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LATEST MATTERS FROM THE INTERNATIONAL ACCOUNTING STANDARDS BOARD (IASB)
The following is a summarized update of key matters arising from the discussions and decisions taken by the IASB at its meetings on the following dates:
- 22–25 April2024
- 20 and 22 May 2024
- 19-21 June 2024
The full update, as published by the IASB, can be found here.
RESEARCH AND STANDARD-SETTING
POST-IMPLEMENTATION REVIEW OF IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS
The IASB met on 24 April 2024 and continued to discuss the results of the Post implementation review of IFRS 15:
Applying IFRS 15 in response to the feedback, the IASB:
With IFRS 9
Tentatively decided to take no further action on matters related to:
a. the accounting for price reductions;
b. the accounting for liabilities arising from IFRS 15; and
c. other aspects of applying IFRS 15 with IFRS 9.
With IFRS 3
Tentatively decided to take no further action on the matters related to:
a. the measurement of contract assets and contract liabilities acquired as part of a business combination; and
b. other aspects of applying IFRS 15 with IFRS 3 Business Combinations.
With IFRS 10 and IFRS 11
To confirm it will consider the priority of the matters related to applying IFRS 15 with IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements in the next agenda consultation instead of as part of the post-implementation review of IFRS 15.
With IFRS 16
Tentatively decided:
a. to gather further evidence in the forthcoming post-implementation review of IFRS 16 Leases on the application matters related to assessing whether the transfer of an asset is a sale in a sale and leaseback transaction; and
b. to take no further action on the matters related to:
i. the accounting for contracts that contain lease and non-lease components; and
ii. other aspects of applying IFRS 15 with IFRS 16.
With other IFRS Accounting Standards
Tentatively decided:
a. to classify as low priority the matter related to applying the requirements in IFRIC 12 Service Concession Arrangements on contractual obligations to maintain or restore service concession infrastructure; and
b. to take no further action on the other matters related to applying IFRS 15 with other IFRS Accounting Standards.
Determining the transaction price—Consideration payable to a customer and significant financing component
Tentatively decided:
a. to classify as low priority the matters related to the consideration payable to a customer; and
b. to take no further action on the matters related to:
i. the discount rate for contracts with a significant financing component; and
ii. other aspects of accounting for a significant financing component.
Other matters
Tentatively decided to take no further action on the matters related to:
a. allocation of the transaction price to performance obligations in a contract; and
b. other aspects of applying IFRS 15 raised by respondents to Question 11 of the Request for Information.
SECOND COMPREHENSIVE REVIEW OF THE IFRS FOR SMES ACCOUNTING STANDARD
Proposed revised Section 23 Revenue from Contracts with Customers—Disclosure requirements
The IASB tentatively decided to withdraw its proposal to require an SME to disclose revenue disaggregated into categories, showing separately, as a minimum, revenue arising from:
a. the sale of goods;
b. the rendering of services;
c. royalties;
d. commissions; and
e. any other significant types of revenue from contracts with customers.
Instead, the IASB tentatively decided to include in the proposed revised Section 23 of the IFRS for SMEs Accounting Standard:
a. a requirement that an SME disclose revenue disaggregated into categories that depict its financial performance; and
b. examples of disaggregation categories that might be appropriate for SMEs to use.
The IASB tentatively decided to confirm its proposals to require an SME to disclose:
a. the opening and closing balances of receivables, contract assets and contract liabilities from contracts with customers;
b. revenue recognised in the reporting period that was included in the contract liability balance at the beginning of the period; and
c. the closing balances of assets recognised from the costs incurred to fulfil a contract with a customer, by main category of asset.
The IASB tentatively decided to withdraw its proposals to require an SME:
a. to disclose revenue recognised in the reporting period from promises satisfied or partially satisfied in previous periods;
b. to disclose the amount of amortisation and any impairment losses recognised in the reporting period from assets recognised from the costs incurred to fulfil a contract with a customer; and
c. to provide a quantitative or qualitative explanation of the significance of unsatisfied promises and when they are expected to be satisfied.
The IASB tentatively decided to require an SME:
a. to disclose a description of the nature of the goods or services that the SME has promised to transfer to customers, highlighting any promises to arrange for another party to transfer goods or services to the customer; and
b. to explain the judgements that had a significant effect on the amounts the SME recognised in its financial statements that it made when:
i. determining the transaction price; and
ii. allocating the transaction price to the promises identified in the contract.
The IASB tentatively decided to amend paragraph 4.11(b) of the Standard to remove the requirement for an SME to subclassify trade and other receivables to show separately receivables arising from accrued income not yet billed.
Proposed new Section 12 Fair Value Measurement—Use of plainer language
The IASB tentatively decided:
a. to consider whether plainer language can be used in the new and revised sections of the third edition of the Standard; and
b. to include in the proposed new Section 12 of the Standard the definition of ‘highest and best use’ used in IFRS 13 Fair Value Measurement.
Intragroup issued financial guarantee contracts
The IASB tentatively decided it would explore measuring intragroup financial guarantee contracts issued for nil consideration by applying Section 21 Provisions and Contingencies.
Proposed revised Section 23 Revenue from Contracts with Customers—Other matters raised in feedback
The IASB tentatively decided:
a. to change the requirement proposed in paragraph 23.14(a)(ii) of the Exposure Draft to match paragraph 21(a)(ii) of IFRS 15 Revenue from Contracts with Customers;
b. not to add the first sentence of paragraph 19 of IFRS 15 to the revised Section 23 proposed in the Exposure Draft;
c. to specify in the revised Section 23 that an SME accounts for a contract with renewal options based on the contract’s expected term for only the purpose of allocating the transaction price;
d. to change the requirements proposed in paragraph 23.11 of the Exposure Draft to match the last sentence of paragraph 11 of IFRS 15;
e. to change the requirements proposed in paragraph 23.42 of the Exposure Draft to match paragraph 49 of IFRS 15; and
f. to change the requirement proposed in paragraph 23.110 of the Exposure Draft to match the first sentence of paragraph 99 of IFRS 15.
The IASB also tentatively decided to change the requirements for accounting for refund liabilities proposed in the Exposure Draft to use the same level of confidence (highly probable) used in the requirements for accounting for variable consideration and sale with a right of return.
Proposed revised Section 23 Revenue from Contracts with Customers—Length and language
The IASB tentatively decided to add to the revised Section 23 the notion of a transformative relationship, as explained in paragraph BC116K of the Basis for Conclusions on IFRS 15 Revenue from Contracts with Customers.
Section 9 Consolidated and Separate Financial Statements—Other matter raised in feedback
The IASB tentatively decided to confirm its proposed amendment in the Exposure Draft that would require an SME to disclose the portion of the gain or loss resulting from the measurement of any investment retained in a former subsidiary at its fair value at the date when control is lost.
Disclosure requirements—IFRS for SMEs Accounting Standard and IFRS 19 Subsidiaries without Public Accountability: Disclosures
The IASB tentatively decided:
a. to add a requirement to Section 11 Financial Instruments for an SME to disclose a maturity analysis for financial liabilities (based on paragraph 39 of IFRS 7 Financial Instruments: Disclosures);
b. to withdraw paragraph 6.3A of the Exposure Draft, which proposed to require an SME to disclose dividends paid (in aggregate or per share) separately for ordinary shares and other shares;
c. to add a requirement for an SME to disclose (based on paragraph 137 of IAS 1 Presentation of Financial Statements):
i. the amount of dividends proposed or declared before the financial statements were authorised for issue, but not recognised as a distribution to owners during the period, and the related amount per share; and
ii. the amount of any cumulative preference dividends not recognised; and
d. to add a requirement to Section 28 Employee Benefits for an SME to disclose expected contributions to a defined benefit plan for the next annual reporting period (based on paragraph 147(b) of IAS 19 Employee Benefits).
Transition to the Third edition of the IFRS for SMEs Accounting Standard
The IASB tentatively decided:
a. to proceed with the transition requirements proposed in the Exposure Draft.
b. to add a relief from retrospective application for SMEs applying the amended paragraph 28.19 in Section 28 Employee Benefits. An SME applying the relief would not be required to adjust the carrying amount of assets covered by other sections of the Standard for changes in employee benefit costs that were included in the carrying amount before the date of initial application.
RATE-REGULATED ACTIVITIES (RRA)
Discounting of future cash flows—Minimum interest rate
Regarding the prospective RRA Standard, the IASB tentatively decided:
a. to provide guidance on the estimation of the minimum interest rate, and to include in that guidance principles used in other IFRS Accounting Standards to help entities carry out that estimation;
b. to exempt an entity from applying the proposals on the minimum interest rate to a regulatory asset that arises from variances between estimated and actual costs or volume, and to require an entity to apply the requirements once the regulator determines the final balance to be included in future regulated rates; and
c. to require an entity that chooses to apply the exemption described in (e) to disclose that fact and the carrying amount of regulatory assets at the end of the reporting period to which the entity has applied that exemption.
Scope—Interaction with IFRS 17
The IASB tentatively decided to exclude from the scope of the prospective RRA Standard regulatory assets and regulatory liabilities that might arise when premiums charged in insurance contracts that fall within the scope of IFRS 17 are regulated.
Amendments to IFRS 3 and IFRS 5
The IASB tentatively decided to retain the proposals in the Exposure Draft:
a. to create an exception to the recognition and measurement principles in IFRS 3 for regulatory assets acquired and regulatory liabilities assumed; and
b. to exclude regulatory assets from the scope of IFRS 5.
EQUITY METHOD
The IASB tentatively decided:
a. to propose that if a parent entity applies the equity method to its investment in a subsidiary in its separate financial statements, then loses control of that subsidiary and the former subsidiary becomes an associate, and the parent entity continues to apply the equity method, the parent entity would apply paragraph 24 of IAS 28.
b. to delete from paragraph 32 of IAS 28 ‘included as income in the determination of the entity’s share of the associate or joint venture’s profit or loss’, thereby not specifying the line item in the statement of profit or loss in which an investor includes income and expenses that arise when applying the equity method.
c. to propose that an investor or joint venturer would provide the same disclosures about contingent consideration for purchasing an additional interest in an associate or joint venture as provided on obtaining significant influence or joint control.
d. to propose that, if an investor or joint venturer has recognised contingent consideration as an equity instrument and measured that equity instrument at fair value at the date the investor obtained significant influence or the joint venturer obtained joint control, the investor would not remeasure that contingent consideration. This requirement would also apply if an investor or joint venturer has purchased an additional interest.
The IASB tentatively decided not to add to the scope of the project the application question ‘in which order does an investor or joint venturer that has previously reduced the carrying amount of the investment to nil, recognise its share of the associate’s or joint ventures comprehensive profits that exceed its share of losses not recognised?’.
POST-IMPLEMENTATION REVIEW OF IFRS 9—IMPAIRMENT
The IASB tentatively decided:
a. to classify as low priority the matters relating to financial guarantee contracts and to consider these matters during the next agenda consultation.
b. to take no additional action on the matters that arise from applying the impairment requirements in IFRS 9 with other requirements in that Standard—namely, the requirements for modification, derecognition and write-off of financial assets. The IASB had already decided to consider these matters as part of its pipeline project on Amortised Cost Measurement.
c. to take no further action on the other matters discussed.
Credit risk disclosures
The IASB tentatively decided to classify as medium priority the matters related to disclosure requirements in IFRS 7 and to add to its research pipeline a project to make targeted improvements to those requirements.
Other matters
The IASB tentatively decided to take no action on matters related to:
a. the simplified approach for recognising expected credit losses; and
b. the addition of illustrative examples to IFRS 9 Financial Instruments for some types of financial instruments, such as those between related parties.
Summary of the IASB’s response to the PIR feedback and next step
The IASB decided that sufficient work has been completed to conclude the Post-implementation Review of IFRS 9—Impairment and to prepare a project summary and feedback statement.
DYNAMIC RISK MANAGEMENT
The IASB met to continue its discussions on the Dynamic Risk Management (DRM) model:
Capacity assessment
The IASB tentatively decided that:
a. an entity be required to measure the maximum future economic benefit of its current net open risk position at the reporting date based on the present value of that position.
b. an entity that has recognised a capacity shortfall in the DRM adjustment in profit or loss be required to recognise the unwinding of that shortfall in future periods on either a straight-line basis or on another systematic and rational basis over the risk-management time horizon.
c. an entity not be permitted to reverse any capacity shortfalls it has previously recognised in profit or loss.
Presentation requirements
The IASB discussed the presentation requirements of the DRM model. The IASB tentatively decided that an entity be required:
a. to present the unwinding of the DRM adjustment recognised during the reporting period as a net amount in a separate line item in the statement of profit or loss;
b. to present any misalignment (between the net gains or losses from designated derivatives and the DRM adjustment) recognised during the reporting period together with the fair value gains or losses from other derivatives; and
c. to present the DRM adjustment as a net amount in a separate line item in the statement of financial position at the end of the reporting period.
MAINTENANCE AND CONSISTENT APPLICATION
Climate-related and Other Uncertainties in the Financial Statements
The IASB tentatively decided:
a. to provide examples to illustrate how an entity applies IFRS Accounting Standards to report the effects of climate-related and other uncertainties in its financial statements
b. to include the examples as illustrative examples that would accompany IFRS Accounting Standards; and
c. to publish an exposure draft to obtain feedback from stakeholders about the examples.
Provisions—Targeted Improvements
Present obligation recognition criterion
The IASB tentatively decided to propose:
a. updating the ‘liability’ definition and the wording of the present obligation recognition criterion applied in IAS 37 to align them with the Conceptual Framework for Financial Reporting (Conceptual Framework) definition of a liability;
b. clarifying the requirements supporting the present obligation recognition criterion by:
i. separating out and explaining three conditions within the criterion; and
ii. expanding the decision tree in the Guidance on implementing IAS 37 Provisions, Contingent Liabilities and Contingent Assets to show the process an entity could follow to determine whether to recognise a provision, disclose a contingent liability or do neither;
c. replacing the requirements supporting the present obligation recognition criterion with new requirements based on concepts in the Conceptual Framework, and then withdrawing IFRIC 21 Levies;
d. improving the wording of the explanations of the application requirements for restructuring provisions, without changing those requirements;
e. adding new examples to the Guidance on implementing IAS 37 Provisions, Contingent Liabilities and Contingent Assets and updating the explanation of the conclusions for some of the existing examples, without changing those conclusions; and
f. adding no requirements relating specifically to net zero transition commitments.
Threshold-triggered costs
The IASB tentatively decided to propose adding application requirements to IAS 37 for threshold-triggered costs, specifying that:
a. a present obligation for a threshold-triggered cost arises as the entity carries out the activity that contributes to the total amount of activity on which the cost is measured; and
b. at any date within the measurement period, the amount of the present obligation is a portion of the total estimated cost for the measurement period—the portion being the amount attributable to the activity carried out to that date.
Discount rates—Application guidance
The IASB tentatively decided to propose:
a. clarifying that the time value of money reflected in the discount rate for a provision is represented by a risk-free rate; and
b. providing no further application guidance on estimating the time value of money.
Discount rates—Disclosure requirements
The IASB tentatively decided to propose requiring an entity to disclose, for each class of provision:
a. the rate or rates used in measuring the provision; and
b. the approach used to determine those rates.
Sweep issues
The IASB tentatively decided to propose in an exposure draft:
a. to retain the scope of IAS 37, instead of widening it to include levies whose timing and amount are certain;
b. to add to IFRS 19 Subsidiaries without Public Accountability: Disclosures a requirement for an entity to disclose the discount rate(s) used in measuring a provision, but not to add to IFRS 19 a requirement for an entity to disclose the approach used to determine the rate(s); and
c. to delete paragraphs 21A–21C from IFRS 3 Business Combinations, thereby removing the exception to the recognition principle in IFRS 3 that would become redundant as a result of the proposed amendments to IAS 37.
Transition requirements
The IASB tentatively decided to propose in the exposure draft that an entity apply the proposed amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors, with two exceptions.
The first exception would apply to the proposed amendment to the discount rate requirements affecting provisions for asset decommissioning, restoration or similar costs that are added to the cost of the related asset. The exception would permit an entity to apply a simplified retrospective approach, whereby in the year of transition the entity would:
a. apply the amended requirements in IAS 37 to restate the provision at the start of the first period for which it provides comparative information; and
b. apportion the amount by which it adjusts the provision at that date between the related asset and retained earnings:
i. assuming the current discount rate(s) and estimates of cash flows used in measuring the provision have not changed since the provision was first recognised; and
ii. using current estimates of the useful life of the related asset.
The second exception would apply to the proposed amendment specifying the costs an entity would include in measuring a provision. The exception would require an entity to apply the proposed amendment:
a. only to obligations that exist on, or arise after, the beginning of the annual reporting period in which the entity first applies that amendment.
b. without restating comparative information. Instead, the entity would recognise the cumulative effect of applying the amendment as an adjustment to the opening balance of retained earnings or other component of equity, as appropriate, at the date of initial application.
The IASB tentatively decided to propose in the exposure draft to make no amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards as a result of the amendments proposed in this project.
Rate-regulated Activities
Interaction with IAS 12
Regarding the prospective IFRS Accounting Standard on rate-regulated activities, the IASB tentatively decided to clarify that:
a. the income tax consequences of a regulatory asset or regulatory liability might give rise to a separate regulatory asset or regulatory liability; and
b. an entity would determine the tax base of a regulatory asset or regulatory liability by applying the requirements in IAS 12.
Amendments to IAS 8 and suggested amendments to other IFRS Accounting Standards
The IASB tentatively decided to retain the proposal in the Exposure Draft to delete the temporary exception in paragraph 54G of IAS 8. This exception requires an entity developing an accounting policy for regulatory account balances to refer to the Framework for the Preparation and Presentation of Financial Statements instead of the Conceptual Framework for Financial Reporting issued in 2018.
IFRS INTERPRETATIONS COMMITTEE (IC) LATEST DECISIONS SUMMARY
The following is a summarised update of key matters arising from the discussions and decisions taken by the IFRIC at its meetings on the following dates:
- 5 March 2024
- 11 June 2024
The full updates, as published by the IASB, can be found here.
As the following tentative agenda decisions were not objected by the IASB in its April 2024 meeting they were published as Committee’s Agenda Decisions in an addendum to the IFRIC Update of 5 March 2024:
Climate-related Commitments (IAS 37 Provisions, Contingent Liabilities and Contingent Asset)
The Committee considered feedback on the tentative Agenda Decision that was published in the IFRIC Update in November 2023. As the tentative agenda decisions was not objected by the IASB in its April 2024 meeting it was published with minor changes as a Committee’s Agenda Decision in an addendum to the IFRIC Update of 5 March 2024:
In the request the Committee was asked to clarify:
a. whether an entity’s commitment to reduce or offset its greenhouse gas emissions creates a constructive obligation for the entity;
b. whether a constructive obligation created by such a commitment meets the criteria in IAS 37 for recognising a provision; and
c. if a provision is recognised, whether the corresponding amount is recognised as an expense or as an asset when the provision is recognised.
The fact pattern was described as follows:
In 20X0 an entity, a manufacturer of household products, publicly states its commitment:
a. to gradually reduce its annual greenhouse gas emissions, reducing them by at least 60% of their current level by 20X9; and
b. to offset its remaining annual emissions in 20X9 and in subsequent years by buying carbon credits and retiring them from the carbon market.
To support its statement, the entity publishes a transition plan setting out how it will gradually modify its manufacturing methods between 20X1 and 20X9 to achieve the 60% reduction in its annual emissions by 20X9. The modifications will involve investing in more energy-efficient processes, buying energy from renewable sources and replacing existing petroleum-based product ingredients and packaging materials with lower-carbon alternatives. Management is confident that the entity can make all these modifications and continue to sell its products at a profit.
In addition to publishing the transition plan, the entity takes several other actions that publicly affirm its intention to fulfil its commitments.
The Committee concluded that in the fact pattern described:
a. whether the entity’s statement of its commitments to reduce and offset its greenhouse gas emissions creates a constructive obligation to fulfil those commitments will depend on the facts of the statement and the circumstances surrounding it.
b. if the statement creates a constructive obligation:
i. the entity does not recognise a provision when it makes the statement in 20X0. At that time, the constructive obligation is not a present obligation as a result of a past event.
ii. the entity does not recognise a provision between 20X0 and 20X9 because it does not have a present obligation as a result of a past event until it has emitted the greenhouse gases it has committed to offset.
iii. as the entity emits greenhouse gases in 20X9 and in subsequent years, it will incur a present obligation to offset these past emissions. If the entity has not yet settled that obligation and a reliable estimate can be made of the amount of the obligation, the entity recognises a provision.
Classification of Cash Flows related to Variation Margin Calls on ‘Collateralised-to-Market’ Contracts (IAS 7 Statement of Cash Flows)
The Committee received a request about how an entity presents, in its statement of cash flows, the cash flows related to variation margin call payments made on contracts to purchase or sell commodities at a predetermined price and at a specified time in the future.
The fact pattern describes a contract to purchase or sell commodities at a predetermined price and at a specified time in the future. An entity may enter into such a contract for different purposes and applies the relevant requirements in IFRS Accounting Standards accordingly. For example, the entity may use such a contract:
a. to receive commodities in accordance with its expected usage requirements.
b. to hedge against fluctuations in the prices of commodities.
c. for trading purposes.
Such a contract typically has a maturity of up to three years, can be settled physically or net in cash and is both:
a. centrally cleared—after a new contract is entered into, for the purpose of settlement via a central counterparty, the contract is novated by each counterparty to the central counterparty.
b. 'collateralised to market’—during the life of the contract, the counterparties make or receive daily payments based on the fluctuations of the fair value of the contract (variation margin call payments). These variation margin call payments represent a transfer of cash collateral (hence the contract is ‘collateralised to market’), rather than a partial settlement of the contract (as in ‘settled-to-market’ contracts).
The request asked how an entity presents, in its statement of cash flows, the cash flows related to variation margin call payments made on such a contract.
Conclusion
Evidence gathered by the Committee did not indicate that the matter described in the request is widespread. On the basis of that evidence, the Committee concluded in its June meeting that the matter described in the request does not have widespread effect. Consequently, the Committee tentatively decided not to add a standard-setting project to the work plan.
UPDATES FROM RSM MEMBER FIRMS
RSM Australia has published an article on the IASB’s decision to discontinue their common control project. As Business Combinations under common Control are scoped out in IFRS 3 this very relevant accounting topic stays “something of a ‘black hole’ in IFRS”.