6 IASB General Update

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16 February 2023
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23 February 2023 Agenda Paper 6

UK Endorsement Board

Executive Summary

Project Type Monitoring
Project Scope Various

Purpose of the paper

This paper provides the Board with an update on projects the Secretariat is currently monitoring, including the work of the IFRS Interpretations Committee. As agreed with the Board, the Secretariat proactively monitors a range of projects being undertaken by the IASB and IFRS Interpretations Committee. This is undertaken to inform the Board about the progress and decisions being made by the IASB on active projects. Discussion by the Board may also help inform interactions with international standard setter meetings, including the IASB's Accounting Standards Advisory Forum.

Summary of the Issue

This paper provides updates on relevant IASB projects the Secretariat is currently monitoring. Comments or questions are welcomed on any topic. The paper presents separately the topics the Secretariat suggests are prioritised for discussion from those presented as for noting.

Topics identified for discussion are listed below:

  • Primary Financial Statements (on draft agenda for March ASAF)
  • Supplier Finance Arrangements

Topics identified for noting are listed below:

  • Subsidiaries without Public Accountability: Disclosures (on draft agenda for March ASAF)
  • Equity Method (on draft agenda for March ASAF)
  • Business Combinations: Disclosures, Goodwill and Impairment

IFRS Interpretations Committee

  • No developments to report

Decisions for the Board

The Board is not asked to make any decisions.

Board members are asked the following questions regarding the topics for discussion:

  1. Primary Financial Statements: Do Board members have any questions or comments on the Primary Financial Statements project update and/or the IASB's agenda papers for the IASB's January 2023 meeting?
  2. Primary Financial Statements: Do Board members have any questions or comments on the IASB's plan for responding to the feedback received?
  3. Supplier Finance Arrangements: Do Board members have any questions or comments on the Supplier Finance Arrangements update?

Do Board members have any questions or comments on the other updates for noting?

Recommendation

N/A

Appendices

Appendix A: List of IASB projects

Topics for Discussion

Primary Financial Statements
UKEB Project Status: Active Monitoring UKEB project page
IASB Next Milestone: IFRS Accounting Standard UKEB Secretariat Comment Letter (Published in September 2020)

Background

1At its September 2022 meeting the IASB completed its redeliberations on the proposals in the Exposure Draft General Presentation and Disclosures (the ED) as part of its project on Primary Financial Statements (PFS).

2Between September and December 2022, the IASB undertook targeted outreach on key topics where the IASB's tentative decisions resulted in changes to the initial proposals in the ED including:

  1. subtotals in the statement of profit or loss;
  2. disclosure of operating expenses by nature;
  3. unusual income and expenses1; and
  4. management performance measures (MPMs).

3The feedback received helped the IASB assess whether selected tentative decisions would function as intended.2

4During its targeted outreach activities, the IASB met with stakeholders across different jurisdictions, including with members of the UKEB's Advisory Groups.3

5Our understanding is that outreach participants supported the direction of the IASB's redeliberations. However, participants also asked the IASB to issue additional guidance for better understanding and consistency of the approach developed.4 Participants were keen for this project to be completed quickly and requested educational material for better understanding of the proposals before the issuance of the final standard.

6A summary of the feedback received was discussed at the December 2022 ASAF meeting. At its January 2023 meeting, the IASB:

  1. Made some tentative decisions to add, confirm and withdraw some of the proposals in the ED. In paragraphs 7-49 we list the specific topics discussed at this meeting and the outcome of the IASB's discussions.
  2. Discussed additional feedback received and the plan for responding to that feedback5 (discussed in paragraphs 50-61).

Discussions and summary of IASB's tentative decisions (January 2023 meeting)

7The aspects discussed by the IASB were:

  1. General disaggregation requirements
    1. Total operating expenses by nature6—implications of the IASB's tentative decisions to withdraw specific disclosures that were proposed in the ED for the general requirement to disaggregate material information in relation to information about the nature of operating expenses that are included in a functional line in the statement of profit or loss.
    2. Other disaggregation requirements7—possible further requirements and application guidance.
    3. Other comprehensive income (OCI)8—feedback on the proposal in the ED to relabel the two categories of other comprehensive income.
  2. Statement of cash flows9—interest received and classification for entities with specified main business activities.10

8We provide a summary of these topics based on IASB staff papers for the January 2023 meeting, IASB Update (January 2023) and discussions at the January 2023 IASB meeting. We have added some commentary on the recommendations made by the UKEB in its Final Comment Letter (FCL) in relation to these topics.

9The following table summarises the issues considered, the tentative decisions taken by the IASB and how those decisions will change the ED proposals. More background detail is provided in paragraphs 10–49 following the table.

Issues considered Tentative decisions taken Change from ED proposals
Analysis of total operating expenses by nature
Whether to provide a relief from the general requirement to disaggregate material information in relation to information about operating expenses by nature. Further limit the specific requirements on the disclosure of operating expenses by nature included in a function line item in the statement of profit or loss. An exemption will be added to the general requirement to disaggregate material information that would apply to information about the nature of operating expenses included in a function line item in the statement of profit or loss.
Disaggregation requirements—further requirements and application guidance
Whether to:
• add application guidance on how to improve the description of disaggregated amounts. • Clarify that any line items presented in the statement(s) of financial performance and the statement of financial position should be recognised and measured in accordance with IFRS Accounting Standards. added to improve the: -Description of disaggregated amounts.
• add a prohibition on some forms of disaggregation of income and expenses; and • Do not prohibit the disaggregation of income and expenses in the notes to the financial statements into components not recognised and measured in accordance with IFRS Accounting Standards. -The disaggregation of income and expenses in the notes to the financial statements.
• clarify the proposals in paragraphs 26–28 of the ED on the use of the label 'other'. • Clarify the different types of aggregation that could be labelled as 'other' and require the label 'other' to be used only in certain circumstances. • The disaggregation of income and expenses (in the notes to the financial statements) into components not recognised and measured in accordance with IFRS Accounting will not be prohibited.
Other comprehensive income
Whether to withdraw the proposal to relabel the two categories of OCI as 'remeasurements permanently reported outside profit or loss' and 'income and expenses to be included in profit or loss in the future when specific conditions are met'. Agreement to withdraw the proposal to relabel the two categories of OCI. The proposal in paragraph 74 of the ED to relabel the two categories of OCI will be removed.
Statement of cash flows—interest received and classification for entities with specified main business activities
Whether to confirm the proposals in the ED that: Agreement to confirm the proposals in the ED. No change will be made to the proposals in paragraphs 33A, 34A–34B (and 34C–34D) of the proposed amendments to IAS 7.
• Entities without specified main business activities classify interest received as investing cash flows.
• Entities with specified main business activities classify the following cash flows in a single category (that is, either as cash flows from operating, investing or financing activities): o Dividends received11; o Interest paid; and o Interest received.

Total operating expenses by nature

ED proposals

10In the ED the IASB included the following proposals:

  1. To require an entity to disclose an analysis of total operating expenses by nature if the entity presented operating expenses by function in the statement of profit or loss (paragraph 72 of the ED).
  2. To prohibit the presentation of operating expenses in the statement of profit or loss using a mix of function and nature line items (paragraph B48 of the ED).
Feedback received on the ED

11Feedback indicated that entities that present operating expenses by function could only retrieve certain information about specific expenses and that disclosing full analysis of total operating expenses by nature would require extensive and costly system changes.

IASB redeliberations and amendments to the ED proposal

12In response to the feedback received the IASB tentatively decided:

  1. To state the purpose of disaggregation more clearly, that items should be disaggregated if the resulting disaggregated information is material (IASB Update (April 2021)).
  2. To limit the specific requirements on the disclosure of operating expenses by nature. This is, to require an entity to disclose the amounts of depreciation, amortisation and employee benefits included in each line item in the statement of profit or loss (IASB Update July 2022).
  3. To explore an approach to operating expenses by nature that would require an entity to disclose, for all operating expenses disclosed in the notes, the amounts included in each line item in the statement of profit or loss (IASB Update July 2022).
  4. Not to prohibit an entity from presenting operating expenses using a mix of function and nature line items (IASB Update September 2022).
  5. Not to proceed with any specific requirements for unusual income and expenses as part of this project (IASB Update September 2022).
Further IASB redeliberations and tentative decisions at the January 2023 IASB meeting

13The IASB discussed the implications of the above tentative decisions for the general requirement to disaggregate material information and tentatively decided to further limit the specific requirements on the disclosure of operating expenses by nature, by giving a specific exemption from the general requirement to disaggregate material information. All specific disclosure requirements in IFRS Accounting Standards relating to the nature of operating expenses would not be affected by the exemption and would continue to apply.

14The IASB's tentative decision is reproduced below:

The IASB tentatively decided to add an exemption to the general requirement to disaggregate material information. The exemption would apply to information about the nature of operating expenses included in a function line item in the statement of profit or loss. Specific disclosure requirements in IFRS Accounting Standards relating to operating expenses would still apply. The IASB will consider in a future paper whether it should extend the exemption to cover the disaggregation of these required specific nature expenses into the function line items in which they are included. The IASB also tentatively decided not to include a cost threshold in the exemption.

15We understand that the objective of this exemption is to "prevent the general requirement to disaggregate material information from undermining the cost-benefit balance achieved by the IASB's tentative decisions on the disclosure of the nature of operating expenses".12

Consistency with UKEB's proposals

16Adding an exemption may address some of the concerns and recommendations expressed in the UKEB's FCL in respect of the ED's proposals to require disclosure of operating expenses by nature when entities analyse operating expenses by function. UKEB's concerns were that these proposals:13

  1. Were too costly and complex for UK preparers and recommended the IASB to consider further the costs and benefits of those proposals.
  2. Were unclear on the level of disaggregation required in the proposed analysis of operating expenses by nature and on the extent to which flexibility to present separate material items of income and expense was retained or prohibited by the proposals.

Disaggregation requirements—further requirements and application guidance

ED proposals

17In the ED the IASB included the following proposals:

  1. The inclusion of principles on the aggregation and disaggregation of information. The principles would require an entity to classify identified assets, liabilities, equity, income and expenses into groups based on shared characteristics and to separate those items based on further characteristics (paragraph 25 of the ED).
  2. To require an entity to provide a description of the items presented in the primary financial statements or in the notes that faithfully represents the characteristics of those items (paragraph 26 of the ED).
  3. To require an entity to use meaningful labels for the group of immaterial items that are not similar and to consider whether it is appropriate to use non-descriptive labels such as 'other' (paragraphs 27–28 of the ED).
  4. To require an entity to include line items and subtotals in the statement of profit or loss and the statement of financial position (paragraph 42 of the ED). When an entity presents additional subtotals in accordance with paragraph 42 of the ED, those subtotals are required to be comprised of line items made up of amounts recognised and measured in accordance with IFRS Accounting Standards.
Feedback received on the ED

18Feedback from users suggested better descriptions of disaggregated amounts.

19Feedback also indicated some confusion over the proposals relating to items that could be labelled as 'other' and asked the IASB to provide additional guidance or clarifications in this respect.

IASB redeliberations and amendments to the ED proposal

20The IASB tentatively decided:

  1. to include further application guidance to clarify the application of the principles of aggregation and disaggregation (IASB Update April 2021) and (IASB Update September 2021).
  2. to add application guidance on how an entity could apply the requirement to describe an MPM measure in a clear and understandable manner that would not mislead users (IASB Update November 2021).
  3. not to proceed with any specific requirements for unusual income and expenses as part of this project (IASB Update September 2022).
Further IASB redeliberations and tentative decisions at the January 2023 IASB meeting

21The IASB discussed whether to add further requirements and application guidance relating to the general disaggregation requirements. More specifically, whether to:

  1. Add application guidance on how to improve the description of disaggregated amounts.
  2. Add a prohibition on some forms of disaggregation of income and expenses.
  3. Clarify the proposals in the ED on the use of the label ‘other'.

22The outcome of these discussions is summarised in the tentative decisions presented below.

23The IASB tentatively decided to clarify the requirement in paragraph 26 of the ED (i.e. requirement to include descriptions of items that faithfully represent the characteristics of those items) by adding specific requirements for an entity:

  1. to describe disaggregated amounts in a clear and understandable manner that would not mislead users; and
  2. to be transparent about the meaning of the terms used and the methods applied to the disaggregation.

24The IASB tentatively decided to extend the requirement in paragraph 43 of the ED (i.e. requirement for amounts to be recognised and measured in accordance with IFRS Standards when an entity presents additional subtotals in accordance with paragraph 42 of the ED) to all line items presented by adding:

a requirement that any line items an entity presents in its statement(s) of financial performance and statement of financial position are recognised and measured in accordance with IFRS Accounting Standards.

25We understand that this decision is intended to achieve comparability and understandability of the information presented in these statements.14

26The IASB tentatively decided:

not to prohibit an entity from disaggregating income and expenses in the notes to the financial statements into components not recognised or measured in accordance with IFRS Accounting Standards.

27We understand that this information could be useful in some circumstances15.

28The IASB tentatively decided to clarify the requirements in paragraphs 26-28 of the ED (i.e. aggregation of material and immaterial information and use of non-descriptive labels such as ‘other') by clarifying the different types of aggregation that could be labelled as 'other' and by adding the following specific requirements:

  1. to use the label ‘other' only if it is unable to find a more informative label. If an entity is unable to find a more informative label:
    1. for an aggregation of varied material items—the IASB would require it to use a label that is as precise as possible about the type of item the 'other' amount is, for example, ‘other operating expenses' or 'other finance expenses'.
    2. for an aggregation of varied immaterial items—the IASB would require an entity to consider whether the aggregated amount is large enough that users of financial statements might question what it includes. If so, further information about that amount is material and accordingly would be provided by the entity.
  2. to include as examples of material information about the amount described in (a)(ii):
    1. an explanation that no material items are included in the amount; and
    2. an explanation that the amount consists of several unrelated immaterial items with an indication of the nature and amount of the largest item.

Consistency with UKEB's proposals

29In its FCL the UKEB expressed support with the principle in paragraph 25(c) of the ED that "aggregation and disaggregation in the financial statements shall not obscure relevant information or reduce the understandability of the information presented or disclosed” as it would lead to more useful information.16 However, the UKEB expressed concerns that the proposals in paragraphs 27 and 28 of the ED (i.e. aggregation of immaterial items and use of non-descriptive labels such as 'other') could lead to the presentation and disclosure of immaterial items which could obscure the presentation of relevant information17.

30We are of the view that the IASB's tentative decisions to further clarify the aggregation and disaggregation guidance and the use of the label 'other' are responding to UKEB's concerns and could potentially lead to more aggregation of items that share similar characteristics and to more disaggregation of material items.

Other comprehensive income

ED proposals

31Paragraph 74 of the ED proposed requiring entities to classify income and expenses included in OCI18 into:

  1. remeasurements permanently reported outside profit or loss; and
  2. income and expenses to be included in profit or loss in the future when specific conditions are met.
Feedback received on the ED

32Respondents expressed disagreement with the proposal to relabel the two categories of OCI. For example, they thought that the proposed labels:

  1. Were inconsistent, e.g. the proposed labelling could suggest that all income and expenses that are not remeasurements are always reclassified to profit or loss.
  2. Were unclear, e.g. the ED did not define the term 'remeasurement'.

IASB redeliberations and tentative decisions at the January 2023 IASB meeting

33The IASB tentatively decided to withdraw its proposal to relabel the two categories of OCI as this may not improve the communication of OCI. Some IASB members asked the staff to emphasise that this decision does not change the existing requirements on OCI.

Consistency with UKEB's proposals

34In its FCL, the UKEB:

  1. Disagreed with the proposed labelling in the ED as it considered that it was unlikely to improve understandability of the items included in OCI. We think that the IASB's tentative decision to withdraw its proposals on OCI addresses the UKEB's concern.
  2. Further recommended that the proposals on OCI be reviewed more fully as part of a separate project.19

35We note that the IASB staff paper mentions that the IASB has received similar requests from other standard-setters to reconsider the topic of OCI more comprehensively. However, after considering the feedback received the IASB decided not to add such a project to its work plan.20

Statement of cash flows—interest received and classification for entities with specified main business activities

ED proposals

36Paragraphs 33A and 34A of the proposed amendments to IAS 7 proposed to require that entities without specified main business activities, classify:

  1. interest received and dividends received as cash flows from investing activities; and
  2. interest paid and dividends paid as cash flows from financing activities.

37Paragraph 34B of the proposed amendments to IAS 7 proposed that for entities with specified main business activities, interest paid, interest received, and dividends received (other than those from associates and joint ventures accounted for using the equity method) should be classified in a single category of the statement of cash flows (i.e. either as operating, investing or financing activities).

38When determining which single category should be used, an entity is required to refer to the classification of the corresponding income or expenses in the statement of profit or loss (by following the guidance in paragraphs 34C–34D of the proposed amendments to IAS 7). According to this guidance, if an entity classifies related income or expenses:

  1. in a single category of the statement of profit or loss, the entity is required to classify the cash flows in the corresponding category in the statement of cash flows; or
  2. in more than one category of the statement of profit or loss, the entity is required to make an accounting policy choice to classify the cash flows in one of the corresponding categories of the statement of cash flows.
Feedback received on the ED

39There was general agreement with the ED proposals. Most users supported the removal of options for the classification of interest and dividend cash flows. A few preparers, however, expressed concern for the costs that they would incur to implement the proposals.

40Concerns were also raised on the lack of full alignment of the classification of interest and dividends between the statement of profit or loss and the statement of cash flows.

IASB redeliberations and amendments to the ED proposal

41The IASB tentatively decided (refer to IASB Update March 2021):

To proceed with the proposals in the ED relating to the classification of interest paid and dividend cash flows for entities other than those with specified main business activities. Accordingly:

  1. interest paid and dividends paid are classified as cash flows arising from financing activities [proposed amendments to IAS 7 paragraphs 33A and 34A(a)]; and
  2. dividends received are classified as cash flows arising from investing activities. [proposed amendments to IAS 7 paragraph 34A(b)]

42At that meeting, the IASB did not discuss the classification of interest received for entities without specified main business activities or the classification of interest paid and received, and dividends received for entities with specified main business activities (as related decisions on the statement of profit or loss had not been made at the time).

Further IASB redeliberations and tentative decisions at the January 2023 IASB meeting

43The IASB discussed the classification of interest received for entities without a specified main business activity and tentatively decided:

To confirm the proposal in the Exposure Draft to require an entity without a specified main business activity to classify in the statement of cash flows interest received as 'cash flows arising from investing activities' [proposed amendments to IAS 7 paragraph 34A(b)]

44The IASB also discussed the classification of interest received, interest paid and dividends received for entities that:

  1. invest as a main business activity; and
  2. provide financing to customers as a main business activity.

45In this respect the IASB tentatively decided:

To confirm the proposals in the Exposure Draft [proposed amendments to IAS 7 paragraphs 34B(a)–(c)] to require an entity with a specified main business activity to classify some cash flows within a single category of the statement of cash flows (that is, as cash flows from either operating, investing or financing activities). These cash flows are:

  1. dividends received (other than dividends received from associates and joint ventures accounted for using the equity method);
  2. interest paid; and
  3. interest received.

46We understand that after the IASB's redeliberations some misalignment is still likely between the statement of profit or loss and the statement of cash flows. An example of this misalignment is as follows:

An entity that provides financing to customers as a main business activity would generally classify interest expense in more than one category in the statement of profit or loss; either because:

  1. it makes an accounting policy choice to classify only the portion of interest expense related to providing financing to customers in the operating category, leaving the rest in the financing category; and/or
  2. has other liabilities, interest expense on which is always classified in the financing category (for example, interest expense from lease liabilities).

47We also note that the IASB decided to confirm the proposals in the ED to remove the choices currently permitted by IAS 7 to promote comparability and because classification in a single category (that is, as cash flows from either operating, investing or financing activities) is more useful for users than full alignment with the statement of profit or loss.22

Consistency with UKEB's proposals

48In its FCL, the UKEB supported the proposed changes to the statement of cash flows to reduce optionality. The UKEB further noted the misalignment in the categorisation of income and expenses and cash flows and suggested the IASB to undertake a more comprehensive review of the statement of cash flows.

49We understand that this suggestion has been taken on board and the IASB has added a project on the statement of cash flows as part of its “Research Pipeline” that will consider whether the project should aim comprehensively to review IAS 7 or make more targeted improvements.23

Question for the Board

1Do Board members have any questions or comments on the Primary Financial Statements project update and/or the IASB's agenda papers for the January 2023 meeting?

Additional feedback received by the IASB

50At its January 2023 meeting the IASB discussed other feedback received on its targeted outreach topics and determined the plan for responding to that feedback. The IASB tentatively decided:

  1. To add four topics to the IASB's redeliberations plan (refer to paragraphs 51–52).
  2. Not to add some other topics to the IASB's redeliberations plan (refer to paragraphs 53–61).
Topics added to the redeliberations plan

51The four topics that the IASB tentatively decided to add to its redeliberations plan are24:

  1. Classification of income and expense from associates and joint ventures accounted for using the equity method.
  2. Classifying income and expense from off-balance-sheet items.
  3. Including interest expense on lease liabilities in operating profit if subleasing is a main business activity.
  4. Rebuttable presumption in the definition of MPMs.

52The table below:

  1. Summarises some concerns identified during the IASB's targeted outreach and comments from UKEB advisory groups.
  2. Provides information on future topics that may be addressed by the IASB.

| Concerns | Advisory groups | Issues considered | Concerns | | --- | --- | --- | | Analysis of total operating expenses by nature | | | | 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What this document is about

This paper discusses the changes that the IASB is proposing to make to IFRS 17, and asks for the UKEB's views on those changes. It includes a summary of:

  • the changes the IASB is proposing to make to IFRS 17 and related transitional reliefs
  • how these proposed amendments affect the UKEB's endorsement and adoption assessment of IFRS 17
  • the steps that the UKEB is taking to inform its assessment of the proposed amendments
  • the questions that the UKEB would like Board members to consider.

Background

1The IASB published IFRS 17 Insurance Contracts in May 2017. In June 2018, it began targeted consultation on specific aspects of the Standard, resulting in the publication of the Exposure Draft Amendments to IFRS 17 (ED) in June 2019. The ED proposed amendments to IFRS 17 to address concerns and challenges raised during its implementation, including those from UK stakeholders.

2The IASB considered feedback on the ED during its meetings from October to December 2019. It tentatively decided to finalise most of the ED proposals, with some modifications. The IASB plans to publish the final amendments to IFRS 17 in the second quarter of 2020. The effective date of IFRS 17 is also expected to be deferred by a year, to annual periods beginning on or after 1 January 2023.

Proposed amendments and transitional reliefs

Overview of proposed amendments

3The proposed amendments cover four broad areas that are discussed in turn below:

  1. Scope exclusions
  2. Recognition, measurement and presentation
  3. Transitional provisions
  4. Other issues

a) Scope exclusions

4The proposed amendments clarify the scope of IFRS 17 for:

  1. credit card contracts that provide an insurance component to the cardholder
  2. loan commitments that are required to be issued at a fixed premium and for which an entity does not measure expected credit losses using IFRS 9
  3. insurance contracts that limit the compensation for an insured event to the amount of the policyholder's net asset value.

5The IASB tentatively decided that:

  1. an entity applies IFRS 9 to credit card contracts unless the insurance coverage is distinct from the credit card services; and
  2. an entity applies IFRS 9 to loan commitments that include an insurance component unless they expose the entity to insurance risk.

6No amendments are proposed for insurance contracts that limit the compensation for an insured event to the amount of the policyholder's net asset value.

b) Recognition, measurement and presentation

7The proposed amendments clarify or simplify the recognition, measurement and presentation requirements in IFRS 17. These amendments relate to:

  1. contractual service margin (CSM) for investment components in insurance contracts that do not have an insurance coverage period; and
  2. recovery of insurance acquisition cash flows (recovering direct and indirect acquisition costs from the policyholders)

8The IASB tentatively decided:

  1. to clarify how to identify an investment component that is distinct from the insurance component for the purposes of applying the guidance on investment contracts with discretionary participation features (DPF) that are investment components without an insurance coverage period;
  2. to clarify that for some contracts with DPF, the contract boundary is determined based on the entity's practical ability to reprice or change the benefits to policyholders;
  3. to clarify how the entity should consider its ability to recover direct and indirect acquisition costs from the policyholders for the purpose of applying the guidance in IFRS 17 on the measurement of the contractual service margin; and
  4. to confirm that an entity is not prohibited from recognising as an asset the recovery of insurance acquisition cash flows from an investment component if those cash flows are included in the fair value measurement of the investment component.

c) Transitional provisions

9The IASB proposes to amend the transitional provisions in IFRS 17 by:

  1. modifying the retrospective approach if an entity cannot obtain reasonable and supportable information without undue cost or effort;
  2. modifying the fair value approach when the entity cannot apply the retrospective approach;
  3. modifying the premium allocation approach (PAA) when the entity cannot apply the retrospective approach; and
  4. clarifying the prohibition on using information with the benefit of hindsight when applying the fair value or the PAA approach on transition.

10The IASB tentatively decided that:

  1. an entity should be permitted to avoid using hindsight if it has applied PAA to a contract that does not have an insurance coverage period; and
  2. an entity should be required to disaggregate the contractual service margin for contracts with DPF on transition.

d) Other issues

11The proposed amendments also clarify or simplify other requirements relating to:

  1. presentation of insurance contracts in the statement of financial position if an entity applies the PAA;
  2. interim financial statements; and
  3. reinsurance contracts held to measure groups of underlying insurance contracts that an entity issues.

12The IASB tentatively decided that:

  1. an entity should be permitted to present insurance contracts in the statement of financial position in either a gross or net basis;
  2. an entity should be permitted to apply IFRS 17 in interim financial statements either by using all available information, or by measuring the contractual service margin as if the interim period was the end of the annual period; and
  3. an entity should be permitted to measure groups of underlying insurance contracts that it issues by choosing either to apply IFRS 17 or to recognise the changes in the amount of the contractual service margin over time.

Proposed effective date

13The IASB tentatively decided to defer the effective date of IFRS 17 to annual periods beginning on or after 1 January 2023.

UKEB's endorsement and adoption assessment

14The UKEB is currently undertaking a comprehensive assessment of IFRS 17 to decide whether to endorse the Standard for use in the UK. This assessment focuses on whether IFRS 17 meets the criteria for endorsement, ie whether it:

  1. is not contrary to the true and fair principle;
  2. is conducive to the long-term public good; and
  3. meets the understandability, relevance, reliability and comparability criteria.

15The proposed amendments to IFRS 17 will form part of the Standard that the UKEB considers for endorsement. Therefore, the UKEB's assessment of the proposed amendments will be incorporated into the overall assessment of IFRS 17. The UKEB's assessment of the proposed amendments focuses primarily on whether these amendments have any impact on the UKEB's assessment of whether IFRS 17 is conducive to the long-term public good.

UKEB's assessment of proposed amendments

16The UKEB's assessment of the proposed amendments takes account of the IASB's objective to address concerns and implementation challenges related to IFRS 17. The IASB's objective is to resolve these issues in a way that would preserve the principles of IFRS 17 and not disrupt its implementation unnecessarily. The UKEB is assessing whether the proposed amendments:

  1. address the concerns and implementation challenges raised by UK stakeholders;
  2. preserve the principles of IFRS 17 and do not disrupt its implementation unnecessarily; and
  3. are conducive to the long-term public good.

17The UKEB's preliminary view is that the proposed amendments are likely to be beneficial, by:

  1. addressing some of the implementation concerns raised by UK stakeholders, for example, the recovery of acquisition cash flows from investment components and the measurement of groups of underlying insurance contracts for reinsurance contracts held; and
  2. deferring the effective date of IFRS 17 by one year, which will alleviate implementation pressure on preparers.

Next steps

18To inform its assessment of the proposed amendments, the UKEB has and will undertake the following activities:

  1. Consultation with UK stakeholders: The UKEB will consult with UK stakeholders in the second quarter of 2020 on the proposed amendments to IFRS 17.
  2. Working with IASB staff: The UKEB will continue to engage with IASB staff on the finalisation of the amendments to IFRS 17, and will continue to attend IASB meetings where the amendments are discussed.
  3. Publishing an Impact Assessment: The UKEB will publish an Impact Assessment on the proposed amendments to IFRS 17 alongside its consultation paper.

19The UKEB will also continue to monitor the IASB's discussions on any further amendments to IFRS 17 and the implementation of IFRS 17.

Questions for the Board

1Do Board members have any questions or comments on the proposed amendments and transitional reliefs?

2Do Board members have any questions or comments on the UKEB's assessment approach?

3Do Board members have any questions or comments on the UKEB's preliminary view?

4Do Board members have any questions or comments on the UKEB's proposed next steps?

Footnotes

  1. We are not addressing this topic in this paper as most participants in targeted outreach agreed with the reasons for which the IASB tentatively decided to withdraw the proposals in the ED for unusual income and expenses. In addition, many IASB members believe that the general requirement to disaggregate material information would be sufficient to allow entities to disclose unusual income or expenses. ↩

  2. Appendix A in IASB Agenda Paper 21A (January 2023) explains the approach taken to targeted outreach. ↩

  3. The IASB PFS team met with the Investor Advisory Group (IAG) on 4 October 2022; with the Preparer Advisory Group (PAG) on 31 October 2022; and with the Accounting Firms and Institutes Advisory Group (AFIAG) on 3 November 2022. The feedback received was reported back to the Board in November 2022. Refer to UKEB Agenda Paper 8 IASB General Update (17 November 2022) pages 14–19. ↩

  4. A summary of the feedback received is set out in IASB Agenda Paper 21A (January 2023) and in the ASAF Meetings summary (December 2022), pages 2–5. The Appendices section of IASB Agenda Paper 21A also includes a plan for responding to that feedback. ↩

  5. IASB Agenda Paper 21 (January 2023) lists in Appendix A the topics discussed and topics to be redeliberated (which includes the topics that were redeliberated at the January 2023 meeting) and in Appendix B provides a summary of proposals, feedback and tentative decisions to date. ↩

  6. The IASB also discussed the relationship with specific presentation and disclosure requirements in other Standards. The IASB did not make any decisions in this respect and this topic is not addressed in this paper. Refer to IASB Agenda Paper 21C (January 2023). ↩

  7. Refer to IASB Agenda Paper 21D (January 2023). ↩

  8. Refer to IASB Agenda Paper 21E (January 2023). ↩

  9. Refer to IASB Agenda Paper 21F (January 2023). ↩

  10. Entities with specified main business activities are entities that invest as a main business activity in assets that generate a return individually and largely independently of the other resources held by the entity or provide financing to customers as a main business activity. ↩

  11. Other than dividends received from associates and joint ventures accounted for using the equity method. ↩

  12. This is explained in paragraph 30 of IASB Agenda Paper 21C (January 2023). ↩

  13. Refer to UKEB Agenda Paper 8 IASB General Update (17 November 2022) paragraphs A44 and A46–A47. ↩

  14. Refer to paragraph 17 in IASB Agenda Paper 21D (January 2023). ↩

  15. Some examples included in paragraph 21 of IASB Agenda Paper 21D (January 2023) are the disaggregation of the change in fair value of cash-settled employee share options into a service cost and a remeasurement of amounts relating to past service. ↩

  16. See paragraph A38 of the FCL. ↩

  17. See paragraph A39 of the FCL. ↩

  18. The proposals in the ED relabelled the existing OCI categories in paragraph 82A of IAS 1 which are: "items that will not be reclassified subsequently to profit or loss" and "items that will be reclassified subsequently to profit or loss when specific conditions are met". ↩

  19. See paragraph A83 of the FCL. ↩

  20. The IASB has already considered this topic as part of the development of its Conceptual Framework. Refer to paragraphs 5 and 11–12 of IASB Agenda Paper 21E (January 2023). ↩

  21. We took this example from paragraphs 33–34 of IASB Agenda Paper 21F (January 2023). In addition, paragraphs 38–39 of IASB Agenda Paper 21F (January 2023) provide other examples of situations where this misalignment might (or might not) occur depending on whether a) entities invest (or not) in financial assets as a main business activity; b) invest only in non-financial assets as a main business activity; c) provide financing to customers as a main business activity and/or whether in the latter scenario the entity also invests in financial assets as a main business activity ↩

  22. Refer to paragraphs 24 and 26 in IASB Agenda Paper 21F (January 2023). ↩

  23. Refer to paragraphs 42–47 of IASB Agenda Paper 24A (April 2022) which analyses feedback received on the Third IASB Agenda consultation related to the statement of cash flows. ↩

  24. Our summary is based on paragraphs 69–73 in IASB Agenda Paper 21A (January 2023). The IASB's tentative decision to add these topics into its agenda is in IASB Update (January 2023). ↩

  25. Refer to UKEB Agenda Paper 8 IASB General Update (17 November 2022) paragraph 45. ↩

  26. We understand that this is related to the election to account for associates and joint ventures at fair value through profit or loss in paragraph 18 of IAS 28. ↩

  27. This is, that a subtotal of income and expenses in the entity's public communications tends to represent management's view of the entity financial performance. ↩

  28. Refer to UKEB Agenda Paper 8 IASB General Update (17 November 2022) paragraph 66. ↩

  29. Refer to paragraphs 84–89 in IASB Agenda Paper 21A (January 2023). ↩

  30. Refer to paragraph 15 in IASB Agenda Paper 21A (January 2023). ↩

  31. Our summary in this section is based on paragraphs 74–83 in IASB Agenda Paper 21A (January 2023). ↩

  32. Entities that provide financing to customers that do not also invest in financial assets as a main business activity have an accounting policy choice to classify either all income and expenses from cash and cash equivalents in the operating category or the portion related to the provision of financing to customers (see paragraph 51 of the ED). As we explained in paragraphs 56–56 of UKEB Agenda Paper 8 IASB General Update (17 November 2022), the IASB's rationale for removing this choice is that many entities that provide financing to customers also invest as a main business activity (e.g. banks). Those entities would therefore be required to include income and expenses from cash and cash equivalents in the operating category, because investing in cash and cash equivalents is a main business activity. It would not, therefore, be appropriate to retain an accounting policy choice. ↩

  33. Refer to paragraph 56 in UKEB Agenda Paper 8 IASB General Update (17 November 2022). ↩

  34. Refer to paragraph 60 in UKEB Agenda Paper 8 IASB General Update (17 November 2022). ↩

  35. Refer to UKEB Agenda Paper 8 IASB General Update (17 November 2022) paragraph 69. ↩

  36. Refer to paragraphs 84–89 in IASB Agenda Paper 21A (January 2023). This paper recommends that the following issues could be addressed in drafting: the revised approach to the financing category, the scope of 'public communications' in the definition of MPMs and the 'mixed' presentation of operating expenses. ↩

  37. There was some debate about whether the IASB staff could consider the definition of 'public communications' based on the intention of management. However, some IASB members rejected this proposal as this 'intention' would be difficult to establish. ↩

  38. At its July 2021 meeting the IASB tentatively decided to require an entity to classify foreign exchange differences included in the statement of profit or loss applying paragraphs 28 and 30 of IAS 21 The Effects of Changes in Foreign Exchange Rates in the same category of the statement of profit or loss as the income and expenses from the items that gave rise to the foreign exchange differences, except when doing so would involve undue cost or effort. In cases that involve undue cost or effort, an entity classifies the foreign exchange differences on the item in the operating category. ↩

  39. Refer to UKEB Agenda Paper 8 IASB General Update (17 November 2022) paragraphs 49 and 51. ↩

  40. We are reproducing an extract of paragraph 85 in IASB Agenda Paper 21A (January 2023). ↩

  41. These topics are summarised in Appendix C of IASB Agenda Paper 21A (January 2023). ↩

  42. These reasons are mentioned in paragraph 15 of IASB Agenda Paper 21A (January 2023). ↩