IASB

Summary - As reported in its “Summary of Board Decisions” publication, the FASB and IASB met on November 19, 2020, for an educational session and discussed the following topics:

IASB project on Goodwill and Impairment/FASB project on Identifiable Intangible Assets and the Subsequent Accounting for Goodwill;
Leases;
Responding to the Covid-19 crisis; and
Supply Chain Financing.

No decisions were made.

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Lease Standard – IASB Proposes Amendments to its Leases Standard

Summary - The IASB proposes to amend IFRS No. 16, Leases, by specifying how a company measures the lease liability in a sale and leaseback transaction. Sale and leaseback transactions are transactions for which a company sells an asset and leases that same asset back from the new owner. IFRS 16 includes requirements for how to account for sale and leaseback transactions at the time the transaction takes place. However, it does not specify how to measure the lease liability when reporting after that date.

The proposed amendment improves the sale and leaseback requirements already in IFRS 16 by providing greater clarity for the company selling and leasing back an asset both at the date of transaction and subsequently. By doing so, the amendment helps ensure the Standard is applied consistently to such transactions.

The proposed amendment does not change the accounting for leases other than those arising in a sale and leaseback transaction. The Exposure Draft, Lease Liability in a Sale and Leaseback, is open for public comment until March 29, 2021.

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Mergers and Acquisitions – IASB Consults on New Accounting Requirements for Mergers and Acquisitions in a Group

Summary - The International Accounting Standards Board (IASB) has launched a public consultation on possible new accounting requirements for mergers and acquisitions involving companies within the same group, business combinations under common control.

International Financial Reporting Standards (IFRS) No. 3, Business Combinations, set out reporting requirements for mergers and acquisitions, referred to as business combinations. However, IFRS 3 does not specify how to report transactions that involve transfers of businesses between companies within the same group. Such transactions are common in many countries around the world.

As a result of this gap in IFRS, companies report similar business combinations in different ways. In some cases, they provide fair-value information about the acquired company and in other cases, they provide book-value information. Moreover, book-value information is provided in various ways and is often insufficient. This diversity in practice makes it difficult for investors to understand the effects of such transactions on companies that undertake them and to compare companies that undertake similar transactions.
The Discussion Paper, Business Combinations under Common Control, sets out the IASB’s preliminary views on how to fill this gap in IFRS. The IASB’s aim is to reduce diversity in practice and to improve transparency and comparability in reporting these transactions.

The IASB’s view is that companies should provide similar information about similar business combinations when the benefits of that information to investors outweigh the costs of providing it. Specifically, the IASB is suggesting that fair-value information should be provided when a business combination under common control affects shareholders outside the group. That suggestion is consistent with the existing requirements in IFRS 3 for mergers and acquisitions between unrelated companies. In all other cases, the IASB is suggesting that book-value information should be provided using a single approach to be specified in IFRS.

The Discussion Paper seeks feedback on the IASB’s preliminary views on when and how each approach should be applied. The comment deadline is September 1, 2021.

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IASB Post-Implementation Review – IASB Publishes Post-Implementation Review of IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities

Summary - The IASB has issued a Request for Information for feedback on the International Financial Reporting Standards (IFRS) for group accounting, IFRS 10, Consolidated Financial Statements; IFRS 11, Joint Arrangements; and IFRS 12, Disclosure of Interests in Other Entities. The IASB published the Request for Information as part of the Post-implementation Review (PIR) of these IFRSs. The comment deadline is May 10, 2021.

The IFRS conducts PIRs to assess the effects of a new IFRS after companies have applied the requirements for some time.

IFRS 10 sets out requirements for the preparation of group, consolidated, financial statements; IFRS 11 addresses how to account for interests in joint arrangements; and IFRS 12 sets out the information to be disclosed in the notes to the financial statements about interests in other companies.

These IFRS Standards have been effective for annual reporting periods beginning on or after January 1, 2013.

The Request for Information seeks feedback on applying the standards and on the information provided to users of financial statements. The IASB will use the feedback on the Request for Information to determine whether any further action is required. In addition, the IASB plans to host webinars to discuss the PIR.

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Sustainability Reporting – IASB Consults on Sustainability Reporting

Summary - The Trustees of the IFRS Foundation have published the IASB Consultation Paper on Sustainability Reporting. The purpose of issuing this Consultation Paper is to assess demand for global sustainability standards and, if demand is strong, assess whether and to what extent the IFRS Foundation might contribute to the development of such standards. Comments on the Consultation Paper are due by December 31, 2020.

The IFRS Foundation was established to develop a single set of globally accepted accounting standards. It is the organization behind International Financial Reporting Standards (IFRS), which are required for use by more than 140 jurisdictions. The Trustees are responsible for the strategic direction and governance of the Foundation as well as for oversight of the IASB.

Amid heightened focus on environmental, social and governance (ESG) matters, developments in sustainability reporting and increased calls for standardization of such reporting, the Trustees are now seeking stakeholder input on the need for global sustainability standards and gauging support for the IFRS Foundation to play a role in the development of such standards.

The Consultation Paper sets out possible ways the IASB might contribute to the development of global sustainability standards by broadening its current remit beyond the development of financial reporting standards and using its experience in international standard-setting, its well-established and supported standard-setting processes and its governance structure.

One possible option outlined in the paper is for the IFRS Foundation to establish a new sustainability standards board. The new board could operate alongside the IASB under the same three-tier governance structure, build on existing developments and collaborate with other bodies and initiatives in sustainability, focusing initially on climate-related matters.

The Consultation Paper sets out critical success factors for the creation of a new board, including achieving sufficient support from public authorities and market participants; working with regional initiatives to achieve global consistency and reduce complexity in the reporting landscape; achieving the appropriate level of funding; and ensuring the current mission of the IFRS Foundation is not compromised.

The IFRS Foundation will schedule webinars to discuss the Consultation Paper and will publish information on the webinars on the project page.

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Interest Rate Reform – IASB Issues Phase 2 of Interest Rate Benchmark Reform

Summary - The International Accounting Standards Board (IASB) has issued amendments to International Financial Reporting Standards (IFRS), Interest Rate Benchmark Reform—Phase 2. The Phase 2 benchmark reform amendments finalize the IASB response to the ongoing reform of inter-bank offered rates (IBOR) and other interest rate benchmarks by issuing a package of amendments to IFRS Standards. The amendments are aimed at helping companies to provide investors with useful information about the effects of the reform on those companies’ financial statements.

These amendments complement those issued in 2019 and focus on the effects on financial statements when a company replaces the old interest rate benchmark with an alternative benchmark rate as a result of the reform.

The Phase 2 benchmark reform amends IFRS 9, Financial Instruments; IAS 39, Financial Instruments: Recognition and Measurement; IFRS 7, Financial Instruments: Disclosures; IFRS 4, Insurance Contracts; and IFRS 16, Leases.

These amendments relate to:

Changes in contractual cash flows: a company will not be required to derecognize or adjust the carrying amount of financial instruments for changes required by the reform, but will instead update the effective interest rate to reflect the change to the alternative benchmark rate;
Hedge accounting: a company will not have to discontinue hedge accounting solely because it makes changes required by the reform, if the hedge meets other hedge accounting criteria; and
Disclosures: a company will be required to disclose information about new risks arising from the reform and how it manages the transition to alternative benchmark rates.

These amendments are effective for annual reporting periods beginning on or after January 1, 2021, with early adoption permitted.

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Checklist – New Edition of IFRS Checklist Published

We have published a new edition of our “Summary Checklist of Recent Authoritative International Financial Reporting Standards" to reflect the amendments made to Classification of Liabilities as Current or Non-current, which amends International Accounting Standards (IAS) No. 1, Presentation of Financial Statements, to defer the effective date by one year.

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Interest Rates – IASB Proposes Further Amendments to IFRS Standards in Response to Interest Rate Benchmark Reform

Summary - The IASB has proposed amendments to IFRS Standards to assist companies in providing useful information to investors about the effects of interest rate benchmark reform on financial statements.

The IASB has been considering the effects of interest rate benchmark reform on financial reporting since 2018, splitting its work into two phases. The first phase culminated in amendments to some IFRS Standards in September 2019, providing temporary exceptions to specific hedge accounting requirements and requiring related disclosures in the period during which there is uncertainty about contractual cash flows arising from interest rate benchmark reform.

The IASB has now published further proposed amendments as part of the second phase of its project. These proposed amendments aim to address issues affecting financial statements when changes are made to contractual cash flows and hedging relationships as a result of the reform.

The main proposed amendments relate to:

Modifications—a company would not derecognize or adjust the carrying amount of financial instruments for modifications required by interest rate benchmark reform, but would instead update the effective interest rate to reflect the change in the interest rate benchmark;
Hedge accounting—a company would not discontinue its hedge accounting solely because of replacing the interest rate benchmark if the hedge meets other hedge accounting criteria; and
Disclosures—a company would disclose information about new risks arising from the interest rate benchmark reform and how it manages the transition to alternative benchmark rates.

The consultation document proposes amendments to the following Standards:

IFRS 9, Financial Instruments;
IAS 39, Financial Instruments: Recognition and Measurement;
IFRS 7, Financial Instruments: Disclosures;
IFRS 4, Insurance Contracts; and
IFRS 16, Leases.

The comment deadline is May 25, 2020.

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Business Acquisitions – IASB Consults on Improving Reporting on Business Acquisitions and Goodwill Accounting

Summary - The IASB has published the Discussion Paper, Business Combinations—Disclosures, Goodwill and Impairment, which seeks feedback on possible improvements to the information companies report about acquisitions of businesses to help investors assess how successful those acquisitions have been. The IASB is also seeking feedback on how companies should account for goodwill arising from such transactions. The comment deadline is September 15, 2020.

Improving disclosures about acquisitions:
Acquiring another business is a common way for companies to grow, although acquisitions do not always later perform as well as initially expected. According to feedback to the IASB, investors would like to know more about how an acquisition is performing in relation to such expectations, not least so that they can hold a company’s management to account for its acquisition decisions.

In response to this feedback, the IASB is suggesting changes to International Financial Reporting Standards (IFRS) that would require a company to disclose information about its objectives for an acquisition and, in subsequent periods, information about how that acquisition is performing against those objectives.

Accounting for Goodwill:
The IASB also has considered whether to change the accounting for goodwill. Currently, companies must test goodwill for impairment annually, but stakeholders have mixed views about whether this test is effective. Some argue that the impairment test informs investors about an acquisition’s performance. Others say that the test is costly and complex, and that impairment losses on goodwill are often reported too late.

The IASB tried to identify a better impairment test that would require a company to report at an earlier date if its goodwill had lost value. The current test provides information to investors, but it tests a broader set of assets than just goodwill. The IASB has concluded that there is no alternative that can target goodwill better and at reasonable cost and believes that the new disclosure requirements would provide investors with the information needed on the performance of an acquisition.

Some stakeholders have suggested that the IASB should reintroduce amortization, which was the requirement in IFRS until 2004. Having considered the pros and cons of amortization, the IASB’s preliminary conclusion is that it should retain the impairment-only approach, because there is no clear evidence that amortizing goodwill would significantly improve the information that companies report to investors.

The Discussion Paper also includes further proposals, including proposals to reduce the cost of the impairment test for preparers.

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Debt – IASB Amends IAS 1 on Classification of Debt as Current or Non-Current

Summary - The International Accounting Standards Board (IASB) issued narrow-scope amendments to International Accounting Standards (IAS 1), Presentation of Financial Statements, to clarify how to classify debt and other liabilities as current or non-current.

The objective of the amendments, Classification of Liabilities as Current or Non-current (Amendments to IAS 1), is promote consistency in applying the IAS 1 requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (that is, due or potentially due to be settled within one year) or non-current. The amendments include clarifying the classification requirements for debt a company might settle by converting it into equity.

The amendments clarify, not change, existing requirements. They are not expected to affect companies’ financial statements significantly. However, these amendments could result in companies reclassifying some liabilities from current to non-current, and vice versa; this could affect a company’s loan covenants. Thus, to give companies time to prepare for the amendments, the IASB decided to provide two years to comply.

The amendments are effective for annual periods beginning on or after January 1, 2022. They should be applied retrospectively. Early application is permitted.

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IFRS for SMEs – IASB Issues Request for Information on Updating IFRS for SMEs

Summary - The International Accounting Standards Board (IASB) has issued the Request for Information: Comprehensive Review of the IFRS for SMEs Standard, soliciting views on the IASB”s approach to updating the IFRS for SMEs® Standard. The comment due date is July 27, 2020.

IFRS for SMEs is the IASB’s simplified accounting standard for small and medium-sized entities. The IFRS for SMEs Standard is required or permitted in more than 80 countries and is used by millions of companies.

The objective of the consultation is to seek views on whether and how to align IFRS for SMEs with full International Financial Reporting Standards (IFRS), developed for publicly accountable entities and currently required in more than 140 jurisdictions.

The Request for Information asks for views on different approaches to updating IFRS for SMEs, as well as views on how it could be aligned with newer IFRS, such as IFRS 9, Financial Instruments; IFRS 15, Revenue from Contracts with Customers; and IFRS 16, Leases.

According to Hans Hoogervorst, Chair of the IASB, ”[t]his review is about determining to what extent the IFRS for SMEs Standard should be updated for developments in IFRS Standards and ensuring it remains a high-quality Standard for the millions of companies that have begun using it since it was first issued 10 years ago.”

The IASB has also issued a Snapshot: Comprehensive Review of the IFRS for SMEs Standard, which provides a summary of the consultation and the Request for Information.

The IASB will use the responses to the Request for Information to help the SMEIG develop recommendations for the IASB on whether and how to amend the IFRS for SMEs Standard. Any proposed changes will be subject to further consultation.

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Non-GAAP Measures – IASB Proposes Guidance to Bring Greater Transparency to Non-GAAP Measures

Summary - The IASB has proposed improvements to the way information is communicated in the financial statements, with a focus on financial performance. Responding to investor demand, the proposals would require more comparable information in the statement of profit or loss and a more disciplined and transparent approach to the reporting of management-defined performance measures (non-GAAP). The comment due date is June 30, 2020.

The proposals cover three main topics:

New subtotals in the statement of profit or loss - Companies would be required to provide three new profit subtotals, including ‘operating profit’. Operating profit is commonly reported by companies but is currently not defined by IFRS Standards, making meaningful comparisons between companies difficult. The new subtotals would give better structure to the information and enable investors to compare companies.

‘Non-GAAP’ transparency - Companies would be required to disclose management performance measures, subtotals of income and expenses that are not specified in IFRS Standards, in a single note to the financial statements. In this note, companies would be required to explain why the measures provide useful information, how they are calculated and to provide a reconciliation to the most comparable profit subtotal specified by IFRS Standards. These requirements would add much-needed transparency and discipline to the use of non-GAAP measures and make it easier for investors to find the information they need to make their own analyses.

Improved disaggregation of information - Investors sometimes find it difficult to unpick a company’s reported information because items may be lumped together with insufficient labelling or explanations. Therefore, the IASB has proposed new guidance to help companies disaggregate information in the most useful way for investors. Companies would also be required to provide better analysis of their operating expenses and to identify and explain in the notes any unusual income or expenses, using the IASB’s definition of ‘unusual’. These requirements would help investors analyze companies’ earnings and forecast future cash flows.

The proposals would result in a new IFRS Standard that sets out general presentation and disclosure requirements relevant for all companies, replacing IAS 1 Presentation of Financial Statements. The IASB is also proposing to amend some other IFRS Standards.

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Accounting Policy Disclosures – IASB Proposes Improvements to Accounting Policy Disclosures

Summary - The IASB has published for public comment proposed narrow-scope amendments to IAS 1, Presentation of Financial Statements, and IFRS Practice Statement 2, Making Materiality Judgements, to help companies provide useful accounting policy disclosures to users of financial statements.

IAS 1 requires companies to disclose their “significant” accounting policies. The IASB is proposing to replace the reference to “significant” with a requirement to disclose “material” accounting policies to clarify the threshold for disclosing information.
The proposals state that information about an accounting policy is material if, when considered together with other information included in a company’s financial statements, it can influence financial statement users’ decisions about the company.
The IASB is also proposing to add guidance to IAS 1 to help companies understand what makes an accounting policy material and to update IFRS Practice Statement 2 by adding further explanations and examples to help companies apply the concept of materiality in making decisions about accounting policy disclosures.

The IASB is asking stakeholders to comment on the proposed amendments and is particularly interested in comments on whether the examples proposed for inclusion in the Practice Statement are helpful.

The comment period on the proposal is open for comment until November 29, 2019.

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IASB Proposed to Update Conceptual Framework Reference in IFRS 3

Summary - The International Accounting Standards Board (IASB) has published for public consultation proposed narrow-scope amendments to IFRS 3, Business Combinations. The amendments update a reference to the Conceptual Framework for Financial Reporting without changing the accounting requirements for business combinations. Comments are due by September 27, 2019.

IFRS 3 specifies how a company should account for the assets and liabilities it acquires when it obtains control of a business. It refers companies to the IASB’s Conceptual Framework to determine what constitutes an asset or a liability.

IFRS 3 refers to an old version of the Conceptual Framework. The IASB proposes to update IFRS 3 so it refers instead to the latest version, issued in March 2018.

Updating the reference without making any other changes to IFRS 3 could change the accounting requirements for business combinations because the liability definition in the 2018 Conceptual Framework is broader than that in previous versions. Companies would need to record provisions and contingent liabilities when they acquire a business they would not record in other circumstances. To avoid this, the IASB also proposes that for provisions and contingent liabilities, companies refer to IAS 37, Provisions, Contingent Liabilities and Contingent Assetsinstead of the Conceptual Framework to determine what constitutes a liability.

This change is proposed to stand until the IASB decides whether and how to amend IAS 37 to align it with the 2018 Conceptual Framework.

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IASB Proposes Amendments for Interest Rate Benchmark Reform

Summary - The International Accounting Standards Board (IASB) has published the Exposure Draft, Interest Rate Benchmark Reform–Proposed amendments to IFRS 9 and IAS 39. The new Exposure Draft proposes changes to International Accounting Standard (IAS) 39, Financial Instruments: Recognition and Measurement, and International Financial Reporting Standard (IFRS) 9, Financial Instruments, in light of the reform of interest rate benchmarks such as interbank offer rates (IBORs). Comments were due by June 17, 2019. The IASB has proposed to amend IFRS 9 and IAS 39 to provide relief from specific hedge accounting requirements that could have resulted in the discontinuation of hedge accounting solely due to the uncertainty arising from interest rate benchmark reform. IFRS require companies to use forward-looking information to apply hedge accounting. While interest rate benchmark reform is ongoing, there is uncertainty on when the current interest rate benchmarks will be replaced and with what interest rate. Without the proposed amendments, this uncertainty could result in a company having to discontinue hedge accounting solely because of the reform’s effect on its ability to make forward-looking assessments. This could result in reduced usefulness of the information in the financial statements for investors.The IASB is also considering the accounting implications arising from the reform in two stages. These proposed amendments relate to the effects of uncertainty in the period leading up to the replacement of interest rate benchmarks. As more information becomes available about the replacements, the IASB will assess the potential accounting implications of reform and determine whether to take further action. The IASB expects to release the final standard later in 2019.

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IASB Amends Definition of Material

Summary - The IASB has issued amendments to its definition of “material” to make it easier for companies to make materiality judgements. The definition of material, an important accounting concept in IFRS Standards, helps companies decide whether information should be included in their financial statements. The updated definition amends IAS 1, Presentation of Financial Statements, and IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors.

The amendments are a response to findings that some companies experienced difficulties using the old definition when judging whether information was material for inclusion in the financial statements.

The amendments clarify the definition of material and how it should be applied by including in the definition guidance that until now has featured elsewhere in IFRS Standards. In addition, the explanations accompanying the definition have been improved. Finally, the amendments ensure that the definition of material is consistent across all IFRS Standards.

The changes are effective from January 1, 2020, but companies can decide to apply them earlier.

Old definition: Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements (IAS 1 Presentation of Financial Statements).
New definition: Information is material if omitting, misstating or obscuring it could reasonably be expected to influence the decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.

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FASB and IASB Boards Hold Joint Educational Series

Summary - As reported in its "Summary of Board Decisions" publication, the FASB and IASB held a joint educational meeting on June 19, 2018. The Boards discussed a number of topics, including:

Segment reporting;
Financial performance reporting/primary financial statements;
Disclosure framework/disclosure initiative;
Fair value measurement disclosures/fair value post-implementation review;
Goodwill and impairment; and
Implementation of the revenue (Topic 606, IFRS 15) and leases (Topic 842, IFRS 16) standards.

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IASB Releases Revised Conceptual Framework

Summary - The International Accounting Standards Board (IASB) has issued the revised Conceptual Framework for Financial Reporting (Conceptual Framework) that underpins International Financial Reporting Standards (IFRS).

The Conceptual Framework provides the fundamental concepts of financial reporting that guide the IASB in developing IFRSs. It also helps ensure that IFRSs are conceptually consistent and that similar transactions are treated the same way. In this way, the Conceptual Framework and IFRS provide consistent and useful information for investors and others.

The Conceptual Framework also assists companies in developing accounting policies. The Conceptual Framework provides companies with guidance in situations and transactions that no IFRS addresses directly. It also helps stakeholders understand IFRSs more broadly.

The revised Conceptual Framework includes:

A new chapter on measurement;
Guidance on reporting financial performance;
Improved definitions and guidance, particularly including the definition of a liability; and
Clarifications in important areas, such as the roles of stewardship, prudence, and measurement uncertainty in financial reporting.

Concomitantly with the Conceptual Framework, the IASB has issued a Basis for Conclusions and Amendments to References to the Conceptual Framework in IFRS Standards to update references in IFRS Standards to previous versions of the Conceptual Framework.

The IASB has also published free supporting materials for the revised Conceptual Framework, including:

Project summary;
Feedback statement with the IASB responses to stakeholder comments during the consultation period;
Fact sheet; and
Web video Debrief introduction to the Conceptual Framework, featuring Hans Hoogervorst.

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IASB Proposes Amendments to IAS 8 on Accounting Policy Change

Summary - The IASB has released the exposure draft, Accounting Policy Changes (Proposed Amendments to IAS 8) (Exposure Draft). The Exposure Draft proposes narrow-scope amendments to International Accounting Standards (IAS) 8, Accounting Policies, Changes in Accounting Estimates and Errors. The comment deadline is July 27, 2018.

IAS 8 provides requirements for selecting and changing accounting policies. The circumstances under which companies would change accounting policies include the adoption of new requirements under International Financial Reporting Standards (IFRS) or when an accounting change would provide better information for financial statement users. IAS 8 requires a company that changes an accounting policy to apply the new policy as if it had always applied that policy. This requirement does not apply in situations where such application is not practicable.

A company also may decide to change an accounting policy based on an agenda decision published by the IFRS Interpretations Committee (IFRIC). IFRIC considers questions of application of IFRS to particular situations. IFRIC evaluates particular situations and decides whether to recommend amendments or additions to IFRS and provides reasoning for their conclusion. Although IFRIC agenda decisions are non-authoritative, they include explanations on application of IFRSs.

The Exposure Draft proposes guidance on deciding how far back to apply a change in accounting policy that results from an agenda decision. The proposal, if adopted in its present form, provides that in deciding how far back to apply an accounting policy change, the company is to consider not only whether the change is practicable, but should perform a cost benefit analysis of the change. That analysis should consider the benefits to users and the costs to the company of making the change.

The IASB's purpose in proposing these narrow-scope amendments is to promote greater consistency in IFRS application, reduce company burdens in changing accounting policies resulting from an agenda decision, and improve financial reporting.

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