IASB Update September 2024

Research and standard-setting

Dynamic Risk Management (Agenda Paper 4)

The IASB met on 16 September 2024 to continue its discussions on the Dynamic Risk Management (DRM) model.

Disclosure requirements (Agenda Paper 4A)

The IASB tentatively decided to propose that an entity be required to provide information that enables users of financial statements to understand:

1. the entity’s interest rate risk management strategy and how it is used to manage repricing risk;
2. the effect of the entity’s interest rate risk management activities on the amount, timing and uncertainty of its future cash flows; and
3. the effect of the entity’s interest rate risk management activities on the statement of financial position and statement of profit or loss.

The IASB also tentatively decided to propose that an entity be required:

1. to disclose information relating to the application of the DRM model in a single note or in a separate section in the financial statements. An entity would be permitted to include information by cross-referencing from the financial statements to another statement, as long as that statement was available to users on the same terms and at the same time as the financial statement.
2. to apply the principles set out in paragraph 41 of IFRS 18 Presentation and Disclosure in Financial Statements when it decides the most appropriate way to aggregate information in its financial statements, including in the notes.

Risk management strategy

The IASB tentatively decided to propose that an entity be required:

1. to disclose information about its risk management strategy that enables users of financial statements to understand:
   1. how the entity’s exposure to repricing risk arises, including a description of the underlying financial assets and financial liabilities used to determine its current net open risk position (CNOP) and whether the entity’s repricing risk arises from fixed or floating rate exposures;
   2. the level at which the entity aggregates and manages its repricing risk;
   3. how the entity identifies, aggregates, monitors and manages its repricing risk, including which risk metrics it uses and how frequently its CNOP and risk mitigation intention are determined; and
   4. what the managed rate is, over which period the entity mitigates its repricing risk and (if the entity is allocating its risk exposures to repricing time periods) what repricing time periods the entity used; and
2. to provide a qualitative disclosure to explain how the entity manages its repricing risk, if the entity carries out risk management activities applicable to the DRM model but chooses not to apply the DRM model. Such disclosures would include:
   1. how the entity’s exposure to repricing risk arises;
   2. how the entity identifies, aggregates, monitors and manages its repricing risk; and
   3. how the entity reports its risk management activities in the financial statements.

Amount, timing and uncertainty of future cash flows

The IASB tentatively decided to propose that an entity be required:

1. to disclose qualitative and quantitative information on the terms and conditions of designated derivatives and how they affect the amount, timing and uncertainty of the entity’s future cash flows. To meet this requirement, an entity would be required to disclose:
   1. a profile of the timing of the nominal amount of the designated derivatives (for example, by the time periods in which they mature); and
   2. the average price or fixed rate of the designated derivatives.
2. to provide a sensitivity analysis showing how the net interest income or fair value of underlying items the entity used to determine its CNOP would change because of changes in interest rates that were reasonably possible at the reporting date.

Effects on financial position and performance

The IASB tentatively decided to propose that an entity be required:

1. to disclose in a table the items the entity used to determine its CNOP, including:
   1. the carrying amounts of the recognised financial assets and financial liabilities, or the notional amounts of yet-to-be-recognised future transactions;
   2. the line items in the statement of financial position containing the underlying items;
   3. qualitative disclosures about the inputs, assumptions and estimation techniques the entity used to determine the expected cash flows; and
   4. information about any included hedged exposures;
2. to disclose in a table information about the designated derivatives, including:
   1. the carrying amount of the designated derivatives;
   2. the line item in the statement of financial position containing the designated derivatives;
   3. the change in fair value of the designated derivatives used as the basis for measuring the DRM adjustment; and
   4. the nominal amounts of the designated derivatives;
3. to provide information about the performance of the DRM model, distinguishing between continuing and discontinued DRM models. An entity would be required to include:
   1. how the entity reflects the effect of unexpected changes in its CNOP during the period;
   2. the cumulative misalignment, the effect of misalignment in the current reporting period and the line items in profit or loss in which the misalignment is recognised; and
   3. the expected profile for recognising the DRM adjustment in profit or loss, based on the designated and benchmark derivatives (this profile represents future ‘protection’ against net interest income variability); and
4. to provide in a table a reconciliation from the opening balance to the closing balance of the DRM adjustment, distinguishing between continuing and discontinued DRM models, showing separately:
   1. the gains or losses (arising from changes in market interest rate) recognised as part of the DRM adjustment during the period;
   2. the amount of DRM adjustment recognised in profit or loss during the reporting period; and
   3. the amount of any reduction in the DRM adjustment recognised because of a capacity shortfall at the reporting date, and the expected effect on recognising the reduction in the DRM adjustment in profit or loss during the reporting period.

 

All 14 IASB members agreed with these decisions.  

Discontinuation of the DRM model (Agenda Paper 4B)

The IASB redeliberated the requirements setting out the circumstances under which an entity would be required to discontinue applying the DRM model, and how the entity would account for the discontinuation in its financial statements.

The IASB tentatively decided to propose that an entity be required:

1. to discontinue applying the DRM model if the entity’s risk management strategy changes—in other words, if the managed interest rate risk or how the entity manages that risk changes; and
2. to recognise the DRM adjustment in profit or loss over the risk management time horizon if the underlying items included in its CNOP continue to exist or future transactions are still expected to occur.

The IASB also tentatively decided that unless an entity changes its risk management strategy, it is not permitted:

1. to discontinue applying the DRM model;
2. to remove underlying items included in determining its CNOP when those items continue to meet the qualifying criteria; or
3. to de-designate a designated derivative.

All 14 IASB members agreed with these decisions.  

Next step

The IASB will continue its discussions on the project, including the proposed transition requirements to be included in the prospective DRM exposure draft.

Amortised Cost Measurement (Agenda Paper 11)

The IASB met on 17 September 2024 to start its research project and discuss the project direction, including the initial work it will do on the project.

The IASB was not asked to make any decisions.

Next step

The IASB will hold targeted consultations with its advisory bodies to help inform the project plan. 

Management Commentary (Agenda Paper 15)

The IASB met on 18 September 2024 to discuss targeted refinements to proposals for a revised IFRS Practice Statement 1 Management Commentary.

Scope of possible targeted refinements (Agenda Paper 15A)

The IASB discussed its approach to redeliberations and the scope of possible targeted refinements to proposals in the Exposure Draft Management Commentary.

The IASB was not asked to make any decisions.

Targeted refinements to proposals in Chapter 1–3 of the Exposure Draft (Agenda Paper 15B)

The IASB tentatively decided to clarify that:

1. the term ‘management’ can include a governing board of an entity; and
2. the revised Practice Statement does not specify who is required to authorise management commentary for issue.
   All 14 IASB members agreed with these decisions.

 

The IASB tentatively decided to acknowledge in the objective of management commentary:

1. the concept of management’s perspective.
   Thirteen of 14 IASB members agreed with this decision.
2. information about sustainability-related factors.
   Twelve of 14 IASB members agreed with this decision.

 

The IASB tentatively decided:

1. to acknowledge that management commentary complements other information in general purpose financial reports, including information in sustainability-related financial disclosures, if that information is provided outside of management commentary.
   Eleven of 14 IASB members agreed with this decision.
2. to extend the requirements for identifying the financial statements related to management commentary to identifying sustainability-related financial disclosures, if these disclosures are not part of the larger report that includes management commentary.
   Eleven of 14 IASB members agreed with this decision.
3. to require an entity to disclose the basis on which sustainability-related financial disclosures are prepared, if an entity prepares such disclosures.
   Thirteen of 14 IASB members agreed with this decision.
4. to give greater prominence to the requirements that apply to situations in which an entity is required by local law or regulation to include specific information in management commentary.
   Thirteen of 14 IASB members agreed with this decision.

 

The IASB tentatively decided:

1. to make the definition of ‘general purpose financial statements’ consistent with the definition set out in IFRS 18 Presentation and Disclosure in Financial Statements and in the Conceptual Framework for Financial Reporting; and
2. to include in the defined terms the definition of ‘sustainability-related financial disclosures’ set out in IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information.
   All 14 IASB members agreed with this decision.

 

Indicative drafting—targeted refinements to proposals in Chapters 1–3 of the Exposure Draft (Agenda Paper 15C)

The IASB discussed indicative drafting changes to the proposals in Chapters 1–3 in the Exposure Draft.

The IASB was not asked to make any decisions.

Next step

The IASB will continue its discussions of targeted refinements to the proposals in the Exposure Draft.

Statement of Cash Flows and Related Matters (Agenda Paper 20)

The IASB met on 16 September 2024 to start its research project and discuss the initial work it will do on the project. The IASB discussed topics raised by stakeholders in the Third Agenda Consultation, an academic literature review and the preliminary research plan.

The IASB was not asked to make any decisions.

Next step

The IASB will consult its advisory bodies and other stakeholders to help inform the project scope.

Addendum to the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard (Agenda Paper 29)

The IASB met on 17 September 2024:

• to consider feedback on the Exposure Draft Addendum to the Exposure Draft Third edition of the IFRS for SMEs Accounting Standard (Addendum Exposure Draft); and
• to decide how to proceed with the project given that feedback.

The IASB tentatively decided:

1. to finalise the proposed amendments to Section 7 Statement of Cash Flows of the IFRS for SMEs Accounting Standard (Standard) as set out in the Addendum Exposure Draft, but with some minor revisions to clarify that an SME would be required to disclose in aggregate for its supplier finance arrangements:
   1. their key terms and conditions.
   2. the carrying amounts and associated line items of the financial liabilities that are part of those arrangements and for which the suppliers have already received payment from the finance providers, unless it would be impracticable to do so. If it would be impracticable to make this disclosure, the SME would be required instead to disclose that fact.
      Ten of 14 IASB members agreed with this decision.
2. to finalise the proposed amendments to Section 30 Foreign Currency Translation of the Standard as set out in the Addendum Exposure Draft with no changes.
   All 14 IASB members agreed with this decision.
3. to confirm that the amendments described in (a) and (b) to Section 7 and Section 30 of the Standard will have the same effective date as the third edition of the Standard (1 January 2027).
   All 14 IASB members agreed with this decision.
4. to include the same transition reliefs for the amendments described in (a) to Section 7 of the Standard as for amendments to IAS 7 Statement of Cash Flows.
   All 14 IASB members agreed with this decision.

All 14 IASB members:

1. confirmed they were satisfied that the IASB has complied with the applicable due process requirements;
2. agreed with the staff recommendation not to re-expose the proposals in the Addendum Exposure Draft; and
3. confirmed they were satisfied the IASB has undertaken sufficient consultation and analysis to include the proposed amendments to Section 7 and Section 30 in the process for balloting the third edition of the Standard.

At the July 2024 IASB meeting, one IASB member indicated an intention to dissent from issuing the third edition of the Standard. At this meeting, no other IASB member indicated an intention to dissent from issuing the third edition of the Standard with the inclusion of these amendments.

Next steps

The IASB will include the amendments resulting from the Addendum Exposure Draft in the forthcoming third edition of the Standard.

The IASB expects to issue the third edition of the Standard in the first half of 2025.

Maintenance and consistent application

Power Purchase Agreements (Agenda Paper 3)

The IASB met on 17 September 2024 to discuss feedback on the Exposure Draft Contracts for Renewable Electricity, which proposed amendments to IFRS 9 Financial Instruments and IFRS 7 Financial Instruments: Disclosures. The IASB discussed the proposed:

• scope of the amendments (Agenda Paper 3A); and
• requirements on applying paragraph 2.4 of IFRS 9 to a contract to buy nature-dependent electricity (own-use amendments) (Agenda Paper 3B). 

Scope of the proposed amendments (Agenda Paper 3A) 

The IASB tentatively decided to finalise the proposed scope of the amendments, subject to clarifying that contracts within the scope of the proposed amendments:

1. reference nature-dependent electricity generated from sources that depend on natural conditions that cannot be controlled;
2. can be settled net or gross; and
3. expose an entity to cash-flow variability that depends on the contracted amount of nature-dependent electricity.

Thirteen of 14 IASB members agreed with these decisions.

Own-use amendments (Agenda Paper 3B) 

The IASB tentatively decided to finalise the proposed requirements on applying paragraph 2.4 of IFRS 9 to a contract to buy nature-dependent electricity. This finalisation is subject to clarifying the relationship between the proposed requirements and requirements in paragraphs 2.4–2.7 of IFRS 9 and that an entity:

1. applies the additional considerations for these electricity contracts only if:
   1. the contractual features expose the entity to the risk of oversupply of electricity in any delivery interval; and
   2. the entity does not have the practical ability to avoid selling any oversupply of electricity at the market-determined time, based on the design and operation of the market in which electricity is bought.
2. assesses whether it will be a net purchaser over a reasonable amount of time when applying the own-use requirements to such a contract. An entity is a net purchaser if it buys enough electricity in the market in which it buys electricity to offset sales of any oversupply in that same market.
3. making the assessment described in (b), considers:
   1. the seasonality of the nature-dependent source of electricity generation and the entity’s business cycle to decide what constitutes ‘a reasonable amount of time’. The IASB tentatively decided that a ‘reasonable amount of time’ cannot exceed 12 months.
   2. all reasonable and supportable information, including forward-looking information, at the date of the assessment.
   3. whether it has been a net purchaser over a reasonable amount time (but not exceeding 12 months).

Twelve of 14 IASB members agreed with these decisions.

Next step

The IASB will consider further proposed amendments and due process steps.