-only model for the subsequent accounting for goodwill; and (c) other topics within the scope of the project.

Primary Financial Statements (Agenda Paper 21)

The IASB met on 24–26 May 2022 to redeliberate the proposals in its Exposure Draft General Presentation and Disclosures relating to:

• disclosing the tax effect and the effect on non-controlling interests of items in the reconciliation between a management performance measure and the most directly comparable total specified by IFRS Accounting Standards—Agenda Paper 21A;
• defining and disclosing ‘unusual income and expenses’ in a single note and the structure of that note—Agenda Paper 21B and Agenda Paper 21C; and
• classifying income and expenses from associates and joint ventures accounted for using the equity method for entities with specified main business activities—Agenda Paper 21D.

Management performance measures (Agenda Paper 21A)

The IASB tentatively decided:

1. to confirm the proposed requirement in the Exposure Draft to disclose the income tax effect and the effect on non-controlling interests of each item disclosed in the reconciliation between a management performance measure and the most directly comparable subtotal or total specified by IFRS Accounting Standards. Seven of 10 IASB members agreed with this decision.
2. to revise the requirement specifying how to calculate the income tax effect to require an entity either to calculate:
   1. the tax effects of the underlying transaction(s) at the statutory tax rate(s) applicable to the transaction(s) in the relevant jurisdictions(s); or
   2. the tax effects described in (i) and then to allocate any other income tax effects related to the underlying transaction(s) based on a reasonable pro rata allocation of current and deferred tax, or on another method that achieves a more appropriate allocation.

            Eight of 10 IASB members agreed with this decision.

The IASB, noting that its tentative decision means that the approach in (b)(i) is effectively a backstop, asked the staff to consider whether it is possible to maintain this backstop while allowing entities to use a wider range of approaches that would improve the balance between costs and benefits.

Unusual income and expenses (income and expenses with limited recurrence) (Agenda Paper 21B)

The IASB tentatively decided:

1. to include income and expenses that have arisen in the past in the definition, as proposed in the Exposure Draft. All 10 IASB members agreed with this decision.
2. to label the items captured by the definition as ‘income and expenses with limited recurrence’. Six of 10 IASB members agreed with this decision. The IASB will consider at a future meeting whether also to restrict the use of the label ‘unusual income and expenses’.
3. to amend the definition proposed in the Exposure Draft to include income and expenses that are expected to recur for a few annual reporting periods. All 10 IASB members agreed with this decision.
4. to reflect the tentative decisions described in (a) to (c) by proceeding with the following definition:
   Income and expenses have limited recurrence when it is reasonable to expect that income or expenses that are similar in type and amount will cease, and once ceased will not arise again, before the end of the assessment period.
5. to explore how to define the assessment period; for example, by linking it to the period of budgets and forecasts or by specifying a minimum and/or maximum number of years.

Income and expenses with limited recurrence—Disclosure (Agenda Paper 21C)

The IASB discussed the disclosure requirement proposed in the Exposure Draft for a narrative description of why income and expenses that are similar in type or amount are not expected to arise for several future annual periods (now the assessment period, to reflect the tentative decision described in (d)). The IASB will consider at a future meeting an analysis of the implications of this disclosure requirement in relation to forward-looking information.

Subject to the outcome of that analysis, the IASB tentatively decided:

1. to continue to include in the definition income and expenses that are dissimilar to those expected to arise in the future because they are lower in amount. Eight of 10 IASB members agreed with this decision.
2. to reconfirm the proposal to require, for such items of income and expenses, disclosure of the amount recognised in the period. Eight of 10 IASB members agreed with this decision.

The IASB noted that the effect of these requirements would be to provide information for income and expenses only when information about their limited recurrence would be of interest to users of financial statements (that is, when such information would be material).

Investments accounted for using the equity method (Agenda Paper 21D)

The IASB was not asked to make any decisions. It discussed the proposal for entities with specified main business activities to classify outside of the operating category income and expenses from associates and joint ventures accounted for using the equity method.

Next step

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

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

The IASB met on 23–24 May 2022 to discuss whether and, if so, how to propose amendments to the IFRS for SMEs Accounting Standard as a part of the second comprehensive review.

Towards an exposure draft—Scope and name of the IFRS for SMEs Accounting Standard (Agenda Paper 30A)

The IASB tentatively decided to retain:

1. the scope of the Standard—the Standard is intended for entities that do not have public accountability and prepare general purpose financial statements for external users; and
2. the name of the Standard as the ‘IFRS for SMEs Accounting Standard’.

All 10 IASB members agreed with this decision.

Towards an exposure draft—Definition of public accountability (Agenda Paper 30B)

To improve the understandability of the definition of ‘public accountability’ in the IFRS for SMEs Accounting Standard, the IASB tentatively decided to propose:

1. removing the reference to how often the entities listed in paragraph 1.3(b) of the IFRS for SMEs Accounting Standard hold assets in a fiduciary capacity for a broad group of outsiders as one of their primary businesses; and
2. including clarifying guidance.

The IASB also tentatively decided to make the same amendments to the description of public accountability as set out in the draft Standard Subsidiaries without Public Accountability: Disclosures, if the draft Standard is finalised.

Nine of 10 IASB members agreed with these decisions.

Further, in relation to the draft Standard Subsidiaries without Public Accountability: Disclosures, the IASB tentatively decided, if the draft Standard is finalised:

1. to consider how best to make the guidance on public accountability in Module 1 Small and Medium-sized Entities (the educational material on Section 1 Small and Medium-sized Entities of the IFRS for SMEs Accounting Standard) available to entities applying the Standard.
   All 10 IASB members agreed with this decision.
2. to clarify, by using similar wording to that of paragraph 1.7 of the IFRS for SMEs Accounting Standard, that an intermediate parent is required to assess its eligibility to apply the Standard in its individual or separate financial statements on the basis of its own status. That is, the intermediate parent would be required to make its assessment without considering whether other group entities have public accountability or whether the group as a whole has it.
   Eight of 10 IASB members agreed with this decision.

Towards an exposure draft—Review for inconsistencies between Section 2 and other sections of the IFRS for SMEs Accounting Standard (Agenda Paper 30C)

The IASB tentatively decided:

1. to include the definitions of an ‘asset’ and of a ‘liability’, as they are defined in the Framework for the Preparation and Presentation of Financial Statements issued in 1989, in Section 21 Provisions and Contingencies of the Standard and Section 18 Intangible Assets other than Goodwill of the Standard, respectively; and
2. to remove the references to the recognition criteria in Section 2 Concepts and Pervasive Principles of the Standard from Section 17 Property, Plant and Equipment of the Standard and from Section 18 of the Standard.

All 10 IASB members agreed with these decisions.

Towards an exposure draft—Sweep issues (Agenda Paper 30D)

The IASB tentatively decided to propose amendments to Section 19 Business Combinations and Goodwill of the Standard:

1. to align it with Reference to the Conceptual Framework issued in May 2020—so that:
   1. to qualify for recognition, the identifiable assets acquired and liabilities assumed must meet, at the acquisition date, the definitions of assets and liabilities in Section 2 of the Standard—which the IASB has tentatively decided to align with the 2018 Conceptual Framework for Financial Reporting; and
   2. for liabilities and contingent liabilities that would be within the scope of Section 21 of the Standard if they were incurred separately rather than assumed in a business combination, an acquirer would be required to apply paragraph 21.6 of the IFRS for SMEs Accounting Standard to determine whether at the acquisition date a present obligation exists as a result of past events for a provision or contingent liability.
2. to align it with the requirement in IFRS 3 Business Combinations that an acquirer cannot recognise a contingency that is not a liability.

All 10 IASB members agreed with these decisions.

The IASB also tentatively decided to propose amendments to Section 10 Accounting Policies, Estimates and Errors of the Standard to align it with the definition of ‘accounting estimates’ as set out in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (as amended in February 2021). The amendments to be proposed would include the application guidance relevant to entities applying the IFRS for SMEs Accounting Standard set out in IAS 8.

All 10 IASB members agreed with this decision.

The IASB also tentatively decided to propose amendments to Section 11 Financial Instruments of the Standard to reflect the amendments to IFRS 9, Prepayment Features with Negative Compensation issued in 2017, to enable SMEs to measure, at amortised cost, debt instruments that have prepayment features with negative compensation.

All 10 IASB members agreed with this decision.

The IASB also tentatively decided to propose amendments to Section 14 Investments in Associates of the Standard to reflect the 2017 amendments to IAS 28 Long-term Interests in Associates and Joint Ventures and to clarify how to treat financial instruments that form part of an entity’s net investment in an associate or jointly controlled entity.

All 10 IASB members agreed with this decision.

The IASB also tentatively decided to propose amendments to Section 33 Related Party Disclosures of the Standard to align it with IAS 24 Related Party Disclosures, with simplifications.

All 10 IASB members agreed with this decision.

Towards an exposure draft—IFRS for SMEs Accounting Standard transition requirements for alignment with new IFRS Accounting Standards (Agenda Paper 30E)

The IASB tentatively decided to propose transition requirements for entities applying new requirements that the IASB has tentatively decided to propose. The transition requirements to be proposed relate to the following six sections of the IFRS for SMEs Accounting Standard:

1. Section 9 Consolidated and Separate Financial Statements;
2. Section 11 Basic Financial Instruments;
3. a new section on Fair Value Measurement;
4. Section 15 Investments in Joint Ventures;
5. Section 19 Business Combinations and Goodwill; and
6. Section 23 Revenue.

The transition requirements to be proposed are simplified from the transition requirements in full IFRS Accounting Standards.

All 10 IASB members agreed with this decision.

Towards an exposure draft—Effective date (Agenda Paper 30F)

The IASB tentatively decided to propose that the effective date of the third edition of the IFRS for SMEs Accounting Standard be a minimum of two years from the date when the third edition of the Standard is issued, with early application permitted.

All 10 IASB members agreed with this decision.

Next step

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

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

The IASB met on 23 May 2022 to discuss the scope of the draft IFRS Accounting Standard Subsidiaries without Public Accountability: Disclosures.

Proposed scope of the draft Standard (Agenda Paper 31A)

Subject to finalising the draft Standard, the IASB tentatively decided to:

1. confirm the scope as proposed in the draft Standard; and
2. review that scope after the draft Standard has been finalised, possibly during the post-implementation review.

Nine of 10 IASB members agreed with this decision.

The IASB tentatively decided that if the draft Standard is finalised, it will:

1. clarify the description of ‘public accountability’ as the IASB has also tentatively decided to do in the IFRS for SMEs Accounting Standard (see Agenda Paper 30B). Nine of 10 IASB members agreed with this decision.
2. clarify, using similar wording to that of paragraph 1.7 of the IFRS for SMEs Accounting Standard, that an intermediate parent is required to assess its eligibility to apply the draft Standard to its separate and individual financial statements on the basis of its own status. That is, the intermediate parent would be required to make this assessment without considering whether other group entities have public accountability or the group as a whole has it.
   Eight of 10 IASB members agreed with this decision.
3. consider how best to make the educational material on public accountability in Module 1 Small and Medium-sized Entities (on the IFRS for SMEs Accounting Standard) available to entities applying the draft Standard. All 10 IASB members agreed with this decision.

Next step

The IASB will decide the direction of the project at a future meeting.

Maintenance and consistent application

Maintenance and consistent application (Agenda Paper 12)

The IASB met on 23 May 2022 to consider an agenda decision discussed at the April 2022 meeting of the IFRS Interpretations Committee.

Principal versus Agent: Software Reseller (IFRS 15): Finalisation of agenda decision (Agenda Paper 12)

The IASB was asked whether it objected to the Agenda Decision Principal versus Agent: Software Reseller (IFRS 15 Revenue from Contracts with Customers).

No IASB member objected to the Agenda Decision.

Next step

The Agenda Decision will be published in May 2022 in an addendum to IFRIC Update April 2022.