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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:
- 22–23 January 2024
- 19–22 February 2024
- 18–21 March 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 23 January 2024 to discuss:
a) a summary of the feedback on the Request for Information Post-implementation Review of IFRS 15 Revenue from Contracts with Customers; and
b) a plan for the next phase of the project.
The IASB was not asked to make any decisions.
During the February 2024 meeting, the IASB decided the following:
Identifying performance obligations in a contract
In response to the feedback, the IASB tentatively decided to take no further action on matters related to:
a) applying the notion of a 'distinct' good or service;
b) identifying a promise to transfer goods or services;
c) convergence with FASB ASC Topic 606, Revenue from Contracts with Customers; and
d) other aspects of identifying performance obligations in a contract.
The IASB also tentatively decided to discuss at a later date whether to add some explanations from paragraphs BC105 and BC116K of the Basis for Conclusions to the Standard, along with possible clarifications of other aspects of IFRS 15. These explanations would help to clarify some aspects of (a) and combined with the other possible clarifications, might result in sufficient improvement to IFRS 15 to warrant standard-setting.
Principal versus agent considerations
In response to the feedback, the IASB tentatively decided:
a) to classify as low priority the matter related to assessing control over services and intangible assets and to consider this matter in the next agenda consultation; and
b) to take no further action on the matters related to:
i. clarifying the relationship between the concept of control and the indicators in paragraph B37;
ii. identifying a customer of a supplier that sells its goods or services through an intermediary;
iii. identifying performance obligations in arrangements involving principal versus agent determinations;
iv. applying the disclosure requirements about principal versus agent determinations; and
v. other aspects of principal versus agent determinations.
Licensing
In response to the feedback, the IASB tentatively decided to take no further action on matters related to:
a) accounting for license renewals;
b) determining the nature of a license;
c) determining the scope of licensing guidance;
d) accounting for sales-based or usage-based royalties; and
e) other aspects of licensing.
Determining the transaction price
In response to the feedback, the IASB tentatively decided to take no further action on the matters related to:
a) variable consideration;
b) sales-based taxes;
c) non-cash consideration; and
d) other aspects of determining the transaction price.
The IASB also discussed matters related to the consideration payable to a customer. The IASB was not asked to make any decisions on these matters.
Determining when to recognise revenue
In response to the feedback, the IASB tentatively decided to take no further action on the matters related to:
a) the application of the concept of control and the criteria for recognising revenue over time;
b) the measurement of progress for performance obligations satisfied over time; and
c) other aspects of determining when to recognise revenue.
Disclosure requirements
In response to the feedback, the IASB tentatively decided to take no further action on the matters related to:
a) respondents’ concerns about the cost–benefit balance of some disclosure requirements;
b) variation in the quality of disclosed information; and
c) other aspects of disclosure requirements.
SECOND COMPREHENSIVE REVIEW OF THE IFRS FOR SMES ACCOUNTING STANDARD
Reconciliation for liabilities arising from financing activities
The IASB tentatively decided to finalise the proposal in the Exposure Draft to require SMEs to disclose a reconciliation between the opening and closing balances in the statement of financial position for liabilities arising from financing activities.
Agriculture: Bearer plants
The IASB tentatively decided to finalise the proposals for bearer plants in the Exposure Draft. However, the IASB tentatively decided to clarify that Section 34 Specialised Activities of the IFRS for SMEs Accounting Standard does not apply to bearer plants that can be measured separately, on initial recognition and on an ongoing basis, from the produce on them without undue cost or effort.
Impairment of financial assets
The IASB tentatively decided that, for a small population of SMEs with significant exposure to credit risk:
a) the relevance principle of the IASB’s alignment approach is satisfied.
b) the population be defined as SMEs that provide financing to customers as one of their primary businesses.
c) the population be required to apply an expected credit loss model.
Given these three tentative decisions, the IASB also tentatively decided:
a) to require SMEs that do not provide financing to customers as one of their primary businesses to continue to use the incurred loss model to measure the impairment of their financial assets.
b) to require SMEs that provide financing to customers as one of their primary businesses to apply an expected credit loss model, aligned with the simplified approach in IFRS 9 Financial Instruments, to measure the impairment of their financial assets.
Section 20 Leases and IFRS 16 Leases
The IASB tentatively decided to consider aligning the IFRS for SMEs Accounting Standard with IFRS 16 Leases at the next comprehensive review of the IFRS for SMEs Accounting Standard.
Proposed amendments to Section 9 Consolidated and Separate Financial Statements
The IASB tentatively decided:
a) to delete paragraph 9.23(b) of the Standard, which requires an SME to disclose the basis for concluding that control exists when the parent does not own more than half of the voting power in the other entity; and
b) to add to paragraph 8.6 of the Standard examples of the types of judgements that management might make in the process of applying the SME’s accounting policies and that have the most significant effect on the amounts recognised in the financial statements.
Proposed amendments to Section 19 Business Combinations and Goodwill
The IASB tentatively decided to proceed with the amendments to Section 19 of the Standard proposed in the Exposure Draft, including:
a) introducing requirements for an acquisition achieved in stages (step acquisition) as set out in IFRS 3 Business Combinations;
b) not introducing the fair value option for measuring non-controlling interests in the acquiree; and
c) not including the application guidance in paragraphs B36 and B53 of IFRS 3 Business Combinations on reacquired rights arising from pre-existing relationships.
Proposed revised Section 23 Revenue from Contracts with Customers—Redeliberation topics
The IASB tentatively decided:
a) to withdraw the proposed option for an SME to account for a contract modification as a separate contract if:
i. the modification increases the scope of the existing contract because of additional goods or services promised that are distinct from those in the existing contract; and
ii. the modification increases the price of the existing contract by an amount of consideration that reflects the entity’s stand-alone selling price of the additional goods or services and any appropriate adjustments to that price to reflect the circumstances of that contract;
b) to withdraw the proposal to require an SME to account for an option as a separate promise if it provides a material right to the customer and the effect of doing so is significant to the individual contract; and
to withdraw the proposal to require an SME to recognise as an asset the incremental costs of obtaining a contract with a customer if the SME expects to recover those costs.
Instead, the IASB tentatively decided to require an SME:
a) to account for a contract modification as a separate contract if:
i. the modification increases the scope of the existing contract because of additional goods or services promised that are distinct from those in the existing contract; and
ii. the modification increases the price of the existing contract by an amount of consideration that reflects the entity’s stand-alone selling price of the additional goods or services and any appropriate adjustments to that price to reflect the circumstances of that contract;
b) to account for an option that provides a material right to the customer as a separate performance obligation if the SME can do so without undue cost or effort; and
c) to recognise the costs of obtaining a contract with a customer as an expense when incurred.
The IASB tentatively decided to confirm its proposals to require an SME:
a) to identify each promise to transfer a distinct good or service, or bundle of goods or services; and
b) to include an amount of variable consideration in the transaction price only to the extent that it is highly probable that this amount will become due when the uncertainty associated with the variable consideration is resolved.
The IASB tentatively decided:
a) to include the term ‘barter’ in the description of non-cash consideration in the Standard;
b) to include separately in the Standard:
i. the requirement for an SME to measure the fair value of non-cash consideration; and
ii. the exemption from the requirement to measure the fair value of non-cash consideration;
c) not to include guidance on methods for estimating stand-alone selling prices in the Standard, but to include this guidance in educational material on the Standard; and
d) to combine the requirement for an SME to allocate variable consideration with the requirement for an SME to allocate discounts in the Standard.
Proposed revised Section 23 Revenue from Contracts with Customers—Redeliberation topics
The IASB tentatively decided:
a) to withdraw the proposal that if any of the circumstances in paragraph 23.38(a)–(c) of the Exposure Draft apply, the SME is a principal; and
b) to withdraw the proposal to require an SME to account for a warranty as a separate promise if:
i. the customer has the option to purchase the warranty separately; or
ii. the warranty, or part of the warranty, provides the customer with a service in addition to the assurance that the product complies with agreed-upon specifications.
Instead, the IASB tentatively decided to require an SME:
a) to apply the requirements based on the principle and indicators of control in IFRS 15 Revenue from Contracts with Customers to determine whether the SME is a principal or agent; and
b) to account for a warranty as a separate promise only if the customer has the option to purchase the warranty separately.
The IASB tentatively decided:
a) to require an SME that is evaluating whether a customer obtains control of an asset to consider any agreement to repurchase the asset;
b) to specify in the IFRS for SMEs Accounting Standard that a customer does not obtain control of an asset if an SME has an obligation or a right to repurchase the asset;
c) to include no requirements specifying how an SME accounts for repurchase agreements that arise from contracts with customers in the IFRS for SMEs Accounting Standard;
d) to withdraw the proposed requirements for accounting for unexercised rights in paragraphs 23.119–23.120 of the Exposure Draft;
e) to confirm its proposal to require an SME to present contract assets and receivables separately; and
f) to confirm its proposal to require an SME to apply the criteria in paragraph 23.78(a), (c) and (d) of the Exposure Draft to determine whether the SME satisfies a promise over time or at a point in time.
Proposed revised Section 23 Revenue from Contracts with Customers—Additional and alternative simplifications
The IASB tentatively decided to use the term ‘collectability’, instead of ‘customer’s credit risk’, to describe the requirement for an SME to estimate the recoverable amount of assets recognised from the costs incurred to fulfil a contract with a customer.
DISCLOSURE INITIATIVE—SUBSIDIARIES WITHOUT PUBLIC ACCOUNTABILITY: DISCLOSURES
The IASB met to discuss some of the disclosure requirements proposed in the Exposure Draft Subsidiaries without Public Accountability: Disclosures. The IASB tentatively decided:
a) to withdraw the proposed requirements in paragraph 106(d) of the Exposure Draft;
b) to modify the proposed requirements in paragraphs 96, 100(e), 106(f), 147(c) and 191 of the Exposure Draft to align their language with that used in the disclosure requirements in the IFRS Accounting Standards of which these proposed requirements are reduced versions; and
c) to add a disclosure requirement based on paragraph 58 of IFRS 16 Leases.
Disclosure requirements from the new prospective Subsidiaries Standard “PFS” Standard
The IASB tentatively decided to propose, in the catch-up exposure draft, amending the disclosure requirements in the prospective Subsidiaries Standard from the prospective PFS Standard by:
a) replacing the requirements relating to management-defined performance measures with a reference to those requirements in the prospective PFS Standard; and
b) deleting the disclosure objective from a disclosure requirement relating to non-current liabilities.
The IASB also tentatively decided not to propose, in the catch-up exposure draft, amending disclosure requirements that are expected to be carried forward from IAS 1 Presentation of Financial Statements to the prospective PFS Standard, because the IASB has already considered them during the development of the prospective Subsidiaries Standard.
RATE-REGULATED ACTIVITIES (RRA)
Boundary of a regulatory agreement
For the prospective RRA Standard, the IASB tentatively decided:
a) to acknowledge that a right to supply goods or services might exist for an undefined period; and
b) to include a requirement that an entity that has an enforceable right to supply goods or services include unrecovered or unfulfilled cash flows in the measurement of a regulatory asset or regulatory liability for which the entity has either:
i. an enforceable right to recover or enforceable obligation to fulfil by adding amounts to or deducting amounts from future regulated rates charged; or
ii. an enforceable right to receive or enforceable obligation to pay compensation on termination of the agreement.
Amendments to IAS 36
For the prospective RRA Standard, the IASB tentatively decided:
a) to retain the proposal to exclude regulatory assets from the scope of IAS 36;
b) to omit the proposed amendments to paragraphs 43 and 79 of IAS 36; and
c) to provide no further guidance on applying IAS 36.
Disclosures proposed in Exposure Draft
For the prospective RRA Standard, the IASB tentatively decided:
a) to include examples of the characteristics an entity could use to aggregate or disaggregate disclosures in accordance with the principles in the prospective IFRS Accounting Standard Presentation and Disclosure in Financial Statements (prospective PFS Standard);
b) to require that an entity apply the aggregation and disaggregation principles in the prospective PFS Standard when disclosing other components of regulatory income or regulatory expense, such as those arising from changes in the carrying amount of a regulatory asset or regulatory liability caused by a change in the boundary of a regulatory agreement, and those arising from remeasurements of regulatory assets and regulatory liabilities;
c) to provide no additional guidance on risks and uncertainties that affect the recovery of regulatory assets or fulfilment of regulatory liabilities; to combine the proposed specific disclosure objective relating to changes in regulatory assets and regulatory liabilities in paragraph 82 of the Exposure Draft with the specific disclosure objective in paragraph 79 of the Exposure Draft;
d) to include examples of significant changes in regulatory assets and regulatory liabilities that are not a consequence of regulatory income or regulatory expense;
e) to include a requirement that an entity disclose a qualitative explanation of any significant changes in regulatory assets and regulatory liabilities that are not a consequence of regulatory income or regulatory expense; and
f) to extend the proposals in paragraph 78 of the Exposure Draft to include a requirement that an entity disclose separately the components of regulatory income or regulatory expense included in other comprehensive income.
New disclosures
For the prospective RRA Standard, the IASB tentatively decided:
a) to include a specific disclosure objective that an entity be required to disclose information that enables users of financial statements to understand whether the entity’s regulatory capital base has a direct or no direct relationship with its property, plant and equipment;
b) to include—in order to achieve the specific disclosure objective in (a)—a requirement that an entity disclose:
i. whether its regulatory capital base has a direct or no direct relationship with its property, plant and equipment; and
ii. the reasons the entity has concluded its regulatory capital base has a direct or no direct relationship with its property, plant and equipment;
c) not to include a requirement that an entity disclose the amount of its regulatory capital base;
d) to include a requirement that an entity disclose the nature of unrecognised regulatory assets and unrecognised regulatory liabilities;
e) to include a requirement that an entity disclose the regulatory approach (nominal or real) used by the regulator to compensate the entity for inflation;
f) not to include a requirement that an entity disclose assumptions used in estimating uncertain future cash flows for the measurement of regulatory assets or regulatory liabilities related to long-term performance incentives beyond those disclosures required by IAS 1 Presentation of Financial Statements;
g) to include, for an entity whose regulatory capital base has a direct relationship with its property, plant and equipment and capitalises its borrowing costs, a requirement to disclose whether it receives regulatory returns on an asset not yet available for use; and
h) not to include—for an entity whose regulatory capital base has a direct relationship with its property, plant and equipment and capitalises its borrowing costs—a requirement to disclose:
i. the composition of the regulatory returns between debt and equity returns, and when these regulatory returns are included in regulated rates charged; and
ii. the effects of those regulatory returns on changes in the related regulatory assets or regulatory liabilities.
Discounting estimated future cash flows
Regarding the prospective RRA Standard, the IASB tentatively decided:
a) to require an entity that elects to apply the exemption described in (d) to disclose that fact and disclose the carrying amount of regulatory assets and regulatory liabilities at the end of the reporting period to which the entity has applied that exemption;
b) not to exempt an entity from applying the proposed requirement described in (a) to discount estimates of future cash flows from a regulatory asset or regulatory liability for which the regulatory agreement does not specify a time frame for recovery or fulfilment;
c) not to provide guidance on the computation of the single discount rate described in (g);
d) to exempt an entity that measures regulatory assets or regulatory liabilities described in (g) from applying the proposed requirement described in (a) to discount estimates of future cash flows for the period between recognition and the date from which regulatory interest starts to accrue, if the entity expects that period to be 12 months or less;
e) to require an entity that elects to apply the exemption described in (i) to disclose that fact and disclose the carrying amount of regulatory assets and regulatory liabilities at the end of the reporting period to which the entity has applied that exemption; and
f) to clarify that the proposed requirement described in (g) does not apply to a regulatory asset or regulatory liability that attracts regulatory interest rates that depend on an interest rate benchmark, and not to provide further guidance on measuring such a regulatory asset or regulatory liability.
Reduced disclosures for rate-regulated entities
The IASB tentatively decided:
a) not to develop reduced disclosures for the prospective RRA Standard now; and
b) to include a question seeking stakeholders’ views on the decision not to develop reduced disclosures in the ‘catch-up’ exposure draft the IASB plans to publish after it issues the prospective Subsidiaries Standard.
EQUITY METHOD
Clarifications to the IASB’s tentative decisions
The IASB tentatively decided:
a) to clarify that if a parent entity applies the equity method to its investments in subsidiaries in its separate financial statements, it would apply paragraph 24 of IAS 28 Investments in Associates and Joint Ventures to a step acquisition of a subsidiary.
Thirteen of 14 IASB members agreed with this decision.
b) to clarify that if an investor or joint venturer purchases an additional interest in an associate or a joint venture, it would apply the IASB’s tentative decisions to contingent consideration arrangements and deferred taxes.
All 14 IASB members agreed with this decision.
c) to amend paragraph 10 of IAS 28 to refer to ‘changes in the investor’s share of the associate’s net assets’.
Thirteen of 14 IASB members agreed with this decision.
The IASB decided to retain the project’s scope and not add the application questions:
a) how does a parent entity measure the cost of its investment in a subsidiary acquired in stages and accounted for at cost in separate financial statements?
b) how does an entity recognise the acquisition-related cost of investments accounted for using the equity method?
Interaction with the IASB’s project Disclosure Initiative—Subsidiaries without Public Accountability: Disclosures
The IASB tentatively decided to propose amending the prospective IFRS Accounting Standard Subsidiaries without Public Accountability: Disclosures (prospective Subsidiaries Standard) to require that a subsidiary applying that Standard disclose:
a) on obtaining significant influence in an associate or joint control in a joint venture:
i. the amount of contingent consideration recognised as part of the cost of the investment;
ii. a description of the contingent consideration arrangement; and
iii. the basis for determining the amount of the payment;
b) for each subsequent reporting period until the subsidiary collects or settles the contingent consideration or until it is cancelled or expires:
i. any changes in the recognised amounts, including any differences arising upon settlement; and
ii. the valuation techniques and key model inputs used to measure the contingent consideration.
The IASB tentatively decided to propose amending the prospective Subsidiaries Standard to require that an eligible subsidiary disclose gains or losses on downstream transactions:
a) to its associates and joint ventures; and
b) to its subsidiaries if it applies the equity method to its investments in subsidiaries in separate financial statements, as permitted in IAS 27 Separate Financial Statements.
The IASB tentatively decided not to propose amendments to the prospective Subsidiaries Standard to require an eligible subsidiary to disclose a reconciliation between the opening and closing carrying amount of its investments in associates and joint ventures.
Transitional requirements
The IASB tentatively decided:
a) to clarify its tentative decision that an investor or joint venturer would retrospectively apply the requirement to recognise the full gain or loss on all transactions with its associates or joint ventures. An investor or joint venturer would apply the proposed requirement by recognising the remaining portion of the restricted gain or loss. The cumulative effect of that gain or loss would be recognised as an adjustment to the opening balance of retained earnings at the transition date in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.
b) to propose that if, on initial application of the proposed requirements, an investor or joint venturer had estimated, at the transition date, the recoverable amount of an investment in an associate or joint venture, the investor or joint venturer would:
i. reduce the carrying amount to that recoverable amount; and
ii. recognise the impairment loss in the opening balance of retained earnings.
c) to propose that an investor or joint venturer that chooses (or is required by legislation) to present more than one period of comparative information may present comparative information for any additional prior periods:
i. adjusted for the effects of the proposed requirements—the transition date would be the beginning of the earliest adjusted comparative period presented; or
ii. unadjusted for the effects of the proposed requirements—the investor or joint venturer would identify the comparative information as unadjusted and disclose that the comparative information has been prepared on a different basis, explaining that basis.
d) to propose an exemption from disclosing the information required by paragraph 28(f) of IAS 8 for the current period and for any additional prior period that the investor or joint venturer presents unadjusted.
POST-IMPLEMENTATION REVIEW OF IFRS 9—IMPAIRMENT
The IASB discussed an analysis of stakeholder views on:
a) the general approach to recognising expected credit losses (ECL)—in particular, the IASB considered feedback on applying this approach to specific financial instruments such as intragroup financial instruments and purchased assets; and
b) the requirements for determining significant increases in credit risk (SICR).
The IASB tentatively decided to take no standard-setting action on matters related to the general approach to recognising ECL and the requirements for determining SICR.
The IASB discussed stakeholder views on the main requirements in IFRS 9 for measuring expected credit losses (ECL). The discussion focused on:
a) the use of forward-looking scenarios;
b) the use of post-model adjustments or management overlays; and
c) some application questions related to measuring ECL.
The IASB tentatively decided to take no action on these matters.
MAINTENANCE AND CONSISTENT APPLICATION
Use of a Hyperinflationary Presentation Currency by a Non-hyperinflationary Entity (IAS 21): Disclosure and transition requirements and other matters
The IASB discussed these aspects of the proposed amendments to IAS 21 The Effects of Changes in Foreign Exchange Rates:
a) disclosure requirements;
b) transition and early application; and
c) when the presentation currency becomes or ceases being hyperinflationary.
For disclosure requirements, the IASB tentatively decided to propose that:
a) an entity that translates the results and financial position of a foreign operation with a non-hyperinflationary functional currency into a hyperinflationary presentation currency be required to disclose summarised financial information about that foreign operation;
b) an entity within the scope of the proposed amendments be required to disclose that its financial statements (or the results and financial position of its foreign operation) and corresponding figures for previous periods have been translated at the closing rate at the date of the most recent statement of financial position; and
c) an entity whose presentation currency ceases being hyperinflationary be required to disclose that fact.
For transition and early application, the IASB tentatively decided to propose that:
a) an entity that already applies IFRS Accounting Standards be required to apply the amendments retrospectively in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors when that entity first applies the proposed amendments;
b) an entity that already applies IFRS Accounting Standards be exempt from disclosing the information required by paragraph 28(f) of IAS 8 when that entity first applies the proposed amendments;
c) no transition relief be provided for first-time adopters; and
d) an entity that already applies IFRS Accounting Standards be permitted to apply the proposed amendments earlier than the effective date and be required to disclose that it has done so.
For a presentation currency that becomes or ceases being hyperinflationary, the IASB tentatively decided to propose that:
a) no specific requirements be included to address situations in which an entity’s presentation currency becomes hyperinflationary.
b) an entity be required to apply paragraph 39(b) of IAS 21 prospectively to income and expenses arising after the end of the previous reporting period if the entity’s presentation currency ceases being hyperinflationary. The IASB tentatively decided an entity would not be required to retranslate income and expenses arising before the end of the previous reporting period.
For subsidiaries without public accountability (eligible subsidiaries) as defined in the prospective IFRS Accounting Standard Subsidiaries without Public Accountability: Disclosures, the IASB tentatively decided to propose that:
a) an eligible subsidiary within the scope of the proposed amendments be required to disclose that its financial statements (or the results and financial position of its foreign operation) and corresponding figures for previous periods have been translated at the closing rate at the date of the most recent statement of financial position; and
b) an eligible subsidiary whose presentation currency ceases to be hyperinflationary be required to disclose that fact.
The IASB tentatively decided to propose that an eligible subsidiary that translates the results and financial position of a foreign operation that has a non-hyperinflationary functional currency into a hyperinflationary presentation currency be required to disclose summarised financial information about the results and financial position of that foreign operation.
All 14 IASB members confirmed they were satisfied that the IASB has complied with the applicable due process requirements and has undertaken sufficient consultation and analysis to begin the process for balloting the exposure draft.
Amendments to the Classification and Measurement of Financial Instruments
The disclosure requirements relating to contractual cash flows:
The IASB tentatively decided to finalise the disclosure requirements proposed in paragraphs 20B–20C of the Exposure Draft, subject to:
a) limiting the requirements to contractual terms that could change the amount of contractual cash flows based on a contingent event that is not directly related to a change in basic lending risks or costs; and
b) changing the requirement to disclose quantitative information to permit an entity to disclose information other than the range of possible adjustments to contractual cash flows.
The effective date and transition requirements:
The IASB tentatively decided to set an effective date of annual reporting periods beginning on or after 1 January 2026.
The IASB also tentatively decided:
a) to finalise the transition requirements proposed in the Exposure Draft; and
b) to permit early application of the amendments to the requirements related to solely payments of principal and interest and the disclosure requirement in IFRS 7 relating to changes in contractual cash flows, separately from the other amendments.
